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When there is so much talk in business about transparency, compassion and environmental responsibility, the answer might not be what most people might expect. When it comes to climate change, there is not much businesses can do.
This is because businesses have no inherent interest in what is good for society, other than ensuring there are future customers. Business goals are defined by whatever generates the highest short-term financial return. That is not a value judgment. It is simply the reality of the current economic system.
Milton Friedman, the father of modern economics, said the only social responsibility of a business is to increase its profits as much as possible. It is a cast-iron rule, and well-intended ideas about sustainability or ethical governance don’t change that.
Despite all the talk about morality in business, companies will always choose the most profitable path because any company which fails to maximise profits loses market share. A rival that cuts costs by whatever means, even wrecking the planet, has a competitive advantage. In the long run, a less ethical company will beat a higher-minded competitor by growing faster and more profitably.
This is where the line gets drawn. Businesses cannot help in the fight against climate change because they do not need to care for the planet or society, and nothing within the current system says they should.
All businesses need do is obey the law. It is governments that define the framework in which businesses operate. Only governments can influence the outcome.
02:14
Residents of flood-ravaged Chinese city take stock of losses, hope for compensation
Residents of flood-ravaged Chinese city take stock of losses, hope for compensation
Of course businesses want to appear helpful. That’s what all the talk of “net zero” that calls for more sustainable business practices are about. In reality, almost nothing societies do today is truly sustainable, including in the renewable energy sector – the equipment required to generate wind, hydro and solar energy today requires vast quantities of non-renewable resources.
Climate change: carbon capture projects are not living up to their promise
Climate change: carbon capture projects are not living up to their promise
Finally, net zero does nothing to reduce the concentration of greenhouse gases in the atmosphere, which is the main source of the climate problem.
All the talk in business about accountability and ESG (environmental, social and corporate governance) is certainly comforting. But it is a dangerous distraction from the reality of climate change, which makes it even harder for societies to do what’s needed.
Regulatory intervention is the only effective way to stop floods like we have seen. Only governments can stop the climate from getting completely out of control.
Graeme Maxton is an economist, author and former secretary general of the Club of Rome. His latest book, A Chicken Can’t Lay A Duck Egg, is now available in English
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