VideoSo when we ask ourselves about the missions and values of corporations, and whether corporations can afford to be green, we need to step back to look at the full picture of an organization, what makes for long-term success, and on multiple levels if we, as human beings organized into corporations, can afford not to be green.
The news has been sprinkled with scandals in corporations. These scandals tend to boil down to the actions of a few within the company in the betterment of that few, rather than the actions of the organization in the betterment of many. Most recently the case of Lord Black at Hollinger springs to mind. And it is an issue faced daily, not only by CEOs deciding who they will be, but also by every individual inside an organization struggling with inadequate corporate cultures and moral dilemmas — the issues of taking an action to better the lives of their family (the few) in the short run, which may violate the rights of the many (other stakeholders and constituents) in the longer term.
Often when it relates to the environment, the question is raised: are we making judgments solely to benefit those on the planet today — or have we considered those generations that will come after ours? Again we have the ethical choice: the many or the few.
The problem is similar to that faced by many corporations today in making not just environmental but other long-term versus short-term decisions: the dilemma of quarter-to-quarter earnings pressures versus long-term value creation.
Even if environmental initiatives are value creating, a recent study by professors Graham, Harvey, and Rajopal on "The Economic Implications of Corporate Financial Reporting" shows that "55 percent of managers would avoid initiating a very positive NPV project if it meant falling short of the current quarter's consensus" and "78 percent of executives would give up economic value in exchange for smooth earnings".
So this "many and the few" dilemma — the short term and long term — is a global one, and it is the "environment," so to speak, for this question of environmental corporate responsibility.
So let's live in the world companies and investors have currently created for themselves. A question that every "bottom line" CFO will surely ask is this: if corporations do look to their larger responsibilities to all constituents and look to address environmental concerns, is there a payoff beyond that of our souls — or of generations that come after?
The largest U.S. investor thinks so. Acknowledging the positive correlation between environmental performance and investment returns, Calpers has embarked on initiatives this year to invest in stocks of environmentally responsible companies.
And investment firms like Innovest explicitly address it, asking the question: "How fiduciarily responsible is it not to consider environmental records and liabilities?"
Employees care, too. The workforce will be shrinking, we are told, and the motivations of employees are changing. They value many different aspects of their lives. To attract the best of them, pollutant employers are increasingly finding they have to communicate what they are doing to address issues of the environment and larger issues of corporate responsibility.
And customers increasingly are making choices that go beyond just their own materialistic considerations to address issues of broader focus and concern.
And now, a study this past summer offers support for the contention of Harvard Business School Professor Michael Porter that the win-lose dichotomy between bottom-line results and the environment is a false one. This important multidisciplinary study by professors Al-Tuwaijri, Christensen, and Hughes ("The Relations Among Environmental Disclosure, Environmental Performance, and Economic Performance") shows that for a cross-section of companies, environmental performance (defined as the ratio of toxic waste recycled to toxic waste produced) and economic performance (defined as industry adjusted stock price returns) are very correlated. Those companies that have strong environmental performance also have better economic performance.
This correlation supports Dr. Porter's assertion that rather than viewing environmental pollution as a deadweight cost, the best management teams view it as an opportunity — because pollution represents resources that have been used incompletely, inefficiently, or ineffectively — and that this creates innovative potential to use new technologies, products, and processes to address customer and community needs.
The study also finds that those companies that are better environmental performers also have better environmental disclosure. Today, organizations like KLD Research and Analytics help the investment community by providing research on environmental practices of firms. GovernanceMetrics International includes environmental practices in the "corporate behavior" section of its governance ratings system. And to help all constituents, but particularly investors, this year some in the Securities and Exchange Commission and Congress have begun to re-explore and recognize the need to enhance requirements surrounding environmental disclosure of liabilities so that better choice-making is possible.
Despite these advances in understanding and the clear evidence of the benefits of addressing environmental concerns, more education is needed. Of course, economics and accounting are different. So what is required? Better disclosure, so investors and others can make informed decisions about where to invest money, time, and talents. Better management systems and executive incentives established by boards, to take these future liabilities into account. Because, in fact, if the liabilities were shown and known and the true economics and opportunities were understood, then the choice would be clearer from all perspectives: the "dollar bottom line" and the "real bottom line," that is, the deathbed question of "Did I do what I could to help the world while I passed this way?"
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