Is Sustainability Profitable?
Green business is a hot topic right now, but is it a rival for traditional business models? That depends on who you ask
More than 100 billion plastic bottles were produced by the Coca-Cola Company in 2016. There's a warning that by 2050 there'll be more plastic than fish in our oceans. Maximizing profit, it seems, means ruining the environment.
Business schools are under pressure to change that. Creating the next generation of business leaders means creating a generation of ethically minded, environmentally conscious leaders.
And they have to respond. It shouldn't just be down to 16 year-old climate activist, Greta Thunberg, and children around the world boycotting school in protest, to force capitalism to change.
Is sustainability even profitable, though?
It has to be, according to Michigan Ross School of Business professor, Gautam Kaul. In 20 years, he thinks, if a typical firm is only looking for a financial return, it might as well be fossilized.
“20 years from now, a typical firm that’s only looking for financial return won’t exist"
Gautam is a professor of finance at the University of Michigan Ross School of Business and the head of the Social Venture Fund at the Zell Lurie Institute, which provides funding to VC startups with impactful missions. He believes that the problem lies in how we currently measure business success.
“From society’s perspective, sustainability has to be addressed. But if you’re talking about whether it’s profitable for a corporation, I don’t think that will ever be the case if profitability is measured in purely financial terms,” he asserts.
Rather, Gautam says that we need to recalibrate the conversation about a company’s “value” away from the purely financial, focusing more on an economy of social and environmental value—minimal cost to the environment, for example, and the creation of jobs.
The other key element is introducing regulation for the biggest companies, penalizing them for the harm they do to the environment in pursuit of growth.
As Gautam points out, if this isn’t done, then the least sustainable companies will always be the most profitable, because they are prioritizing purely financial returns and with the least obstacles in terms of growth.
In such an environment, how could sustainable business not be a sacrifice when it comes to making a financial return?
Systemic change is necessary, then, if we are to reach a sustainable business future—and Gautam believes that it is coming, and it is being pushed forward by the people.
“20 years from now, a typical firm that’s only looking for financial return won’t exist,” he says confidently.
“People’s preferences are changing, and that’s what makes the market—it’s not a magical thing, it exists because people are willing to make exchanges, and people aren’t willing to make exchanges that are just financially motivated anymore.”
Andreas Rasche, associate dean at Copenhagen Business School (CBS), agrees.
Much like digitization, he says, sustainability is a “mega-trend” that will affect all industries and job functions in the future, and the MBA at CBS seeks to prepare its students accordingly. As a result, the course has found itself well-ranked in the Corporate Knights Better World MBA ranking for its approach to responsible business.
“The main mindset [we try to teach at CBS] is that this is mainstream business—it is a very modern business education,” says Andreas. “It’s not a tree-hugger business education.”
“In the long run, it’s really about managing risk”
CBS is not the only graduate management education institution to be pushing forward the idea that soon the “triple-bottom line”—a company's positive impact in terms of people, planet, and profit—will be the only bottom line that businesses care about in future.
At the Gabelli School of Business at Fordham University in New York City, dean Donna Rapaccioli puts sustainability at the heart of the school’s mission to inspire positive global change.
Like Andreas, Donna believes that teaching students to implement sustainable business strategy is not a question of immediate returns but rather an investment for the future.
“I think there are people that are concerned about the whole notion of [social impact] and profit coexisting,” she admits. “[But] what we try and do is explain to the students that it’s a journey, and this is a long haul—maybe in the short run you can make the argument that paying attention to people and the environment is costly, but if you look at the long run it’s really managing risk.”
When looked at through the lens of risk management, sustainability training certainly seems like it should be an increasing priority for business educators, and accreditation and rankings organizations are starting to agree.
The problem with finance
The Association of MBAs (AMBA) considers a school’s sustainability and ethical business provisions when awarding accreditations, and this year the Financial Times debuted Corporate Social Responsibility (CSR) as a metric in its Global MBA ranking.
Donna believes that this outside pressure is a positive force in encouraging higher education institutions to use their influence for the public good; however, she is skeptical of the extent to which rankings systems like the Financial Times can actually push a sustainable agenda forward.
As in the business world at large, the problem comes down to finances.
“Almost all of the rankings include salary and salary progression [as metrics],” Donna explains. “But if you’re going to go work at an NGO or a green company, you’re not going to have that high salary [straight away].
“Whether we like it or not, we all pay attention to rankings, so by choosing to enrol students who are predisposed to go into these [sustainability-focused] career paths, you’re hurting yourself [as an institution].”
The question of whether sustainable business is profitable is a thorny one, then, both for businesses and business schools.
By current measures of “profitability”, businesses who want to function sustainably are forfeiting short-term profits for long-term gains—in such a climate, and without government regulations on corporate sustainability, a fully-sustainable company may never rival the likes of Apple and Amazon.
But, if these professors are to be believed, this definition of profit's days are numbered—it's up to MBAs to prepare for what comes next.