One would think that COVID-19 would heighten people’s environmental sensibilities and cause businesses to double down on efforts toward environmental sustainability. Not so – the health crisis has instead created the opposite effect. Worried about their survival, businesses are undertaking extensive cost cuts, and sustainability programs are usually among the first to get axed.
This is not new. The 9/11 economic shock slowed the Corporate Social Responsibility (CSR) movement in its early days. The subsequent financial shock of 2008 again sent the corporations in ‘survival’ mode. “Spending on community and philanthropic programs and internal capacity building dropped,” according to Paul Pellizzari quoted in a WSJ article on May 2.
This highlights a fundamental problem: sustainability is expensive.
Businesses are members of society and their actions should reflect the sentiments of the society. But their survival and profit motives often trump other objectives, especially during lean times. So, they go back to prevalent modes of production and consumption that are cheaper, albeit hurtful to the environment. We can’t entirely blame them. The fact is that environmentally superior alternatives are not always available, and when they are, they are usually financially burdensome.
Wouldn’t it be great if sustainable solutions were also more affordable? Clearly, that which is unaffordable is also unsustainable in the long run.
It is a sad fact that the global impact standards largely ignore the question of ‘affordability’. The United Nations PRI and SDG, B-Corp, GIIRS, or even proprietary measures developed and imposed by organizations such as BlackRock readily give high marks to organizations that allocate greater resources toward impact. They can coerce or shame slow movers, but do very little to encourage corporations to innovate and find affordable pathways to environmental sustainability. Thus, they perpetuate the chronic shortage of viable solutions to move our society toward sustainability.
These standards lay out relatively simple pathways for corporations trying to earn the moniker of “impact” or “sustainability”. A factory can improve its ESG index by hiring under-represented minorities and training them. It can improve its environmental score by installing solar panels, switching to energy efficient LED lights, reducing plastic consumption, or recycling more waste. These actions are positive but clearly not adequate.
It is not enough to build ever more wind and solar farms. In addition, we need fundamental transformation of all economic activities to maximize not only financial profits but also social and environmental profits. To get there, we need a whole lot more entrepreneurs, researchers and investors working to invent superior technologies that would eventually replace today’s outmoded practices in agriculture, manufacturing, energy, transportation, retail, housing, infrastructure, etc.
We want a wider array of superior environmental solutions that are also more affordable. When that happens, businesses will not be forced to choose between profit and purpose. Both would be intertwined.
There must be a clarion call for innovation – a measure largely ignored by today’s impact organizations. We need to identify, empower and reward innovators, entrepreneurs and investors who are dedicated to devising superior paths to a healthier and cleaner future. Clubbing these trailblazers with thousands of so-called ‘impact’ and ‘sustainable’ businesses disrespects them.
It also makes it hard for the trailblazers to attract capital and attention. They are drowning in the clutter and noise created by the surging impact crowds. There is a bigger irony here. These young innovative companies often bear lower ESG scores than traditional heavyweight counterparts because they have less money to spend on social and community upliftment programs that are trumpeted by the impact crowd. They earn no extra points for their perilous and risky efforts to carve a new path of progress.
I’ll make an urgent appeal to the policy arbiters of the world. It does not matter who takes the lead between the United Nations, the Global Economic Forum, or one of the International Development Agencies or asset managers. An influential body needs to define a new category to identify and promote the true ‘impact’ leaders – those lighting the path forward by innovating solutions that are impactful as well as profitable.
Until we eliminate the fundamental dichotomy between the good and the profitable, sustainability will remain a luxury – useful in good times, but highly disposable during rough times.
by Praveen Sahay