Columnists: Hans Nilsson, Fourfact

Published on: 26 May 2011

Sustainability inertia in (big) business

Why do they just sit there shy and silent? Sometimes they launch an advertising campaign on the theme of being green – the big companies – but most of them are awkwardly low key considering their importance in our everyday life and in shaping the future. Why is there more talk than action from big companies when it comes to sustainability?

Well, as long as we are restricting the discussion to energy efficiency we know the answer. It is just not economical to do more... That is at least what they claim when asked. Their proof of the truth is that these companies are operating on competitive markets and therefore are continuously trimming their production to low costs. And we nod in hesitating agreement. It sounds plausible. It is easy to understand and compelling to believe at first thought. Or….?

The Swedish energy efficiency programme for energy intense industry (PFE) is a contradictory case. The companies are receiving a tiny tax deduction in compensation for joining the programme. They promise to make energy audits and undertake efficiency measures accordingly. Basically it is just a way to make these companies introduce an energy management system and to start using it.

And lo and behold! The same companies that have sworn, two fingers on their economics textbook, that they have done everything that was cost efficient now found twice as much efficiency gains at half the cost as the original audits had detected! The tax deduction itself seems to be a stronger signal than the actual money return to make the business managers move forward.

The negative cost for efficiency improvements are verified – again. They have been shown over and over by such esteemed analysts as Amory Lovins, Clark Gellings and the Mckinsey consultants (and they are just a few). But a swarm of mainstream economists have dismissed them with the argument of transaction costs, i.e. the improvements were too costly to dig out and realise. They were right! But only up to a point because they forgot the dynamics of real economies –transaction costs can be reduced and often eliminated. The issue is not the costs per se but the trigger to start the process of digging.

Companies need to get up on the first rung of the ladder as was said in a conference referred to on a Greenbiz blog by Matthew Wheeland recently, and they have to get there “ by regulation, by procurement or by executive order” he said quoting Peter Graf, SAP's Chief Sustainability Officer.

We have in earlier eceee Summer Studies had presentations where the decisions in companies have been studied and there will be more again this year. It is quite clear that the statement about getting started is a very valid one. Ever so often the knowledge about the opportunities exist in the companies, but not among the higher echelons where decisions are made and the organisation is structured. There, energy efficiency, and other measures for sustainability, is a non-issue. It is not perceived as “strategic”.

The knowledge about the way forward is not to be found in mainstream economics but rather in behavioural economics where the actions of real people is studied. The Swedish case with tax deduction gives us a lead. To high-level managers tax deduction is a message in itself. So are regulation, procurement and executive orders. It could be as Dan Ariely (a behavioural economist) has postulated: on a managerial level where you have high bonuses the size and the use of this bonus occupies the mind to an extent where you at least temporarily lose interest in the management of the business.

Other columns by Hans Nilsson