The Tragedy of Commons in a Modern World
"If you do not change direction, you may end up where you are heading." Lao Tzu
Conference season has arrived. For those of you attending NAA’s Apartmentalize this week, there are many educational sessions that allow for a refinement of our industry knowledge and the development of our skillset. For me, it also leads me to a foundational discussion from my Business Sustainability MBA program. That discussion centered around why it is important for all of us, businesses and individuals, to be aware of our impact.
To get academic for just a moment, in 1833, British writer William Forster Lloyd conceptualized the economic theory of the Tragedy of Commons. Understanding this theory helps explain why regulations exist and why they are increasing when it comes to environmental protections.
If you are not familiar, the Tragedy of Commons theory explains that as individuals, we tend to make decisions in our own best interests regardless of the negative impacts they may have on others. This same theory can be applied to businesses as well.
To put this in personal terms, for those who reside in areas with water access challenges, when the local jurisdiction issues water regulations restricting what days or times you are allowed to water your lawn or wash your car - how often do you see individuals ignoring the restriction? Do you follow the reduced use guidelines?
The answer may lie in the question, what is everyone else doing? When we see others abiding by the restrictions, we tend to follow suit. But it most likely took regulation to get the majority of people to reduce their water consumption. If left to individual personal or business decisions, without the regulation, we tend to do what impacts us or our organization instead of what impacts others, which is exactly what the Tragedy of Commons describes.
This theory is often applied to sustainable development as our natural resources are often impacted when we do not consider the impacts of our actions. From pollution and deforestation to social justice and climate change, we have example after example of a failure to consider the larger consequences impacting the communities in which we live, work, and play.
As our level of awareness around these consequences increases, the awareness of the causes also increases. Pressure builds from both internal stakeholders and external stakeholders to avoid the risk of being the focal point of that pressure. Reputational risks can lead to consumer rejection of a brand, and investors may see investment as too risky. Likewise, public pressure on elected officials leads to the passing of regulations intended to force consideration of the consequences, as illustrated in my water example above.
For organizations preventing, mitigating, and developing strategies to reduce this risk are becoming increasingly important. The result is sustainability programs that emphasize identifying risks and opportunities and report the impact of those strategies in dealing with those risks.
For the modern organization, the term investment has taken on additional meaning. It is no longer merely a financial return that investors are seeking. Blackrock, Pension Funds, and other investors have increasingly sought additional non-financial impacts of their investment as well. That non-financial investment is centered around the organization's governance, social impacts, and environmental (ESG) impacts. In short, is the target of the investment considering all of the impacts of their operation - are they considering the Tragedy of the Commons, and are they at risk of being impacted by the Tragedy of the Commons.
One of the mechanisms society has to resolve the Tragedy of Commons is government regulation. By regulating the common resource being exploited, regulations can be designed to prevent overuse or overconsumption. This was the thesis of the passage of the Clean Air Act (1970) and the Clean Air Act (1972), amongst many other environmental regulations.
With the increased exposure of the root causes of pollution and climate change, regulation has also increased to reduce the impacts. This has included energy, carbon, and water impact reporting laws which require property owners to report how much energy, carbon, and water they are responsible for. The State of Washington will be expanding reporting requirements soon, and we just observed Colorado also pass state-wide requirements. We have also witnessed performance regulations coming into play, which require not only reporting but also reducing against a benchmark.
More than ever, it is increasingly important to develop a strategy to stay in front of the increasing regulations and investor pressures around ESG. This includes having visibility into your carbon, energy, water, and waste consumption. Tracking is no longer enough; you must understand where your opportunities are to reduce consumption and mitigate the impacts where you can.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness, and we succeed with teamwork.
Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry reduce energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience, we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. To get there, we must build relationships within our organizations and outside of our organizations building the critical mass needed to truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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