10  Why Value Value?
potential regulatory changes, they would modify their investment strategies 
accordingly; they might not want to open new mines, for example.
With perfect knowledge a decade or even five years ago, a coal company 
could have reduced production dramatically or even closed mines in accor-
dance with the decline in demand from U.S. coal-fired power plants. But per-
fect information is a scarce resource indeed, sometimes even in hindsight, and 
the timing of production changes and, especially, mine closures, would in-
evitably be abrupt. Further, closures would result in significant consequences 
even if the choice is the “right” one.
In the case of mine closures, not only would the company’s shareholders 
lose their entire investment, but so would its bondholders, who are often pen-
sion funds. All the company’s employees would be out of work, with mag-
nifying effects on the entire local community. Second-order effects would be 
unpredictable. Without concerted action among all coal producers, another 
supplier could step up to meet demand. Even with concerted action, power 
plants might be unable to produce electricity, idling workers and causing 
electricity shortages that undermine the economy. What objective criteria 
would any individual company use to weigh the economic and environmen-
tal trade-offs of such decisions—whether they’re privileging shareholders or 
stakeholders?
That’s not to say that business leaders should just dismiss externalities 
as unsolvable or a problem to solve on a distant day. Putting off such critical 
decisions is the essence of short-termism. With respect to the climate, some 
of the world’s largest energy companies, including BP and Shell, are taking 
bold measures right now toward carbon reduction, including tying executive 
compensation to emissions targets.
Still, the obvious complexity of striving to manage global threats like cli-
mate change that affect so many people, now and in the future, places bigger 
demands on governments. Trading off different economic interests and time 
horizons is precisely what people charge their governments to do. In the case 
of climate change, governments can create regulations and tax and other incen-
tives that encourage migration away from polluting sources of energy. Ideally, 
such approaches would work in harmony with market-oriented approaches, 
allowing creative destruction to replace aging technologies and systems with 
cleaner and more efficient sources of power. Failure by governments to price 
or control the impact of externalities will lead to a misallocation of resources 
that can stress and divide shareholders and other stakeholders alike.
Institutional investors such as pension funds, as stewards of the millions of 
men and women whose financial futures are often at stake, can play a critical 
supporting role. Already, longer-term investors concerned with environmen-
tal issues such as carbon emissions, water scarcity, and land degradation are 
connecting value and long-term sustainability. In 2014, heirs to the Rockefeller 
Standard Oil fortune decided to join Stanford University’s board of trustees in 
a campaign to divest shares in coal and other fossil fuel companies.