Ecology, Ethics and Economics: The Emerging Convergence

A very important development in the corporate world is the growing convergence of what we may call the ‘3Es’: Ecology, Ethics and Economics. This convergence has crucial significance for the higher evolution of the corporate world and humanity as a whole. This article examines this convergence in the light of a deeper and a more integral vision of life.

The Economics of Ecology

Until recently and for a long time, it was believed that progress in ecological sustainability involves a certain amount of loss in economic performance. But currently there is a growing consensus, based on the facts and experience, that this trade-off is not inevitable and in fact sustainability ensures economic viability in the long term.

In an interesting article in Harvard Business Review (HBR), titled ‘The Sustainable Economy’, Von Choinad with co-authors Fick Ridge and sustainability consultant Jib Elison provide the big picture emerging in the landscape of sustainability. They talk about three major trends: What has the potential to make ‘the lowest priced T-shirt, causing the least damage to the planet’? The first trend is the attempt to quantify in monetary terms the value of the ecosystem services such as the forests, water, pollution caused from residuals, etc. Second is the growing environmental sensitivity of investor community. The third is the evolution of standard indices and ratings for the companies and consumers for making the right eco-friendly decision. Let us briefly examine these trends as described in more detail by Choinad et al. in their article in HBR.1

Is it right to put monetary value on ‘priceless’ natural resources such as rain forests? This is a major objection raised by idealistic minds. But from a corporate perspective the problem with this attitude is that these natural resources are regarded as ‘free’ and the negative impact of using, consuming or destroying these natural wealth are not incorporated in the accounting system, which means the cost of the product do not reflect its true impact on the environment. A product which causes maximum damage to the environment may be cheaper than the one which inflicts minimum damage. At present there are many initiatives and programmes all over the world for assessing the true value of natural resources and some companies are making the attempt to internalize them into their account books. For example, Gund Institute of Ecological Economics, with funding from US National Science Foundation, has developed a web-based tool which can help users in assessing the value of ecosystem services on multiple scales. Puma, a sports footwear and apparel company, announced in April 2011 that it would begin issuing an environment profit-and-loss account that will account for the full economic impact of the brand on the ecosystem and commissioned PricewaterhouseCoopers to help develop their economic statement.

The second trend is what is now called as ‘Socially Responsible Investment’ (SRI). Investor community is awakening to the long-term implications of sustainability. In general, investor community tends to rate companies on the basis of short-term financial measures. Investors are beginning to realize that companies that falter in the domain of ecological sustainability cannot prosper in the financial front in the long run, though they may show good returns in the short term.

A positive outcome of this awakening is that a growing number of progressive investors look for the environmental and social performance of a firm on many fronts, such as water use, carbon emission, stance towards labour, supply chain management practices, etc.

The third trend is the emergence of comprehensive indices and ratings for companies and consumers to make the right choices, for example Value Chain Index (VCI), which provides valuable data for companies to make comparison of products based on their impact in every stage of the value chain, from raw material to the finished product on a range of environmental and social indices such as land use, water, energy, carbon, toxics and social welfare. The VCI is a great help to companies for making nuanced comparison among products or vendors and arrive at the most environmentally and socially benign choice. A similar uniform and comprehensive rating for guiding consumer choice has not yet emerged, but may come up in the future. There are some examples in some specific areas, such as Energy Star rating in appliances which are very popular among consumers. Similarly, the electrical goods industry in US has created a much more comprehensive rating format which accounts for more than 50 environmental factors.

When all these three trends converge, grow and become reasonably well established in the corporate environment, and as a result funds and consumer choice gravitate more and more towards the environmentally and socially beneficial companies and products, then sustainability gets aligned with profit and market forces.

There is one more trend, which can further reinforce this alignment making ecology entirely compatible with economics. Many companies are finding that ecological practices have immediate economic benefit. This is now quite well known in corporate circles. Practices like recycling waste or reducing the consumption of energy or water saves money, but some progressive companies are going beyond such ad hoc practices and making sustainability into a profitable enterprise.

In another article in HBR, ‘Making Sustainability Profitable’, Krut Haanes and co-authors give many examples of companies in the emerging markets in Latin America, Africa, Middle East Asia, South Pacific and other parts of the world which are able to build a profitable business around sustainable products and practices.2,3

For example, in Egypt, Ibrahim Aboulesh founded Sekiem, Egypt’s first organic farm for producing organic cotton, which was more elastic than its conventionally grown counterpart. Ibrahim has evolved a business model which is at once sustainable and profitable and has generated healthy revenues. Sekiem is now one of the Egypt’s largest organic food producers with an annual growth of 14%.

Benefits of Goodness

More or less similar developments are happening in ‘Business Ethics’. After so many corporate scams and scandals, ethics and ‘integrity’ are now considered by many business leaders as important as or even more than the bottom-line and an indispensable part of corporate governance. For example, Pramod Bhasin, former president and CEO of GenPack, India, states “For an enterprise to be successful in the long term it has to be founded on a strong platform of integrity and values” and when asked how do leaders face up to scenarios where there could be a clash between values and pragmatism, especially in the face of competitive pressures, Bhasin answers simply: “The choice is easy if you really understand that integrity is not negotiable.”3 Some business leaders with deeper moral sense know intuitively that ethics pays in the long run. V. V. Raghavan, a former senior partners Ernst & Young, states: “If you are able to run any enterprise without selfish motive and with selfless service, then I believe that success will follow.” He goes on to further say: “What I mean is that my effort and involvement in doing something is not determined by return, and I know by my own experience this works.”4 But is there any empirical support for these beliefs and assertions? Interestingly, a recent research on leadership has found a correlation between ethical character and financial performance, which means ethics and economics!

KRW International, a Minneapolis-based leadership consultancy firm, conducted a study to determine the impact of character on performance, especially on financial performance measured in terms of four moral values: Integrity, Responsibility, Forgiveness and Compassion. Reporting on the study in HBR, Fred Kiev of KRW International states: “The researchers found that CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s nearly five times as much as those with low character ratings had: their RON averaged only 1.93%.”5

At the organizational level also there are now many studies which indicate that companies which are governed by some higher values at the social or moral level financially outperform those which are focused exclusively on the bottom line. For example, in their book Firms of Endearment: How World-Class Companies Profit from Passion and Purpose, Raj Sisodia talks about companies with humanistic profiles, which are loved by their employees, customers, communities and suppliers and invests a lot of money and effort in fulfilling their social and environmental responsibilities. When the financial performance of these companies are analysed, these companies not only did all the good things but also delivered extraordinary returns to their investors, outperforming the market by a nine to one ratio for ten years. Similarly, since 2007 an organization called Ethisphere has produced an annual list of the world’s most ethical companies. Collectively, the selected companies have outperformed the SP500 every year since the inception of the program in 2007 by an average of 7.3% annually.6

A good example of such corporate goodness in the environmental and social sphere with astounding financial performance is the Brazilian company Natura. The company works in close collaboration with suppliers, rural communities, local government and NGOs to develop ways to sustainably extract raw materials, create jobs and to build jobs in the communities. Natura trains managers to identify social and environmental challenges in the community, which they work upon, operate and turn into business opportunities, granting bonuses to managers on the basis of their social and environmental performances.7 From 2002 to 2011, Natura’s revenues grew by 463% and its net income by 3722%.

The Integral View

Let us now briefly examine the deeper significance of these trends in the light of a more integral vision. This convergence between ecology, ethics and economics is in sync with one of the central motifs of the ancient Indian epic, Mahabharata: Dharma is the foundation of Artha. In the popular conception it means morality or righteousness, Dharma, is the foundation of wealth, Artha. However, this motto of Mahabharata is based on a deeper and broader vision of Dharma. In Indian thought, Dharma is a pregnant and profound term with a multidimensional significance at various levels – physical, social, moral, and psychological.

In general, Dharma means the laws or laws of Nature that hold together all creation and in terms of ethics. Dharma is all the values, principles and standards of conduct which are derived from these laws. At the physical level, the discoveries of modern ecology are part of the Dharma of our material universe or in other words the material and biological dimensions of Mother Nature. In the Indian thought, Nature is not only physical but also psychological and spiritual. The physical, psychological and spiritual energies within our individual human being and in the universe are derived from and are part of the corresponding energies of universal Nature.

Just like there are laws or ecology which governs the physical or biological Nature, there is an inner ecology which governs the moral, psychological, spiritual dimensions of Nature. The ethical and spiritual values, ideals, principles and the disciplines discovered by great sages, saints and seers of the world are part of this inner ecology of consciousness. The Indian science of Yoga is the most comprehensive, scientific and systemic discipline for attuning our inner being with the higher moral and spiritual dimensions of universal Nature and its higher laws, which govern the inner worlds of consciousness. Based on this vision of Dharma, the ancient Indian epical wisdom taught that when our human life – individual and collective, inner and outer – is governed by the moral and spiritual values derived from the deeper, inner and higher laws of consciousness of universal Nature or Dharma, it leads to inner growth as well as outer prosperity and wellbeing.

Thus, in the Indian thought, Nature is not an inanimate energy but a conscious force with a physical, psychological and spiritual dimension. And we human beings are part of Nature not only physically but also in our consciousness. This idea holds the key to the next step in the evolution of environmentalism and also humanity as whole. The present convergence between ecology, ethics and economics, when it gets fully established, will lead to a decisive upward shift in the evolution of the corporate world and in the collective consciousness of the society from the mind-set of the industrial revolution which regarded Nature as a free reservoir of resources which can be exploited, polluted, robbed or ‘mastered’ as one desires and that old, traditional management paradigm of ‘get things done’ without any regard for ethics and values, to a more benign attunement with Nature with an emphasis on ethics and values in management.

But, for a decisive march into the future, we have to proceed further and take the next step towards psychological and spiritual sustainability. We have already indicated the key to this higher evolution. First step is to regard Nature as a conscious force which can respond to our aspirations. The second step is Yoga. What is ecology to physical Nature, Yoga is to the moral, psychological and spiritual Nature, within us and also in the universe. Yoga is the science for understanding and exploring our inner ecology of consciousness and attuning our inner being and outer life with the ecology of the inner universal and divine dimensions of Nature.

References

  1. Von Choinard, Jib Elison and Rick Ridgeway, ‘The Sustainable Economy’, The Harvard Business Review, October 2011, pp. 40–50.
  2. Knut Haanaes, David Micheal, Jeremy Jurgeons and Subramaniam Rangan, ‘Making Sustainability Profitable’, The Harvard Business Review, May 2013, pp. 110–113
  3. Pramod Bhasin, ‘The Power of Principles in a Leader’s Repository’, ISBInsight, Indian School of Business Magazine, 2004, pp. 19–20
  4. Peter Pruzan and Kristen Pruzan, Leading with Wisdom, Response, New Delhi, 2007, p. 20.
  5. Fred Kiel, ‘Measuring the Return on Character’, The Harvard Business Review, April 2014, pp. 14–15.
  6. John Mackey and Raj Sisodia, Conscious Capitalism, Harvard Business Press, Boston, 2013, pp. 277–278.
  7. Robert G. Eceles and George Serafieim, ‘The Performance Frontier: Innovating for a Sustainable Strategy’, The Harvard Business Review, May 2012, pp. 36–46.

By O. P. Dani & M. S. Srinivasan

(Published in a Golden Jubilee Souvenir of the Institute of Company Secretaries of India)

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One thought on “Ecology, Ethics and Economics: The Emerging Convergence

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