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Posted on January 19, 2022
Updated on February 16, 2022
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Historically, there has always been a trade-off between maximising profit margins at the expense of the environment and vice versa. However, the World Economic Forum has proposed a radical change in approach suggesting that businesses should emphasise the planet and its inhabitants over profit, aka the Great Reset – planet, people, profit. As such, the incentives, practicality and pitfalls of going green are discussed, to determine how businesses should act in wake of the great reset.



The Incentives

A green company is a clean company as rhetoric is becoming more popular due to the exponential growth in the severity of climate change and the sociocultural shift to show support for acting in the planet’s best interest. As such, it is reputationally-beneficial for businesses to don an eco-friendly stance allowing them to maintain and improve consumer, client, staff and shareholder relations. This can be seen in a rise of conscious consumers demanding emphasis on ethical practices. If any of these relationships break down, they can have significant financial and social ramifications for the business, especially in our modern online society, where social media can act as the judge, jury and executioner. As such, brands and organisations are at risk of being cancelled.

 

There are also many financial benefits for incorporating green practices, going net-zero or following the advice from COP26. Governmental agencies are offering subsidies and grants, as well as free independent advice on how to access their grants and those from other businesses. It can also reduce the overall running costs of the business to employ efficient energy consumption devices, improved insulation and renewable technology. For example, Pacific Gas and Electric installed energy-efficient devices in their Oakland HQ saving them $600,000 and 6 million kWh annually.

 

There has also been a boom in the demand and innovation of products that supersede their carbon-intensive counterparts. This can be seen most notably, with the recent scramble by every major automotive company to create electric vehicles for all members of the market.  Of which, Tesla’s innovation and foresight have led them to be in the NASDAQ top 5. This shift in demand can apply to all sectors and has flipped the market on its head. As such, there is huge scope for innovation to become a market leader by creating a green alternative. Another example of this is seen in creating a synthetic alternative to palm oil, which, if it becomes commercially viable, has the chance of generating 75 million tonnes annually and thus becoming one of the most consumed oil-based commodities globally.

 

 


The Practicalities

However, there are drawbacks to making the transition to become less carbon positive. There is always going to be a trade-off. For example, (going back to) palm oil is currently significantly cheaper than less environmentally damaging than alternative natural or synthetic oils. However, the social pressure on companies to avoid palm oil in their products is huge. As such, lots of businesses see the trade-off as worthwhile. This represents a fairly clear-cut argument. Nevertheless, in the business world there is a spectrum of trade-offs and it is up to the management team to decide which way to play it.

 

However, with the correct branding and marketing, the increased material and labour costs can be negated. This can be seen by businesses such as Patagonia who openly advertise that their products are more expensive due to using, durable, sustainable, recycled materials and fair-trade initiatives. This has massively worked in their favour, leading to them generating nearly $800,000,000 annual revenue. Additionally, it has been shown that 88% of customers would choose an equally priced product from an honestly environmentally friendly business over another company. Consequently, there are win-win situations and there is money in being environmentally friendly; however, it can create some issues.

 


The Pitfalls

The social capital at stake has created an environment of ‘Survival of the Greenest’. As such companies are lured into aggressive eco-friendly marketing whilst not applying it into their policies, a.k.a greenwashing. An example is the Oji Paper Company claiming it uses 50% recycled content in their products when in fact use non.

 

Greenwashing can in turn open a company to litigation and penalisation. For example, Ryanair and BMW both had adverts banned because they were making misleading environmental claims. This not only has legal ramifications, but it also significantly tarnishes the trust of the clients, consumers and shareholders. This can have a knock-on effect. Notably, the Consumer Goods Forum & Futerra, 2019, found that nearly half of adolescents and young adults would trust a brand more if they were being honest, even about their problems. As such, it is in the businesses best interest to build a glass box brand centred around transparency, to 1) avoid greenwashing and 2) maintain trust in; and integrity of the brand, so customers can make informed choices.

 

There are also major flaws with the ‘Great Reset’ itself. The principle that the planet and people should be placed above profit is too idealistic and creates an ‘is vs ought’ dilemma. All businesses primary goal is to generate capital and to say otherwise undermines the nature of free-market economics. Any business that follows this guidance will be outcompeted by those who do not. This will lead to the demise of companies invested in going green and prevent them from aiding the planet in future.

 

As such a middle ground should be aimed for where green planet-friendly initiatives are applied where possible and only when it makes financial sense to do so i.e. in a win-win situation. This will keep eco-centric businesses afloat, and as time passes, the socio-cultural landscape will shift to a place where ideally, planet, people, profit should be seen as equal, or at least as equal as possible.

 


Overall, there are multiple strong financial and innovative incentives for businesses to adopt an eco-friendly approach. Adopting this ideology does create a trade-off scenario. However, this does not mean a win-win result is not possible. There are some pitfalls, such as becoming greenwashed which can have significant ramifications on the business. Consequently, businesses should avoid over-zealous rhetoric and promote a realistic, transparent view of their green actions. Finally, the ‘Great Reset’ is too idealistic and will not facilitate a competitive business. Alternatively, companies should strive to minimise the gap between planet, people, profit with the aim of one day it being equal.