Environmental and Corporate Social Responsibility

There is an increasing literature suggesting, or even trying to prove, that business voluntarism (Corporate Social Responsibility)—spending money on the environment—adds to profitability IN MOST CASES! … But the evidence is very mixed as to how often CSR pays off, or serves the company strategically.

Companies increasingly desire to be or at least appear “green.” Seventh Generation, the Burlington, VT-based maker of environmentally friendly laundry detergent, trash bags and diapers, takes its name from an Iroquois law that says, “in our every deliberation we must consider the impact of our decisions on the next seven generations.” Go Lite, an outdoor clothing and equipment maker in Boulder, CO. Founded in 1998 by backpackers Kim and Demetri (Coup) Coupounas, the company specializes in ultra-light packs, sleeping bags and down jackets. The company’s ambitious goal: to mitigate 100% of its environmental footprint. To do this, it uses so-called “Environmentally Preferred Materials” (EPMs) like recycled nylon and polyester, instead of newly-produced petro-chemical-based fabrics and parts. New Belgium Brewing in Fort Collins, CO, is the third-largest craft beer maker in the U.S. Among its environmentally-friendly practices: It monitors and records all of its energy use, waste production and emissions and recycles, reuses or composts more than 75% of the waste it produces in manufacturing. It also makes bikes and a Prius available to employees to run local errands. One hundred percent employee owned, the company has more than 480 employees and upwards of $180 million in revenues. And Patagonia, the maker of high-end outdoor equipment and clothing with more than 1,300 employees and some $540 million in sales. Founded 41 years ago by outdoor enthusiast Yvon Chouinard, who used to make climbing tools in his Ventura, CA blacksmith shop, the company pledges that three quarters of its materials are “environmentally preferred,” meaning they are recycled, organic or otherwise environmentally sound. The company’s environmental record stretches back to the early ‘70s when it urged climbers to use nuts and runners instead of pitons, which damage rock. In 1985 it started a practice of tithing 1% of profits to environmental preservation groups. Since 1995, employees have gotten up to two months off with full pay to volunteer for an environmental organization. The company has dozens of other environmental initiatives, including a program in Patagonia, South America to buy merino wool only from farmers who use sustainable grazing practices.

As stated by the Engineering News-Record (ENR) in its ‘The 2016 Top 200 Environmental Firms 1-100’:

A government change that began to unfold last year in the U.S., and economic and political turmoil elsewhere, did not curb spending on environmental needspushed by global demographic trends and natural events. Even with budget constraints and delayed contracting, ENR’s Top 200 Environmental Firms saw their revenue grow 3.8% in 2015 to $53.4 billion. The strength of the American economy was evident, as U.S.-generated revenue rose 10.7% to $41.4 billion—over the $40 billion mark for the first time in four years—but revenue beyond its borders fell by the same proportion, to $11.86 billion. Environmental regulation will continue to drive new work, say participants.

see: http://www.enr.com/toplists/2016-Top-200-Environmental-Firms1 (Links to an external site.)Links to an external site.

The US Climate Action Partnership—which includes Alcoa, BP, and GE—lobbies for government regulation of greenhouse gas emissions. see: http://www.merid.org/en/Content/Projects/United_States_Climate_Action_Partnership.aspx (Links to an external site.)Links to an external site.

Despite creeping concerns that some of these actions may be mere “greenwash,” for the most part they are welcomed by employees, consumers, investors, regulators, and the public. After all, it seems intuitive that voluntary actions that internalize environmental externalities are socially responsible.

For this week’s reflection/application memo please address the following questions:

  1. To what extent can voluntary action substitute for government mandates? Might the two be complements instead of substitutes?
  2. Is it appropriate for the private sector, instead of government, to determine which environmental issues deserve priority treatment?
  3. Is it socially desirable for managers to take costly environmental initiatives at the expense of shareholders?