Why it is in a Company's Best Interest to Reduce Environmental Waste

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A company's goal is to maximize profit (or shareholder wealth), not to reduce environmental waste. Therefore the government must provide them with an incentive (a large fine for non-compliance) in order to make it in their economic interest to do so.

Rather than discuss the unintended negative consequences of such a policy (however, others can feel free to do so [img]/images/graemlins/smile.gif[/img], I'd like to talk about why it is generally in a company's best interest to be environmentally friendly, even absent government regulation.

Financial performance and environmental performance are not mutually exclusive. In fact, they often go hand-in-hand.

-In 1998 UPS redesigned its service packaging, making it lighter and reusable. This change not only saved UPS $1.6 million annually, but also "conserved enough energy to light 20,000 light bulbs for a year, eliminated 550 tons of solid waste, and saved more than 2,200 tons of trees."

Furthermore researchers found that "when companies are mentioned in the media for positive environmental events, their stock price is stronger than the broader market" (Klassen and McLaughlin, 1996). For companies whose environmental policies are criticized in the media, the opposite is true.

In addition, some companies not only hold themselves environmentally responsible, but also do so for their business partners.

For example, Disney "maintains a "Code of Conduct for Manufacturers" that dictates business practices, social performance, and environmental performance requirements that all Disney suppliers must follow."

In order to maximize profits, companies desire to eliminate all waste, be it related to inventory, product defects, or the environment.

There is however one "company" that doesn't have a profit-based incentive to operate efficiently and reduce waste. Also, this company has sovereign immunity, and thus cannot be sued for environmental infractions. I'll let you guess who this company might be.