Beginning with the original Rio Summit twenty years ago and persisting through Rio+20 this past June, world leaders from 170+ governments have been negotiating (on-and-off) the present and future of global and domestic environmental policy. Meanwhile, the public environmental voice embodied in the 21st century’s ‘Green Wave’ has called for Priuses and cloth grocery bags en masse, but failed to make enough political noise for President Obama to attend Rio+20 himself (sending instead Hillary Clinton as delegate).
While there’s little doubt that sizable shifts have to be mandated from the top, the wonder of the United States’ representative democracy is just how much pressure the bottom can exert on the top, when it wants. The ‘Green Wave’ aside (its results being more akin to a soft lapping at the shore1), significant changes will have to wait for a truly motivated public to bring the necessary weight to bear, and in turn motivate policy-makers.
Whether the public’s impetus to force the conversation is driven sooner by personal, internal factors (i.e. individuals begin to value differently how future generations are affected by climate change 2, 3, 4), or later by natural, external factors (e.g. the increasing rate and number of natural disasters becomes intolerable), the shift is bound to occur. When it does, wise businesses will have already secured their place in a changed market by adapting their strategy today.
Although economics is much more than the maximization of profit (indeed, there’s maximization of utility as well!), profit is where I will focus my argument for business’ natural and necessary interest in environmental policy. Economists Daniel Esty and Andrew Winston published a fascinating book in 2006, Green to Gold, which outlines the tangible advantages available to corporations who integrate environmental strategy into their overall business plan (importantly, not apart from it).5 The various lessons they draw from interviews with executives and their own research analysis can be broken down into two simplified categories: prevention and innovation.
Prevention involves safeguards not just for companies dealing in obviously dangerous product (e.g. Exxon, BP), but also for businesses such as Sony, which unexpectedly had to spend $130 million during the launch of the PS3 replacing controller wires which contained more cadmium than Dutch environmental law allowed. Innovation is the flipside of the coin: proactive strategy like branding, or building the business from the ground up to compete for consumers’ dollars not just on the basis of what the product is, but how it is made and comes to market.
These are not the sole problems of international giants on center-stage, or boutique environmental-gimmick ventures – governments, vendors, and customers alike are increasingly pressuring small businesses to comply with both mandatory and voluntary environmental standards. Want to sell to Walmart? You had better be ready to disclose sustainability records, and be comfortable that your customers will have that information at the shelf with your product.6 Want to differentiate your product once the marginal benefits of quality improvement have waned? Take Wausau Paper’s example, which augmented its existing product (e.g. paper towels, toilet paper) by certifying with the NGO Green Seal and saw sales jump 44 percent in two years (an unbelievable figure in a traditionally low-growth market).7 Simply put: businesses that operate from day one with environmental concerns as an integrated part of core strategy are at a comprehensive advantage over competitors who do not.
Guessing at the timing of an environmental-conscience sea-change is literally as fruitless as predicting the weather – no one has any idea when the truly back-breaking catastrophe will occur, and environmental policy becomes the real centerpiece of national attention (instead of a mere ‘warm-glow’ appetizer during which everyone can pat themselves on the back for recycling). With the timing thus unknown, and the consequences both great and clear for businesses both large and small, the question is no longer “Should we adapt,” but rather, “How soon can we?” Nascent entrepreneurs need not ask if they can afford actionable environmental business strategies; they cannot afford not pursuing them. Serial entrepreneur or fresh to the table – all new-business owners should begin by calling themselves green.
1 This Rolling Stone article, while suffering from strong biases, still serves as a good introduction to the popular debate on environmental policy (and it rightfully acknowledges the failures of the 21st century’s ‘Green Wave’) http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719
2 This is referring to what economists call the ‘discount rate.’ See Keith Arrow et al.’s brief primer on the discount rate, which is the main way you’ll hear economists discuss environmental action vs. inaction. http://nordhaus.econ.yale.edu/documents/discount_ipcc_ar2_arrow.pdf
3 Also see this seminal report by Nicholas Stern, Head of the Government Economic Service, who was commissioned in 2006 by the British government to write his “Review on the Economics of Climate Change” http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/stern_review_report.htm
4 And finally Nordhaus’ rebuttal of Stern’s call action, for the other side of the environmental economics debate http://files.tiggroups.org/58211/get-web/w12741.pdf
5 The book, while worth reading, has its share of missteps as well. The authors laud BP’s environmental focus for instance, which with the generous benefit of hindsight in 2012, lightens the punch of their less-empirically-grounded claims (though where empirics are concerned, they do solid work).
7 Green to Gold, p. 300