By Lena Milton
Many businesses are facing increasing pressure to prioritize ethical labor practices and sustainability in their supply chain and general practices. In all areas of industry, customers take ethics and sustainability into account when making purchases. For example, a recent study found that globally, 60% of consumers rate sustainability as an important criterion for purchasing decisions. Another study found that the same amount (60%) of consumers consider a company’s ethical values before making a purchase.
Despite increasing focus on responsible business practices, cost and profit is still the most important driving force behind companies’, investors’ and consumers’ choices. Thus, when companies are making decisions about how to run their business, ethical practices and sustainability may be the first to go out the window in order to keep costs low and profit high.
This article seeks to understand whether companies are choosing between ethical labor andsustainable practices, and whether the two values are truly at odds. In a profit-driven world, can ethical labor and environmental sustainability be prioritized together?
While we use them often, the terms “ethical” and “sustainable” are actually quite vague, as they’re applied in so many different contexts. However, in the context of companies, ethics and sustainability can be defined in specific ways, through specific practices.
In the context of corporate social responsibility (CSR), ethics often come down to safe and fair working conditions. This includes things like:
- Fair wages
- Clean, sanitary factories
- Safe factories
- Fair working hours
- Ethical sourcing of materials
- Fair labor practices, including a lack of forced labor, child labor and discriminatory practices
Sustainability generally refers to environmental responsibility, although the term is used in many applications even within the world of business. A company’s sustainability efforts might focus on:
- Compliance with environmental regulations
- Responsible waste management
- Lowered greenhouse gas emissions
- Contribution to the circular economy (e.g. using recycled materials or creating products that can be recycled)
Many business owners are concerned that ethical labor and environmental responsibility will increase costs and reduce profits. This concern drives the major tension between the two. For example, a company may feel that they must choose between paying their employees a livable wage and responsibly disposing of their wastewater. As both these actions would increase costs for the company, many businesses may view ethical labor and sustainability as incompatible, or as an “either-or” choice.
Investors often view ethical labor and sustainability as a choice, as well. For example, a 2021 report found that 65% of investors marked fair wages as an important value for their investments, while only 53% of investors listed the environment as a priority for their investments.
The good news is that overall, investors are increasingly investing in ethical, sustainable companies, known as environmental, social and governance (ESG) investing or impact investing. The number of investors who invested in businesses with commitments to positive environmental or social responsibilities increased from 43% in 2019 to 49% in 2021. Not only is ESG investing good practice to increase ethical business practices, but it may also result in more profitable investments, especially in the long term.
Lowered risk: A lack of social and environmental sustainability is often viewed as a risk factor, as human rights or environmental scandals hurt a company’s stock. Consider, for example, the stock drop after the 2010 BP oil spill. In this way, ethical labor and environmental sustainability actually work together to make a company a strong, lower risk investment.
Sustainable investing is also more “future-proof” than investing in companies that contribute to global warming. For example, industries like the coal industry are increasingly becoming obsolete as we transition to more sustainable methods of power generation.
Increased profit: Companies that invest in ethical labor and sustainable practices may stand to increase profits overall. Organizations like the Fairtrade Foundation argue that because customers are willing to pay more for ethically and sustainably produced products, companies will sell more and increase profits, which compensates for higher costs. This may be true to a certain extent (one-third of customers surveyed in 2021 said they’d pay more for ethical/sustainable products), but in reality many customers still put price as one of the most important factors.
Even if you don’t take customer and investor choices into account, sustainability and ethical labor can actually save a company money in the long run. While some businesses may be concerned that sustainable companies lose profit, a 2015 metaanalysis of 2000 other studies found that 90% of sustainable companies’ profits were equal or higher than conventional companies. This may be caused, in part, from saving money from sustainable practices like reducing energy costs.
The same goes for ethical labor; a 2021 analysis of the Ethisphere Institute’s “World’s Most Ethical Companies” list shows that ethical companies meet or exceed the profits of traditional counterparts. In fact, 40% of ethical companies listed more than doubled the profits of conventional counterparts.
Finally, ethical labor practices and compliance with environmental regulation also helps companies avoid costly penalties and fines.
Because ethical labor and sustainability are not necessarily the profit-killers we once thought they were, it becomes clear that not only are they not mutually exclusive, but that profits can even increase when both ethical and environmental responsibilities are taken into account.
High-Level Relationship Between Ethical Labor and Sustainability
When it comes down to it, ethics and sustainability are inextricably linked. The environmental impacts caused by irresponsible industry (e.g. water pollution, high carbon emissions) disproportionately affect poor communities. In this way, environmental sustainability for factories or other businesses becomes an inherently ethical issue. Corporate social responsibility must extend to environmental impacts.
Additionally, fair wages may help reduce environmental impacts overall, as people living in poverty are more likely to overuse resources. By providing a livable wage, companies can actually help reduce environmental degradation. Of course, companies have a larger impact by creating their own sustainable practices, but ethical labor plays a role.
Many principles of business have already acknowledged the close links between social responsibility, environmental responsibility, and economics. For example, the Brundtland approach, created in a 1987 United Nations World Commission on Environment and Development, frames sustainable development as the intersection between “people, planet and profit.”
While businesses must be the ones to actually make changes to achieve ethical and environmental responsibility, consumers can help bring this about. This is often referred to as “voting with your wallet,” in which ethical consumers support companies whose values align with their own. For example, seeking out companies that undergo ethical auditing or who ensure sustainable use of materials will help create profit for companies doing the right thing. By supporting companies who are “doing it all” when it comes to ethics and sustainability, consumers help push us towards a world where those values are the norm.