How Painful Are the Hidden Costs of an ESG Strategy?

Posted on August 17, 2022


In 2008 I wrote a paper titled The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices.

Included in my research was the following excerpt from the book Cannibals With Forks – The Triple Bottom Line of 21st Century Business, By John Elkington (Capstone Publishing, Oxford, 1997):

“In our rapidly evolving capitalist economies, where it is in the natural order of things for corporations to devour competing corporations, for industries to carve up and digest other industries, one emerging form of capitalism with a fork – sustainable capitalism – would certainly constitute real progress.”

What drew me to this particular text was Elkington’s reference to evolving capitalist economies and, in particular, his assertion that “sustainable capitalism – would certainly constitute real progress.”

It was one of the few times that someone was willing to look at the economic impact of what is undoubtedly a good and noble objective – including the greening of procurement.

As most of you will likely agree, when it comes to green or the more expansive ESG vision, rarely, if ever, does the talk turn to the potential downside of this movement.

For example, in my July 8th 2022 post Diversity For The Sake Of Diversity Doesn’t Work, I discuss a LinkedIn post by Spend Matters’ Jason Busch. In his post, Jason recounts an interesting story about a company that strives “to maintain “hiring metrics” that match up with the demographics of their customers.” He then talks about the negative consequences of such practices. His take is insightful.

The Hidden Costs

I thought about Jason’s post and my earlier white paper regarding sustainable capitalism when I read this week’s article, “Going electric will cost the auto industry hundreds of thousands of jobs, experts predict.”

According to the article’s author – Tim Levin, “both Ford and Volkswagen have estimated that electric cars require 30% less labor than conventional vehicles.” Levin adds, “consulting firm AlixPartners reckons that 40% less labor goes into an EV’s motors and battery pack than an engine and transmission.” As a result, the article estimates that “the US could shed 75,000 auto jobs by 2030 if electric cars rise to 50% of domestic sales.” In Europe, the estimate is that “rapid electrification could cost them 275,000 jobs by 2040,” and that’s taking into account the jobs gained “for new positions that arise making EV parts.”

Now, in the overall scheme of things, you may consider these job loss numbers to be a small price to pay, given a “big picture” view of the benefits of electric cars. Let’s face it, dramatically lowering smog and greenhouse emissions has more than just a few benefits beyond cleaner air, including better health. With an already overtaxed healthcare system, a populace’s improving health can translate into significant savings and a better quality of life for many people.

However, what about the 75,000 and 275,000 workers in the US and Europe, respectively? What is the cost of doing the right thing for them? What if YOU were one of them?

I am not writing this article to suggest we put the brakes on ESG initiatives. Far from it. I hope to prompt us all to consider the total and hidden costs of pursuing these worthy strategies, including job loss.

Returning to the earlier Cannibals With Forks reference, gaining this critical insight and understanding of ESG’s downside consequences and addressing them will likely remove some of the barriers to fully adopting and implementing these crucial programs – including sustainable procurement. From my standpoint, removing ESG adoption barriers will foster sustainable capitalism – which is also good for everyone.