Green Business Obligations

Fundamentally, capitalism is uninterested in the question of what is good for the environment or what is of greatest benefit to society. Capitalism is concerned about creating fair markets in which companies are able to attract capital to innovate, expand, and produce, and investors are incentivized to invest that capital because of an expectation that the venture will be profitable.

As a result, C-Suite executives at companies seemingly at opposite ends of the ideological spectrum — for example, Solar City and Dow Chemicals — do share one basic commonality: they both have a fiduciary obligation to their investors to make a profit. Taken to its logical conclusion, this commonality means that Solar City would have a fiduciary duty to work with Dow Chemical on a profitable project unless it could prove that in partnering with Dow, its overall bottom line would suffer financial losses. If Solar City ignored the opportunity to profit from a relationship with Dow, thereby reducing its shareholders’ profit, it would cease to be a corporation and become something more like a foundation or non-profit with donors, not shareholders.

So, the question about corporate America’s commitment to green, sustainable and renewable best practices is in reality a different question. Does Walmart, for example, calculate that it is in the best interests of its shareholders (i.e. bottom line) to pay .3 cents extra for bioplastic bottles, when petroleum-based plastics are cheaper and bring the same utility to customers, and when the company’s short term profit may suffer? Or to put it another way, are there calculable or other incalculable, but substantive, benefits to going green that still redound to the investor’s benefit despite the fact that the bottom line suffers?

I have yet to see the research that substantiates the claim that greening the supply chain or investing in an energy efficient building retrofit brings an immediate profit outcome for an organization. Even third-party PV financing, which probably comes the closest, has a hard time making the case that it is zero-cost to the customer from day one. So the question becomes whether a 3-year or 5-year payback period is in the best interest of shareholders, especially in today’s financial environment where success is measured in quarterly results.

Expectedly, different companies have answered the questions above in different ways.  For the companies that have made serious investment in Corporate Social Responsibility (CSR), their business model must, if it is to remain a fiduciarily responsible organization, place a premium (i.e. dollar value) on brand reputation, employee retention and productivity, as well as a belief that consumers will spend more on products, and with companies, that are good corporate citizens. And there are statistics that seem to buttress this view.

For example, 60% of respondents in a study by marketing agency Good.Must.Grow said that buying goods and services from a socially responsible company is an important factor in purchasing decisions. The Society for Human Resources Management compared companies that have strong sustainability programs with companies that have poor ones and found that in the former morale was 55% better, business processes were 43% more efficient, public image was 43% stronger, and employee loyalty was 38% better. And according to a study by global professional services company Towers Watson, companies with highly engaged employees have three times the operating margin and four times the earnings per share.

Consider all this, and the case for CSR in general and sustainable practices in particular becomes especially strong.

This article appeared online at CommPRO.biz on April 21, 2014. You can view the original article here.

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