Earth Overshoot Day: managing our ecological budget

Many of us are used to managing a budget, whether in our personal lives or at work; we pay careful attention to ensure expenses do not exceed the funds allocated. How can we do this for the world we live in, for the sake of future generations? 

Earth Overshoot Day
Siobhan Archer, Sustainable Investing Specialist

Many of us are used to managing a budget, whether in our personal lives or at work; we pay careful attention to ensure expenses do not exceed the funds allocated. We set expectations, plan accordingly, decide which areas can be sacrificed and review periodically.

Similarly, the earth has an annual budget of natural resources which can be used by humans before the regeneration rate is overcome and these resources are depleted. The regeneration rate is the rate at which the earth can reproduce the resources used. In 2022, this day was calculated by the Global Footprint Network to be Thursday 28th July, just past the half-year mark and two days earlier than we hit the milestone last year. Worryingly, this trend of over exploiting our resources has accelerated hugely since it first began being tracked in 1971, where we would only hit our overshoot on the 25th of December.

National overshoot days

Different countries have different overshoot days, depending on their population size and levels of consumption. This year, in the United Kingdom, we hit our overconsumption target on 17th May, whereas Ecuador won’t overshoot until 6th December. The worst nations in terms of natural resource depletion are Qatar, which ran out of resources on 10th February, Luxembourg, on 14th February, and – in joint third position – Canada, United Arab Emirates and the USA, on 13th March.


The free rider problem

Ask any economist, and they will tell you that Earth Overshoot Day is a direct manifestation of the free rider problem experienced through market failures when services do not have a price.  

In 1968, biologist Garrett Hardin wrote an academic paper titled "The Tragedy of the Commons", which later became a foundational text in the field of environmental economics, describing the problem of shared land being overgrazed by sheep. Hardin’s example of greedy sheep grazing a publicly held good serves as a metaphor for humans accessing free resources at the expense of other individuals. The Tragedy of the Commons assumes that all humans will act in self-interest and therefore create harmful overconsumption and eventually depletion of common resources. This is now clearly demonstrated through the sad realisation that in 2022 we need 1.75 Earths to satisfy human consumption.

How do we tackle overconsumption?

Many would argue that not pricing environmental goods like forests, rivers and the atmosphere is a market failure, and that correction is the only course of action. Whilst environmental valuation (the act of assigning a monetary value to environmental impacts) would offer a concrete solution, it is in fact quite difficult to measure the services natural capital provides us with and, in turn, deciding who should pay for them. Natural capital valuation is growing in popularity and sophistication, with carbon offsets from forestry being a very good example, and an area we are closely monitoring.

From a company perspective, internalising the cost of nature should be a vital component of the bottom line, and something we consider a competitive advantage in sustainable companies. As regulation comes in to start controlling the free rider effect, companies who value the role of natural capital and account for the cost of environmental services are better prepared to deal with increased costs, and therefore earnings and revenues are less impacted.

With new regulation in the EU looking to tax high carbon activities (such as manufacturing and plastic pollution) at borders to stop the offshoring of unsustainable production, we see companies with strong ESG credentials better positioned to adapt and incorporate the changes with little cost to shareholders.

From a consumer lens, the main thing we can do is to consume less and more thoughtfully. Whilst a lot of the onus sits with businesses in terms of making processes and products more sustainable and less harmful to the environment, as consumers we can make small changes and still have large impacts.

Earth Overshoot Day provides us all with an important moment to reflect on our actions and be more mindful consumers. Read more about our commitment to a sustainable future here.   

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