Private Sector Drives Environmental Sustainability
After starting my career at the EPA, I have always believed that environmental protection is as much a function of government as national security. I think the concept of corporate social responsibility is contradictory. I think I still will. The goal of private companies is to generate profits, return on equity and market share. These are important goals, and encouraging them, along with private initiatives, helps create wealth and well-being for billions of people. Companies are not designed to be vehicles of altruism. The role of government is to ensure that the goals of the private sector can be legally achieved without harming employees, the planet or the public. So how do we explain the clear and visible push for environmental sustainability from the private sector? The answer is simple. The private sector is finally understanding that profitability, return on equity, and increasing market share require companies to pay attention to the risks posed by the natural environment, the impact on environmental quality, and the frugal use of increasingly scarce and limited resources. The private sector does not push for environmental sustainability because of altruism or ideology, but because it can make money.
Conservative analysts see the SEC’s proposed climate disclosure rules as some sober, politically correct fanatical dream. nonsense. Look at Florida today and you can see the financial impact of climate-accelerated extreme weather. Incredible damage from extreme weather brings financial risk, but reconstruction also offers economic opportunity. Any investor concerned with a company’s risk profile wants to understand a company’s carbon footprint and exposure to climate change impacts. Investors need carbon disclosures because any sane analyst knows that decarbonization is the wave of the future. By definition, companies that waste energy or do not analyze the regulatory environment spurred by climate change are poorly managed. Also, renewable energy is already cheaper than fossil fuels, and soon it will be more reliable and convenient too. A company that doesn’t work to reduce its use of fossil fuels doesn’t take cost control or efficiency seriously. The pressure for climate disclosure comes from those who want to disclose transparent and audited financial information: prudent investors.
Well-managed, forward-looking companies and communities do not need government rules and incentives to persuade them to work for environmental sustainability, but not all companies are well-managed or forward-looking. Neither are states and communities. That’s why we need rules, regulations, and public policy — to push those who need to push and punish those who break the law. However, it’s worth noting how many companies are reading the writing on the wall and know we’re heading towards a future without fossil fuels. The best example is the automotive industry. Last summer, California announced it would ban the sale of internal combustion engines by 2035. General Motors has also announced that it will only sell electric vehicles starting in 2035. This is surprising, but not a coincidence.
Electric vehicles are far from perfect on the environment, but they are a big improvement over fossil fuel vehicles. In an interview with GM sustainability chief Kristen Siemen, Wall Street Journal reporter Dieter Holger observed:
“Electric vehicles have the potential to reduce greenhouse gas emissions from transportation, which the United Nations says account for about a quarter of energy-related emissions. For sedans, SUVs and pickups, battery-electric vehicles are more common across Life-cycle greenhouse gas emissions are on average 64% lower than ICE vehicles. Ultimately healthier due to less tailpipe emissions. In the U.S., transition to 100% sales of zero-emission vehicles over the next 30 years, according to the American Lung Association And 100% non-combustion power generation could create more than $1.2 trillion in health benefits. Still, electric vehicles are not a panacea. According to the International Energy Agency, nearly 10% of the world’s vehicles will be electric vehicles by 2021, and it is expected that this The numbers will continue to rise. The rise of electric vehicles requires more extraction of critical metals that can damage the environment and electricity, which is still largely dependent on fossil fuels.”
Most notably Interview with General Motors’ Siemens It is GM’s level of understanding and commitment to the environmental impact of electric vehicles. GM’s interest in environmental sustainability isn’t limited to electric vehicles. Responding to a question about the company’s sustainability plans, which are not directly related to EVs, Sustainability Director Siemen replied:
“Some of the other things we do are energy efficiency projects, water efficiency, waste reduction — all of those things are not just good for the environment, but good for the business. Anytime you use less, it’s a positive. We’re already working in that area It’s been a long time. These are some of the earliest sustainability goals that we have set as a company around water, energy, efficiency, renewable energy goals, our waste goals – these are almost to the point where we need to come up with some new goals because We’ve done a lot of great work in these areas.”
Competent business management requires effective environmental sustainability management. Pollution is waste, and waste costs money. Plus, on an increasingly crowded planet, garbage disposal has become expensive, and disposing of it in a way that hurts neighbors could end up costing polluting companies billions of dollars. There are many companies that have learned the hard way: from the billions GE paid to clean up PCBs in the Hudson to the billions paid by BP after the catastrophic oil spill in the Gulf of Mexico , and then to the hard lessons of Volkswagen. They lied about vehicle emissions and lost billions in fines, lost sales and lost assets.
Granted, companies looking to attract talent need to be able to defend their impact on the planet when hiring. Many people who work in the private sector enjoy breathing healthy air and want their children to inherit a livable planet. They were attracted to a well-managed, environmentally conscious company. Likewise, companies that are hospitable to a diverse workforce will have a larger talent pool and therefore have access to more talent, while companies that have good relationships with their neighbors are more likely to have community support if they want to scale.
But one might argue that these long-term considerations sometimes recede to pressing demands for profit, return on equity and market share. There is no doubt that this is true, which is why the government must establish a regulatory bottom line that businesses cannot go below. I am in no way against maintaining and enforcing environmental standards, but I am impressed by the number of private, nonprofit, and government organizations promoting environmental sustainability these days.
Over 90% of S&P 500 companies now produce annual sustainability reports.according to Institute for Governance and Accountabilityan ESG (environmental, social and governance) consulting firm that:
“…The annual research series began 9 years ago, analyzing sustainability reporting activity published in 2011, when we found that only about 20% of S&P 500 companies published sustainability reports. G&A Finds , the number of reports has increased steadily every year since 2011, and the content of reports has expanded dramatically over time. By 2012, more than half (53%) of companies had published reports. By 2014, this The proportion has grown to 75% and to 86% by 2018.”
Some of these reports are clearly greenwashing, but it shows a growing trend in private sector management. When the SEC finalizes its climate disclosure requirements, every public company will report its climate risk and carbon footprint, and these disclosures will help direct money to greener companies.
Building organizational capacity to measure, analyze and report on a company’s environmental impact is a necessary but not sufficient condition to reduce this impact. The next step is to build the ability to reduce impact by changing workflows and/or technology. GM and many other manufacturers and service organizations are building these capabilities. These operational changes will allow us to grow our economy while reducing our impact on the planet that sustains us. This is how environmental sustainability will move from talk to action: from rhetoric to action.
