Intermission

We will take a brief intermission from the topic of coal ports to examine the tangentially relevant issue: Environmental Impact Statements. We saw in the last post that indirect effects from a project like the Gateway Terminal occur on a global scale that cannot be truly captured in an EIS. Do other forces likewise limit the ability of an EIS include direct, local impacts?

It is entirely plausible that the contents of an EIS are influenced by economic considerations. Some factors may be lessened or left out simply because they’re “inconvenient” to consider. (A former professor of mine, Jean Melious, explains how this might happen.) Does the EPA itself fall prey to this mentality when jobs or economic well-being are at stake?  Let’s not talk about that just now....

Let’s talk instead about the statement of cash flows. This is a financial document stating how well a company is doing on a day-to-day basis, measured by its free cash flow. How do company biases figure in?  Is there an ethical conflict when the ones who benefit from an airbrushed portrait also prepare the statement?

Two statements potentially subject to "fudging". We may have encountered an issue here. The issue being that currently, environmental protection fits on the statement of cash flows – as an expenditure. Permitting, mitigation, the purchase of scrubbing equipment – all of these are presented as a burden.

Any company in their right mind wants to narrow the scope of the EIS, because otherwise they will be swamped in cleanup projects – having to restore baby seal habitat in exchange for building out a waterfront, for instance. (In 2004 the city of Bellingham took on the project of removing creosote-coated pilings in exchange for building a waterfront boardwalk. You might expect a waterfront boardwalk to have the positive environmental impact of bringing public awareness to the shoreline. Yet, as we see, the line between cost and benefit is a finely negotiated one.)

Rarely are the restrictions prescribed by an EIS viewed as an opportunity. Yet I have encountered some exceptions. A cohousing development across town uses their spare space to accommodate a living wetland, complete with orchard and creek. At some point I expect it occurred to them that providing open, undisturbed space would attract residents, perhaps even persuading them to pay more.

It brings to mind a Mastercard commercial:

Wetland restoration: $100,000

Park bench: $1000

Planet Earth: priceless.

The problem being that returns on “green investments” generally appear in guise after some time has lapsed, whereas the statement of cash flows demands, “Do you have enough cash to cover expenses now?” Knowing this, what environmental changes can be made that pay off before paying out? How could the statement of cash flows be altered to highlight the positive returns on these investments?

Bob Willard in The New Sustainability Advantage talks about several concrete ways in which this might happen. First is in decreased Cost of Goods Sold (COGS). What if a construction company uses 30% salvaged material? Labor costs may rise, yes. But consider that material purchases make up 50-80% of expenses for American manufacturing companies (Willard). And rising material costs have outpaced construction bids since 2004. An decrease in material costs will more than compensate an increase in labor.

What factors into a company’s COGS? Materials and labor. Take that down by even 10%, and you’ve achieved a 5-8% increase to the bottom line. This is your net income – the starting point for the statement of cash flows.

Divert half the immediate benefits from such a project into what Willard calls a Sustainability Capital Reserve, and you have the needed cash to carry out the next project. What if the statement of cash flows began with that positive bucket of cash carried over from last year’s sustainability initiative?

Compare the accumulated savings to the cost of lobbying against EPA measures, or paying lawsuits.

Being ahead of the curve: pretty near priceless.

P.S. It will be interesting to watch how a similar mentality plays out on a national scale abroad (see Norm Becker – "Merkel's Economic Advisers Oppose Increases in Spending"). Will expenditures on such items as support for stay-at-home moms cripple the German economy or bolster it?

Unfortunately the effects are going to be hard to measure. Perhaps the added income will induce more spending in new households. Perhaps it will reduce unemployment rates as young mothers are freed to take care of their children, leaving the labor force. Or perhaps it will induce households to earn less overall. It may place a disproportionate burden on single moms who need to work. Or single moms may quit their jobs in order to receive benefits, becoming dependent on state income.

If everything were as simple as the above example of a construction company & COGS, we would have a much better idea of where to put our investments. As it is, tracking cash flows back to their source is an art form at best, and even less clear when applied to the long-term cause & effect loops of sustainability.

Connecting the loops from past actions to present benefits may be the next worthwhile pursuit. We either have to change the language we use to talk about sustainability, or change the time-frame we use to examine the success of economic initiatives.