New Corporate Balance Sheet
Twenty-first century businesses will prosper if they can solve the total cost equation by generating earnings that accumulate benefits to the full range of stakeholders including individuals, society, the natural world as well as employees and shareholders. Such earnings have a value that lasts beyond the production and consumption of goods by replenishing the society at large and have a positive impact on factors that matter most to individuals.
A new corporate sense of responsibility is emerging to account for the social and environmental costs incurred by the economic production function (For example, see Unilever’s “Sustainable Living Plan,” https://www.unilever.com/). Efforts have already been undertaken to estimate these costs, particularly in the energy sector, with concepts such a price on carbon-per-ton and cap-and-trade. These efforts will eventually be conceptualized in all areas of economic production and practical steps taken to include them in production costs. Companies will then carry these costs as an expense on their operating statements and an asset on their balance sheet.
Regulations will need to be developed to permit the timely use of these balance sheet assets by the company as investments internally or externally in renewable products, remediation of existing products, further recycling of products, payment of returnable product deposits and other stimulating community efforts to enhance the quality-of life of residents. Public companies might be required to set up a special trust security as a division of their company on public stock exchanges to employ these investments and make them available for public investment to strengthen the capital stock required for large scale innovative projects in the renewable sector.
Registered Community Investment Funds
Small companies and individuals can also be assessed this societal cost to be used for investment in similar renewable activity. Registered Community Investment Funds could be created to provide a vehicle for individuals and corporations to invest in recycling, renewable projects, and other designated worthy society enhancing projects. This fund would be structured from contributions (percent of annual corporate revenue and individual wages) and be used to make investments in these projects over a limited period of time. Contributions from corporations and individuals would be deductible in the annual tax returns of each. Shares held in these projects would hopefully bring additional returns to the individual and company. as well the concept of "flow through shares" in the taxing authority of some jurisdictions could be used to enhance investment in these renewable projects.
The effect of this new requirement on corporate balance sheets would allow a significantly larger investment by a society in positive renewable projects which in turn would result in increased capital deployment for entrepreneurial activity and job creation. Indeed certain jurisdictions might step forward and be recognized as a centre-of-excellence for deploying these investments. Of course the effect of carrying these costs in the operating statement, increases the manufactured cost of the current non-renewable products and would result in raising the price of these products to the consumer. This contributes to less consumption of these products and increased consumption of renewables. The overall benefit to society would be significantly enhanced by the advent of positive public opinion towards this structural change in corporate behavior.
Price on Carbon Vs. Carbon Tax
Base on this perspective, the current preoccupation with the imposition of a carbon tax on polluter companies in the energy sector would be redefined as a price on carbon administered by the energy company themselves. Public policy decisions respecting a price on carbon would be implemented by the corporation as a cost to their profit and loss statements and an asset on their balance sheet. These assets would be for the expressed purpose of investing in environmental and societal renewal. Such assets would (as in charitable organizations) be required by Central Revenue Agencies to be say seventy-five percent spent on approved projects within say a three year time frame from being added to the balance sheet.
A blue ribbon panel of independent individuals would be structured to determine a list of approved sectors and projects within each sector. Central Revenue Agencies would monitor companies balance sheets for legitimate investment activity as part of their annual financial tax regime. The hope would be that companies themselves would be the best able to create, structure and operate a purposeful investment which would enhance societies well-being. Individuals and small business could add to the capital pool of these worthy investments and all would receive an investment return much like a stock market return. The overall result would retain a growing environmental and societal premium within the national borders, growing sustainable economy and creating renewable jobs.
(c) 2020, Harry O'Connell