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PracticalESG

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Keeping you in-the-know on environmental, social and governance developments

Humans can be odd, irrational animals no matter how hard we try not to be. One famous demonstration of this in a sustainability/environmental context is the Jevons Paradox, developed by William Stanley Jevons in London in 1865. In his bookThe Coal Question; An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines,” Jevons

“warned that Britain would exhaust the coal supplies that were fueling its growth and prosperity.  He argued that increased efficiency in consumption would not reduce demand for energy, but rather would spur increased use and further deplete supplies. His insight, often called Jevons’ Paradox, is today used to explain why increased energy efficiency does not necessarily reduce present-day demand for electricity or gasoline.”

The paradox is described further in this Ecological Economics article if you want to read a bit more.

Jevons applies beyond energy and offers a cautionary tale for just about anything related to consumption and by extension – sustainability. For instance, this from Bloomberg caught my eye recently:

“Americans love their doughnuts too much to give them up forever, even in spite of the recent boom in weight-loss drugs, says one Wall Street fan of Krispy Kreme Inc. Truist Securities upgraded their recommendation on Krispy Kreme to buy from hold, reversing their October downgrade on the stock. The overhang from the drugs known as GLP-1s ‘is already here,’ and fully reflected in the stock’s current valuation, analysts led by Bill Chappell said.

‘Yes, we want to eat healthy, but we like our sweets,’ Chappell wrote in a note dated Monday. Last year’s Krispy Kreme downgrade ‘was due to the belief that the GLP-1 overhang on snack food companies would last for some time and we believe this thesis has largely played out.’

Krispy Kreme now has six buy recommendations, three holds and zero sells among analysts tracked by Bloomberg, who are the most bullish they’ve been on the stock since 2021.”

This really shouldn’t surprise too many people. But we should learn from this – sustainability gains based on predictions of reduced consumption are probably counter to basic human behavior. If your company’s sustainability goals, metrics or assumptions are based on reduced consumption by customers resulting from product use efficiencies, you should develop a contingency plan. What will you do if customers actually end up consuming more – or behave in another counterintuitive manner – because of improved product efficiency?

Now please excuse me – I see the “Hot Now” sign is lit…

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile