As the world gathers in Paris to pursue the possibility of a limited and modest climate accord, the planet continues to become more interconnected and interdependent than ever before. Despite the growth of global communications, culture and corporations, national sovereignty and indeed the drive for community-based governance, remain as strong as ever. How can we create an international regulatory regime in the face of these strong national and local forces? The answer is we cannot; and it’s probably time to stop trying. Let’s accept the force of nation states and the desire for community control as conditions that will not go away. How then do we deal with the global issues of climate change, loss of biodiversity, and ecological destruction? We need to focus our attention on the existing systems of management and influence now in place and attempt to turn them toward sustainability. This includes national, state and especially local governments, corporations and nonprofit organizations.
Corporate governance provides lessons that may be useful here. Before the great crash of 1929, every corporation’s financial reporting was an individual matter. If you invested in a company back then it was sometimes like gambling at a casino. A company’s financial reports might assert that they were making money, but who knew? After the crash, America started to regulate financial markets and by the end of the 1930s we had developed Generally Accepted Accounting Principles. If a company wanted to raise capital through the public market place and sell shares through an American stock market, the Securities and Exchange Commission required strict and audited financial reports. Companies complied in order to have access to the public market place to raise capital. Companies had to accept regulatory standards for financial reporting or they would be denied access to those capital markets. Government was an essential partner in setting up and enforcing rules of the game that corporations benefited from.
It is becoming obvious to many observers that in addition to understanding the possible financial risks posed by corporate performance we also need to better understand the environmental risks posed by a company’s behavior. Environmental risks often become financial risks. The world is too complex and too observed for companies to get away with corporate environmental mismanagement. A company can’t simply dump toxic waste by the side of the road and assume it won’t be detected. Every smart phone in the world holds the potential to provide a record of corporate misbehavior. The NGO that identified VW’s software deception was small, but effective. To manage in this new world, global leaders and CEOs need to understand sustainability management, which is simply the organizational practices that result in sustainable development. Sustainability management makes it possible to build an economy that allows a high standard of living without destroying the planet that sustains us. It requires organizations to think about their use of water, energy and other raw materials and about the waste resulting from production and consumption. It requires that we use incentives to change behavior, that we promote new thinking about resource use, waste and impact and that we integrate sustainability into routine management and decision-making. It also requires that we develop “Generally Accepted Sustainability Metrics”- a way to measure an organization or jurisdiction’s progress toward sustainability.
Traditionally, managers have been concerned with financial management, human resource management, information management, production processes, strategy and marketing, profit, return on equity and market share. Those concerns will remain, but in today’s more complex and crowded world, CEOs must be even more sophisticated than ever before, and pay attention to the physical dimensions of sustainability. The costs of ignoring environmental risks can be quite high. The costs of preventing environmental damage end up being quite low when compared to the costs of remedying environmental disasters.
Three graphic examples of corporations that did not effectively manage environmental risks include:
- The recent collapse of a mining dam at the Samarco iron ore mine in Brazil is one of the biggest environmental disasters in the country’s history. While what caused the dam to burst remains unclear, initial investigations suggest that this was avoidable. Vale mining and their partners may find the damages they are forced to pay will reach billions of dollars. Several towns near the dam have been completely destroyed and the scope of the damage expands daily.
- The BP oil spill in the Gulf of Mexico in 2010 is one example of regulatory capture and regulatory failure. Public agencies that were created to oversee and regulate an industry instead served to advance the interests of companies in the industry. BP will end up spending over $60 billion due to their mismanagement.
- Volkswagen’s deliberate and systematic effort to violate clean air rules is also an example of management incompetence and failure. VW has already set aside over $7 billion to help cover the costs of the management incompetence that led to lying about the emissions discharged from its diesel autos. And that is just the start.
In New York State, Attorney General Eric Schneiderman is investigating ExxonMobil for fraud. Exxon once sponsored climate research and Schneiderman suspects that the company lied to investors about the risks posed by climate change to fossil fuel profits. While it is not certain that he has the evidence to make the case, or even that this is a sensible way to hold a company accountable for environmental risk, the issue is clearly part of the current public policy agenda.
While New York’s Attorney General tries to make political points attacking the fossil fuel industry, and VW, Vale and BP are feeling the pressure of environmental risk, the nations of the world are gathering in Paris to codify existing national commitments to reducing carbon emissions. Meanwhile, India is poised to dramatically increase its use of energy in the next decade, much of it generated by coal. It is clear that no global force exists to compel India to head in another direction. While corporations appear to be paying more attention to environmental concerns due to the potential for costly risk, some nation states are under no similar pressure to change their behavior. How then can we expect global environmental issues to be addressed?
The answer may not be satisfying, but it is probably still true. First, education, awareness and even understanding of environmental issues continue to grow. Efforts to deny or delegitimize environmental science are failing. Young people in particular understand what is happening to the planet. These issues are on the agenda and in our mindset and they are not going away. They are on the agenda because they reflect facts: objective environmental conditions that can be observed. Even if sea level rise is mainly understood through models and projections of the future, air pollution can be seen and smelled. Traffic congestion and deforestation are facts that can be photographed and communicated by travelers and viral videos. And they are. All of this creates a pressure to act and regulate the behavior of those whose actions degrade the environment. Even in India. In many cases public pressure will be enough to force an end to ecosystem destruction, but not in all cases. The dilemma that we face is when there are no villains, when the damage is caused by our very way of life. That is the case with the use of fossil fuels. Energy is needed in virtually all elements of the global economy. The only way to end the damage caused by fossil fuels is to find a replacement that is cleaner, cheaper and at least as convenient as fossil fuels.
Which leads to one of the most promising developments of 2015: Bill Gates’ announcement that he will develop a multi-billion dollar fund to pay the costs of researching new renewable energy technologies. His fund will be a public-private partnership. Renewable energy is an issue that requires a technological fix, and a global research fund is exactly what is required. When combined with growing public and corporate understanding of the risks of environmental damage and the advantages of sustainability management, it gives me reason to believe that we can continue to grow the global economy without destroying the planet.