Written by Anvitha Jagannathan
Globally, we are consuming our Earth’s resources 1.7 times faster than our ecosystems can regenerate. U.S. consumption tops the list, with Huffington Post reporting that if the world’s population lived like us, we would need 5 Earths of resources. Although individuals are consuming more than their fair share of resources, companies are depleting natural resources at a far greater rate. To reduce this consumption, businesses need to have sustainable business practices. Huffington Post defines “sustainable business” as an organization that has minimal negative impact on the global or local environment, community, society and economy. A truly sustainable organization conducts environmentally and socially responsible practices by preserving resources today for future generations and setting high standards for its governance.
The Sustainability Accounting Standards Board (SASB) identifies specific dimensions that industry should measure against when thinking about its sustainability progress. Unlike frameworks of corporate social responsibility, sustainability requires business strategy integration and respective firms will need to balance its sustainability efforts with their bottom line. Companies know that consumers, especially millennial consumers, are looking for sustainable businesses, so every company is trying to show that it is sustainable, whether or not that is true. A study by Harvard Business School shows that ‘high sustainability’ companies tend to have higher return on assets and return on equity ratios. However, while collecting the data for this study, the Harvard authors acknowledged that they cannot always ascertain which companies’ sustainability initiatives reflect true changes and which ones are just “greenwashing”.
To put it bluntly, greenwashing is the practice of superficially promoting environmentally-friendly programs to deflect attention from an organization’s environmentally unfriendly or less savory activities. There seems to be an uprise in this approach, especially now that sustainability has become such an important measure of being a “good corporate citizen”. However, Tensie Whelan, Director of Stern’s Center for Sustainable Business, believes “most companies are adopting sustainable business practices to manage risk and take advantage of opportunities, not just for PR purposes. Companies have to genuinely see the importance of these issues for forward-looking management.” Companies need to implement sustainable business practices for the dual purpose of higher profits and improving society as a whole. For example, if a company operates water-guzzling factory in an area suffering from water scarcity, the facility is in danger of shutting down unless the company takes measures to adopt sustainable water management policies.
Under the backdrop of relative government inactivity regarding sustainability regulations, people are looking to businesses to step up and inspire change. Larry Fink’s 2019 letter to CEOs implores companies to change their practices and make a positive societal impact. He mentioned that BlackRock “advocate[s] for practices that we believe will drive sustainable, long-term growth and profitability.” Fink believes companies need to address certain critical issues, from “protecting the environment to retirement to gender and racial inequality, among others.” This widely-lauded letter shows that companies cannot be successful in the long run unless they shift their focus from purely profits to a holistic integration of the needs of our people and our planet. However, some companies may use this as an excuse to greenwash their image instead of actually adopting sustainable business practices, since it is easier and cheaper to choose the former.
We can all agree with Whelan that while companies and citizens have a long way to go, we can get there with some cooperation and prioritization. Apart from the Sustainable Business co-concentration, Stern is taking additional measures to increase awareness of sustainable business practices among students, faculty and corporations. The general public has access to a free online course titled “Building a Better Business Case for Investments in Sustainability” included in the Stern Center for Sustainable Business’s website. Undergraduate Stern students can also take the course Sustainability Impact Consulting & Business Innovation in Costa Rica, which involves a trip to Costa Rica and a consulting project with small, local businesses in the agriculture and eco-tourism sector.
While institutions begin to focus on increasing awareness about sustainable business, there is little any of us can do alone to address the issue of greenwashing. It is imperative for us to continue working together to identify causes for greenwashing and methods to prevent it. Although it is very difficult right now to measure a company’s sustainability and to figure out what actions are done with the right intentions as opposed to greenwashing, researchers are trying to find sustainability metrics according to industry and size. We, as future business leaders, need to be equipped with this knowledge because our decisions will surely impact the fate of our planet.