The Private Sector Push for Environmental Sustainability
Having began my skilled profession within the U.S. EPA, I even have at all times assumed the reassurance of environmental protection, like national security, to be a function of presidency. I considered the concept of corporate social responsibility to be an oxymoron. I suppose I still do. The goals of personal corporations are to generate profit, return on equity, and market share. These are necessary goals, and inspiring them together with private initiative has helped generate wealth and well-being for billions of individuals. Corporations aren’t designed to be instruments of altruism. Government’s role is to be sure that private sector goals are achieved legally and without harming employees, the planet, or the general public. How then can we explain the clear and obvious private sector push for environmental sustainability? The reply is easy. The private sector has in the end found out that profitability, return on equity, and increasing market share requires that corporations listen to the risks posed by the natural environment, their impact on environmental quality, and their parsimonious use of increasingly scarce finite resources. The private sector isn’t pushing environmental sustainability as a consequence of altruism or ideology but because there may be money to be made.
Conservative analysts imagine that the SEC’s proposed rule on climate disclosure is a few kind of woke, politically correct fever dream. Nonsense. Take a look at the state of Florida today, and also you see the financial impact of climate-accelerated extreme weather. Extreme weather creates incredible destruction and due to this fact poses a financial risk, but reconstruction also provides economic opportunity. Any investor taking a look at an organization’s risk profile would need to know the corporate’s carbon footprint and exposure to the impact of climate change. Investors need carbon disclosure since it is apparent to any sane analyst that decarbonization is the wave of the longer term. An organization that wastes energy or isn’t analyzing the regulatory environment stimulated by climate change is, by definition, poorly managed. Furthermore, renewable energy is already inexpensive than fossil fuels, and shortly it’ll be more reliable and convenient as well. An organization that isn’t working to scale back its use of fossil fuels isn’t serious about cost containment or efficiency. The pressure for climate disclosure is coming from the identical individuals who want transparent and audited financial disclosure: careful investors.
Well-managed, forward-looking corporations and communities don’t need government rules and incentives to persuade them to work for environmental sustainability, but then not all corporations are well-managed or forward-looking. Neither are states and communities. That’s the reason we want rules, regulations, and public policy—to push along those who need pushing and punish those that violate the law. But still, it’s remarkable what number of corporations are reading the handwriting on the wall and know that we’re heading to a fossil fuel-free future. The perfect example of that is within the motorcar industry. This past summer, California announced it could ban the sale of the inner combustion engine in 2035. General Motors also announced it could only sell electric vehicles starting in 2035. It’s surprising, but not a coincidence.
Electric vehicles are removed from perfect in environmental terms, but they’re an enormous improvement over fossil-fuel-based vehicles. In an interview with GM’s sustainability chief Kristen Siemen, Wall Street Journal reporter Dieter Holger observed that:
“Electric vehicles hold the promise of driving down greenhouse-gas emissions in transportation, which the United Nations says accounts for around 1 / 4 of energy-related emissions. A 2022 study from the University of Michigan said that for sedans, SUVs and pickup trucks, battery-electric vehicles have about 64% lower greenhouse-gas emissions over their life cycle than internal-combustion-engine vehicles on average across the U.S. People may find yourself healthier due to fewer tailpipe emissions. Within the U.S., transitioning to 100% sales of zero-emission vehicles and 100% noncombustion electricity generation over the following 30 years could create greater than $1.2 trillion in health advantages, in keeping with the American Lung Association. Still, electric cars are not any silver bullet. Nearly 10% of the world’s cars were electric in 2021, in keeping with the International Energy Agency, and the number is predicted to maintain going up. The rise of EVs demands more mining of critical metals which may harm the environment and electricity that continues to be largely depending on fossil fuels.”
What’s most striking concerning the interview with Siemen is how thoroughly and substantively GM understands and is working to scale back the environmental impact of its electric vehicles. GM’s interest in environmental sustainability isn’t limited to EVs. In response to a matter concerning the company’s sustainability initiatives in a roundabout way related to EVs, Siemen responded:
“A few of the other things we work on are energy-efficiency projects, water efficiency, waste reduction—all of those things aren’t just good for the environment but they’re good for the business. Any time you employ less, it’s a positive. We have now been working in that space for a very long time. Those were a number of the earliest sustainability goals that we had set as an organization around water, energy, efficiency, the renewable-energy goal, our waste goals—those are almost to the purpose where we want to place some latest ones on the market because we’ve done a lot great work in those spaces.”
Competent corporate management requires effective environmental sustainability management. Pollution is waste, and waste costs money. Furthermore, in an increasingly crowded planet, waste disposal has develop into expensive, and disposing of your waste in a way that harms your neighbor could find yourself costing a polluting company billions of dollars. There are scores of examples of corporations which have learned the hard way: from the billion dollars that General Electric paid to scrub up PCBs within the Hudson River to the various billions BP paid after their disastrous spill within the Gulf of Mexico to VW’s painful lesson once they lied about emissions from their vehicles, losing billions in penalties, lower sales, and lost equity.
It’s true that corporations hoping to draw brainpower have to have the ability to defend their impact on the planet when recruiting talent. Many individuals working in private corporations wish to breathe healthy air and hope their children will inherit a planet that’s habitable. They’re drawn to a well-managed, environmentally-conscious company. Similarly, corporations which can be hospitable to a various workforce may have a bigger and, due to this fact, more talented labor pool to attract on, and firms which have good relations with their neighbors may have a greater probability of generating community support should they need to expand.
But one could argue that these longer-term considerations sometimes take a back seat to the immediate need for profit, return on equity, and market share. That is definitely true, and that’s the reason government must create a regulatory floor below which corporations cannot sink. I’d never argue against maintaining and enforcing environmental standards, but I’m impressed as of late by the number of personal, nonprofit, and governmental organizations promoting environmental sustainability.
Over 90% of Standard and Poor’s top 500 corporations now produce annual sustainability reports. In response to the Governance and Accountability Institute, an ESG (environmental, social, and governance) consulting firm, whose:
“… annual research series began nine years ago with the evaluation of sustainability reporting activities for publication yr 2011, after we found nearly 20% of the S&P 500 corporations were publishing a sustainability report. G&A has found the quantity of reporting has steadily increased every year since 2011 and the contents of the reports dramatically expanded over time. By 2012, greater than half (53%) of the businesses were publishing reports. That percentage grew to 75% by 2014 and to 86% by 2018.”
A few of this reporting is clearly greenwashing, but it surely is a sign of a growing trend in private-sector management. When the SEC finalizes its climate disclosure requirements, every publicly traded corporation shall be reporting its climate risk and carbon footprint, and these disclosures will help steer capital toward more environmentally sound corporations.
Constructing the organizational capability to measure, analyze, and report an organization’s environmental impact is a needed but not sufficient condition to scale back that impact. The subsequent step is to construct the capability to scale back impact through changes in work processes and/or technologies. General Motors, together with many other manufacturers and repair organizations, are constructing these capacities. These operational changes will make it possible for us to grow our economy while reducing our impact on the planet that sustains us. That is how environmental sustainability will move from refer to operational reality: from words to deeds.