Conventional business costs more than green business, we just haven't grasped that yet

If you attend conferences and meetings among people in "green" industry, one theme dominates all:

Why won't decision makers pay more to do the right thing?

The common business wisdom says that - within the confines of the law - a manager owes it to their stakeholders to maximize profit.  Markets (both free and mildly regulated like ours) favor incumbents and have a natural inertia to new ideas.  Given these obstacles, I think the better question is:

Why don't "green" strategies and technologies cost less?

Green businesses waste less than "conventional" ones, impose less damage on society, and have positive influences on the health and well-being of workers.  Each of these should make following green practices an innovative, more cost effective approach.  After thirteen years advocating for better business and organizational practices, I still hear the mantra about paying more.  At the Illinois Green Business Association Summit today, I heard some heartening news on the business front...news that those of us seeking market solutions should find hopeful, or at the least, good conversation starters.

• First, companies in the Carbon Disclosure Project have a +1.6% greater rate of growth (not 1.6% higher growth, but a growth rate that is 1.6 percentage points higher) and 18% greater cash flow stability.  
• Second, in 2007, Golman Sachs reported that companies that include sustainability in their profit focus have a 25% greater stock value than those that do not.  
• Lastly, Jeremy Grantham - Chief Investment Strategist at GMO - stated in an interview with Charlie Rose that under a business-as-usual approach to environmental valuation, we will see growth of 0-1% per year instead of our assumed 3-8% per year.

These suggest that we can maintain profit margins, even while pursuing better practices, and that as the conventional economy becomes weighed down by its energy intensity, more sustainable, nimble business will thrive.  A consensus is growing that effective business management holds the key to rapid changes in our economy to align human-centered management with profit-centered management; after all, our economy is at its core about managing resources to improve quality of life.  Some core ideas that must take root are:

1.  The market must account for all costs of doing business against the bottom line of the businesses that create those costs.  The theoretical "rational consumer" that forms the foundation of modern economics must have all the information about a product when they choose, and without that, we create market distortions that incentivize the wrong behaviors.  This necessary accounting can come from the market (i.e. through insurance) or through government regulation (e.g. carbon tax), but as long as it is accurate and targeted, it will ensure that the truly economical option prevails.

2.  "Green" businesses must innovate faster than conventional ones.  With entrenched market position and capital, conventional industries hold a significant advantage, but with that entrenchment comes a resistance to change.  Technologies that develop quickly and provide game changing performance can get to market faster than ever before, as long as that process is managed properly.

3.  Moving from a service economy to an information economy will restore the community connectedness and social capital necessary to make our cities more resilient.  We will continue to become more or an urban-dwelling species, so our cities must respond with more resilient infrastructure - both physical and social.  Energy-intensive processes will give way to more efficient ones, especially as demand for resources and population growth continue to grow geometrically.  As we leverage improved communications to increase the flow of information, we will create a new business paradigm for getting products to markets...one that relies on the community to use information to create product and service instead of importing the product or service.

4.  The concept of government subsidy has to become more nimble, and focused on removing market obstacles as opposed to overcoming them simply with capital.  As our problems grow, and our government resources wane, we need mechanisms that not only provide capital to overcome market inertia, but smart approaches to organizing the economy in such a way as to reduce the need for capital to innovate.  For example, instead of providing loans or subsidy to new enterprises for the purpose of providing management capacity, provide loans or grants to business incubators that can help multiple companies at once.

A prudent combination of market leveling and culture change in "green" business will restore the sense of industry and community that made our nation strong last century.  The economics make sense, the motivation is there, all we need is a collective determination to improve quality of life for all, and we can cause rapid, significant, and beneficial change.