Businesses turn their environmental problems into cash – Quartz

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Conventional wisdom dictates that cleaning up a company’s environmental record costs more than paying fines, settling plaintiffs, or dodging liability altogether. This understanding has guided decades of corporate behavior, from dumping carcinogenic in the California drinking water supply fake emissions tests on diesel cars.

But a growing body of research questions this notion. Since 2015, studies have suggested that the cost of improving a company’s environmental performance is not a cost at all, but rather an investment that increases profits, efficiency and competitiveness.

Fanny Hermundsdottir and Arild Aspelund, researchers at the Norwegian University of Science and Technology, examined more than 100 scientific papers published between 2005 and 2020 measuring the correlation between companies’ investments in sustainable development and their competitiveness. their results, published in the Cleaner Production Journal, showed that 64 companies had a positive relationship between sustainability innovations and competitiveness; 29 showed mixed or neutral results; five were inconclusive and two studies showed negative effects.

“Our main contribution is to show that the alternative hypothesis – that sustainability is simply a cost factor – is debunked,” Aspelund wrote via email. “There is no scientific evidence to support such a claim.”

Most researchers, Aspelund argues, are moving towards a consensus that the business opportunities of investing in sustainable operations generally outweigh the costs. Examples like Walmart Money decision to green (and simplify) its supply chain in 2005 are increasingly common. But he concedes that few would agree unconditionally that “sustainability pays off.”

The case remains open for two reasons. First, the scientific literature does not use standard measures, and researchers have only studied a subset of the business strategies adopted. They also don’t always publish studies that fail to find significant correlations between sustainability and profitability, creating a potential bias towards better results.

The second reason is the evidence of causation: do investments in sustainable development increase the competitiveness of a company, or are highly competitive companies more likely to invest in sustainable development? The data is inconclusive.

“The idea that sustainability is simply a cost factor seems to be more of a hypothesis than an empirical reality,” says Wesley Longhofer, associate professor at Goizueta Business School at Emory University. But since many sustainability innovations serve the core business and improve performance, “this raises many questions about reverse causation.”

Wall Street does not wait for clarity. BlackRock, the world’s largest asset manager, says it now officially assess climate and sustainability risks as part of its investment decisions. It is joined by other investors in ClimateAction 100+, a global consortium pushing companies to start eliminating emissions. And many companies already are: at least 1,100 companies have voluntarily adopted emissions targets, according to scientific objectives and 385 of them have pledged to meet the 1.5 ° C target set by the Paris Agreement.

Companies can still “save” money by reducing their environmental obligations, at least initially. But the strategy risks catastrophic losses. Volkswagen’s diesel emissions fraud scandal has cost German automaker 30 billion euros (36 billion dollars) until now, while demanding a huge reputation award at a time when it must pivot towards electric vehicles.

Going forward, suggests Aspelund, we may want to stop asking ourselves whether green investments make financial sense, but ‘how and under what conditions does sustainability create value for companies’. So far, academics still have a lot of work to do to answer this question.


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