Ryan Bettilyon Michael Gills Honors Writing 3200 4 December 2007

ENVIRONMENTAL PERIL: CORPORATIONS ARE THE CURE The demand for growth and profit, not wrong in themselves, may be forced upon those making corporate decisions to the exclusion of other moral ideals and reasons. -George G. Brenkert Corporations have the knowledge, resources, and power to bring about enormous positive changes in the earths ecosystems. -Paul Shrivastava The profit motive is the main driving force in business. This sacred ideal influences corporations to relentlessly cut costs wherever possible, and to obsessively focus on increasing revenue. As it stands now, corporations are not held accountable for many of the harmful consequences that result from their purely profit motivated actions. Any negative impact a corporation has on the environment is viewed merely as an externality, and is not taken into account when establishing the price of a good. The more a corporation can externalize its costs to society, the more it can profit. It is a corporations duty to increase their return to shareholders. This fact mandates that corporations focus purely on growth and profit without directly concerning themselves with the environmental consequences of their actions. Since the profit motive often runs contrary to environmental concerns, relying upon the goodwill of a corporation to protect the environment is insufficient. Corporations have no reason to be morally responsible towards the environment unless it happens to be profitable to

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do so. A framework of business regulations needs to be developed in order to protect humanitys greatest asset: the natural environment and resources of Earth. Initially these regulations should seek to mitigate a firms negative impact on the environment. The ultimate objective of such regulatory measures, however, should be to achieve an ecologically sustainable business model. The idea of transforming the corporate model into an agent of positive change has considerable potential. Tackling the enormous environmental problems that are facing the earth today such as climate change, deforestation, declining biodiversity, damaged ecosystems, industrial pollution, dwindling fresh water supplies and toxic waste disposal will require the cooperation of the global community. The goal of this paper is to present a framework through which a coalition of international governmental regulations can harness the power and resources commanded by large corporations and redirect their energy towards creating an ecologically sustainable society. In order to achieve this goal, regulations holding corporations responsible for their environmental impact throughout their entire product life cycle need to be implemented. This necessitates several actions: the establishment of a universal metric for the valuation of the environment (i.e. what is the dollar cost of destroying a rain forest, or polluting a river?), redefining the objectives of management within organizations to promote a culture of ecologically sustainable development, and achieving global support for this initiative.

Ecologically Sustainable Development: To begin, it will be useful to understand what ecologically sustainable development (ESD) really is. The most pervasive definition of the term comes from the Brundtland Commissions proposal to the United Nations in 1987, sustainable development is

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development that satisfies the needs of the present without compromising the needs of the future (Chichilnisky 1997, 467). While this definition is considered to be incomplete by some scholars, most other attempts at defining ESD come back to this key concept of providing for the future. The essence of sustainable development is that resource use should be limited so that future generations are not negatively impacted by current consumption. Further additions and clarification of ecologically sustainable development come from several sources. Paul Shrivastava (1995) asserts that ESD should seek to, manage the earth as it is transformed by human actions, by using means such as, energy conservation, resource regeneration, environmental preservation and minimization of wastes (938). He goes on to stress that mass poverty exists on a global scale, and that ESD should seek to provide a better life for all. Another condition of ESD is that the rate of natural resource consumption should not surpass, rates of renewal, rates of recycling, or rates at which ecosystems regenerative capacities will not have been exceeded by the time technological change and conversion to sustainable resources has occurred (Starik and Rands 1995, 917). Ecologically sustainable development has three critical components (1) to satisfy the needs of the present without compromising the needs of the future, (2) to manage the impact that humans have on transforming the Earth, and (3) to limit the consumption of resources to sustainable levels. The next step of this proposal is to establish how corporations can be motivated to become sustainable.

ESD and the Profit Motive: Currently, corporations have no real incentive to protect or conserve the environment, other than vicariously through profit motivated techniques. Starik and Marcus (2000), in their research on the management of organizations in the natural environment, claim that,

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organizational self-interest was needed to fuel the movement toward ecoresponsibility (542). Generally, profitability has served as a driving force towards sustainable development only when such actions positively impact the financial position of a firm. While this is absolutely a positive development, it is not significant enough to effectively confront Earths environmental calamities. The profit motive reigns supreme in business for good reason. It is the basis of our capitalist system, and it is integral to the functioning of that system. The environmental crisis that we are currently experiencing needs to be addressed proactively. A top down approach government regulationsrather than a bottom up approach, such as the current situation in which individual firms are gradually moving towards sustainability, is needed. Otherwise, environmental resources will continue to be exploited with impunity by those corporations that seek to increase profits by any means available. Before any regulations can be proposed, a system of valuing the environment is needed in order to reconcile environmental concerns with the profit motive. Externalizing environmental costs to society is only possible because there is no explicit cost that can be attributed to the actions of a corporation. Until the environment can be explicitly valued in economic terms, it will be subject to exploitation.

Environmental Valuation: The problem that needs to be addressed is the notion that Earths natural environment doesnt have a price tag. The idea of applying a dollar value to all aspects of the environment almost feels like defiling nature. However, establishing a value for the environment is essential for its protection. A value needs to be established for everything from coral reefs and rain forests, to environmental outcomes such as the availability of clean air and protecting the

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natural habitat of endangered species. Howarth and Norgaard (1992) explain the situation in their study of environmental valuation and sustainable development, societies overexploit natural resources because markets for environmental services are imperfect (473). Thus, valuing the environment is essential for its protection. Everything in our society is evaluated in economic terms. Quality of life is defined through the growth rate of the GDP. If our quality of life is supposedly increasing, yet our forests are diminishing, our air quality is getting worse, and our overall health suffers as a result, is this truly an improvement? There is no way to reconcile the environment as something of significance and worth in our society without explicitly determining its value. For instance, what is the value of a pine tree on the slope of a mountain in the Wasatch Range? In economic terms, the price of a good is derived from its utility to consumers. In determining the value of a pine tree what factors need to be considered? This tree consumes carbon dioxide and manufactures oxygen. Its roots help prevent erosion and aid in creating a watershed to conserve rain and snow fall. It participates in an ecosystem that wouldnt be the same without it. Hikers, skiers, and all manner of outdoor recreationalists benefit from its contribution to their enjoyment of the outdoors. In considering all of these factors, what is this trees value to society? Economists and scholars have found that answering this question proves to be elusively difficult. It is easy to describe the tree as a resource and base its value on the price of the lumber it potentially represents. However, ascribing value to its passive characteristics (such as those mentioned above) is quite challenging. Hanemanns (1994) proposed solution to this problem involves using contingent valuation in the form of surveys and votes to determine how the public values nonmarket goods. He has crafted a structured interview format that, when used properly, can determine how people value nonmarket goods such as the value of having clean

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Environmental Peril: Corporations are the Cure

air or a river free of pollution. Contingent valuation of this nature can be used to determine how the public values different aspects of the environment. This value can then be used to assess damages caused by corporate activities.

The Product Life Cycle: By holding corporations accountable for their entire product life cycle, ecologically sustainable business developments can be achieved. The product life cycle is the entire existence of a product, and has several phases: (1) the initial design and development of a product, (2) its conception at a manufacturing facility, (3) its shipment throughout the world to its final point of sale, (4) its useful life in the hands of consumers, and (5) its eventual decline into obsolescence and waste (Shrivastava 1995). All phases of a products life cycle need to be put into consideration. By holding firms accountable for the environmental impact of the goods they produce, business practices will change dramatically. But what should complete product life cycle responsibility actually entail? Several examples will be used to illustrate the process. The earliest impact a product has on the environment is during the manufacturing process. How much electricity does the manufacturing process use? How much pollution is created during the manufacturing? Are renewable or recycled resources used in manufacturing? An issue of current debate is who is responsible for the carbon footprint left behind by goods manufactured in China for American consumers by American companies. For instance, the production of a single mp3 player releases roughly 17 pounds of carbon dioxide into the environment (Editorial Board 2007). Under product life cycle responsibility, all environmental impacts would be charged to the corporation that caused them. How much energy is expended on transporting goods to their final point of sale? Goods manufactured in China must travel tremendous distances to reach their final destination. How

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are products packaged? Disposable packaging such as plastics and Styrofoam end up in landfills and virtually never biodegrade. Plastic salad containers take thousands of years to biodegrade, which is why Whole Foods now uses containers made from sugar-cane waste that decompose in roughly ninety days (Borden, et al. 2007). Holding corporations responsible for the waste produced by disposable packaging materials will inevitably spur innovation. As a result, materials will be used more efficiently and new distribution methods that eliminate the need for packaging will be pioneered. This system of life cycle responsibility will also greatly impact the way products are designed. For instance, if automakers are held responsible for the emissions of vehicles that they produce, there will be huge economic incentives to increase fuel economy and develop alternate renewable fuel sources. As it stands now, there is very little incentive for them to focus on these issues, other than the growing demand for fuel efficient vehicles. What is most appealing about providing automakers with this incentive is that the technology to manufacture superefficient vehicles already exists. Johnathan Goodwin, an avid mechanic and cofounder of SAE Energy, has demonstrated that cars can be made to run on hydrogen, diesel, biodiesel, corn oilpretty much anything but water (Thompson 2007, 81). Goodwins modified Hummer gets 60 miles to the gallon by running on a hybrid electric/biodiesel engine with a hydrogen injection system. On top of being superefficient (60 miles to the gallon for his 5000 pound Hummer, as opposed to 9 miles per gallon on a standard Hummer) its also more powerful: his hybrid engine boosts the horsepower from 300 to 600 and can go from zero to 60 in five seconds. Oh, and he fills up his tank with old french-fry grease from restaurants that are more than willing to give it away. Goodwins fury that automakers havent embraced this technology is evident; Detroit could do all this stuff overnight if it

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wanted to (Thompson 2007, 82). Product life cycle responsibility could provide the incentive corporations need to embrace this kind of innovation. The final stage of the product life cycle presents a significant challenge, but is also potentially lucrative. Product life cycle responsibility would force corporations to be accountable for dead products. After a products useful life has expired, it often ends up in the landfill. Indeed, roughly 4000 tons of electronics are discarded per hour worldwide. Which is why Dell is spearheading a new initiative to recover unwanted electronics; they recovered 40,000 tons of unwanted equipment in 2006 (Borden, et al. 2007). Even so, tremendous amounts of precious resources are still being carelessly discarded. If corporations were held accountable for this waste, comprehensive recycling and reclamation initiatives would undoubtedly flourish. A new recycling industry could spring up funded by existing corporations to keep their products out of landfills. The precious metals and components recovered from this process represent an untapped goldmine of resources that could make this kind of venture profitable.

The Necessity of a Global Coalition: If this proposed framework of regulations is going to succeed, it will require global support. Otherwise, foreign and multi-national corporations could easily bypass the laws by operating in areas that dont enforce them. This would present a significant disadvantage to those corporations that do have to adhere to the regulations. The strategic disparity that this creates would have an adverse effect in that corporations would seek to avoid compliance by operating in unenforceable regions. Achieving the kind of global support that this initiative requires is perhaps the biggest hurdle to successful implementation. However, this is by no means an impossibility.

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A Future of Sustainable Innovation: The cost of producing goods with a minimal impact on the environment can be an expensive process. In some cases the price of goods could dramatically rise. However, this increase in price will come to reflect the true price by placing a value not only on the good itself, but also on its overall environmental impact. On the other side of the equation, conservation and recycling efforts have been shown to have significant positive effects on profitability. For example, General Mills discovered that oat hulls (a by-product of making Cheerios) can be burned as fuel. Rather than paying to have the excess hauled off to a dump, customers now compete to purchase the material. As a result of such efforts, General Mills now recycles 86% of its solid waste (Borden, et al. 2007). Many of todays leading firms are already implementing an array of green business techniques. Mike Brown, an environmental consultant, knows that these measures pay off: companies that are able to turn their business inside out this way find that addressing sustainability issues can change from a burden or cost to an opportunity for efficiency and profit (Fishman 2007, 99). Far more often than not, sustainable business practices end up becoming an economic benefit in the long run. The magnitude of the previously discussed regulations will undoubtedly have a dramatic impact on the way corporations conduct business. Meeting the requirements of complete product life cycle responsibility will be nearly impossible in the short term, but will drive innovation in the long term. By forcing companies to adapt to a completely new set of regulations, innovative measures will become the driving force of increasing profitability rather than exploiting the environment.

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The immense capability and resources commanded by corporations can be an invaluable tool in creating a sustainable society. By placing complete environmental responsibility on the hands of corporations, innovative adaptations will be necessary. The driving force of the profit motive will then drive corporations to embrace an environmental outlook in their strategies. If recent trends in the profitability of green business techniques remain true, this will be a winwin situation. We could save the Earth yet, and corporations are the cure.

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Works Cited
The Corporation. Directed by Mark Achbar and Jennifer Abbott. 2003. Becker, Gary S., Tomas J. Philipson, and Rodrigo R. Soares. "The Quantity and Quality of Life and the Evolution of World Inequality." National Bureau of Economic Research, 2003: 1-29. Borden, Mark, Jeff Chu, Charles Fishman, Michael A. Prospero, and Danielle Sacks. "50 Ways to Green Your Business." Fast Company Magazine, November 2007: 90-98. Chichilnisky, Graciela. "What Is Sustainable Development?" Land Economics, 1997: 467-491. Editorial Board. "Global Warming: China says: Et Tu?" Seattle Post-Intelligencer, November 16, 2007. Fishman, Charles. "Hire This Guy." Fast Company Magazine, November 2007: 98-99. Gladwin, Thomas N., James J. Kennelly, and Tara-Shelomith Krause. "Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research." The Academy of Management Review, 1995: 874-907. Howarth, Richard B., and Richard B. Norgaard. "Environmental Valuation under Sustainable Development." The American Economic Review, 1992: 473-477. Shrivastava, Paul. "The Role of Corporations in Achieving Ecological Sustainability." The Academy of Management Review, 1995: 936-960. Starik, Mark, and Gordon P. Rands. "Weaving an Integrated Web: Multilevel and Multisystem Perspectives of Ecologically Sustainable Organizations." The Academy of Management Review, 1995: 908-935.