Value is what counts, for sustainability investment, not just for being good
April 30, 2018
Xun Liao @Xun_Liao
There have been hot debates on circular economy and how to reduce the carbon footprint from environmental life cycle assessment (LCA) perspective, which propped me to take a pause and reflect our daily LCA work and rethink the wisdom of Milton Friedman. As the result, this short article is to explain my view of what drives private sectors to conduct sustainability investment.
Simply put, Value is what counts, for sustainability investment, not for being good. In the other words, green investing from private sectors are often for profit, not just doing good for being good. It's also futile and even unfair to ask law-abiding private companies to reduce environmental impacts or social problems for the sake of just being good, especially when it might backfire at the expense of severe detrimental financial impacts or endangering its business survival.
In my opinion, there is a fundamental difference when it comes to approaching sustainability issues for government/public authorities and private organizations/corporations. The motivation of green investing for government is usually for creating broad societal value, however, for private sectors, that is for private value creation.
For the government, it is their duty to design rules of the games, to give incentives for reward or publishment for individuals and private organizations to play fairly without deception and fraud. It is their duty to find the delicate balance of safeguarding the planet and meanwhile keeping its enterprises or industries in a competitive environment, as well as its citizens free from unemployment and hunger.
For private corporations, the primary duty of their existence is to create (mainly financial) value for shareholders without (potentially) violating current and future rules of the game or deviating certain moral value choices of its own employees. Therefore, for private sectors, the focuses of tackling sustainability issues are not lowering carbon or environmental impact themselves nor where most emissions occur, but identifying the most cost-effective areas to deliver co-benefits of environmental value and financial value (also considering the opportunity cost of doing nothing).
In the other words, not all environmental impacts are created equally. It’s, therefore, imperative to conduct due diligence in order to understand what share of environmental impact might pose largest risks or opportunities where actions can be taken. Smart actions are what counts.
My fellow people, “Let us not love in word or tongue, but in deed and in truth” (1 John 3:18).