Incentives for Improvement Leading to Sustainability

As has been discussed here and elsewhere, good public information and the education to understand and internalize it are essential to making needed changes in daily behavior, but I don’t think that is enough. Actual incentives need to be applied to speed up the process and change our direction. I also see incentives for individuals being different from those for corporations, as their goals are different, but I’m wondering: how are they different, and how can we provide more effective incentives to each?

Individuals and corporate goals have both short and long term-focused elements, but are individual goals more focused on the long term? I think that, in general, individuals want to have an open-ended sense of security, where they don’t have to worry about their own or their children’s futures, for instance. They want to know at any given time, without thinking about it, that there will be food on the table and a roof over their heads for as long as they need it. They want to implicitly know that their descendants will be able to have good jobs and homes, and families of their own, into the indefinite future.

You are certainly free to argue the point that most people don’t think much about these things, if at all, and are just focused on tonight’s TV sports or reality shows, but, when gas prices rise and inflation takes away people’s buying power, I believe they tend to start thinking about more long term issues. In any case, at least some people (possibly the anxious types like me) do think about their longer term prospects, and those of their children and the world. Increasing costs and more publicity on environmental issues seem to be raising public consciousness about sustainability issues, and providing incentives by themselves. This is not to say that we don’t need government and other institutions to create incentives to move the public in sustainable directions, but the corporate incentives must be different to match the general aims and behavior specific to corporations.

Corporations, in contrast with individuals, function much more on the concept that tomorrow’s profits are predicated on making incremental profit in the short term, and that they can’t expect a good financial future unless they are demonstrating the ability to do well today. The stock market has long kept corporations focused on the current and next quarter, and year, at least in North America, by tying their ability to raise money to their most recent financial performance.

I have read in the past that Japanese corporations do a much better job of maintaining ten and twenty year strategic plans, and I believe their performance has supported that, which leads me to assume that the Japanese financial establishment takes those plans into account when valuing those businesses. But in North America, most corporations behave as if it’s essential to be profitable, to have an increasing market share and rising stock prices today, and I think the general belief is that if one tries a longer term strategy that wins some years ahead but doesn’t necessarily show big results in the next quarter, the market will devalue them and they won’t be able to raise money they need to achieve that longer range position. In essence, they’re too risk averse to focus as much on long term goals as are individuals. This is exacerbated by turnover in management or boards of directors, with new members that might not have the same ideas, causing changes in long term goals.

Interestingly, as public consciousness of ecological issues has increased in the past few years, some corporations have begun to see concern for environment, conservation, and even sustainability as having public relations benefits. As a result, some have begun to build greener products and facilities, and to advertise this in an attempt to improve their public images.   Whether the results actually provide a net positive change in favor of sustainability and environmental preservation is still unclear. 

For example, while there is doubt in some quarters as to whether hybrid cars are really as good for the environment as we are lead to believe, they have attained a positive image among the environmentally-concerned, and Toyota has been able to sell as many as they can make. Unfortunately, I have yet to see a detailed analysis that tells if the energy and resources to make a hybrid vehicle, combined with its lifetime costs including energy usage, are less or more than those of a standard internal combustion-powered vehicle optimized for low weight and highest possible efficiency. This goes back to the need for better studies (link) and public information (link) discussed in past entries here.

The problem remains, however, of how to provide corporations with incentives leading to sustainability.  Also, while some companies advertise that they are preserving natural land or building more ecologically responsible facilities, how do we avoid the scenario where what they advertise and promote as their image is contraverted by their behavior where it is not so visible to the public?

Is the only handle on changing corporate behavior a change in demand, i.e. consumer behavior? Certainly, if people use less coal-derived energy the coal producer has incentive to take the tops off fewer mountains. Is there more that can be done?

One of the goals of incentives for sustainability must be to reward reduced rates of growth, or actual decreases in energy and resource use. This is a tough proposition for corporations in particular, since their financial performance would be hurt by reduced business.

How will corporations and the economy fare if the public internalizes the concept that we all need to buy one tenth as much stuff and make it last ten times as long?  Can incentives favoring sustainability be created and generate positive changes in corporations?  Is the thrift store one of the big businesses of the future?  These and many more questions will be answered, hopefully sooner than later, but not without a lot of thought and discussion, both now and in the near future.

I think I’ve addressed what I see as the differences between individuals and corporations as related to incentives to sustainability.  I recognize that I haven’t completely answered the question of how to provide more positive incentives to either group – but that will require more work.

Please feel free to “Wise me up”, or otherwise offer your insights here.  The challenges facing us as humans are extremely complicated and tough, and how we address them will make a huge difference in our lives, the lives of our children, and the lives of generations to come.


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