You don't have to be a Nobel Prize economist to realise that current corporate and industrial practices are not sustainable. A tiny segment of the global population's wealth grew dramatically over the last 40 years while the rest can barely afford to live. Environmental hazards have decimated arable land and clean water supplies. We experience prolonged, severe droughts, oppressive heatwaves and cataclysmic storms.
Are corporations solely to blame? Climate change and environmental degradation are natural phenomena, to an extent. However, according to the data, human activity worsens their degree and intensity. You and I would cause little harm by having one cow apiece to provide our families with milk and meat. By contrast, processing meat and dairy on an industrial scale is environmentally debilitating.
These data provokes a paradigm shift. Corporations are coming to the realisation that earth's resources are finite. Environmental and climatic stability depend on them changing their practices. They are now looking for ways to change their business models. Their first steps include:
- embracing social responsibility
- holding themselves accountable to the public as well as their shareholders
- changing their management techniques and employee relations strategies
- considering environmental impacts in any new project or development
- developing sustainable operations strategies
- researching and developing new technologies
- seeking outside funding for research, development and implementation of sustainable projects
Such ventures must happen quickly, and on a massive scale. And they must be funded alongside grassroots-level efforts to clean up and remediate already-damaged ecosystems. The money, time and effort must come from somewhere. In this article, we discover how twin pillars, industry and finance, come together to work our world's most pressing problems.
Corporate Social Responsibility Definition
Many dispute the idea that, not so long ago, corporations embraced social responsibility. It's not hard to see why. By now, we all know how some industries deliberately concealed the harm their products and endeavours caused. Indeed, they launched campaigns 'proving' the exact opposite. Smoking isn't bad; doctors recommended it! Sweetened drinks aren't bad; they're made with real sugar!
As the environmental damage accumulated, agents promoted more insulting initiatives. Everybody must pitch in to keep protect the environment! Wheelie bins for recycling! It every household could just manage its water usage better! Let's stop food waste!
In short, corporations of all types, from retail food chains to oil companies pointed their collective fingers at everyone but themselves. They didn't point them at each other, either. That's rather telling of their motivations. They were all running the same race; the race for profits. They had all agreed to not trip each other up so long as one runner didn't get in another's lane.
History shows that everyone learned from each other. And they didn't care about who or what might get in their way. Governments were lobbied to write laws favouring their enterprise. Humans mattered little and the earth, not at all.
We shouldn't view corporations with such a fully jaundiced eye, though. The Industrial Revolution birthed corporations. For many, corporate activity made human existence beyond sustenance-level possible. Today, we enjoy degrees of comfort and access to goods our ancestors would have thought inconceivable.
Besides, corporations weren't always so crass in their greed. For instance, Henry Ford paid his workers well and capped their weekly work hours. He provided housing and company stores for employees' shopping convenience. He built entire communities, complete with schools and churches. Although his motives weren't altruistic, he stands as an early example of corporate social responsibility (CSR).
Henry Ford got a cut his stores' receipts. When his employees rented or bought a Ford house, their money went into his pocket. And, of course, if they bought a car, it was a Ford. The Ford Motor Company turned practically everything into revenue streams. That's what a business should do. But they don't have to do it at the expense of everything and everyone else.
Today, corporations realise the need for their continued investment in communities and people. Many such companies want to continue their manic run for profits, regardless of consequences. Public opinion and keen journalists pressure them to embrace their social and environmental responsibilities. Where will they find the money to do so while still pursuing profits?
The Importance of Finance
The finance industry also has a bad reputation, particularly since 2008. That's when we all found out, in the harshest way possible, just how precarious our economic structures are. Also, it doesn't help to read about bankers' million-dollar bonuses while investors' pension returns grow ever smaller.
Indeed, 2008 was a wake-up call on many levels. While everyone focused on waves of financial disaster, the United Nations (UN) proclaimed 2008 the Year of Planet Earth. Among the initiative's stated objectives were discovering new resources and finding ways to use them sustainably. Their mission statement contended that we needed more earth sciences education. Actors at all levels should find ways to stimulate interest in these topics.
Reeling from reputational harm, the finance industry was searching for ways to improve their image. Green investing had been around since the early 1990s. Perhaps because of the UN's declaration and maybe because good deeds are one of the best paths to redemption, banks and investment houses jumped on the eco-investment bandwagon.
Some firms settle for not investing in the worst environmental actors. They might fund non-profits' efforts, for instance, or other high-profile environmental projects. Others want to fund companies who take seriously their responsibility to the environment, society and governance (ESG). In this context, 'governance' means both self-governance and how they manage employee and community relations.
A cynic would say that green investing is just another investment vehicle designed to make banks richer. Of course, they must turn a profit. That's the nature of business and investment, after all. But even cynics would agree that taking part in such initiatives is better than continuing to do nothing. And drawing profits either way.
Sustainable finance does not mean throwing money at an environmental issue until it is no longer a threat. By definition, that wouldn't be sustainable. It means making lasting contributions for remediation and improvement with the only product at their disposal: money. The finance sector also has massive clout to pour into sustainability efforts around the world. They just need to partner up with socially responsible companies to make things happen.
How Sustainable Finance Works With Corporate Social Responsibility
Introducing Company XYZ. They're a manufacturing concern that's been around since the late 70s. They have several factories around the world that make different products, all sold under the XYZ brand.
Their processes are not highly polluting but they do create a lot of waste. They've made reusing waste materials a priority. Their Research and Development department employees receive a bonus for every successful innovation. Despite their low emissions, XYZ was first among their peers to install scrubbers in their smokestacks. They put filters in their sewage drains, too.
Employee turnover is low; everyone loves working at XYZ. The pay is good and the employees feel valued. The communities near XYZ plants benefit, too. XYZ helps fund lots of social activities and doesn't mind donating to worthy causes. This is the degree of CSR finance companies look for when searching for initiatives to invest in.
Corporations like XYZ are few and far between. Some companies can't see the point of operating like XYZ. Enter the finance industry with their clout. They might pitch "We'll invest so many millions if you adopt these best practices.". This nudging - dangling a carrot, if you will, often encourages companies to become better corporate citizens.
On the other hand, a company may solicit investments for research leading to more sustainable practices and products. They may sell a finance company on the idea of backing their initiatives by pledging to share publicity with them. Or they may offer other incentives in return for funding.
The important takeaway is that for-profit corporations cannot and should not work like non-profits. The CSR shareholder theory states that companies are responsible only to their shareholders. Any action taken beyond generating profits and paying dividends violates that concept.
However, businesses must also abide by the CSR theory of business ethics. This theory posits that companies must function in ways that do not harm society or the environment. It further compels corporations to go beyond the basics; to work for the greater good. Not just work for profits.
Corporate leaders are caught in the middle. They must generate profits at all costs while not causing any harm to anyone or anything. Sustainable finance gives them a way out. It allows them to pay shareholders while still engaging in actions beneficial to society and the environment. Their ethical principles, in turn, gives their stakeholders greater confidence, which results in higher profits.
Operating in tandem, CSR and ESG form a virtuous circle. Society and employees - the stakeholders, appreciate and support ethical practices and innovation. Shareholders would likely receive greater investment dividends. The environment would be less burdened; maybe there will even be time for it to heal. And the two pillars may bask in raised esteem.
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