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Society should hold firms to account

I’m feeling a bit guilty. I bought an Audi diesel car, of the sort we now know cheated the emissions testing regime.

I did it with the best of intentions: to reduce my carbon emissions. I knew diesels had other emission issues, and I even knew that there were doubts about the realism of the testing regime.

In the end I allowed myself to be persuaded by the relative performance of the car in standard tests – but it had cheated. This was not some fly-by-night operation but the mighty Volkswagen Group, a company with all the wealth of money and technology capable of doing the job properly, but decided not to. So can business be trusted?

This question of trust can be get a bit polarised. The Government starts from the assumption that regulation is bad and business can be trusted to want to do ‘the right thing’ without nannying. But some ‘green’ groups point to the predominance of profit and shareholder value to argue that only regulation really works. Neither view has much merit.

In my experience, companies that have been around a while and expect to have a future are able to take a longer-term view of their profit and share price. They can see that both will benefit by running a sustainable business. Not all companies are like that. Some exist to exploit a short-term market and care for little apart from maximising immediate gain. Organising policy as if all companies are at either end of that spectrum would be mad.

I have tended to think of companies in four broad types:

  • Pioneers are the initiators. They come up with ideas and give them a go. They do not need much to sustain them: some recognition, an industry award or media coverage and perhaps some research funding to moderate their commercial risks.
  • Early adopters are alive to the benefits of change and willing to join in. They may need a variety of supports, especially some framework that allows them to work with like-minded companies without upsetting the competition authorities. This is where voluntary agreements like the Courtauld Commitment come in.
  • Late joiners are typically unaware of the issue or are focused on other priorities. They will need more support to bring them on board: awareness raising, information on costs benefits and technique – probably learnt from the first two groups – and perhaps some financial inducement.
  • Dinosaurs don’t know or care about the issue and have no interest in changing. They can either be left to go extinct if they are insignificant in the market or forced to change by regulation if their free-riding will undermine the efforts of other companies.

Promoting successful change means having a strategy to address each group. Relying on voluntary agreements alone – unless the sector is small – will not work. Over-reliance on regulation stymies innovation and, unless it is comprehensively enforced, risks being a burden on those that want to do the right thing while letting off those that do not care. Eschewing regulation altogether, however, undermines voluntary efforts by creating the risk of being undercut by free-riders.

So can we trust business with the environment? I believe we can, and indeed we have to, but that has to be in a context set by wider society. Without that context, the mismatch between the short-term pressures from competitive markets and the long-term stability of natural cycles cannot be managed effectively.

Setting that context in the UK is the business of governments. If they do it well, progress will be made. I have not seen much context-setting in England recently, apart from unhelpful announcements on renewable energy, but I was intrigued by the discovery that waste minister, Rory Stewart has been given the task of developing a 25-year policy framework for the environment.

It comes 25 years after the first environment white paper produced by Chris, now Lord, Patten in 1990. That set a lasting context for policy, even if we are still struggling to meet its 50% recycling target.

As for Volkswagen, it has promised to fix my Audi once it works out how to do it. Do I trust it? Not a chance.     

Phillip Ward is the owner of Falcutt consultancy

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