Corporate sustainability is broken, and it becomes ever more difficult to pretend otherwise. The perpetually upbeat messages about our progress in corporate greening ring increasingly hollow against the backdrop of a rapidly deteriorating planet. The gap between the corporate sustainability rhetoric and the state of the environment, and the cognitive dissonance this creates, is growing with every new catastrophic flood, fire, heatwave, or species collapse.
A bit more than four years ago I decided to get to the bottom of this contradiction and turn my findings into a book, The Business of Less: The Role of Companies and Households on a Planet in Peril. Its structure started falling into place once I embraced the fact that I fundamentally disagree with two of the central tenets of the corporate sustainability gospel. One is the assertion that we can achieve sustainability merely by focusing on reducing the environmental impact per product or service. This is called “eco-efficiency.” The second one is the belief that the prospect of increased revenues or profits is, and should be, the sole motive behind corporate environmental efforts. This is called “win-win,” or “double-dividends.” The first part of this book is a careful examination of these paradigms and their fundamental problems.
The second part of the book introduces a set of principles and strategies that will enable us finally to reconcile business and environmental sustainability. When I wrote this section I soon realized that one cannot truly explore the lack of sustainability in our current production systems without thinking about the unsustainable ways in which we all currently consume. As a result, I ended up writing a book that is as relevant for households as it is for businesses. With this in mind, I have also ended the book with two summary chapters, one for businesses and one for households. The excerpt below is from the second to last chapter, which summarizes the book from a business perspective.—Roland Geyer
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Net Green for Business
What is the role of business? I think it is fair to say that Milton Friedman’s (in)famous statement from 1970, “the social responsibility of business is to increase its profits,” is falling out of favor. So is its modern-day variant, which states that the sole responsibility of business is to its shareholders, and that shareholders demand that profits be maximized.
One definition that I really like, due to its simplicity and lack of normative judgement, is this: “The fundamental role of business has remained relatively constant: providing the goods and services that people need or want.” This definition was written in 2014 by Yvan Allaire as Chair of the Global Agenda Council on the Role of Business. Allaire then goes on to advocate for a return to the view that companies have responsibilities to all its stakeholders, not just its shareholders. The term stakeholders is used here in the broadest possible sense. It includes customers, employees, supply chain partners, society as a whole, and even the natural environment.
Allaire is not alone in this view, but part of a larger movement. I mentioned in Chapter 5 that the Business Roundtable, an association of American CEOs, officially changed its definition of the purpose of a company in August 2019. It was a very visible and official move away from shareholder primacy and towards corporate responsibility to all stakeholders. The new statement explicitly mentions fairly compensating employees, dealing fairly and ethically with suppliers, and protecting the environment. Unless this is pure lip service, I seem to be much closer aligned with America’s CEOs than I imagined.
The movement away from shareholder primacy has even reached the legal realm. Since 2010, U.S. businesses can incorporate as a so-called benefit corporation. This legal structure turns the pursuit of social and environmental goals, in addition to financial ones, into legally defined and defensible objectives of the company. In addition to this legal structure, companies can also join the third-party B Corp Certification program, which assesses the progress towards their social and environmental goals every year. In late 2020, over 3,600 businesses were certified B Corps.
The apparel company Patagonia has been a certified B Corp since 2011, but you may not be surprised to hear that their stated purpose now goes quite a bit further than adding a few social and environmental goals. In 2018, Patagonia changed its mission statement from “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis” to “We’re in business to save our home planet.” Asked for the reason behind this change, founder Yvon Chouinard said this: “It’s because we’re destroying the planet, and it’s gotten so dire that we have to do something about it.”
So, if the fundamental role of business is to provide the goods and services that people need or want, what is the role of business on a planet in peril? My answer in Chapter 6 was this: To provide for everyone while dramatically reducing the environmental impact of doing so. This is the essence of the business of less.
As you know from previous chapters, after decades of conflict between industry and environmentalists, the 1992 Earth Summit firmly established the view that business could and should play an active role in the pursuit of sustainability. However, back then it was still unthinkable to question the corporate gospel of shareholder primacy and profit maximization. The resulting challenge was therefore how to reconcile it with the United Nations’ urgent call for environmental impact reduction. The Business Council for Sustainable Development was explicitly established to explore how this could be achieved and did not take long to settle on eco-efficiency and win-win as the main tools.
Eco-efficiency assures us that we can significantly reduce environmental impact while continuing to pursue economic growth. Win-win asserts that environmental impact reduction is very much compatible with profit maximization. Taken together this conveniently meant that there was no need to question either economic growth or profit maximization. Eco-efficiency and win-win had now nearly thirty years to proof themselves, and I spent a significant part of this book to illustrate how they have failed us. I proposed in Chapter 6 that we discard them as our guiding principles for corporate sustainability. Just focusing on reducing the environmental impact per unit output without questioning the type and quantity of output will not take us off our unsustainable path. To finally get off this path, we also have to stop telling ourselves that businesses will never have to make trade-offs between serious environmental impact reduction and profit maximization.
Just to be clear: I am not saying that reducing the environmental impact of a given output is useless. I am saying that, for all the reasons given in Chapters 4 and 9, eco-efficiency has fallen far short of what we have to achieve and will continue to do so. I am also not demanding that businesses cease to make a profit. Profit is the income of the business owners and thus necessary, of course. Unless the owners are independently wealthy, that is. It is the constant conflation of making a profit and maximizing it that is the problem. In addition, we have to stop insisting that environmental impact reduction needs to piggyback on the profit motive and cannot be a business goal in its own right. It can be, even legally now, and it must be, since our planet’s future depends on it.
In 1999, business strategy scholar Forest Reinhardt famously said that managers should look at environmental problems as business issues, that is, purely through the lenses of profits and shareholder value. After twenty years of chafing against this statement I officially and publicly disagree. The motivation for the pursuit of environmental issues should be the environmental issue itself, not the prospect of increased profitability. Equally important, however, is a commitment to dramatically reduce environmental impact, not just to slow its growth. Therefore, out with eco-efficiency and win-win, and in with net green.
The net green concept is explicitly defined to avoid those two pitfalls. It refocuses attention on environmental sustainability as a goal in its own right. Hence the word green. It also emphasizes that the goal is absolute, not relative impact reduction. Hence the word net. To determine whether a business activity, such as changing an existing product or launching a new service, is net green, all significant environmental implications need to be identified and assessed. This is the net green analysis introduced in Chapter 6 and illustrated with the car sharing case study. Whether done quantitatively or qualitatively, in great detail or on the back of an envelope, the most important job of a net green analysis is to not leave anything significant out, even if it is marred by uncertainty. The key questions it asks are these: What will the net environmental consequences of this business activity be, and how uncertain are they?
I dedicated the entire previous chapter to labor as a net green strategy due to its high certainty of net environmental benefits. Labor is the one production input with no environmental impact. Substituting any material or energy input with labor will therefore always be net green. Thanks to the reverse rebound effect, adding labor is always net green, even if it does not displace any material or energy inputs. That way a store-bought sandwich containing $2 worth of ingredients and $6 worth of labor becomes greener than making that same sandwich by yourself. In fact, any labor-based business model is net green, since it helps to redirect household spending away from stuff and towards low- or zero-impact services. I would thus argue that haircuts, music lessons, exercise classes, and massages are greener than “green” products, even though none of these services tend to feature in the business sustainability literature. The basic mistake behind this omission is that the literature focuses entirely on finding equivalent but lower-impact substitutes for high-impact products or services. However, households don’t simply choose between alternative products offering equivalent services. All discretionary household spending could go to wildly different product and service categories. The choice could, for example, be between a restaurant visit and an electronic gadget. Therefore, every dollar spent on haircuts, music lessons, exercise classes, and massages cannot be spent on environmentally impactful stuff and is thus net green. In fact, the greenest economy of all would be one in which we just pay each other for our time rather than making and selling stuff to each other. This would be after we have taken care of our material needs, of course.
Another key net green strategy for businesses is the willingness to examine and change their business models. For too many businesses, corporate sustainability means trying to lower the environmental impact of their products and services without ever questioning the fundamental suitability of these products and services. Not only does such an attitude severely limit the opportunities for meaningful net green activities; on a planet in peril it can even backfire economically. Volkswagen comes to mind here. Until very recently, Volkswagen and the rest of the German car industry were determined to stick to internal combustion vehicles, while attempting to make them greener. As a result, Volkswagen not only (almost) missed the electro-mobility revolution, but also caused the major emission cheating scandal known as “Dieselgate.”
Exxon Mobil may become another example. While Exxon Mobil has considerable in-house life cycle assessment expertise, it is completely committed to fossil fuels and so far made no attempts to diversify its energy portfolio. Right now it looks like the renewable energy transition will take place without them. In 2020, fossil fuel consumption declined for the first time in modern history, while wind and solar power officially became the cheapest source of electricity. In 2020, Exxon Mobil not only had losses of $22 billion, but also lost a third of its share price and its membership of the Dow Jones Industrial Average.
Chapter 9 taught us that primary aluminum production has reached a level of efficiency that makes further impact reductions very challenging. This is more or less true for all materials. Nevertheless, all primary material industries are sticking to their business model of producing and selling ever increasing amounts of material. This is as unsustainable as internal combustion engines and fossil fuels. But just like many in the car and fossil fuel industries keep throwing around terms like “clean coal” and “clean diesel”, many primary material producers started to promise carbon-neutral materials. Net green analyses would show that none of this would be possible on a global level. To begin with, the renewable energy and biomass requirements would be completely overwhelming. Environmental sustainability will remain a pipe dream until all industries, including material producers, start to rethink their business models. Rather promising materials that have no environmental impact, producers need to find ways to decouple their revenues from virgin material output.
Now, all business activities, even environmentally motivated ones, are virtually guaranteed to generate their own environmental impacts. Two things need to happen for a business activity to be net green: First, they need to also lead to environmental impact reductions. This can potentially happen anywhere; within the boundaries of the business, in its supply chain, or somewhere else entirely. Second, these impact reductions need to be significantly larger than the generated impacts. To be able to judge the greenness of a business activity, all significant increases and reductions therefore need to be identified and assessed. Some will be easy to quantify with high certainty. Others might be potentially large, but very uncertain. The second type of impacts are just as important as the first ones. Ignoring them would make life easier, but would not help businesses become more sustainable.