Gartner: Corporate Sustainability Suffers From Tragedy of the Commons

6 03 2023

Image: Shutterstock

By Emma Chervek | Reporter from SDxCentral • Reposted: March 6, 2023

Sustainability is one of the first areas enterprises will reduce spending in response to inflated economic environments, according to new research from Gartner. Senior Director Analyst Brendan Williams told SDxCentral that despite executive recognition of sustainability as an important objective, this is “a classic example of the tragedy of the commons at work.”

The analyst firm’s “2022 Inflation Response Survey” found 39% of respondents expect sustainability will be one of the first two areas where their company limits investment. And just 15% believe this area will be one of the final areas impacted by reduced spending.

A major driver of environmental, social, and governance (ESG) initiatives has been the cost savings of efficiency improvements tied to sustainability efforts. But many corporate leadership teams seem hung up on the fact that it still costs money to implement those types of measures. “The question with environmental sustainability is whether executives see these initiatives simply as costs, or whether they view them as having a positive impact on cost and efficiency,” Williams explained.

While Gartner research shows that business executives directly involved with sustainability-related decisions are four-times more likely to view ESG as supportive of cost reduction rather than as another cost itself, “there is still work that needs to be done to convince certain stakeholders,” he admitted. It’s pretty self-explanatory that improving energy efficiency, for example, will have a positive environmental and economic impact, but that relationship can be less obvious with long-term projects or programs.

When it comes to cutting spending, the challenge lies in prioritization and the difference between urgent and important. Most executives understand sustainability is important, and “a difficult macroeconomic background isn’t going to change their minds, but it could cause them to prioritize issues that are viewed as more urgent, over issues that are important but seen as less urgent,” Williams said.

He argued a case needs to be made that environmental sustainability is both of those things: important and urgent. To that point, the next few years will determine just how resilient companies’ sustainability efforts are, considering it’ll be “the first time that we experience a cyclical economic downturn” since sustainability fell into mainstream corporate focus.

Sustainable Tragedy

Environmental sustainability exists chiefly to mitigate and respond to climate change’s near- and long-term impacts. Williams noted sustainability’s ties to the corporate world are ultimately driven by scientific evidence, but the reality of climate change alone isn’t enough to land sustainability in both the urgent and important categories of enterprise activities.

Williams highlighted the COVID-19 pandemic for its acceleration of corporate sustainability and ESG efforts, “and if you look at what has changed over that period, I don’t think it was anything particularly new in the underlying scientific knowledge, but rather that there has been a change in how society as a whole thinks about the importance and urgency of environmental sustainability,” he said.

For many corporate leaders, the impact of climate science has been less direct and has surfaced through customer, employee, shareholder, and regulator pressures. While there are certainly enterprise execs leading these changes, many are “simply responding to a change emanating from society at large,” he noted.

This scenario represents a clear example of the tragedy of the commons, Williams argued. Certain sustainability initiatives carry obvious positive business results like revenue increases, cost reductions, and risk limitations, but companies would likely implement those initiatives regardless of the environmental benefits. That’s why profit tends to be a weak motivator for positive environmental behavior.

“Unfortunately, [environmental sustainability] is not always that neat or convenient, and the individual profit motive is poorly suited to incentivize for many of the changes we as a society need to enact to achieve our environmental goals,” Williams said.

At the end of the day, corporations can’t be left to their own devices and be expected to meaningfully respond to climate change, he argued, citing economists’ term for environmental challenges: negative externalities. “This is one of the reasons why governments and other institutions have such an important role to play in incentivizing behavior (amongst individuals as well as businesses) that serves the common good,” Williams said.

Without well-designed industry regulations, an enterprise that does want to take responsibility for its role in climate change “may be worried that doing the right thing will put them at a competitive disadvantage,” he explained.

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