Measurement and Evaluation: The Free Market Must Account for Environmental and Social Impact

Posted by Stanford Social Innovation Review (SSIR) on November 12, 2019

Companies, investors, and consumers need an expanded set of metrics that more broadly and accurately measure risk, return, and value. In addition, they need practices that support relevant data collection, management, and integration into strategy and decision making.

Since the formalization of standard accounting principles, businesses and investors have applied generally accepted methods to measure and understand value. This knowledge, in turn, contributes to optimizing the economic activity that creates value.

Yet traditional financial accounting tools fail to inform investors and businesses about the full nonfinancial effects—or even the full range of financial risks—that arise as a result of their activities. And these effects and risks are escalating. It is no accident that all is not well with the global economy. Consider a few examples: Eight individuals own as much wealth as the poorest 3.6 billion humans; 44 percent of Americans do not have enough savings to cover a $400 emergency; the United Nations estimates that the world may have as few as 60 agricultural harvests left because conventional farming methods strip soil fertility; and climate change poses threats across the spectrum of risk: agricultural, flooding, migration, supply chain disruption, and more.

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