Economic and environmental sustainability: utopia or reality?

Economic and environmental sustainability: utopia or reality?

Does it really pay to be green? Is it possible to be both economically and environmentally sustainable? How important is the green technological shock? The great level of attention that has been recently devoted to the measure of environmental performance, not only in environmental high-risk sectors, is the evidence of the topicality of these questions. Currently, the managers pursue not only economic objectives but also environmental ones. To do this, they try to take the great opportunities that arise from being on the front line of conscious behaviours and activities in favour of the environment, as underlined by the principles of the Corporate Social Responsibility (CSR). As a consequence, the disclosure of the environmental performance of companies has become crucial. Differently from economic and financial performance, the measures of environmental performance are not standardised and, accordingly, they are not easily comparable.

The approach that several studies suggest consists in identifying measures (Economic Performance Indicators, EPI) linked to the target sector and market. There are essentially two approaches to measure the environmental performance: direct and indirect. The direct measures consider the consumption of natural resources or the production of polluting substances, e.g. respectively the consumption of water or CO2 emissions. These measures are suitable for those sectors subject to strict regulation, e.g. the power, iron and steel sectors; on the other hand, the indirect measures use alternative indicators, like awards received by third parties, linked to environmental performances; these measures suit those sectors that are not obliged to disclose environmental data, like the manufacturer one.

However, these measures highlight only the ecological efficiency of firms, which is not sufficient to indicate whether a firm is environmentally sustainable or not. It is in fact important to make a distinction between two fundamental concepts: eco-efficiency and eco-effectiveness. The first is a relative measure, i.e. it indicates that for a new unit produced the firm pollutes less, but if the production rises, the firm could pollute more overall; the latter, instead, shows that when production rises, the total polluting substances produced are reduced. Hence, it is eco-effectiveness which expresses the real environmental sustainability achievement.

Measuring eco-effectiveness with EPIs can be therefore misleading. Eco-effectiveness can be reached through a change in the process of production or producing an all innovative product. This implies that the role of technological shock is fundamental. For instance, in the power sector, we could think of replacing the carbon power-stations with solar ones; or, as regards the product, producing electric cars instead of petrol-powered cars. We then come to understand that a variable that could indicate the achievement of eco-effectiveness is the occurrence of the technological shock.

This answers only a part of our questions, i.e. how to be environmentally sustainable. It goes without saying that the business activity must take into account also the economical performance. It is in this circumstance that the attention to environmental issues of all stakeholders, and in particular of consumers, becomes central. Consumers, in fact, play a major role in turning the green enterprise from utopia to reality. Only when they become sensible to the environmental issue, will it be profitable to produce in a green way and, consequently, being green will constitute an effective competitive advantage for firms. For this reason, in order to indicate whether the economic and environmental sustainability have been achieved, it is necessary to consider two characterising variables: the technological shock and an index of preference of consumers.

The relationship between economic and environmental performances is getting more and more intertwined, and that is why an environmentally and economically sustainable business activity will become more and more real.

Author: Emanuele Doronzo Ph.D. Candidate at LUM Jean Monnet University

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