Without business taking an active role, ambitious climate goals can never be achieved. At the same time, the primary purpose of business, e.g. to generate profits, seems to contradict the idea of sustainable development. So, why should companies care to travel down the sustainable path? A think piece by Maria Rudenko, HBPA Team Energy & Circular Economy

Sustainability: how consumers and investors pave the way

Climate change, extreme poverty, food security, water scarcity, ... For a long time, governments used to be the ones responsible for trying to solve these global challenges (and the ones taking the blame). Nowadays that appears to be changing. More and more people are calling on companies to act. Without business taking an active role, they claim, positive change can never be achieved. But do companies listen? The primary purpose of business, namely profit maximization, contradicts the idea of sustainable development, right down to its core. In fact, complying with sustainability goals (as defined by the United Nations) often requires restructuring entire business models and costly regulation. So, why should companies care to travel down the sustainable path?

The latest report from the United Nations Environmental Program (UNEP 2020) reveals that, despite a temporary reduction in global CO2 emissions caused by the COVID-19 pandemic, the world is still “heading for a temperature rise in excess of 3°C this century” – far beyond the 1.5°C set as the goal of the 2015 Paris Agreement. If emissions are not reduced, they will lead to further significant rises in the global sea level and more extreme weather events, causing a devastation of ecosystems. This will affect everyone – businesses, dependent on the natural resources that eco-systems provide, included.

The European Union has recently agreed on tougher climate goals for 2030. Many governments worldwide are taking the appropriate steps, e.g., enacting legislation and imposing fines in order to prevent companies from persisting in unsustainable practices. Thus, adopting a sustainability framework will not provide an immediate financial benefit to organizations, but refraining from adopting one may be much more costly in the long run. Money talks: saving on corporate bills and avoiding government prosecution often becomes a key motivation for establishing improved energy efficiency or waste management strategies, for example.

Customers and NGOs are also playing their part in changing current patterns of behaviour. They increasingly apply pressure on companies through buying behaviour or advocacy. For example, customers actively give preference to environmentally friendly products and services, while investors shift their money into businesses implementing ‘green’ practices. In this way, reputation costs and preserving the value of investments may bring about companies’ willingness to change their business models. This is a win-win situation – good for the environment and good for business.

It cannot be stressed enough how important it is for corporate leaders to consider engaging in corporate social responsibility. Yet, we should not throw the baby out with the bathwater: going green must not prevent companies from providing their goods or services to the public in an economically efficient manner. Eco-friendliness, consumer value, and the company’s bottom line have to be balanced. At the same time, there should be no tolerance for “green-washing”, i.e., implementing sustainable goals only for PR purposes. Such practices lack in substance and fail to contribute to any positive societal or environmental change.

It is worth noting that companies cannot carry the whole burden alone. Climate change is a wicked problem and requires a holistic approach. Since there is no single, one-fits-all solution, a common effort by multiple stakeholders (including the government, civil society, and individuals) is needed. We are already witnessing a transformation on all levels: from governments substantially increasing fines for polluters (or setting fiscal incentives to invest in eco-friendly technologies) to financial market heavy-weights such as Larry Fink’s Blackrock shifting their assets into more environmental-friendly industries. All in all, such changes do not happen overnight. It will take time, a conscious effort, and communication between all parties involved. However, we do not have a planet B, so these steps are well worthwhile.