>> Thanks, bye bye. >> [MUSIC] >> I'm Adrian de Groot Ruiz, Director of True Price. So let's start by observing that the global economy is not sustainable. Production and consumption leads to so-called negative externalities, such as the emission of greenhouse gases, declining biodiversity, and underpayment. The key issue behind many of these problems are external costs or colloquially true costs. These are costs that are not factored into pricing so that those that contribute to these costs do not bear them themselves. These external costs are not paid by the manufacturer or the consumer that get the benefits of the product but instead by workers taxpayers and future generations. For instance, emitting greenhouse gases is still more or less free of charge for the producer, but future generations will bear the external costs through the effects of climate change. Another example is that underpayment of workers may lower the purchasing price to consumers, but the true cost of that are born by those workers in the value chain who must subsequently live in poverty. So if true costs are the problem, I believe that true prices are the solution. The true price is the sum of the market price and the true costs. The true price shows the internal and external cost of the production of a product. Now, an economy can only be sustainable if all relevant external costs are internalized and price paid is equal to the true price. It is as highly desirable that these external costs are internalized. The process of internalization entails the degree to which a public costs is a private costs. Three obstacles, however, prevent the internalization of external costs. First, lack of transparency, second, lack of remediation, and third, lack of incentives. Internalization can be implemented in three ways. First, providing transparency on the sustainability of products and services. Second, enabling a market for remediation of true costs. And third, creating a level playing field where government incentive stimulate the transformation of more sustainable products. Each of these enable internalization as organizations can pay for the actual costs or even better avoid them in the first place. Now, government intervention is the most well-known. So I would like to focus how market players can internalize externalities, and I would like to do that using two illustrations first. We can take DSM, a multinational focused on materials health and nutrition. DSM has created transparency by measuring and reporting their CO2 impact. Uing that, they've created their own incentives for internalization. By 2016 DSM introduced an internal carbon tax of 50 euros per tonne of carbon which is Incorporated in their decision-making. From 2016 to 2018 they've reduced their greenhouse gas footprint by 8%. And their goal is to realize a 30% reduction by 2030 relative to 2016. Another example is Tony's Chocolonely, that is a chocolate per user focused on transforming the chocolate sector by producing sustainable chocolate. In particular, they have as a mission to make their chocolate slave-free and make sure that the farmers that produced the cocoa earn sufficiently. In 2013, they calculated the external cost for the first time. And the result was that their actual cost per kilogram of chocolate were around 80 euros per kilogram. On the one hand, that much better than the 14 euros of external cost for the average chocolate source from Western Africa. On the other hand, it was not yet fully sustainable because it wasn't zero. So they've taken various steps over the years, including calculating the extra amount farmers would need to realize the living income. Better measuring and monitoring child and forced labor in their value chain and measuring their carbon footprint. Furthermore, later they started actually paying farmers extra so that they can receive what they need to earn a living income, and for that they increased the consumer price of their bars. Nonetheless, even though they increased the price, they've been very successful commercially, becoming the largest chocolate brand in the supermarkets by 2018. They also started to count for carbon and put that on their profit and loss. Now, as a result of their efforts, their external costs have reduced from 8 euros in 2013 to 4 euros 15 2018. Now, it should be noted that the sector as a whole has also improved but not so fast. These two examples show how businesses themselves can create transparency and incentives. And thereby enabling themselves and their stakeholders to internalize the externalities and realize more sustainable products. [MUSIC]
