The poster child for this argument is the Deepwater Horizon accident -- if BP and partners had properly valued ecosystem damage potential, they would have invested more in prevention and containment capacity. But this approach is merely a translation -- from the value of stakeholders to the value of the company -- and translations are imperfect.
How would we translate the value of an employee's life to validate investment in health and safety? How to value return from greenhouse gas emissions reductions of an individual company to global ecosystems?
As companies grapple with these questions, we are left in a void of direction. The tangible result of this void is a set of targets presented in sustainability reports that are weak, meaningless, or absent.
It is frustrating to the audience of these reports to read about corporate commitments to "participate in dialogue," or "roll out a new plan" or "investigate alternatives." These targets are not responsive to either shareholders or the broader stakeholder community.
So what to do?
The first step is to broaden our concept of "value" to accept that value is defined in sometimes incomparable ways. A neighbor to a mining operation may value silence just for the sake of silence -- with no priority on the impact that noise might have on the value of their home. The group advocating for community rights might have a secondary value of gathering cause-related contributions.
So the first step is to get very specific about "what is the value that we want to achieve?" That value is going to be defined by multiple parties and sometimes in incomparable terms. Nevertheless, when the specific value to be achieved is known, we can move toward setting targets -- some for that will make sense to the company, some for stakeholders and some a hybrid.
Setting corporate targets based on someone else's priorities is counterintuitive to some and courageous in the face of critics. Nevertheless, we are approaching a plateau of sustainability where the low-hanging fruit has been identified (if not already picked) and we will need to re-invent our understanding of value to break the gridlock and fill the prevalent lack of direction on the big hairy issues.
Stock board photo via Shutterstock.
Different constituents value
Different constituents value different things in different ways.
Most of the ecological and social ills that fall under the general concern of sustainability arise from the fact that (in general) people value affordable consumption, convenience and independence more than they value a potential reversal of environmental degradation, climate changes or social injustices.
Corporate management being a subset of those people also have a moral (and legal) obligation to create value for their shareholders. Capitalism and consumerism are two aspects of the same religion it seems.
It isn't hard to convince management that their customers would prefer more affordable consumption, convenience and independence, but delivered in a manner perceived to be more sustainable. So, the only thing left is to convince management that there are ways to do this that are also likely to create shareholder value. After doing things to use less energy or water or produce less waste that do not require new investment, only changes in practices, you enter the zone of confusion.
Payback periods are not a proper way to judge if an incremental investment is value-creating or not. IRR hurdle rates are going to be different for different companies. Then, there is the expected impact of future growth rates. Also, there is some evidence that shareholder value can be created via a lowered investor discount rate associated with more sustainable approaches. It's complex. But the definition of expected value to shareholders is specific and quantifiable. It is not broad.
Valuing entire ecosystems sounds great, but is kind of fuzzy, at best. Valuing the socio-economic impacts of failures like Bhopal in 1984 or Deepwater Horizon in 2010 may resonate within those industries, but may not play well in boardrooms in other industries.
You can affect corporate targets with the priorities of their customers and the broader society if you can show them how it connects to the value proposition for their main constituency, their shareholders.