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Sustainable business strategies often hit a surprising roadblock — the limiting (and false) assumption “green” will cost money, require sacrifice, and delay profits. The problem isn’t that companies can’t afford to operate sustainably. The problem is that too many businesses just can’t count — operating with accounting systems that miss real value and consistently leave money on the table.
To address this assumption, businesses — and the economic systems within which we operate — need to overcome three key barriers: Business must get the prices right, break the addiction to “stuff,” and tell the truth about purpose.
Get the Prices Right
Adam Smith observed that perfect markets depend on perfect information. In the absence of perfect information — that is to say, “In the world we do business in,” companies and customers operate from a distorted sense of the real cost of things. The myth of environmental impacts as “externalities” suggests that ecological degradation is something external from our lives, when in reality it’s fundamental — to the economy as well as to life itself.
Consider: if you had to pay the full the external costs of gasoline, an estimated $10-20 per gallon, would you drive the car you drive today? Would anyone try to make or sell the car you drive? Consumers can make decisions and changes when they make purchases. Until external costs are built into prices at the point of purchase, the best we can do is to regulate and make policies to rein in the negative environmental impacts made by others. So like Sisyphus, we push the sustainability boulder up the regulatory hill, only to watch it roll back down again.
Get Off the Stuff
Most macroeconomic policy (including the free trade agreements of recent decades) has been aimed at removing all impediments to the flow of stuff across the planet. The challenge is that the maximization of the extraction, refining, manufacture, shipping use and even recycling of stuff also means (all other things being equal) the maximization of environmental impacts. But as demonstrated by Ray Anderson and the people at Interface (and by Hertz and Xerox before them), there are ways to decouple money and stuff, to increase profit, maximize value to customers, and minimize the flow of stuff. The challenge for business is to build economic value on less stuff, not more consumption. It’s a profound challenge, one very few companies have taken this on, but it’s a real key to getting sustainability done.
Get Real With Your Purpose
Most people assume that the purpose of business is that its function is to maximize profits and returns to shareholders. It’s not. AP Giannini, the founder of The Bank of America, understood this. The purpose of his bank was to make credit available to under-served immigrant communities of San Francisco. If we do that well, he predicted, Bank of America would make plenty of money. Giannini knew that profit was the consequence of business, not its purpose, and the purpose was what the bank was really there to do.
Actually, everybody understands this. No one goes to work thinking, “My purpose is to pay the the electric bill.” You have to pay it, of course, and you have to pay shareholders for the use of their capital, but why think the purpose of the company is to pay shareholders any more than it would be to pay the utility company?
So what is the purpose of your business? What are you really here to do?
(This commentary is adapted from my recent presentation at The Commonwealth Club: “The Truth About Green Business – The Potential for Jobs and Prosperity.” You can watch or listen to the speech here. And read more about these ideas in The Truth About Green Business, and my next book, Profit on Purpose.)