Research note: When “cheap” isn’t cheap

When “cheap” isn’t cheap: what profit hides

Note written by:

• PhD. Wafa Khlif, full professor at TBS Education.
• PhD. Lotfi Karou, professor at ISC Paris, France.

Have you ever asked yourself how a designed, cotton dress—grown, dyed, sewn, shipped, stocked, delivered—can cost €20? Or how a “well-treated” chicken—raised, transported, packaged, sometimes cooked—sells for €4? Is it only the “critical scale?”. If those prices feel magical, it’s because someone else is paying: the river, the soil, the worker, or your future self.

Should the conversation now shifts from feel-good ESG slogans to a harder question: what happens when we enter those costs into the ledger—and into strategy and governance? So the question is no longer whether to integrate externalities, but how—technically, politically, and fast enough to matter.

1) Counting what we chose not to see

If corporate governance is about creating and distributing value, why do we ignore the costs we push onto society and nature—and still call the remainder “profit”? Reframing profit this way forces a reckoning with the mechanics of value creation, and with who pays for what—now and later.

A century ago, accounting zeroed in on production costs—the biggest, easiest to measure. Today’s “marginals/indirects/discretionaries” (carbon, water, biodiversity loss, community health) are decisive, yet still sit at the edges of ledgers. Move beyond direct costs and power enters the calculus: proxies, culture and discretion decide what gets counted and how it’s allocated along supply chains. Without standards, omission masquerades as efficiency—and governance keeps optimising the invisible. Externalities seldom map to a single firm. In practice, responsibility is often a negotiated outcome. One industrial district case shows how lobbying can “share” clean-up costs across several companies so the worst polluter pays the least. Call it what it is: cost sharing as cost shifting. Without allocation rules that name power, accountability dissolves.

Empirically, the gap is vast. S&P Global and the Capitals Coalition estimate $8.1 trillion in unpriced environmental costs annually; more than half of large listed firms would destroy value once externalities are properly accounted for. That is not a “market imperfection”—it’s a systemic liability. The takeaway is not a single “true price,” but plural metrics—targeted monetisation where credible, alongside physical indicators and qualitative evidence—to guide real decisions.

2) Who pays, who escapes: the politics of allocation and the opaque money trail

Externalities rarely map to a single firm; responsibility is negotiated as much as calculated, so often, the worst polluter paid the least. Cost sharing became cost shifting because power, not causation, set the bill. This is why allocation rules that name power are as crucial as measurement rules. Meanwhile, citizens can’t follow their capital. Layers of financial intermediaries separate pension contributions from end investments, making “responsible finance” hard to verify and easy to market. ESG labels proliferate even as studies show weak rating consensus and thin links to environmental outcomes. Transparency across the chain of custody—and credible standards for what counts—are preconditions for finance to serve real-economy transformation rather than rebrand business-as-usual.

There’s also a price reckoning. Low consumer prices have long been celebrated as anti-inflationary, but the bargain was subsidised by the biosphere and precarious labour. Internalising externalities will lift some prices; that isn’t failure, it’s paying reality’s bill. Competition policy will have to evolve beyond a reflex for the “lowest price” toward durability, repairability and resilience.

3) Europe’s edge: rules with teeth, boards with range

Europe has built the world’s most advanced scaffolding for making the invisible visible—CSRD (double materiality), the Green Taxonomy, and CBAM at the border. These tools begin to align firm-level reporting, capital allocation and trade with planetary limits. They’re not silver bullets: complexity can entrench incumbents, price signals can be volatile and partial, and border measures face geopolitical blowback. But the direction is right—provided rule-making resists “soft capture” and keeps widening coverage from carbon to nature and social harms.

Inside the firm, the decisive lever is governance competence. Directors need to read double materiality, biodiversity risk and supply-chain exposure—not as ESG décor, but as core to strategy, investment and pay. Multi-capital accounting (from Environmental P&L to CARE) helps by treating key ecological and social stocks as non-substitutable, with monetisation used where robust and complemented by hard physical metrics. The point isn’t to worship a single number but to support better judgment, faster.

Hope again?

Profit that ignores its premises is a fiction with consequences. Europe can turn rules and capital into competitive realism—if it keeps tightening standards, clarifying allocation so responsibility tracks causation (not clout), and training boards to act on what the numbers can’t fully capture. The bill has arrived. The only question is whether we finally put it in the accounts—or keep pretending “cheap” is a bargain.