Nevertheless, the impetus for addressing environmental, social, and governance (ESG) issues, as depicted within the UN’s Sustainability Goals, is proving itself to be a global mandate for firms of all types. This is worrisome given the limited understanding of long-term implications or even proper forms of their application.
Warren Buffet, renowned investor and philanthropist, has even had reservations regarding ESG standards and just this week he opposed proposals for annual reports on climate change and diversity initiatives. His stance is running counter to Wall Street’s expectations given the growing attractiveness of investing in sustainable ventures.
The Sustainability Accounting Standards Board (SASB) and the World Economic Forum (WEF) support efforts for establishing “a globally accepted system for corporate disclosure” to report ESG information in addition to financial performance. The WEF attests that businesses are adjusting strategies according to environmental and social factors at a remarkable pace, and pressure for urgent action is mounting as the espoused ethos of the Great Reset promulgates and the setbacks from the pandemic unveil sustainability shortcomings.
The implementation of ESG metrics and the adoption of new tools for combating global challenges sounds admirable, but it is important to note that what benefits the planet and what benefits people rarely align in perfect harmony.
For instance, a community impact initiative that benefits the livelihoods of people (such as investing in irrigation systems for improving food security) could have an adverse environmental impact (disrupting the natural state of the water cycle). And it goes without saying that any initiative has an economic impact and so consideration must be given to resource constraints and opportunity costs.
Infamously, Patagonia’s Black Friday New York Times advertisement of “Don’t Buy this Jacket” perfectly highlighted the ethical dilemma of production practices by demonstrating the equifinality of a firm’s environmental impact.
Humanity is inherently disruptive to nature, and nature is usually not conducive to human flourishing without adjustments being made. To stay warm, cool, and safe is a primary concern for those without modern luxuries. And yet, human-centered approaches to living on this planet can be positioned as unethical practices for Mother Earth (see the Green New Deal).
Given this complexity, firms should adhere to Buffett’s advice, featured within the Financial Times, on “why companies cannot be moral arbiters” and heed his view of ESG spending as being a contestable use of the shareholder’s money.
Advancements in infrastructure and agriculture have propelled human progress to the detriment of biodiversity, and environmental concerns continue to attract academic alarmists—and crises callers never quit. In the 1970s, focus centered on global cooling and reigning in overpopulation (prompting repressive policies for both resource use and reproduction). Today, global warming is center stage and the decline in birthrates is raising concerns due to the costs associated with such trends.
“Humanity is not on an irrevocable path to ecological suicide. As the world gets richer and more tech-savvy, it dematerializes, decarbonizes, and densifies, sparing land and species. As people get richer and better educated, they care more about the environment, figure out ways to protect it, and are better able to pay the costs,” writes Pinker, a cognitive psychologist at Harvard University. “Many parts of the environment are rebounding, emboldening us to deal with the admittedly severe problems that remain.”
Therefore, a people-first approach lends itself to preservation methods.
Clearly there is a need to think reasonably and rationally about how social and environmental issues intersect and, given the presence of push pull factors, ethics and ecological concerns should not be conjoined. Yet, this is what firms are being asked to do when adopting ESG metrics.
Consumer audiences and academics are pressuring firms to go above and beyond traditional forms of corporate social responsibility (CSR), yet neither have a clear understanding of what that means. Historically, literature regarding ethical consumption piggybacked on environmental studies, and it was common practice for studies on ethical consumer behavior to employ dependent variables relating to environmentalism. The rationale for doing so was based on the assumption that environmentally conscious behavior could be viewed as a subset of the socially conscious category. Therefore, in regard to marketing strategies, the link between ethics and the environment was not a major issue, and environmental and ethical consumers were viewed as one in the same.
The grouping of these two types of consumers has resulted in companies aiming to have a broad appeal regarding sustainability, and certification systems tend to attempt a multi-pronged approach. For instance, Fairtrade seeks to empower disenfranchised producers, combat climate change, and prompt policy changes relating to human rights and gender equality. But in trying to solve “all the things,” Fairtrade runs into its own roadblocks. For instance, the Fairtrade brand is most closely associated with poor farmers, given the popularity of certified coffee, yet a major issue Fairtrade wishes to address is deforestation, which farming is a primary driver of.
Arguments for distinguishing between ethics and the environment have come about over time, particularly since ethical concerns serve as a more complex determinant for consumer behavior. Indeed, ethics is difficult to measure given that it is culturally and contextually dependent. However, what is consistent, is that consumers in advanced nations now look beyond price and quality factors when making their purchase decisions and, to a greater degree, consumption is based on moral principles and conditions of production practices.
The oddity of conscious consumption is that customers may not fully understand why they are willing to buy or pay more for a product featuring a social label. Consumer understanding of what truly makes a product “environmentally friendly” or “socially responsible” tends to be based only on the interpretation of what a company shares and what that consumer is willing to research. The overall valorization relies on people to not only be interested in social marketing but to believe it to be true—and interest is clearly there and sales prove a level of trust is present.
According to Nielsen, millennials are contributing to the influx of sales for eco-friendly goods, and as for the companies they seek employment from, BCG research finds 67 percent of millennials want the companies they work for to have societal impact.
Is it no wonder then that firms are employing marketing strategies for improving the perception of sourcing strategies, rather than focusing on improving the product itself. It is not about what the product can do for the consumer but rather what the business is doing for people and the planet.
The charge for stakeholder capitalism from on high along with the desire to cater to consumers downstream, has made the promotion of sustainability a dominant and lucrative competitive strategy. And sustainability stamps continue to promote certain elements of the supply chain that have a charmed appeal rather than focusing on the linkages of supply-side and demand-side of business transactions that can propel economic development.
Fortunately, a more nuanced approach to environmentalism is gaining ground as attention is given to works by Johan Norberg (see Progress: Ten Reasons to Look Forward to the Future) and Michael Shellenberger (see Apocalypse Never: Why Environmental Alarmism Hurts Us All).
Overall, businesses and their consumers should be mindful of Pinker’s assertion that, “In contrast to the lugubrious conventional wisdom offered by the mainstream environmental movement, and the radicalism and fatalism it encourages, there is a newer conception of environmentalism which shares the goal of protecting the air and water, species, and ecosystems but is grounded in Enlightenment optimism rather than Romantic declinism. That approach is called ecomodernism.”
Natural disasters, infectious diseases, and whatever else Mother Earth may have in store requires problem solvers and innovators. Technological advancements, supply chain networks, and human ingenuity has allowed progress despite the natural odds—and the preservation of human life and the developments derived from it, is both ethical and moral.
This article was originally published on FEE.org