December 06, 2009
Profits and the Environment 101
Posted by Gordon Smith

Jared Diamond:

There is a widespread view, particularly among environmentalists and liberals, that big businesses are environmentally destructive, greedy, evil and driven by short-term profits. I know — because I used to share that view.

What caused Diamond to change his mind? His experiences working with business people have taught him that environmental responsibility is good business. Diamond spends the first half of his editorial arguing that Wal-Mart, Coca-Cola, and Chevron -- and, by extension, other businesses -- have market incentives to be environmentally responsible (when being environmentally responsible leads to long-term profitability). I added the bit in the parentheses because Diamond seems to have missed that part of the lesson.

Diamond then asks: "In view of all those advantages that businesses gain from environmentally sustainable policies, why do such policies face resistance from some businesses and many politicians?" The problem, of course, is that no one opposes private initiatives that serve both the bottom line and the planet, like those Diamond describes from Wal-Mart, Coca-Cola, and Chevron. So this is a silly question.

Problems arise only when serving the environment reduces profits. The point is not that "measures promoting environmental sustainability inevitably yield a net economic cost rather than a profit," rather that such measures sometimes yield a net economic cost. Figuring out when that happens is the hard part, but he is right that businesses have an incentive to do that calculation well.

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