Cross-posted from Forbes.com
Last week, on the 40th Anniversary of Earth Day, I found myself in an interesting discussion with business leaders in one of our Executive Education programs at Thunderbird School of Global Management, focused on the roles of business and government in creating not only a livable and sustainable environment, but a stable and predictable society. Both are needed for businesses to flourish. And both seem to be in flux in ways that undermine businesses' ability to profit and survive.
Earth Day was first celebrated in 1970 and coincided with the founding of the Environmental Protection Agency by the Nixon Administration. The EPA's job was to lead the creation of government policies that protected nature from the impacts of industrial growth and development. Doing so meant regulating the polluting activities of business. This mandate set up a conflict between business interest and environmental goals.
Businesses saw environmental regulations as newly imposed costs on operations, which they were. Early regulations were usually written by bureaucrats with only limited information about company operations and the costs of alternative remedies. Regulators wanted the surest, not necessarily cheapest, solution. So while regulations often improved the environment they were not always the most cost effective.
Not surprisingly, business fought back, and succeeded in the "get government off the backs of business" philosophy personified by Ronald Reagan and Margaret Thatcher. After a wave of environmental policy making in the 1970s and 1980s, new lawmaking slowed.
This political success paradoxically became a problem for business. Environmental challenges have not gone away. Despite some success, like acid rain and ozone protection, environmental issues continue to afflict us. And the drivers of environmental degradation - growing population, raw material extraction, energy use, etc. - continue to grow. So if government is not going to address the problem, who is? The answer, we are finding, is business itself.
The corporate sustainability and social responsibility movement is largely an alternative to government regulation of business activity. In the past, business could count on the government to tell them what was environmentally acceptable or not. Today however, business can't count on the government. It has to figure this out itself.
Doing nothing, which may have been the hope in the heyday of deregulation, is not an option. Activists, the media, customers, shareholders, Gen-Y employees and others are getting good at pressuring companies to take responsibility for environmental impacts. And the Internet's social media echo-chamber only enhances their influence on executive decision making.
So what does this mean for business leaders and the environmental movement? Business has to step up and become a responsible participant in solving environmental problems. Complaining about government regulation is old school and only undermines business credibility. The new generation of business leadership recognizes this. Just listen to a Whole Foods executive talk about their environment initiatives: "Business can make a difference in the energy and environmental situation of our country and I think they have to. Because capitalism is what built America and we expect business and entrepreneurs to step up to the plate and bring solutions to the challenges we face as a country."
When surveys ask business leaders who is leading in the area of sustainability the answer is surprising to most: Walmart. Walmart's impact on the environmental thinking and performance of its business partners is becoming legend. One VP told me, "next to Walmart the Environmental Protection Agency is nothing." That's an encouraging development, but business leadership on sustainability, while welcomed, but it's still only part of the solution. Government still has a role to play, if nothing more than to bring along the laggards. But, just as business can't count on government, they can't count them out either. It requires leadership that replaces confrontation with collective responsibility. It's a new frontier and maybe what Nixon had in mind when he created the EPA at the dawn of the environmental movement 40 years ago.