BALANCING THE COST Pulitizer prize-winning author JARED DIAMOND considers the new pressures for corporate responsiblity.
IT IS OFTEN taken as given in business circles that the needs of the environment and of the economy must be ‘balanced’ with one another. The intuition is simple: environmental regulation (preventing, say, metal extraction firms from releasing cyanide into local ecosystems), or measures promoting sustainable activities in industries dependent upon renewable natural resources (such as logging and fishing) all impose higher day-to-day running costs upon businesses – costs that must be ‘weighed up’ against any wider social benefits. Thus policy debates tend to focus upon whether or not it will be worth governments’ while imposing environmental initiatives on firms, or whether the resulting impact on profits and jobs will be too great. Crucially, the entire process is almost always pitched as a tug of war between the public need – in the form of regulation – and the needs of industry.
As somebody who has straddled this supposed divide for many years now (for instance, in simultaneous roles as a director of World Wildlife Fund and consultant to numerous major international oil companies), the conceptualisation seems to me at once simplistic and fatalistic – simplistic for failing to acknowledge the many voluntary moves towards more environmentally-friendly business practices have taken place over the past decade or so; fatalistic for assuming that CEOs will always consider their interests as separate from those of the environment.
It is certainly true that we are a long way from seeing perfect confluence between the actions of businesses and the needs of the public. In the United States, for example, the voters of Montana have become so disillusioned and disgusted with the actions of gold mining firms that gold miners are now effectively banned from that state – in accordance with popular ballots in both 1998 and November last year. After many years in which the ‘prosperity’ associated with gold extraction came at the price of polluted water supplies and refusals on behalf of the miners to cover clean-up costs (often by declaring bankruptcy), voters have been forced to take the last resort left open to them.
Yet contrast this with the actions of the US’s platinum and palladium mines: at one notable site, so keen are the owners to keep the local populace appeased that the environmental organisation ‘Trout Unlimited’ has been hired (much to its astonishment) and asked to monitor the mine’s impact upon local trout streams. Similarly, the borax mine operated in California by Rio Tinto is the cleanest in the entire United States, and titanium mines likewise tend to be environmentally sound.
SO WHAT IS it that’s making some producers adopt such apparently altruistic approaches to production – both in the extraction industry and elsewhere in the global economy? The answer is best found by continuing the comparison between cleaner forms of extraction and gold mining.
Culture is inevitably a factor – both corporate and social attitudes towards particular practices. In this particular case, the role of gold mines in encouraging westward migration in 19th-century America has bred a genuine sense of entitlement on behalf of the miners: a view that ‘We are the people that made the West and saved the West – God put these metals there to be mined’. Indeed, the directors of one of the leading mining companies in the US all belong to a small church that believes the world is going to come to an end and that God will return to Earth within ten years – so why worry if a little arsenic gets dumped into the environment in the mean-time?
Moreover, the American government has subsidised the gold mining industry phenomenally since 1872 – but it wasn’t until around 1981 that the government even began to require mining companies to clean up after themselves. Until then, such responsibility was virtually unheard of, and could even have prompted legal action against publicly-traded firms, obliged to deliver maximum yields for investors. Taking good care of the environment was neither necessary nor expected.
TODAY, THOUGH, MUCH has changed. High profile environmental catastrophes – incidents like the 1988 Piper Alpha oil platform fire (which killed 167 people) and the 1989 Exxon Valdez oil spill – have contributed to wider social awareness of environmental issues, including of a concern regarding corporate pollution by miners. This has guaranteed a culture whereby the general public is much more prepared to recognise and to use the tools at its disposal for influencing corporate practice. In particular, both the ‘stick’ of consumer pressure and the ‘carrot’ of consumer preference are being waved with greater vigour than ever before. As the voters of Montana showed, in the most extreme cases this can result in companies being unable to ply their trades at all – the likes of Rio Tinto must behave responsibly, or face the bitter consequences.
It is precisely because this carrot/stick approach can be applied less effectively to the gold mining sector that environmentally reckless practices prevail there. The reasons for this are numerous, but by no means too specific for broader relevance. Firstly, the costs of disposing of waste materials cleanly are far higher for gold extraction than, say, coal mining – whereas in the latter case the ratio of waste material to product is roughly one-to-one, in the former it is closer to five million-to-one. The higher quantity of waste resulting ensures it is far less imprudent for gold miners to risk the wrath of environmentally-savvy consumers – high ‘cleanliness’ costs can still prevent responsible business practice.
Secondly, there exist huge differences between the lengths of time over which businesses are looking to exploit profitable opportunities. Gold mines generally get exhausted within a decade, but the US’s two platinum and palladium mines have enough resources to continue for another century. If you’ve got a short-term perspective – if you’re going to be out of your mine within ten years – that encourages what miners call a ‘rape and run’ attitude: keeping local pressure groups onside is sacrificed in favour of a ‘get the stuff out of the ground and to hell with the mess’ approach. Clearly the public has little chance of using a ‘stick’ approach to influence firms with such short-term perspectives.
Finally, there is a considerable problem in the use of the ‘carrot’ approach (exercising consumer preference in favour of environmentally responsible businesses) when individual purchasers are so far detached from polluting firms as in the gold mining case. There, gold goes through a chain of eight steps: it goes from the mine to the smelter, to the refiner, to a warehouser, to a manufacturer, to a wholesaler, to a retailer – and finally to a consumer. The result is that the consumer can’t have the faintest idea where his or her gold came from – the gold in my wedding ring, for instance, may have been mined just 24 years ago (when I got married), or have come from a stockpile dating back some 20 years beforehand. There’s just no way for me to tell. If the public is to render it in firms’ economic best interests to pursue environmentally-friendly practices, it has to have some way of knowing when such practices are being followed. If it cannot, the option of polluting will remain a tempting one – it’ll remain beyond consumer control.
All of which should go some way to demonstrate why economy and environment need not pull us in opposite directions: if the public wants cleaner practices, these can be ‘purchased’ as part of final manufactured goods, through both pressure and preference. Yet it should also highlight why even supposedly ‘sovereign’ consumers cannot always have their way. Certain industries (gold was used above, but copper extraction and even, in some respects, fishing and forestry are applicable) do not naturally allow individual purchasers to exercise environmentally-founded discretion when buying goods, whilst at the same time – for whatever reasons – being less prone to popular pressure. How, in these situations, are the interests of business and those of the environment to be aligned?
ONE SOLUTION THAT has made much headway in recent years is the use of consumer organisations. On the surface, somebody looking to buy, say, a chair made of wood taken only from sustainably-managed forests ought to be faced with the same general problem as an environmentally-minded gold purchaser: there is no clear physical difference between ‘sound’ and ‘unsound’ products, so how to exercise preference? The answer has been provided in the form of the Forest Stewardship Council (FSC), which hires auditing companies to check the practices of logging firms across the globe, and permits only those conforming to strict sustainability criteria to carry the FSC logo of approval. In other words, the FSC does the work consumers are unable to do – it lends transparency to what would otherwise be a largely opaque production process, and in so doing ensures it is in logging firms’ economic best interests to avoid the type of environmental wastage consumers resent (in one experiment, 37 per cent of US consumers were prepared to pay more for FSC-certified timber than non-certified – yet in fact no significant extra costs are incurred by producing in accordance with FSC standards).
It is an approach that is coming to be used even in the gold industry (though to a lesser degree): top jeweller Tiffany’s – fearful of the consequences should the public begin to target it in any protest against mining practices – based its decision to deal exclusively with Rio Tinto on the fact that it is by far the cleanest of the big international mining companies, able to ‘turn the screw’ on its client miners. So the point of public pressure is Tiffany’s; Tiffany’s deals with Rio Tinto; and Rio Tinto can then put pressure on the gold miners.
Ultimately, though, there will always be some sectors of the economy beyond the public’s grasp – sectors in which even a desire on behalf of consumers for cleaner practices could not alone yield results. Yet perhaps we need not be so pessimistic. There are, for sure, about a dozen key environmental ‘time bombs’ – ranging from climate change to water shortages – that all need to be addressed within the next 30 to 40 years to avoid a catastrophe. But it’s worth remembering that most CEOs have either children or grandchildren under the age of 30, and are prepared almost without exception to do whatever’s necessary to ensure a good life for them – sending them to the right school, college, university etc. Is it really that unrealistic to think that this narrow altruism might manifest itself in a desire better to protect the environment, to the benefit of all? If it’s in our interests to do it, it’s in our economic interests too.
Jared Diamond is Professor of Geography at the University of California, Los Angeles and the Pulitzer Prize-winning author of the widely acclaimed Guns, Germs, and Steel: the Fates of Human Societies
