Encouraging Sustainable Business

Sustainability, according to the Brundtland Report, entails “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”  Businesses can act sustainably by treading lightly on the planet, and by developing products, services, and technologies that contribute to larger societal efforts to live more sustainably.  The business literature describes this as focusing on the “triple bottom line”: how the company is doing financially, how the company is doing environmentally, and how the company is doing socially.  Thus, sustainable businesses are managed with an eye toward profit, people, and the planet.

If corporate law permits but does not require firms to act sustainably, how can we encourage corporations to be more sustainable?  Corporate law reform is one possibility, although I am skeptical whether either Congress or the Delaware legislature would force sustainability on corporations.  Tax incentives are more likely, and the forthcoming Senate climate change legislation may well include carbon taxes or a cap and trade system that would increase corporate attention to the environment.  The recent SEC guidance on climate change reporting likewise encourages, but does not force, corporations to act more sustainably, and while many companies currently voluntarily engage in triple bottom line reporting, I doubt the SEC would go there any time soon.

The market, for its part, seems to encourage sustainable business practices; energy and resource efficiency are two areas typically ripe for cutting costs, and consumers will often pay more for sustainable goods and services.  One interesting trend along these lines is private certification labels that highlight, for consumers mostly, firms’ sustainability commitments.  The B Corporation certification and mark is one popular example of this: a firm qualifies according to the organization’s sustainability survey, inserts sustainability language in its corporate charter, and pays a modest fee in exchange for use of the B Corporation mark.  (LEED building certifications and the Forest Stewardship Council offer similar examples, and I’ve developed a public law version for state legislatures to consider.)  We shall see whether this trend continues to catch on and what other innovations develop to encourage sustainable business.

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3 Responses

  1. A.J. Sutter says:

    Though many people would like to believe that “the market” encourages sustainability, there’s a deep fallacy in this way of thinking. The market expects growth. And the program of “sustainability” à la the Brundtland Report is growth. But growth is a problem.

    At the macro level, there isn’t yet any evidence that GDP can grow with an absolute decline in resource use. Some countries, e.g., in northern Europe, have achieved absolute declines in CO2 emissions despite growing GDP, but closer inspection reveals that they’ve achieved this through globalization: i.e., dirtier production processes have been offshored. Similarly, the relative increase in the GDP represented by services in many countries has not led to an absolute decline in resource use or pollution. The American Chemical Society journal Environmental Science & Technology is a good source for studies on these topics.

    At a micro level, the need for companies to grow also makes it difficult to achieve an absolute decline in both resource use and pollution (on a fully-internalized basis) with a “sustainability” mindset. E.g., an airline might use more fuel-efficient planes, and greatly reduce its CO2 emissions per flight. But if its business mission is to have perpetual growth in the number of passenger miles, then absolute reductions in fossil fuel use and GHG emissions are unlikely to be achieved.

    As for your reification of “the market”: Which one do you mean: “the” market for goods and services, or the stock market? According to the World Federation of Exchanges, the real-dollar volume of equity trading on the NYSE and NASDAQ has exceeded real US GDP every year since 1997. (By WFE statistics, this was by a factor of more than 5x in 2008.) In 2006-2008, total volume on world equity exchanges exceeded global real GDP (GK PPP method). Stock market expectations are that being profitable isn’t enough — profits must grow. At public companies, managerial compensation is also tied to fulfillment of this expectation. Even if consumers show a preference for “sustainable” goods and services in the real economy, the mission of management is exponential growth in the dollar value of goods and services sold. As long as financial markets are the dog and the real economy is the tail, absolute reductions in resource use and pollution will be impossible to achieve.

    “Sustainable” businesses may indeed be managed with an eye toward profit, people, and the planet. But it’s only a utopian myth in the service of status quo capitalism that this can lead to an absolute reduction in resource use and pollution. Decoupling from the pursuit of growth is the goal that wealthier countries and responsible companies should be seeking. From a legal point of view, building institutions that will facilitate more of our economy to be run by not-for-profit entities may be a step toward this goal. So will changes in the WTO agreements that make it easier for signatory countries to opt out in whole or in part (my own utopian dream).

  2. Joe says:

    Honestly, it’s money that talks. Even more loudly than public opinion or the coolness of going green.

  3. Judd Sneirson says:

    Thanks for your comments.

    Joe, money talks, to be sure; but green business practices tend to make money. The empirical research shows this (for CSR) and so do the anecdotes: fuel savings, better design, fewer and less toxic materials, and efficiency generally translate into savings and profit. And then, like you say, there is coolness–some consumers will pay more for green products and services because they are cool and/or make the buyer feel warm and fuzzy, and at least one study shows this holds for business to business transactions, too. The other point is that, while money talks, it is not everything. I think businesspeople, like most people, consider more than just money when they make decisions. Green businesses maybe take this a little further is all; they still want and need to make a profit, of course, but that is not all they aim for.

    A.J., I haven’t been focusing at the macro level. If your statistics and interpretation are correct then maybe we need to accept that carbon and pollution improvements have to come at the expense of GDP growth. Can we handle that? Can we handle the alternative? At the micro level, I meant in the post the market for goods and services. But I think a company’s success there should roughly translate to the stock market, as well. And isn’t the stock market more concerned with the growth of profits than the growth of sales volume or passenger miles or revenue? If we’re looking at profits, and green business practices often entail profits, then the stock market should support — and encourage — some absolute reductions in resource use and pollution.