Environmental sustainability

Why private players choose to go it alone

The free-rider problem inhibits greater action on environmental sustainability.

Altruism has not demonstrated enough power to change this and societal shaming can backfire.

But there are other ways self-interest can be harnessed to catalyse collective action, through positive, negative and altruistic incentives.

ECONOMIC, SOCIAL AND ENVIRONMENTAL IMPACT ASSESSMENTS

I’ve completed numerous economic, social and environmental impact assessments for clients. Most recently, this included calculating and assessing the impact of a major Melbourne event (I won't reveal the client by name, for obvious reasons) on the local economy, society and environment.

Most of the focus of this type of work is on the economic, rather than social or environmental impact. It involves real numbers, as well as some more slightly abstract assumptions and multipliers, and estimates the impact of specific expenditures and investments on the broader economy.

Social impact assessments are far more qualitative, usually based on stakeholder consultation to compile ‘impressions’ and ‘feelings’ about the benefits certain activities have on them and the local community.

Environmental impact assessments are often a mix of both – quantitative assessment of the financial implications of investment in environmental sustainability, and qualitative commentary on how this might help change cultural norms relating to sustainability. 

THE FREE RIDER PROBLEM

Environmental sustainability is notoriously difficult to achieve because, as the economists among us will understand all too well, it represents a public good with an inherent free-rider problem. Take Australia for example. We contribute just 1% to global CO2 emissions. Between 2000 and 2011, China alone was adding a new ‘Australia’ to world CO2 emissions every 7.5 months, and in 2011, it did so in just 4.5 months! So any efforts by Australia to tackle global CO2 emissions alone would be negligible[1].

This is the free-rider problem of public goods – no individual can privately capture the benefits of their own actions, nor exclude others from enjoying the benefits of a cleaner general environment if they didn’t also contribute. So every player has an incentive to ‘cheat’, letting others solve the problem without contributing their own efforts for the greater good (because their individual contribution matters so little). And when everyone acts on this incentive, nothing is achieved.

ALTRUISM, SOCIAL LICENSE OR SELF-INTEREST?

So why do some private players, such as the organisers of the above Melbourne event, choose to take environmental action, knowing their contribution is negligible? Is it:

·        Pure self-interest to save costs over the longer term?

·        Guilt and a desire to maintain a ‘social license’?

·        Genuine altruistic concern for the environment and future generations?

Self-interest can be powerful. This client for example, on one of its energy-saving investments, was able to recover its entire expenditure on solar panels for one of its buildings in just over a single year. And herein, future energy savings can be reinvested in the client's events, facilities and services, and in showcasing Melbourne, Victoria and Australia to the world. And all this generates benefits not just for the broader society, but benefits the client is able to individually capture.

A desire to maintain a ‘social license’ can also be effective. Given the power of contemporary social media, if an entity misbehaves, a targeted campaign of online shaming by just a small group of ‘social justice warriors’ can draw widespread attention and compel the entity to toe the line. The online response to Martin Shkreli’s decision to hike the price of an important AIDS drug from $13.50 to $750 per pill is one good example of this.

Then of course, there are the altruists who genuinely gain value from seeing a world that is preserved for the use of others and for future generations. Any form of community volunteerism could fall into this category, where individuals gain nothing tangible for themselves, and wouldn’t likely be shamed for anonymously not participating, but still choose to participate in something for the greater good. Quite often, this is what motivates individuals within an organisation to action. Working with the blessing, although not always the resources of the organisation, it is a way to make a difference in the public realm for people who are truly committed to a more environmentally sustainable future. 

SHORTCOMINGS AND THE PATH AHEAD

In terms of ‘social license’, many are starting to resent the kind of ‘mob justice’ where an online minority have the power to destroy not just a company’s reputation and consequent financial sustainability, but an individual’s entire livelihood. And in an arena where facts are irrelevant and feelings reign supreme, the punishment can easily outweigh the crime.

As for altruism, if the previous centuries of global industrialisation have taught us anything, it’s that altruism is not yet common or powerful enough to limit environmental degradation in the face of rapidly advancing human living standards.

So if culture changes too slowly and societal shaming can backfire, incentives must be changed another way. Which leaves us with the poster child of economics and the bane of social advocates – self-interest. It must be in a person’s own self-interest to contribute.

In a way, self-interest contains scope for a combination of all three ‘incentives’ in driving environmental sustainability – not just at the individual level, but the national level. While positive incentives, such as subsidised solar panels, have their role to play, psychology confirms negative incentives to be just as (if not more) effective (the risk of ‘loss’ is a greater motivator than the chance of ‘winning’). Emissions trading schemes for example, impose a cost on polluters – a punishment for polluting and a cost-mitigation for complying, not a reward for not polluting and no punishment for polluting.

Furthermore, the ability to shame someone or something into compliance also represents a form of self-interest in terms of the entity’s own desire to maintain its social license.

And finally, when people do good, they feel good. So self-interested environmental sustainability can arguably foster altruistic-appearing behaviour too.

In my experience, despite how crucial it is for long term economic development that the world operates sustainably, the environmental component of these impact assessments can often be something of an afterthought. But with the right incentives – be they positive, negative or altruistic – they can become a focus of projects in their own right.

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[1] Calm down, this is not an argument against Australia participating in climate change action, it is merely an illustration of the free rider problem of public goods.