Is self-interest enough of an incentive to drive climate action? A good place to start looking for an answer is to consider whose self-interest is served, or not served, by near term, potentially costly, climate action. Too many organizations, politicians, and individuals still perceive climate action as a threat to their self-interest. This reflects the temporal challenge of climate action which requires weighing immediate costs against perceived future benefits. This is particularly true where self-interest is tightly tied to financial gain as a prime imperative.
When the financial bottom line is the priority, sustainability reporting can become a lever used by customers, shareholders, and voters to put pressure on Corporations and Governments, to re-align climate action with current self-interest. Sustainability reporting has been one way for stakeholders to assess corporate performance in broader terms than their financial bottom line. It’s been around for years but has had limited success as a motivator to ensure corporate fiduciary duty accounts for more than financial interest.
Environment Social Governance (ESG) disclosures are the latest in this trend (Davis Polk & Wardwell, 2017) and the UN Sustainability Development Goals (SDGs) are the leading ESG framework for large companies (Huber et al., 2018). ESG disclosures are now required by many stock exchanges, regulatory bodies, and other government agencies to give visibility into how ESG risks and opportunities are being managed (Peterdy, 2023). The Government of British Columbia recently published it’s first ESG report along with credit scores with their ESG relevance noted (Province of British Columbia, 2022). An ESG framework, within a capitalist system, can find a pathway beyond the financial bottom line through the UN SDGs because the SDGs are designed to build a future for all life to thrive.
A leading feminist economist, Julie Nelson, challenges the assumption that capitalism needs to be tied to the growth imperative (Jarow, 2020). Nelson argues that capitalism can be changed from within by fixing the empty void that was created when the underlying economic theory was divorced from nature (Jarow, 2020). Nelson argues that the growth imperative underlying capitalism is simply one belief and that some of the resulting problems, such as planned obsolescence, didn’t start until the 1970’s (Jarow, 2020).
Unfortunately, here we are now, in a society where some powerful leaders are trying hard to fight against those who are engaged in climate action, action that could start to repair the bonds between humans and nature. Self interest motivates action, not just positive climate action, which means that self interest alone is not enough. A good illustration of the failure of self-interest alone to drive climate action is shown in Figure 1. Notice the red banner asking for donations for hurricane relief efforts, followed by the Florida Government’s statement barring State Investments from Environment Social Governance (ESG) considerations.
The contradiction on the page may seem glaring to some. It demonstrates the challenge of relying on self-interest as an incentive to climate action when there is a tension between the self-interest of the current self and that of the future self. In this case, the immediate and local cost pressures of repairing hurricane damage, coupled with profits from fossil fuel production, is competing against increasing global pressure for mitigation action, which is seen as a threat to their economy.
Climate projections will always come with some uncertainty, leaving room for debate about whether and when climate action is in someone’s self-interest. Using hurricanes as an example, we know that scientists are certain that atmospheric aerosols from human activity influence climate, although future projections of impacts come with degrees of uncertainty (Myhre et al., 2013). While there is evidence of increasing tropical storms since the 1970’s and that this is, in part, driven by human activity, the projections of whether very intense hurricanes will continue to increase, come with a medium to high confidence (Knutson, 2023).
In the US, the trend against ESG considerations has been taken up by multiple fossil fuel producing States, resulting in a federal bill that was vetoed by President Biden (Associated Press, 2023). As Independent Power Producers began being denied loans based on ESG considerations, they began lobbying States who then argued that considering ESG goals amounts to discrimination against fossil fuel companies (Barbaro, 2023). This also comes when record profits were being made due to the war in Ukraine. The highest return on investments, like State pension funds, would have been from investments in fossil fuels (Barbaro, 2023).
Nelson points out that social science research has found that self interest is not the strongest motivator and that we need to be looking at the moral imperative for climate action (Nelson, 2019). Further, she argues that we need to re-establish our human-nature connection as foundational to our economy (Jarow, 2020). ESG disclosures tied to UN SDGs may be just the incentive we need to secure commitment to the moral imperative of climate action. Success will be dependent on how much weight they are given over short term profits, by customers, shareholders, and voters. If successful, it would indicate a shift from status quo capitalism and a step towards reconnecting nature and self. If this reconnection were to happen, then perhaps, self interest could be enough to incentivize climate action.
References
Barbaro, Michael (Host). (2023, Mar. 13). What is E.S.G., and Why Are Republicans So Mad About It? [Audio podcast transcript]. New York Times. The Daily. https://www.nytimes.com/2023/03/13/podcasts/the-daily/esg-republicans-biden-veto-investing.html?showTranscript=1
Davis Polk & Wardwell. (2017, Jul. 12). ESG Reports and Ratings: What They Are, Why They Matter? Client Memorandum. https://www.davispolk.com/sites/default/files/2017-07-12_esg_reports_ratings_what_they_are_why_they_matter_0.pdf
Florida Government. (2023, Jan. 17). Governor Ron Desantis Further Prohibits Woke ESG Considerations from State Investments. https://www.flgov.com/2023/01/17/governor-ron-desantis-further-prohibits-woke-esg-considerations-from-state-investments/
Huber, Betty Moy, Comstock, Michael, Smith, Hilary, Davis Polk & Wardwell LLP, (2018, Oct. 4). UN Sustainable Development Goals—The Leading ESG Framework for Large Companies. https://corpgov.law.harvard.edu/2018/10/04/un-sustainable-development-goals-the-leading-esg-framework-for-large-companies/
Jarow, Oshan (Host). 2020, Sep. 12. Julie Nelson: What if Capitalism Isn’t the Problem? (S1 E14). [Audio podcast episode]. Musing Mind Podcast. https://www.musingmind.org/podcasts/julie-nelson
Knutson, Tom. (2023, Apr. 11). Global Warming and Hurricanes: An overview of current research results. Geophysical Fluid Dynamics Laboratory. https://www.gfdl.noaa.gov/global-warming-and-hurricanes/
Myhre, G., Myhre, C. E.L., Samset, B. H. & Storelvmo, T. (2013) Aerosols and their Relation to Global Climate and Climate Sensitivity. Nature Education Knowledge 4(5):7. https://www.nature.com/scitable/knowledge/library/aerosols-and-their-relation-to-global-climate-102215345/
Nelson, J.A. (2019). Chapter 6: Climate change and economic self-interest. In Kanbur, R., & Shue, H. (Eds.). Climate justice: Integrating economics and philosophy. Oxford University Press. (pp. 113- 122)
Peterdy, Kyle. (2023, Jan. 11). What is ESG Disclosure. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/esg/esg-disclosure/
Province of British Columbia, Ministry of Finance. (2022). B.C. Environmental, Social and Governance (ESG) Summary Report. https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/government-finances/debt-management/bc-esg-report.pdf