Magazine Spring 2018 Issue Big Idea: Leading Sustainable Organizations

Business Needs a Safety Net

Government’s long-ignored role in creating and sustaining market conditions needs to take center stage as climate events become both more common and more destructive.

David Kiron and Gregory Unruh Reading Time: 6 min 

Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
More in this series
Permissions and PDF
Safety Net Natural Disaster Climate Change Crisis Business Responsibility Environment

It is standard fare for large companies to talk about their contributions to society, but 2017 has provided new evidence that businesses may need to rethink their purpose in society. In just one month — September — the southern United States and Mexico were hit by three Category 4-plus hurricanes and at least two major earthquakes that devastated entire communities. Over 400 people died in two powerful quakes occurring 11 days apart in Mexico, while Puerto Rico faced the prospect of being without power and clean water for months in the aftermath of Hurricanes Irma and Maria (even as the U.S. was cleaning up after Hurricane Harvey, which hit Houston less than a week before Irma struck).

The following month, three more major events hit: Wildfires in California yielded a predicted $85 billion in losses, while Spain and Portugal similarly saw devastating blazes. Hurricane Ophelia left three Ireland residents dead, with hundreds of thousands lacking power.

As these catastrophic events increase in the coming years, business and government will need to work together — more than they have — to ensure that markets and communities are as resilient as possible.

Gray-haired execs might recoil at this thought, pointing to Milton Friedman’s oft-repeated claim that the one and only social responsibility of companies “is to increase profits.” But these managers ignore Friedman’s less well-known caveat, “so long as [the company] stays within the rules of the game.” As Friedman remarked in Capitalism and Freedom:

Government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game.

This strong distinction between rule makers and game players is difficult to maintain when a changing natural environment becomes a destructive economic force that regularly puts populations of broken people on broken streets. Uninsured costs from these events are skyrocketing, placing a growing burden on households (

Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
More in this series

About the Authors

David Kiron is the executive editor of MIT Sloan Management Review. He tweets @davidkiron1. Gregory Unruh is the Arison Group Endowed Professor at George Mason University in Fairfax, Virginia, and MIT Sloan Management Review’s guest editor for the Sustainability Big Ideas Initiative. He can be reached at unruh@mit.edu or on Twitter @gregoryunruh.

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Comments (3)
siswanto.gatot549
As life can not be predicted, safety net becomes one and only one solution to compensate unpredictable moments. everyone must aware that risk is always present in our life, like  or dislike
John Balla
Interesting thoughts here, David and Gregory! There is indeed a need to forge public policy and supporting corporate direction to prepare for the increasing threat of climate change. Unfortunately, the current White House and majority party-controlled Congress flatly deny climate change and curiously seem focused on disrupting markets. At the same time, corporate lobbying efforts don’t seem to nudge that kind of focus either, and executive comp typically incents quarter-by-quarter shareholder value boosts. Needless to say, while you’ve laid out compelling arguments, I doubt the rule makers and game players will actually step up.

Further complicating matters is that the government investments you cited all came from our department of defense – the interstate highway system was designed and built to enable military command and control of our vast territory in the event of an enemy invasion, and of course the satellite network cited in your article was also a DOD initiative. Those examples suggest that military arguments to support robust markets may be more effective in prompting action than anything else.

One source of those military arguments may arise from a parallel geopolitical trend – the increasing scarcity of natural resources – intensified by the wealth creation and the rising middle class in China, India and other large developing nations.
Bill McDavitt
The Rockefeller Foundation is heavily involved in this very question. They have backed refocus partners, which is looking at public-private partnerships to reduce the risk of natural catastrophes. They have also backed Blue Forest Conservation which is looking at some innovative financial solutions to reducing forest fire risk. Given that  most governments are spending more  than tax receipts are taking in, looking to private markets and private capital to  help solve some of these  vexing problems seems like a good place to  start.