The economics of deregulation may not add up in the values-driven marketplace

Posted on March 2, 2017 2:48 pm by | Business | Ethics | Politics | PR | Transparency

Image of a waterway polluted by toxic coal waste

The Clean Power Plan is one of the Obama-era regulations President Donald Trump promised to repeal as part of his promise to accelerate the economy and create jobs. The Plan, proposed by the Environmental Protection Agency and finalized by the administration in 2015, was designed to bolster the move toward clean energy through the introduction of standards for power plants and state goals for reducing carbon dioxide pollution.

Presumably, power companies and others that produce carbon dioxide are celebrating the sweeping away of these costly regulations. After all, by lowering costs they can deliver higher returns to shareholders and, according to proponents of deregulation, enable them to hire more people.

There’s also a chance some of those companies won’t be in such a hurry to capitalize on the lower regulatory burden. They may be thinking that just because they can stop investing in carbon dioxide reduction technology doesn’t mean they should.

Competing on Values

There is nothing altruistic or politically partisan in a company’s decision to turn its back an opportunity to save a buck. Cold, hard reality and practicality would lead a company to continue its efforts to reduce emissions even though it’s no longer a government requirement. The business world finds itself in the early days of a new values-driven marketplace. Companies’ behaviors increasingly drive decisions to invest in, work for, and buy from those organizations.

Consider Millennials, for whom the environment is the top issue. Those born between 1980 and 1996 see the idea of sustainability as a social responsibility issue and making purchase decisions based on the manufacturer’s commitment to sustainability enables them to make a statement about their commitment to a better world. Nearly 60% of millennials, according to one study, are willing to pay a higher price for products that wear their sustainability on their sleeves.

The issue goes deeper than just Millennials. The 2017 Edelman Trust Barometer found that 75% of people agree that “a company can take specific actions that both increase profits and improve the economic and social conditions in the community where it operates.” With Millennials believing that environmental action is a social responsibility issue, companies will need to balance the benefits they can gain from lowered regulations with the consequences.

A 2016 study from the Boston Consulting Group found that investors are connecting sustainability and performance and are using companies’ sustainability data to make investment decisions. “A growing number of investors are paying attention to ESG (environmental, social and governance) performance, as evidence mounts that sustainability-related activities are material to the financial success of a company over time,” according to an MIT Sloan Management report on the study. “Investors care more about sustainability issues than many executives believe.”

Bad Behavior vs. A Great Brand Story

With Millennials listing sustainability as their top issue, having a great story to tell can also impact recruiting. Numerous studies have shown job-hunters prefer working for companies whose employer brand includes a strong sustainability component. According to two researchers, companies with healthy sustainability credentials are a source of pride to employees, it suggests the company cares about issues that matter to its workers, and it links the company’s values to its employees’ values.

Deloitte’s 2015 Millennial Survey reinforces the point, noting that half of Millennials say they would take a lower salary if it meant they could work for a company that matches their own values. The Deloitte study found that Millennials value making the world more compassionate, innovative, and sustainable over money.

Calculating the downside of reduced investment and limited hiring opportunities because the company’s story is one of dumping toxic coal dust into streams and waterways could find—especially over the long term—that taking advantage of a repealed regulation just doesn’t make good business sense.

The PR and Communications Role

Since the organization’s ability to tell its sustainability story often falls into the hands of its PR and communications teams, it becomes incumbent on communicators to make sure leaders are aware of the risk associated with renewing old behaviors that could damage the company’s brand. According to the BCG study, “only 60% of managers in publicly traded companies believe that good sustainability performance is materially important to investors’ investment decisions.”

Millennials voted overwhelmingly for Hillary Clinton(Some leaders may also believe President Trump’s victory is a sign that the public is ready for fewer regulations, but exit polls found that Millennials voted overwhelmingly for Hillary Clinton (see the map). Baby Boomers—who turned out in larger numbers—gave Trump his victory. The fact that only 45% of eligible Millennials cast votes suggests that, should they be motivated by businesses behaving badly, the next election could turn out very differently.

In addition to losing investment dollars and top talent, leaders should consider the likelihood that those dollars and employees will find their way to a more values-minded competitor.

Companies across all industries need to think twice before returning to old habits just because they can. Just look at the image and ask, “Is this how I want investors, customers, and prospective employees to see us? Is the money we’ll save or make from returning to these activities worth what it’ll cost?”

The most interesting outcome to watch for is the performance of companies that fail to recognize that they are now operating in a values-driven marketplace. My guess is that their more savvy competitors will crush them.

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