Sustainable actions: Only from those who can afford to implement?

Are we only seeing sustainable efforts from organizations and individuals that have the means?

It seems reasonable to conclude that fashioning impact has a positive income elasticity of demand greater than 1:1.

Generally speaking, as a company or individual’s income rises, the desire to “do good” increases by a greater amount. Granted, there are a vast amount of wealthy individuals and companies that completely disregard sustainability. I am not necessarily applauding the rich. But- when times are tough, desperation increases.

And selfish behavior often rises in tandem with desperation.

CVS officially eliminated tobacco from its shelves last week – a move that affected 7,800 stores around the nation and is estimated to puncture annual revenues by $2 billion. Despite the anticipated loss, CEO Larry Merlo proclaims the eradication of tobacco is “the right thing to do.” It might also be the “smart” thing to do, at least according to a Forbes article back in February when CVS first announced its tobacco plans.

Forbes, asserting policy is the fifth p in Marketing, stated, “…this week’s policy move by CVS did more for the brand than 10 years of promotion could ever do…an outcome like that is every marketer’s dream, and CVS achieved it not by ‘saying’ something to us, but by ‘doing’ something for the world”.

Regardless of the incentive, CVS took a risk when they terminated tobacco sales. Why aren’t competitors following suit?

Rite Aid Corp. and Walgreen Co. have already stated that they do not plan to follow CVS’s lead. The simple truth is that CVS’s rivals cannot afford to lose tobacco. Walgreens and Rite Aid don’t have pharmacy benefit management units to offset the loss. Moreover, Rite Aid needs the cash flow because of the debt it has to service and Walgreens is still mitigating turmoil from the Alliance Boots acquisition.

Who is buying Teslas – the guy who has to scrape all his income or the wealthy? My money’s on the latter. In fact, according to surveys, the data suggests that owners of Teslas also own Mercedes-Benz, BMWs, Ferraris, and Maseratis. “It is either because they are so wealthy that they can add another toy to the collection…or they are looking for a more practical vehicle. They have a family of five and it’s hard to take them anywhere in a Lamborghini.” (IHS Automotive analyst Tom Libby).

By and large, smaller, struggling companies are not the frontrunners in implementation of sustainability. Why? Because smaller, struggling companies are more concerned with their bottom-line and profits.

Harvard Business School conducted a study to ascertain the impact of a corporate culture of sustainability on performance. Using a sample of 180 companies, “High Sustainability Companies” vs. “Low Sustainability Companies”, the ultimate conclusion was that High Sustainability companies significantly outperformed their counterparts over the long-term.  The HBS study, among others, portrays a correlation between sustainability and performance.

But the question of causality remains unanswered.

Are companies doing good because they have garnered enough money to do so, or are companies making money because they are doing good?

4 thoughts on “Sustainable actions: Only from those who can afford to implement?

  1. This seems to be a real problem for the studies that have shown that doing good can lead to better financial and stock performance. Even if the academics control for past financial performance, a reasonable suggestion is that company executives may know that results will be better in the future and that is why they can afford to “do good.” Academics could never control or even know what executives are thinking. Also, interesting whether morality increases with income. A lot of rich people seem to make poor moral choices. Is there more materialism and greed among the rich or poor? All interesting questions.

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  2. I recall that Harvard study looked at the performance of companies prior to the study period and found no discernible difference, thus the authors used that to prove that doing good was not caused by better profitability. But the good didn’t result in better performance in the short-term, but you are right, the executives may have known they could sacrifice some short term profitability and this their good actions. Good point sustainable investor.

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