In the time of trusteeship
08 Jan 2000
As we step into the New Millennium, the protection of the environment is a critical challenge for countries and companies alike. Historically, socialist countries like the former Soviet Union that practised rigid centralized planning were poor examples of social responsibility and environmental protection. In particular, a large number of cases from the former Soviet Union that are only now becoming known provide horror-stories of total disregard for environmental damage and destruction. Countries with free market economies too have emerged no better. There have been several unfortunate examples of irresponsible behaviour by renowned corporate entities, leading to the damage and degradation of the natural resource-base and large-scale pollution. However, attitudes are changing for the better. In the last 2 decades of the 20th Century, corporate leaders acquired a finer sensitivity to the environment and the sustainable use of natural resources even when it meant an unfavourable impact on the balance-sheets of their companies. For instance, it is estimated that in the US in 1992, the cost of compliance with environmental standards amounted to 2 per cent of the country's GNP! However, the typical company's concern for the environment should not stem from altruistic considerations alone. The reason: over time, the environmental damage that companies are responsible for begins to hamper the operations of these very companies, and has a negative effect on profitability. The pulp and paper industry in India is a case in point. Today, restrictions on, and a decline in, the indigenous supply of timber and forestry products have impacted most major players adversely. But for several decades, these companies took low-cost supply of domestic timber for granted, and did not invest in research and modernization of plant and equipment. The underpricing of raw materials without internalizing the cost of depletion of the resource from which these materials were derived gave the industry a temporary advantage, but proved to be a handicap in the long run. In several parts of the country, excessive exploitation of water-resources makes it difficult and expensive to carry out industrial operations. According to our estimates, India loses more than 10 per cent of its GDP on account of destruction and degradation of the country's natural resources. Between 11 and 26 per cent of agricultural output is lost on account of soil degradation. The numerical value of this loss is Rs 89,232 billion per year. We also estimate that 2.50 million people die a premature death every year as a result of poor air-quality. This has an indirect impact on corporate performance as well since sickness leads to greater absenteeism and lower productivity. The vital issue of corporate image is closely linked to environmental protection. Companies all over the world are realising the price of being part of the Information Age. Increasing globalization and extensive media reach have put corporates in the limelight. Whenever a corporate acts irresponsibly, media exposure and negative publicity are almost instantaneous, leading to a poor corporate image. Fortunately, the reverse is also true. A healthy sense of responsibility towards the environment receives widespread attention. This could well be a cost-effective and more-permanent manner of building the organization's image instead of conventional forms of advertising. What better way to gain a favourable image than to pursue and display a high sense of responsibility towards the environment, in which society sees itself as having a major stake? Furthermore, products made and sold by an environmentally-responsible organization would generally, receive acclaim from the public. This is precisely why supermarkets in the First World today label the outputs of organic farming distinctly. There are good reasons for corporate organizations to do more while defining their roles as stakeholders in preserving and protecting natural resources. Morally, they could follow Mahatma Gandhi's concept of trusteeship, which requires leaders of business to see themselves as trustees on behalf of the public rather than as owners of capital. Such a role would, naturally, require the corporate sector to secure and nurture the trust of society. But, even from a purely business perspective, companies need to assess future environmental risk. Environmental standards can only become more stringent as we go through this millennium; thus, companies investing in a particular technology or project today will need to be sensitive to the future environmental concerns that could impact returns from this investment. Any investor in a production facility knows that such an environmental-risk anticipated today would cost much less in mitigation measures now than if the risk was to be met when it occurs tomorrow. Such enlightened self-interest would, clearly, reflect in shareholder value. This could explain the initiatives of several companies. BP-Amoco, for instance, has undertaken a project for reducing greenhouse gas emissions in all its operations. Unilever has launched a water initiative programme around the world, which aims to ensure that society manages water efficiently in various kinds of day-to-day activities. DuPont has set itself a target of sourcing 10 per cent of all the energy to be used in its operations worldwide from renewable technologies by 2010. And oil giant Shell, in its well-established scenario-building exercises, has projected that the world may be using 50 per cent of all energy produced from renewable sources by 2050, and has, therefore, started investing in a major renewable energy programme. The size of the challenge and its increasing complexity requires concerted action from a cross-section of several stakeholders. Governments will have to come up with more effective instruments to ensure compliance. Non-Governmental Organizations (NGOs) and civil society have a unique role to play in mobilizing public opinion, and providing, where necessary, constructive advice to corporates. However, the major role will be that of companies which have to implement the solutions that safeguard the interests of society. In these efforts, research institutions will be natural allies of companies because it is only through objective analysis that environmental issues can be integrated into the mainstream of economic activity. Environmental activism will, certainly, play an important role this millennium. But only the economic analysis of environmental effects and mitigation measures will motivate governments, corporate organizations, and society towards rational decision-making, and, thus, save our world from certain annihilation.