Two sustainability experts, writing in the Harvard Business Review,  offer five reasons why business leaders are reluctant to make investments in environmental, social and governance (ESG) business practices and why each of those reasons is wrong. Paul Polman, a former CEO of Unilever, and Andrew Winston, an author of best-selling books on business strategy, write that “many leaders still see an inherent trade-off between choosing a more sustainable future and achieving business growth and profit.” They see ESG-related spending—a capital expense to reduce energy use, opting for renewable energy, paying living wages, and so on—as purely cost, not investment. … They shouldn’t.” 

The authors note that worries that clean energy costs more are “wildly out of date,” as several studies prove that there is a payoff from focusing on long-term value and ESG. They list the following five problems with how business leaders make decisions, and then propose solutions for each of them  

First, they write that the numbers hide the truth about real costs. They note that companies never pay for costs to society, such as pollution and climate change, known as externalities. Further, companies also receive, for free, trillions of dollars in value and services from the natural world. Moreover, government subsidies and regulations can make it cheaper to do the less sustainable thing—burn more fossil fuels or degrade soil to maximize yields today at the expense of tomorrow. Their solution is to price the unpriced. That would mean internalizing the externalities by, for example, putting a “shadow price” on carbon inside the business. It also means working with peers, nongovernmental organizations (NGOs) and governments to enact policies that improve the system for all. “Get those price signals and spending priorities right,” they insist, “and sustainable products and investments will look much better in comparison.” 

Second, people’s own biases can trick them. So that even if sustainable practices are more profitable by traditional measures, some investors may not choose them. They may say to themselves, “I know how to make money on investing in fossil fuels, so I’ll keep doing that.” The authors' solution is to diversify the group making the decisions. That could mean bringing civil society into the decision making—perhaps by asking NGOs that are critics to come in and help educate and solve problems. And it could also mean inviting younger people into the decision-making process since it is their future that is at stake. 

Third is tendency to focus on short-term costs and benefits. The authors point out that “there are technologies that may cost more now, until they get to larger scale—which describes every new technology.” They maintain that a sustainability goal such as a zero-waste factory can take investment and time to get right. “But the effort improves the operation more holistically," they write, "resulting in higher productivity and nimbleness.” Their solution is to redefine tools for investment decisions, arguing that metrics such as return on investment (ROI) and internal rate of return( IRR) are “generally broken” because they “miss sources of value and use a too-high discount rate, which makes any investment in the future look worthless.” Instead, they suggest finding and internalizing the data that proves the value of longer-term thinking, advising, “Better tools and thinking can lead to more and better action.” 

Fourth is thinking about costs in terms of silos rather than systems. For example, on the topic of paying wages, the authors write that “focusing only on the budgetary silo of wage expense gives only a partial, narrow view on the investment choice. Intangible benefits also accrue to a company that invests in its people and supply chains: attraction and retention of talent, more productive workers with lower turnover, stronger relationships with communities, and a better (and true) story to tell customers about [the company’s] net positive impact on the world.” Their solution is to broaden thinking about value by thinking in terms of systems. They argue that “the ‘return’ part of the equation doesn’t capture the intangible value from choosing the sustainable, net positive path (employee engagement, customer passion, resilience, and so on).” They argue  that “shifting from part-time and contingency hiring to creating more permanent positions may cost more immediately, but easily pays off in less attrition and higher productivity” and suggest broadening the definition of “return” on a company’s investments. 

Fifth is missing the bigger, existential costs. While not acting on climate change is projected to destroy around 18 percent of GDP by 2050, that only tells part of the story. “Some cities will become too hot to live in,” they point out. “The downside risk to those regional economies is not 18%; it’s 100%.” Their suggested solution is to understand the world thresholds and learn to think in net positive terms. That means studying the big trends that are moving nonlinearly—such as climate change and inequality—"then consider some extreme outcomes and lay out the material risks from the tails of the probability distribution."

The authors conclude that these five mistaken attitudes “are the primary ones that drag down sustainability investment.” While they acknowledge that it’s “easier (and frankly lazier) to think in old ways," they insist that, "at the macro level we’ve long passed the point where the cost of action is far lower than the cost of inaction.” Thus, they argue, “It definitely pays to invest in our shared future.”