Evaluating the business market and sustainability relationship: where does sustainability exist within a company’s bottom line?
The context in which corporations decide to take sustainability initiative may take many forms. At the risk of anthropomorphizing a corporate entity, perhaps the company believes sustainability is something that it needs to do. Full stop. Alternatively, businesses may choose to react to the taste and preferences of its consumers or, in order to be sustainable there needs to be need a market-based reason or a signal (proven profitability) already in place.
Dr. Peter Eisenberger, Chief Technology Officer and Co-Founder of Global Thermostat (GT), believes that a company needs to be sustainably aware. GT is a company started in 2010 that captures CO2 emissions, from power plants, to then sell or use as the feedstock for other profitable processes. “In the 21st century, we need to focus on making money while doing good and thus on the triple bottom line of profitability, social and environmental impact,” said Dr. Eisenberger.
The triple bottom line that Dr. Eisenberger refers to, first coined in 1994 by John Elkington, submits that companies should prepare three different bottom lines: One is a traditional measure of profit, the second a “people account,” measuring the social responsibility an organization has throughout its operations, and the third a ‘planet’ account, measuring its environmental responsibility. In short, the aim is to measure the financial, social and environmental performance of a corporation over time. However, the three separate accounts cannot all be added up as profit or, in terms of cash. Some costs cannot be monetized. Herein lies what seems to be the problem for those who, unlike Dr. Eisenberger, prefer to respond to market signals first and environmental reasoning second: Sustainability efforts of a business as well as its environmental costs, when not monetized, are difficult to evaluate. If there is no incentive, why should the issue be broached?
How are the opposing needs of the present (profit) and the future (environment) to be reconciled?
Traditionally, the success of a business is measured by its profit, or similarly, its projected profitability. For a public business, its value depends on the public market, or more specifically, the cost of its shares. In a capitalist economic system such as that of the United States, the aforementioned profitability driver is addressed in the temporal short term, whereas environmental costs are of long-term significance. If issues in the short term were the focus, rather than issues of the long-term, logic would propose that environmental sustainability costs are easily, and perhaps often, sacrificed at the expense of business profitability.
There seems to be an inherent cleavage that exists between sustainability, that is, to satisfy the basic needs of the present without sacrificing those of future generations, and the Market. However one solution to satisfying the triple bottom line can be found in a special subset of the market that seems to cater especially to the sustainably sensitive consumer.
Patagonia, a privately owned clothing company, is a good example of how a company can forge a unique, sustainably minded path without having any context for market profitability in place (cf. a voluntary carbon trading market). Despite historically being known to grow sales carefully and methodically, Patagonia has recently had its most profitable year in 2015, with sales reaching $750 million.
The Footprint Council is the company’s vehicle for staying on top of the rigorous sustainability goals it has set for itself. Four years ago Patagonia formalized its commitment to sustainable practices by becoming a B Corp — meaning that it is certified by a nonprofit called B Lab as a company committed to socially and environmentally responsible practices. Furthermore, the company is a 1% For The Planet business alliance member, and as a result of which Patagonia has pledged 1% of its sales for more than 30 years to the preservation and restoration of the natural environment.
With the success of a company that refuses to focus on a single bottom line, instead emphasizing its own sustainable practices, others may follow by evoking a similar image but with varying degrees of genuine sustainability efforts. After all, the success of a company like Patagonia is enticing and sustainability seems to be part of their formula for success.
In cases of corporate greenwashing, one could liken it to a company ethos that is still dedicated to a single bottom line platform, but represents itself as a triple bottom line motivated company. In such cases, non-profit organizations like B Lab, for example, can certify sustainability efforts, making the businesses’ sincere efforts more evident to the consumer.
One must also consider that there are many types of greenwashing; it is a spectrum of sorts.
“There is actual deception whereas other cases are problems of negligence, of lassitude, or lack of know-how,” explained Adela Gondek, Professor of Public Affairs at Columbia University. “From an ethical perspective you could say –they [companies] are trying but they just don’t know how to get there; they need help,” added Gondek.
The wanting to be part of the sustainable or ‘green’ market trend can range from more extreme forms of deception to companies that actually do want to be ‘green.’ “They [companies] want to push against the usual business model but at this stage in the game we need to distinguish the fact that they try,” noted Gondek.
Is the current capitalized system encouraging sustainability or does the market system need to be restructured to encourage such efforts?
In a sort of opposition to Dr. Eisenberger’s perspective that sustainability efforts must be addressed in conjunction with business profitability, others may choose to focus on a single bottom line and let the market determine the rest. Perhaps this is more akin to Adam Smith’s Invisible Hand market theory.
Yet for Dr. Eisenberger and his business, it is neither about acting on a sustainability trend nor is it about reacting to a market demand for sustainability. Quite simply, business has to be about more than profitability.
“The focus should be on all three, which means that there is going to be some interactions between them [the bottom lines]. One cannot just focus on profitability,” said Eisenberger.
