Understanding sustainability East and West

Jeffrey Pfeffer, a professor at Stanford business school, notes the irony at how major multinationals may invest heavily in the environment (or claim to) but fail to show the same care and attention to their own employees. Citing Wal-Mart and BP, he laments how they claim to pay great heed to the sustainability of the physical environment, while ignoring core “human sustainability” needs, such as the needs of their own employees.

Though his attempts to explain this are unenlightening, his asking the question may help us understand why some sustainability strategies are more effective than others. Simply put: sustainability does not travel that well.

In other words, the definition of sustainability – i.e. progress which stems from balancing economic, environmental and social priorities – may resonate globally, but the strategies for implementing it have to be tailored to local circumstances. This may appear to be obvious, but in the cases cited by Pfeffer, he wonders how Wal-Mart can be so forward looking on the environment while applying none of that care to their store employees, who are known to be underpaid and underinsured. Why? Because that’s what the market expects.

US-style capitalism is unique in the advanced industrial world for how the fruits of the industry are shared: while labor is being squeezed, capital collects on the gains. In other words, real wages for the American worker have been falling steadily since the 1970s even though productivity has grown. Elizabeth Warren recently noted that if wages had kept up with productivity growth since 1960, the minimum wage today would be US$22 an hour instead of just above US$7. This also helps to explain why the US CEO-worker wage gap is the highest in the developed world.

This is not just about wages and ideology. The US stock market, its executive compensation culture, the lack of basic labor protections and a tax system, which taxes income at a higher rate than capital gains, all contribute to this imbalance. This may also explain why inequality, as measured by the gini coefficient, has continued to rise even as the United States has supposedly become wealthier.

What does all this have to do with Wal-Mart and sustainability? In an economic environment, where it is both socially and legally acceptable to undervalue their workers, companies will adapt their strategies thereon. So, sustainability in the United States has very little to do with employment, and a lot to do with the environment.

Luckily, this is changing. As a widening income gap and the existence of a permanent underclass become less socially acceptable, hopefully companies will start to turn their attention to their own people. One hopes that the Washington elite will enable this, or at least not get in the way.

In Europe, sustainability in the corporate sector is also cast primarily in terms of the environment, but for different reasons. Europe is dominated by cultural and legal frameworks which ensure greater respect for labor than in the U.S.; the existence of a strong social safety net has also mitigated against wide income disparities. For these reasons, the human sustainability question is answered by a network of legal protections and cultural norms.

So, European interpretations of sustainability have focused largely on the environment. Europe has led global discussions on climate change and emissions reduction; European corporations have also been among the first advocates of greening their operations. 13 of the top 25 companies in the Newsweek Global Green Rankings are from Europe and over 20 per cent of the entire list are from just four countries in Europe: UK, Germany, France, and Spain; of the 500 companies in the list, France, Germany, the UK and Spain alone account for over 100 companies.

When the US and Europe try to bring their green-centered sustainability visions to Asia, they may feel like they are hitting a brick wall. Asian consumers are notorious for their unwillingness to pay more for a greener product; laws on recycling and wastage are weaker here; and Asian companies may lag in their environmental disclosures. Only 32 per cent of companies in Asia choose to respond to the Carbon Disclosure Project information requests, whereas the overall global response rate is above 80 per cent.

The apparent lack of attention on the environment is certainly not because Asia’s environmental issues are less acute. Asians are well aware that they are the world’s largest source of greenhouse gas emissions increases due to the region’s dependence on fossil fuels; that much of Asia will be a water-stress zone by the year 2025; and that according to some counts, 19 of the world’s 20 most polluted cities are in Asia (the one outlier is Cairo).

But Asia’s social issues may be even more pressing. Over 670 million Asians lack any access to electricity; nearly two-thirds of the people in developing Asia have no access to safe drinking water; and over 800 million still live below the poverty line of US$2.50 per day. Today, despite all the progress made under the Millennium Development Goals, the challenge will only increase as the population of Asia expands by at least a billion by 2050 if not sooner.

Against this backdrop - it is only natural that Asian sustainability agendas put people first. So, sustainable development in Asia is about investment, infrastructure, and industrialization to create jobs and growth, which will give the poor a way out of poverty. It is also about creating community services for the poor - focused on education, health, and women and children - while these public services are established on a nationwide basis, and companies have long put millions into these areas, perhaps to the neglect of their environmental agendas.

The challenge now, of course, is to integrate our new knowledge on the environment and implement it into corporate sustainability agendas, so that we avoid growth at the expense of the environment while still keeping social development at the forefront of concerns. This is largely in part of the rebalancing happening in China under the 12th five year plan. It is also the challenge that Asia faces as it confronts a new era of slower growth but pressing social concerns.

The failure of the UNFCCC negotiations to achieve a binding deal on global emissions reduction can thus be read as the failure of the developed world at trying to impose an “environment” first mentality on the developing world, which questions why people shouldn’t come first. In other words, sustainability agendas must be tailored to local circumstances in order for it to be meaningful.

Pamela Mar is a Fung Global Institute fellow, covering a range of issues including global supply chains and sustainability. This post originally appeared here.

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