Corporations have the power to spearhead a transformation of the economy
Of the 200 largest economic entities on the planet, 157 are corporations. Given their size and global reach, corporations have the power and leverage to spearhead a transformation of the economy to a sustainable path, so are they leading us in the right direction?
Traditionally, the only responsibility corporations have had is to maximise profits for the benefit of shareholders. The influential Business Roundtable (BRT), representing the chief executives of 192 of America’s most influential companies typifies this mantra. In 1997, they declared in a formal statement of corporate purpose that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.”
Any strategy and decision-making focused on maximising revenues and cutting costs. Social or environmental impacts of doing business were externalised and viewed as just that — impacts of ‘doing business’. It’s estimated that in 2008 alone, the world’s largest 3000 companies caused $2.2 trillion of environmental damage. The UN argues if these externalities were internalised as costs to the business, it would wipe out a third of their profits. Leaving the morally, socially and environmentally questionable nature of their behaviour aside, if you can get away with leaving the costs to governments and society to deal with, then why wouldn’t you?
In 2019, things began to change. The BRT made a radical change to its statement of corporate purpose. Rather than pursuing profits for the sole benefit of shareholders, the statement declares that “each of our stakeholders is essential. We commit to deliver value to all of them.” This shift is the result of growing recognition in business circles of the need to adapt priorities to complement broader social sentiments. Such is the increased awareness of the consequences of ‘doing business’ that it would be a reputational risk for companies to appear to be focusing purely on maximising profits for shareholders.
Underpinning this change in the direction of corporations is the Triple Bottom Line (TBL). The TBL is a “sustainability framework that examines a company’s social, environmental, and economic impact.” The concept consists of the ‘three ‘p’s’; people, planet, profit. The TBL “aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business.”
The idea is that the costs that were traditionally externalised are internalised by the company. Once aware of the full costs of their impacts, the company can look to increase social value and decrease environmental impacts. The TBL has grown in influence and led to a variety of offshoots. Corporate Social Responsibility (CSR) and Environmental, Social, Governance (ESG) are two concepts built around the TBL and the idea that companies can maintain profitability while creating social and environmental value.
A sustainable approach has proliferated and become a new norm in business. This new way of doing things is reflected in the number of corporations that now dedicate sections of annual reports (traditionally focused on financial performance) to sustainability initiatives. We’ve now reached a point where companies not embracing a sustainable approach are being questioned. It feels like we’re in the midst of a transformation, but looks can be deceiving.
The fact oil companies have embraced a ‘sustainable’ approach is indicative of where we’re at. Shell is focused on becoming net-zero by 2050. ExxonMobil claims to be “committed to producing the energy and chemical products that are essential to modern life and economic development, in a way that helps protect people, the environment and the communities where we operate. This includes mitigating the risks of climate change.” How exactly does an oil company mitigate the risks of climate change when its product has played such a fundamental role in creating the climate crisis?
That oil companies have embraced sustainability is a form of doublespeak known as greenwashing. Greenwashing is all about elevating the green credentials of products or brands, but when you dig a little deeper, these companies continue on a path of business as usual. And oil companies are right at the top of the pile for efforts in greenwashing. They pay lip service to the idea that they’re becoming sustainable, but an oil company can only become sustainable if it stops selling oil, meaning it would no longer be an oil company.
While they work hard to create an image of change, in the background, they are at the forefront of climate denial. They know better than anyone that their product is responsible for increasing the concentration of greenhouse gases in the atmosphere. In The Merchants of Doubt, Naomi Oreskes and Eric Conway reveal how interest groups have created a campaign of misinformation to foster doubt amongst people — going as far as to question whether climate change is even happening. Like cigarette companies before them, oil companies have funded a denial campaign to protect their self-interests.
This denial campaign is damaging because it provides justification for the continued use of fossil fuels and slows any shift towards a renewable energy sector. Rather than acknowledging oil simply can’t be part of a future sustainable economy, they continue to cling on, fighting for relevance. And they don’t just fund climate denial. The largest five stock market-listed oil and gas companies spend nearly $200m (£153m) a year lobbying to delay, control or block policies to tackle climate change. Hardly in the spirit of the TBL.
Oil companies aren’t the only ones who have become skilled practitioners of greenwashing. Banks have jumped on the sustainability bandwagon. One of the most profitable products banks sell is credit cards. Credit cards are just as inherently unsustainable as fossil fuels. They lock people into a cycle of debt, leading to destructive social consequences. At the same time, enabling people to spend beyond their means, encouraging consumerism which increases environmental impacts.
On top of this, the Paris climate agreement, struck in 2015, was meant to herald a new dawn in reducing emissions. Since then, the world’s 60 largest banks have provided $3.8 trillion of financing for fossil fuel companies. Banks continue to finance fossil fuel companies because they’re confident of a return on investment. In short, they prioritise profits over any environmental or social consequences of financing these companies.
Banks don’t acknowledge any of these contradictions in their sustainability reports. For now, they won’t stop financing oil companies because they can profit from doing so, and they’re hardly going to encourage governments to create legislation outlawing credit cards because it would impact their bottom line.
The world’s largest single-use plastic bottle producer, Coca-Cola, produces 3m tonnes of plastic packaging each year. That’s 108 billion bottles. But the company has no intention of shifting away from single-use plastic (which has a notoriously harmful environmental impact) because, according to the company’s Head of Sustainability, Bea Perez, consumers like them.
Whatever way you look at it, oil companies fighting for relevance, banks offering credit cards and financing those oil companies, or drinks companies continuing to use single-use plastic, aren’t compatible with creating a sustainable world. And this is just the tip of the iceberg. A host of industries and markets profit from creating negative social value or destroying the environment. But seeing as the TBL, CSR, or ESG doesn’t make it clear what a sustainable society living within environmental limits looks like, the concepts can be latched onto by companies that are unsustainable by design. Importantly, they can appear to be very much part of a sustainable society when they are, in fact, a symbol of the problem.
Glossy sustainability reports hide an uncomfortable truth — under the surface, not much has changed. Each company still conforms to the same rules of the game; they still compete and prioritise profits over the well-being of society or the environment. The issue is that corporations have far too much influence in dictating the rules of the game. What’s needed is for governments to implement more strenuous regulation that forces corporations to work within a framework that takes us towards a desired destination — sustainability —because only the most blindly optimistic would imagine corporations will do so of their own volition. But seeing as many corporations are larger than countries, who are governments to tell them what to do? So it looks like they’ll continue to dictate the rules of the game. Meanwhile, environmental impacts will continue to increase, and we’ll continue to hurtle towards disaster. As long as shareholders are happy, this appears to be a perfectly acceptable state of affairs.