Profit and sustainable development: Raging rivals or boardroom bedfellows?

I’ve recently relocated to Edinburgh. As has become a tradition on my trips to Edinburgh, I visited the statue of Adam Smith. I’ll admit, I’m a big fan.

Being an advocate for sustainable development, I usually receive (at best) a raised eyebrow or (at worst) a judgmental rant when I express my admiration for Smith’s theories.

Adam Smith, depending on your perspective, is famously or infamously best known for the Invisible Hand that featured in his book ‘The Wealth of Nations’. The Invisible Hand has been reduced to a capitalist-centric idea that market forces determine how much and at what price goods and services are produced and purchased. That is an oversimplification of the concept, but that’s the gist of how The Invisible Hand is perceived.

Talk of ‘invisible’ market forces conjures up images of nefarious sorcery practiced in dark corners (accompanied by eerie music). I can understand why people would want to avoid these dark arts. But these forces are not nefarious. Smith was referring to self-interest and competition as regulators of price, production and consumption. “Ha. You see. Self-interest! Greed!”, the naysayer will shout.

To understand what Smith meant by self-interest, we need to read his work that preceded The Wealth of Nations. In ‘The Theory of Moral Sentiment’ (one of my favourite books), Smith philosophised about how people are fundamentally good and “morally accountable” to one another, and that a by-product of pursuing one’s own interests is societal good. In other words, businesses use resources in a way that is good for them and good for society as a whole.

Smith believed that it is this principle that underpins the free market economy. When business make money, there are positive returns to society. Think about how a growing business can employ more people. For every one job created in warehousing the UK, for example, about 20 jobs are created in supply chains and other related business activities¹. More jobs mean more people who can feed their families and educate their children. This means more skilled labour. More skilled labour means more productivity, or in other words, more business. Or think about how a FinTech company enables immigrants to transact in the financial market of their adoptive country (the latter is reference to my experience in moving to the UK – here’s a shout out to Wise!). This means that immigrants put money in their local economies (more than what the government spends on them²) which means more business, which means more employment. You see where I am going with this? Or think about how the production of carbon capture technology means a rapid reduction in carbon dioxide in the atmosphere which can slow the speed of climate change. That’s good news for all of us, and future generations. Are these not examples of sustainable development? Businesses can make money and do good – directly or indirectly.

Let’s look at the flip side. If business is not making money, it will cease to operate. Shareholders who are not receiving an acceptable return on their investment will take their money and invest in other businesses. Without transportation businesses, humanitarian aid cannot be delivered to war-torn countries. Without pharmaceutical companies, cancer patients cannot receive medication.

All this means that I am quite comfortable with business that make money and do good. Actually, I’m ecstatic when they are making bucket loads of money. This means that shareholders will receive good returns on their investments and will be encouraged to keep their money invested in companies that are making money and doing good, and invest in similar businesses. Yes, we need to carefully consider business operations – does the business have progressive employee benefits, what source of energy are they using to power production, do they pay their small suppliers fairly and on time. These are all part of the consideration of the contribution to societal good – beyond the actual good or service produced.

Do I believe that no business is predatory or scrupulously seeks to extract as much money from people as possible? Or irresponsibly use resources for immoral purposes? No, I am not that naïve. In time these businesses will face increasing pressure from regulators, trading partners, active owners and civil society to make changes. For the global good. It’s inevitable. Recent research revealed that businesses that window dress their Environmental, Social and Governance (ESG) commitments are considered to be less valuable investment opportunities than those that have concrete and effective ESG policies practices³.

Businesses that operate outside of a social compact with society will come a cropper. Sadly, some people will make money before the demise of these ‘bad’ businesses (think Sam Bankman-Fried and the FTX debacle), but in time, the market will course correct. That’s the free market that Smith imagined.

So, I shall continue to return to Adam Smith, literally and figuratively, to guide my thinking on profit and sustainable development. Where business self-interest and societal good meet, that’s the sweet spot.

1 Office for National Statistics. 2019. Type I UK employment multipliers and effects, reference year 2015.
2 The Migration Observatory. 2022. The Fiscal Impact of Immigration in the UK.
3 Eddine, Schattmann & Strych. 2024. The true ESG insurance effect in times of economic crisis. Working paper.