A decade ago, in an influential book, David Vogel assessed the potential
for business leadership—driven by the “market for virtue” rather than by legal
requirements—to fill the “governance gap” left by an increasingly gridlocked
state.3 He found numerous success stories for this sort of “civil regulation” as
distinct from “government regulation,” ranging from working conditions in
developing countries to the natural environment to human rights and global corporate citizenship. Nike has adopted labor and environmental standards for the
over 700 factories abroad that make its products, has created a credible monitoring process, and has canceled contracts with suppliers who perform poorly; supplier codes-of-conduct and supplier auditing are now common practice among
leading brands. Home Depot, Lowe’s, and other retailers have adopted voluntary
codes of conduct that have helped to preserve old-growth forests and improve
forestry practices in North America and beyond. Thousands of companies around
the world have signed onto the United Nations (UN) Global Compact (which bills
itself as the world’s largest corporate sustainability initiative) and have agreed to
its principles for the improvement of human rights, the treatment of labor and
the environment, and the reduction of corruption.
for business leadership—driven by the “market for virtue” rather than by legal
requirements—to fill the “governance gap” left by an increasingly gridlocked
state.3 He found numerous success stories for this sort of “civil regulation” as
distinct from “government regulation,” ranging from working conditions in
developing countries to the natural environment to human rights and global corporate citizenship. Nike has adopted labor and environmental standards for the
over 700 factories abroad that make its products, has created a credible monitoring process, and has canceled contracts with suppliers who perform poorly; supplier codes-of-conduct and supplier auditing are now common practice among
leading brands. Home Depot, Lowe’s, and other retailers have adopted voluntary
codes of conduct that have helped to preserve old-growth forests and improve
forestry practices in North America and beyond. Thousands of companies around
the world have signed onto the United Nations (UN) Global Compact (which bills
itself as the world’s largest corporate sustainability initiative) and have agreed to
its principles for the improvement of human rights, the treatment of labor and
the environment, and the reduction of corruption.
Moreover, a body of data is emerging that demonstrates quantitatively the
impact of some corporate sustainability initiatives. Energy-efficient commercial
buildings that are Leadership in Energy and Environmental Design (LEED) or
Energy Star certified have an occupancy rate 11% higher than other buildings
and sell for 16% to 17% more. These initiatives have the ancillary benefit of
reducing greenhouse gas (GHG) emissions. In addition, products that are perceived to offer health benefits have found a growing niche in the marketplace:
organic food accounts for over 5% of total food sales in the United States, and it
grew 8% in 2016 to top $40 billion for the first time. Furthermore, over 20% of
all wild-caught fish6 and 15% of wood harvested from temperate forests around
the world comes from fisheries and forests certified as sustainable.
impact of some corporate sustainability initiatives. Energy-efficient commercial
buildings that are Leadership in Energy and Environmental Design (LEED) or
Energy Star certified have an occupancy rate 11% higher than other buildings
and sell for 16% to 17% more. These initiatives have the ancillary benefit of
reducing greenhouse gas (GHG) emissions. In addition, products that are perceived to offer health benefits have found a growing niche in the marketplace:
organic food accounts for over 5% of total food sales in the United States, and it
grew 8% in 2016 to top $40 billion for the first time. Furthermore, over 20% of
all wild-caught fish6 and 15% of wood harvested from temperate forests around
the world comes from fisheries and forests certified as sustainable.
For all its success, however, the market for virtue is often “narrow and
limited” in its ability to solve social and environmental problems. Voluntary codes
of conduct in the apparel sector did not prevent the 2013 collapse of the Rana
Plaza textile factory in Bangladesh that killed 1,134 workers. New certifications
for sustainable forestry have emerged that offer weaker standards for firms that do
not want to meet the most stringent demands.10 The UN Global Compact has been
widely criticized, and even derided as a form of “bluewash” by Ralph Nader. BP,
once lauded as a leader in the fight against climate change, has had its reputation
ruined by the massive Deepwater Horizon explosion that killed 11 workers and
created the largest oil spill in U.S. history.12 Globally, 90% of fisheries are fully or
overfished,13 the agricultural production system is under stress from a burgeoning
world population,14 and water supplies are threatened around the world. There
is mounting evidence that climate change poses severe threats to global wellbeing, and by some estimates we have until just 2020 to bend the “climate curve”
and rein in climate change before damaging warming becomes inevitable. The 2015 State of Green Business report—authored by the normally upbeat Joel
Makower, executive editor of GreenBiz.com—struck a somber note. “Companies
continued to tinker with incremental changes in their products and operations to
reduce their carbon emissions, energy use, waste, chemicals of concern and other
aspects of their ‘environmental footprint.’” But despite these efforts, he continued, “All told, they were necessary but wholly insufficient to address their fair
share of environmental impacts.”
limited” in its ability to solve social and environmental problems. Voluntary codes
of conduct in the apparel sector did not prevent the 2013 collapse of the Rana
Plaza textile factory in Bangladesh that killed 1,134 workers. New certifications
for sustainable forestry have emerged that offer weaker standards for firms that do
not want to meet the most stringent demands.10 The UN Global Compact has been
widely criticized, and even derided as a form of “bluewash” by Ralph Nader. BP,
once lauded as a leader in the fight against climate change, has had its reputation
ruined by the massive Deepwater Horizon explosion that killed 11 workers and
created the largest oil spill in U.S. history.12 Globally, 90% of fisheries are fully or
overfished,13 the agricultural production system is under stress from a burgeoning
world population,14 and water supplies are threatened around the world. There
is mounting evidence that climate change poses severe threats to global wellbeing, and by some estimates we have until just 2020 to bend the “climate curve”
and rein in climate change before damaging warming becomes inevitable. The 2015 State of Green Business report—authored by the normally upbeat Joel
Makower, executive editor of GreenBiz.com—struck a somber note. “Companies
continued to tinker with incremental changes in their products and operations to
reduce their carbon emissions, energy use, waste, chemicals of concern and other
aspects of their ‘environmental footprint.’” But despite these efforts, he continued, “All told, they were necessary but wholly insufficient to address their fair
share of environmental impacts.”
All of this reinforces Vogel’s argument. Civil regulation can partially fill the
governance gap but cannot fully replace public policy. The “carrot” of market
incentives can reward sustainability leaders, but it cannot force all of the laggards
to follow suit. For that, the “stick” of penalties for poor performance is required,
and that remains largely the domain of government.
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