“There is one and only one social responsibility of business – ”, wrote the Nobel Prize-winning economist Milton Friedman, “to use its resources and engage in activities designed to increase its profits”.
For Friedman, writing in 1970, corporations had responsibility towards no-one and nothing beyond their shareholders. Fast-forward fifty years, however, and the issue of corporate responsibility seems less clear-cut. A recent analysis of anthropogenic climate change traced 63 per cent of global CO2 and methane emissions between 1751 and 2010 to just 90 entities, with Chevron, ExxonMobil, Saudi Aramco, BP and Gazprom top of the list.[1] Clearly, these corporations are in some sense “responsible” for climate change. But can it therefore be said that they have a moral responsibility towards mitigating it? “Business ethics”, it has often been joked, is an oxymoron. But in light of the climate crisis, should we take business ethics more seriously?
Conventional wisdom dictates that businesses have no ethical obligations beyond those stipulated by law. In his classic essay “Money, Morality and Motor Cars”, Norman Bowie challenges environmentalists over their insistence that business do more to combat the climate crisis. While agreeing that “no one has a right to render harm on another unless there is a compelling, overriding moral reason to do so”[2], he argues that this applies only to fellow persons, not ecosystems, species or individual animals. To put this another way, businesses can harm the environment (within legal limits), but they can’t get away with the murder. But what about those whose products are inherently harmful or dangerous, such as tobacco companies and car manufacturers? In such cases, Bowie reasons, it’s a matter of consumer preference: some people prefer cigarettes with a higher tar content, or cars with fewer safety features (which are therefore cheaper). Therefore, there is no moral obligation for businesses to make such products less harmful. By the same token, consumers often rebuff products that are more environmentally friendly, on account of their cost, convenience or other qualities. (How many of us, for example, use refillable soaps and detergents?) For Bowie, this shows that “legal harm to the environment caused by businesses is regarded as morally permissible by society”.[3] And where this is not the case – that is, where such harm is not socially permissible – citizens in democracies can impose regulations to rectify this, as for any market failure. Thus, businesses have no obligations to the environment beyond those expressed through legislation and consumer demand.
This broad thesis, which is often referred to as the “market solution” to environmental issues, has proved widely influential in recent years. Yet there are several serious problems with this approach as applied to anthropogenic climate change. First, and most obvious, is that climate change affects every person on Earth, not just the consumers of specific products or services, in specific countries or territories. Furthermore, it will continue to impact future generations. Thus, it is not only present-day consumers who will be “harmed” by climate change, but also non-consumers, both present and future.
The second problem concerns the role of consumers. The market solution assumes that consumers have perfect information when making decisions. When someone buys tobacco products, for example, they do so in the knowledge that they are harmful to one’s health. Thus, they make an informed decision. However, when it comes to complex environmental problems, such as climate change, it is likely that most consumers have limited awareness of the full causes and consequences.[4] Thus, their preferences are poorly informed. In contrast, large corporations (particularly those in the transport and power sectors) are likely to have sophisticated understandings of climate change, and their role in it. This allows them to make changes to their processes, products and services in line with climate goals, which consumer preference alone could never achieve.[5]
And there are other issues with using consumer behaviour to guide business ethics. For one thing, consumer preferences are not always satisfied by businesses. For another, consumers often have little or no influence over companies’ environmental practices. The energy industry is a case in point. Consumers may prefer to purchase electricity from renewable sources, but energy companies often have a monopoly over consumers, so they cannot take their business elsewhere. Again, the capacity of consumers to steer corporate behaviour is questionable.
The third problem is the absence of democracies. The market solution contends that citizens in democracies can curb corporate excess through regulation. In other words, people will make their feelings known through the political process, just as they do in the market. There are two issues here. First, over half (55.1%) of the world’s sovereign states have non-democratic forms of government[6], which means that citizen-voters cannot regulate companies’ environmental practices. And second, even if voters accept a particular level of harm for themselves, this fails to account for the harm done to people in other nations, or to future generations. Again, this speaks to the heart of the crisis: climate change is a global issue, not a local one, future as well as present.
So, do businesses have a moral obligation to mitigate climate change? In the UK, only a handful of companies are required by law to limit their greenhouse-gas emissions – the government’s Emissions Trading Schemes (ETS) cover the power-generation sector, aviation and other energy-intensive industries. For the rest, we might conclude, it’s business as usual.
However, the climate has changed since Friedman’s time, in more ways than one. The growth of concepts like Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG) criteria suggests a “voluntary” recalibration of obligations, from shareholders to stakeholders. The latter includes not only investors but also employees, suppliers, customers, communities and the environment as a whole. ESG criteria, which grew out of the earlier CSR movement, allow companies to measure their environmental and social impact (and to advertise this to investors). Moreover, these measures can be used to demonstrate the wider business case for “doing good”; a major 2019 study found that higher ESG performance was correlated with higher profitability and lower volatility.[7]
In light of these findings, there may be no need to appeal to moral obligations to mitigate climate change. For businesses, as for the rest of us, this is not simply an ethical or economic imperative, but an existential one.
[1] Heede, R. 2014. Tracing anthropogenic carbon dioxide and methane emissions to fossil fuel and cement producers, 1854–2010. Climatic Change 122: 229–241.
[2] Bowie, N. E. 1990. Money, morality and motor cars. In Hoffman, W. M., Frederic, R. & Petry, E. (Eds.) Business, Ethics, and the Global Environment. New York: Quorum Books.
[3] Arnold, D. G. & Bustos, K. 2005. Business, Ethics, and Global Climate Change. Business & Professional Ethics Journal 24: 103-130.
[4] Arnold, D. G. & Bustos, K. 2005. Business, Ethics, and Global Climate Change. Business & Professional Ethics Journal 24: 103-130.
[5] Arnold, D. G. & Bustos, K. 2005. Business, Ethics, and Global Climate Change. Business & Professional Ethics Journal 24: 103-130.
[6] https://www.eiu.com/n/campaigns/democracy-index-2020/
[7] https://www.issgovernance.com/file/publications/ISS_EVA_ESG_Matters.pdf