Sustainable Business? Is this a Practical Concept?

As economist Milton Friedman famously taught, the business of business is to make money for shareholders. Period. Some business minds, however, are now teaching a new concept. The ‘Triple Bottom Line’ is a focus on People, Planet, and Profit – Sustainable Business. So, who is right?

Argument for Profit

The traditional reason someone invests in a company is because the trust the management to make the best decisions to increase the value of the company. That increase in value leads to a capital gain.

In my recent exploration of whether or not you have to sell your soul for profit, I discuss economic concepts relating to supply and demand and competitive advantage. This is a standard framework for businesses and economies, and it is how the world really works.

If Company A is really good at producing Widget A at a low cost and selling it at a high cost, it will be successful. If Company B tries to compete and uses high cost environmentally friendly production methods, it will have to sell Widget A at a higher cost to earn the same profit. Of course, very few consumers would want to spend more for the same widget, so Company B, the sustainable business, will eventually go out of business.

Do you want proof that this is the case? One blogger recently did an analysis on “green” sunscreen and found that it costs more to use for a year than buying an “eco-friendly” car.

Does that make any sense? No. Would I spend more for sunscreen than a car? Hell no. That is just plain crazy. And I am not alone.  About 65% of consumers would not pay more for an eco-friendly product. I might in some cases, but most of the time I would save the money.

Argument for Sustainability

Now that you think I am evil and want to murder trees and burn oil for the fun of it, let me turn the tables. We are totally destroying the planet. There is no question that global climate change is real and we are impacting it. Anyone who says otherwise is either stupid or ignorant.

The biggest cause of climate change is burning fossil fuels. We use coal as the primary source of power in most of the developed and developing world. China, at one point, was opening a coal power plant every day.

Sure, we use “clean coal,” but what does that really mean. To quote one environment activist, we will be able to power our country with clean coal the same day we can ride on a flying unicorn to work. That is just never going to happen.

So how are we going to save our planet from a future of rising ocean levels, melting ice caps, climate change, droughts, crop losses, starvation, eco-system breakdown, and an Easter Island like future? I have a solution.

The only way to power our planet without releasing horrible things into the atmosphere is with nuclear power for our base load needs. I wrote about clean nuclear energy as a sustainable solution extensively at my personal blog.

But how do we get there? Nuclear power, wind power, and solar power cost more than coal. No one wants their already expensive power bills to rise. But if businesses do not make a move away from coal, the world could literally come to an end.  Sustainable business is now required, not just a dream state.

The Sweet Spot: Green Profit

While many environment activists hate Walmart because they think they are supposed to, they might read the fine print. Walmart is a hugely profitable company and the largest revenue generating company in the world. But they did not make it there disregarding the environment.

For example, almost all Walmart stores now have skylights. Those lights allow the stores to run without high powered lighting for most of the day. Less power use is good for the environment and the bottom line. Walmart stores pressure suppliers to use packaging that contains less material. That makes the packages lighter, and cheaper to transport. It also uses less fuel to transport and creates less waste.

On the other hand, investors want the company to put green on the back burner when profits are at stake. At the recent Berkshire Hathaway annual investors meeting, shareholders voted against a proposal to require Berkshire’s energy subsidiaries to have clear environmentally friendly guidelines. The company is, even without a rule, however, building the largest wind power capacity in the country.  A sustainable business even without a specific mandate to act as a sustainable business.

Coca Cola and Coors are both known for their recycling programs. Those are both profitable and good for the planet. Mars Corporation has a huge sustainability program. It is not just out of the goodness of their hearts.

The Future and Our Impact

Taking the Friedman approach to business with our knowledge of the environment is irresponsible. Businesses should work hard to find profitable ways to cut waste and help the environment.

Where company’s cannot reach a viable business solution to meet sustainability needs, such as in the energy industry, the government must incentivize power producers to move away from coal and gas and toward nuclear, wind, solar, and hydro options.

What do you think? Who is responsible for the environment? Would you pay more to go green? Which sustainable business do you support? Please share your thoughts in the comments.

This is an article written by Eric at Narrow Bridge Finance.

Editor Comments:

Before touting Walmart, Coca Cola and Mars you need to take a close look at the flip side of their business activities.  From what i’ve read many companies use acts of sustainability for a variety of reasons.  For instance, while Walmart has sky lights it does not treat its workers overly well and to keep costs down it supports mass transportation systems and unsustainable farming practices.  Coca Cola has a budget for it’s “eco” side – which it uses heavily in marketing to sell products.  The motives aren’t entirely genuine.  It takes a lot of digging to find truly sustainable companies let alone those that participate in being “green” for anything more than public relations.

19 comments to Sustainable Business? Is this a Practical Concept?

  • brad

    There’s an understandable tendency to want to paint corporations in black or white: pure villains or pure angels, but the reality of course is that they all fall into shades of grey. Even the most environmentally virtuous companies (Patagonia, MEC, Interface, etc.) cause environmental destruction and they acknowledge it upfront. And even the most-despised big corporations (BP, Walmart, Coca-Cola, etc.) are doing real, important work to reduce their impacts.

    Coca-Cola has an innovative and far-reaching water conservation strategy, because in a world without fresh water there will be no Coca-Cola. The company is one of the world’s largest consumers of water, so they have a vested interest ensuring an adequate supply of clean, fresh water.

    Similarly Wal-Mart has the ability to generate economies of scale in heretofore struggling green efforts, helping to mainstream green products and practices and bring down their costs. For those reasons it’s worth encouraging their efforts, without losing sight of all the bad stuff they do as well.

    I don’t know if many businesses will ever achieve true environmental sustainability, but every step toward that goal helps — a lighter footprint might be almost as good as no footprint.

    • Great points Brad. Something interesting to note is that Coca Cola, BP, or Walmart making a small step toward an environmentally friendly process makes more of a difference than my entire neighborhood recycling. Even a small effort on a massive scale makes a huge difference.

  • For a “green” business to be truly have an impact they must be able to produce long-term profitable growth. That would be a natural extension of bringing a product to market that has widespread appeal and a solid chance of being supported long term.

    Fortunately there are also cost incentives for companies to become more sustainable, at least in reducing their energy consumption, because it helps pad their bottom line long term.

    • As you can tell, I am a huge fan of environmental initiatives that save money. If it is cost neutral or better, I am a huge supporter. If it would raise costs to implement an initiative, it should be up to the shareholders to decide.

  • klem

    Who is responsible for the environment? The owners of the specific environment to which you refer.

    Would you pay more to go green? Nope, not one red penny.

    Which sustainable business do you support? None that I am aware of. I don’t do business with companies because they are green or sustainable. I do business with them for their products services and cost, if they happen to be green fine, I don’t care. Green and sustaianable means nothing to me, it is not a good enough reason to do business with them. If doing business with a green company adds value to my company then I’m interested, but so far that hasn’t happened. For the most part green sustainable companies are at a cost disadvantage relative to their competitors, so I go with their competitors; if the government legislates and forces me to do business with green companies then I will comply but it pisses me off.

    Cheers

    • That is as straight forward of an answer as I have ever seen.

      If all else were equal, would you pick a “green” company over another. And I do mean ALL else equal (price, quality, time, etc).

      • klem

        Possibly, but like I say I do not care if a company is green. I don’t view green as an added value. But if all else were equal, perhaps I’d do business with that company, it might just be reason enough.

        • So you prefer profit over being able to drink clean water?
          I don’t mean to sound like i’m attacking – but if a company ruins the environment in which you and other things live that ultimately destroys the ability for you (or those other things) to safely live on this planet – it doesn’t matter?

  • Brad makes a really good point with the intermingling of “good” and “bad.”

    There’s a point at which we should question the merits of funding things that are supposedly better for the environment.

    For example: a recent decision by Congress extended a plan that would give businesses a 25% kickback for purchasing alternative energy products, namely solar panels, for their own use. Is that socially responsible?

    Somewhere out there are hundreds of thousands of people earning just enough to pay taxes who are directly subsidizing the purchase of green energy products for someone else through the tax code. That’s kind of silly, I think. I’m not so sure that is a real net positive for everyone.

    • Going into the tax implications opens a whole new can of worms. Some of the companies getting these subsidies are paying a net negative tax rate! (The government is paying them)

      • klem

        I don’t mind subsidising industries, we’ve always done that, we always will. But net negative tax, that’s a bit much don’t you think?

  • Environmental issues can be boiled down into property rights. You dump oil on my beach? Alright, pay for it. As much as the government “helps” in some areas, it harms in others by subsidizing polluters, imposing liability caps, limitations on torts, etc… and I don’t agree with “green” subsidies that have dubious environmental impacts such as hybrid cars or CFLs. Where transaction costs are too high maybe government can have a role but in many areas it just seems to be crony capitalism painted with a green brush.

    Do I want a green and clean earth? For sure. I think we all need to take some measure of responsibility though instead of thinking that we “did our part” because we filled up with an ethanol blend or bought the organic bananas. Sustainability is just another buzz word of the day but what will really clean things up is by improving technology. Better solar panels, improved water filters, etc… are all things that will improve our lives and the earth at the same time, and any business that can be efficient at producing this won’t need to rely on anything else than pure profit motive, because people will be buying it up in droves.

    • “Better solar panels, improved water filters, etc… are all things that will improve our lives and the earth at the same time, and any business that can be efficient at producing this won’t need to rely on anything else than pure profit motive”

      YES! I wish more people understood this. The place where I think government intervention can help is to invest in creating those exact technologies. From there, it is just up to the entrepreneur to bring it to market.

    • How are hybrid cars “dubious”? Use less gas burn less non-renewable energy. If you’re going to drive regardless isn’t the more sustainable method better?

  • There’s a book about Wal-mart’s green initiatives I’ve been wanting to read: Force of Nature: The Unlikely Story of Wal-Mart’s Green Revolution. You’ve inspired me to review it next on my site!

  • Mandy @ MoneyMasterMom

    From a mom’s perspective it’s good business to give back. A brand that gives back to people of the environment stays on my radar, and I’m more likely to buy from them in the future. Price point will always rule though. I would pay a little more to support this brand, but not a lot.

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