From Ha’Am’s Winter Edition, “The Divide”
Conventional public sentiment presumes that pursuit of profit and protection of the environment are mutually exclusive interests. Where does the Halacha — Jewish religious law — fall on these issues?
Many businesses have long premised the foregoing public sentiment when forging their corporate strategies, believing that emitting fewer pollutants or adopting greener technologies — both of which help to reduce the environmental impacts of operating a business — involves increasing costs. Businesses traditionally believe that to retain the same profit margin on goods sold after increasing the costs of production for those goods, they have to pass on the increased costs to consumers.
However, to stay profitable in a competitive marketplace, firms cannot raise prices or they risk losing customers to their competitors. Therefore, financial interests must be repugnant to their environmental counterparts and financial interests must come first, according to the traditional theory.
However, newer studies have revealed a much more nuanced, complex narrative. Take, for instance, the growing movement toward socially responsible investing.
Conventional investing philosophy premises that public companies are beholden to and constrained by the interests of their shareholders. As providers of the capital necessary to finance the company‘s operations, shareholders underwrite the risks companies take every day. They often do so when other sources of funding, like credit facilities from banks, will not do so or will only do so at an exorbitant cost.
The conventional philosophy posits that as a result of the risks shareholders take in providing these funds, company management ought to place a premium on pursuing shareholders’ interests, which usually prioritize the earning of handsome profits over any other objective. Without prioritizing shareholder interests, it would be impossible to entice investors to use their hard-earned money to buy ownership rights in corporations.
However, shareholder interests are rapidly evolving. Indeed, many investors are now qualifying their willingness to invest in a firm with other stipulations beyond profitability. For instance, many investors — both retail and institutional — have taken an interest in ensuring the companies in which they buy ownership are not merely profitable and fundamentally sound financially but are also environmentally friendly and socially conscious.
These shareholders have — to the surprise of conventional investors and to the chagrin of climate change deniers — enjoyed great success: Green stock indices such as the S&P 500 Environmental & Socially Responsible Index fund have outperformed the standard S&P 500 benchmark over the last three years, for example. In layman’s terms, that is to say: collectively, leading environmentally and socially conscious companies have achieved greater financial results than standard leading companies in the last three years.
Beyond socially responsible investing, many industries benefit from pursuing a strategy considering both the environment and profit and suffer from considering just one or the other. This is true especially for pure public goods — an economic term describing a service or commodity that everyone can enjoy and that is not made less enjoyable by another person using the service or commodity. Pure public goods pose problems when they are left to the whims of those seeking profit on the free market because the social costs of using the good are much greater than the private costs of using it.
Garret Hardin first outlined this problem of overuse in his seminal work, “The Tragedy of the Commons.” He describes a scenario first postulated by William Foster Lloyd in 1833, wherein shepherds share common grassland. Each shepherd is given an incentive to let additional cattle from his herd graze the land, since the land is free to the shepherd, and as he adds additional cattle, he enhances the value of his own herd. However, as each shepherd permits more cattle to graze, less and less grassland remains and, eventually, the common resource becomes depleted or destroyed.
In economic terms, Hardin describes the concept of a negative externality – when individuals who benefit from a resource do not bear the full social cost of using it. We observe this problem with many ecological and social issues in today’s world, from a firm emitting chemicals that pollute individuals’ drinking water to an individual smoking a cigarette that causes lung damage to bystanders.
Of all the issues characterized by the tragedy of the commons, however, few have the potential to do more harm than the problem of over-fishing. According to “The Tragedy of the High Seas,” an article published in The Economist, a preponderance of the world’s protein emanates from the ocean in the form of fish. In addition to harboring fish crucial for human dietary needs, the ocean also produces more than half of the world’s oxygen supply. Oxygen, of course, is crucial not just for biotic survival on land and sea but also for maintaining current levels of photosynthesis and carbon sequestration.
Despite the ocean’s importance, its status as a “commons” leaves it susceptible to individuals pursuing their current self-interest at the expense of the long-term viability and well-being of the resource. In this case, fishermen looking to profit individually catch as many fish as possible, eventually depleting the fish populations that sustain those same fishermen, destroying oceanic ecosystems and endangering the human food supply. Currently, more than two-thirds of global fish stocks are over-exploited, according to the aforementioned piece in The Economist. This problem results in both a lack of profits (in the long term) and environmental degradation (in both the long and short term); nobody wins.
Where does the Halacha stand on all of this?
Soon after God’s creation of the universe, Genesis 2:15 says: “God took man and put him in the Garden of Eden to work it and preserve it.” While Halachic interpretations of this quote abound, most Jewish scholars agree on one point: God gave humans the world and entrusted them with caring for it.
Deuteronomy 20:19–20, which describes the laws of war, proscribes the felling of trees that bear fruit. The excerpt has been extrapolated to form the basis for Bal Tashchit, a Jewish tenet prohibiting senseless destruction.
From this, a clear conclusion emerges: When we have opportunities to avoid senseless waste — like by adopting environmentally friendly technologies at a reasonable cost — we ought to do so; when we sacrifice the long term to enrich ourselves in the short term, we are committing an ethical violation; and when we can identify solutions beneficial to both the environment and to business, we ought to embrace them.
Keep on writing, great job!