What Is the Cost of Sustainability?
Many point to the global financial system as one of the major causes of some of the world’s current and historical problems. Climate change, war, the perils of social media; finance funds it all— all that’s profitable, that is. If it’s profitable for an oil company to undermine climate science by funding think tanks operating misinformation campaigns and lobbying to block policy action, that’s what they’ll often, sadly, do.
Yet in today’s business landscape, sustainability is increasingly becoming a buzzword, with many companies exploring how going green can impact their bottom line. A growing number of voices are suggesting that sustainable practices can pay off financially, and the idea is compelling: businesses can do well by doing good, reaping profits while contributing to the planet’s well-being. The evidence remains tenuous. Studies such as that completed by business strategy scholars Paul C. Godfrey, Craig B. Merrill, and Jared M. Hansen do show risk reduction effects from “corporate social responsibility” activities. This is especially true for companies in “controversial” industries, write finance experts Hoje Jo and Haejung Na. Yet others testing these relationships present mixed findings or even an underperformance of sustainable investments.
However, this profit-driven approach to sustainability may be fundamentally flawed, the relentless pursuit of profit a significant driver of the environmental crises we face today. The logic that posits that companies should embrace sustainability only if it enhances profitability overlooks the deeper, systemic issues at play and justifies unsustainable, but profitable, endeavors. For example, as Pieter Jan Trinks and Bert Scholtens write, there’s fairly strong evidence that “sin stocks,” such as companies operating in controversial sectors such as alcohol, gambling, and weapons, have historically provided investors with premium returns, write economists Pieter Jan Trinks and Bert Scholtens. Highlighting instances where sustainability yields profit may inadvertently reinforce the idea that profit is the primary goal, the same short-term thinking that has led to resource depletion, environmental degradation, and climate change.
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[contact-form-7]A critical node of this debate has been gender diversity at the top of companies. The problem is clear and significant; in 2023, only 8.2 percent of CEO positions at S&P500 companies were occupied by women. Even that represents an improvement; it was the first year women CEOs outnumbered male CEOs named John. While many studies have unsurprisingly shown that a company’s financial performance benefits from gender diversity, difficulties separating causation from correlation has led to many others failing to find significance in their results. Yet why does being able to prove this relationship matter? As Professor Alex Edmans of the London Business School writes, “It would be a sad world if the only reason firms increased diversity were to obtain higher performance.”
Much of our society is dedicated, fanatically, to profits. Yet the pursuit of profit alone often sidelines crucial values of equity and justice. Until we recognize that ethical and sustainable practices should be pursued for their intrinsic worth, not just their potential financial returns, we risk perpetuating a cycle where profit remains the sole determinant of value, leaving societal and environmental concerns perpetually underserved.
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