In episode 51 of the Get Hired Up podcast, I have the pleasure of speaking with an energy economist about ESG, the circular economy and greenwashing.

Dr.Melvin Cross grew up in Glen Dive Montana, a small town in eastern Montana. He received his elementary and secondary education in Glen Dive and he earned an associate of Arts degree from Dawson College, also in Glen Dive. From there, he earned a BA (Honors) from the University of Montana, an MA from Simon Fraser University, and a PhD from Texas A&M University.

Mel came to Canada in 1975 on a one-year appointment in economics at Dalhousie University, expecting to return to the US at the end of his appointment. However, the appointment became permanent. Mel married Carmita, a Canadian, and they raised two sons and a daughter. He holds a US and Canadian citizenship. Mel has teaching and research interest in history of economic thought, natural resource economics and environmental economics.

He has been a visiting scholar at Queens University, the University of Sydney, Carlton University, and Shang Don—University of Finance and Economics. He is an author or co-author of Articles of Marine Resource Economics, History of Political Economy, Canadian Public Policy, the Canadian Journal of Fisheries in Aquatic Science, and many more.

Mel is a co-author with Robert Frank, Ben Bernanke, Lars Osberg, and Brian McClain of four Canadian additions of the principles of macroeconomics and principles of microeconomics in retirement. Mel continues to maintain research and teaching interests as well as speaking on the podcast.

Mel, thank you for joining me for the get hired up podcast!

Dr. Melvin Cross

You're welcome. It's a pleasure to be here.

Maureen Farmer

I'm going to start our conversation by reciting a quote from the World Economic Forum. And this is according to the global risks report 2022 by the World Economic Forum. For the next five years, respondents again signal societal and environmental risks as the most concerning, however, over a 10 year horizon, the health of the planet dominates concerns, environmental risks are perceived to be the most critical, long term threats to the world as well as the most potentially damaging to people and planet with climate action, failure, extreme weather and biodiversity loss ranking as the most of your risks over the next 10 years. I know you have a lot of experience in in economics, Energy Economics, and I know you have a unique perspective on this topic. And so I'd like to start there if we could. But before we get into the meat of the matter, I would love for you to just briefly describe your career to date and explain your interest in economics.

Dr. Melvin Cross

As a student, I guess opted in to take a course in economics, and it seemed interesting, but also, it had the potential to be extremely dry, depending on how it was handled. But as a student, I also had contact with good teachers. And the idea that there would be some underlying insights about the order of an economy and about the social activity that surrounded economic activity was quite appealing. And I suppose as I proceeded with economics, particularly into graduate school, the idea that institutional structures, things like property rights, which are certainly more extensive, certainly more encompassing than simply private ownership and possession, influenced a society's patterns of use of resources was quite quite interesting to me. When I was a student in the master's program at Simon Fraser University, we had some presentations on the economics of fisheries. And the idea that that there were external consequences or costs from taking fish out of a fishery, external effects that affected all the fishers, whether they had any influence on decisions that were being made or not, was quite interesting. How did this happen? And how did a society develop norms, principles of behavior, institutional structures, that that would result in what we might call an effective or an efficient utilization of fisheries, as opposed to failing that, causing damage to the resource, perhaps even extinguishing it, if the damage was carried far enough. And so we come forward to the early 1990s, we saw the collapse of the cod fishery in Newfoundland, obviously, the structures, the patterns of behavior, the regulations, and incentives and so on, were perverse in the sense that the fishery, the cod fishery was not utilized, we might say, in a sustainable way. So that type of problem I found to be quite fascinating. And it was something that has been discussed throughout the history of economics, Adam Smith, for example, way back in the late 18th. Century, had quite a bit to say about that. But so so that gives an idea of how I got interested in economics, in particular, natural resources. I grew up in eastern Montana, a state that has much industry that is dependent on resources, including agriculture, which uses a land base. Anyway, that's a bit of an overview.

Maureen Farmer

So...it's not a trend, I think it's more of a realization—it is an imperative around from a business point of view that a lot of boards and organizations are grappling with is how to positively impact ESG initiatives such as environmental sustainability, and of course, the governance of that. And in our pre call of a couple of weeks ago, we talked about making the subject of our conversation today around sustainable development. And I would love to talk a little bit about that. We talked a little bit about the brunt land report, which was produced or not produced, it was published rather, in 1987. And much of the content in that report mirrors what we're really talking about today.

Dr. Mel Cross

Yes, it certainly does. And they came up with, with what I think we would regard now as a preliminary definition of sustainability that is activity that meets the needs of the present generations without compromising the ability of future generations to meet their needs. as well. And, of course that leads to two questions. What do we mean by needs? And I suppose we could point to the poor nations of the world and ask what the basic needs of the poor are and how do we need them? And we could then ask also, what do we mean by sustainability? That definition is quite appealing. But how do we move from that into practical act action? If we talk about economic growth as as opposed to economic development, we do have two related but not identical concepts. So growth simply, well often simply refers to growth of gross domestic product, a nation's production of final goods and services during a period of time. Whereas economic development, I think, has at least three components. One would be the sustainability component, one would be the social needs component, and the other would be economic sufficiency. So we presumably, would find sustainable development from an intersection of those three needs, if we or if those three activities or ideas if we choose to look at it that way, that is the social element, the economic element and the sustainable element. So businesses, how can they address this? Well, I think one issue, which is very widely recognized, I'm sure every member of a board of directors of any business recognizes that. That it's more than simply the bottom line, it's more than simply the payout of dividends and capital gains to shareholders. So how does a business provide reliable information that it is responding to society's need for sustainability, and for society's need to meet the basics, especially for those part in those parts of the world, that are particularly affected, immediately affected by climate change, and the various extreme events that are manifesting themselves now? Certainly a big challenge. But I think if a business can can present itself as a credibly in a trustworthy way, as addressing these issues, then it's it's making some ground in that that directions is particularly challenging now, when there is wide distrust of experts, you know, regulatory agencies, of business agencies and so on.

Maureen Farmer

Yes, I was talking to a gentleman not that long ago in the credit rating world, and that's his job is to assess the the efficacy of the performance from an environmental point of view. And he he did mention that there's a there is a fair degree of greenwashing going on in the economy right now, where, you know, organizations are maybe over inflating their efforts toward sustainability.

Dr. Melvin Cross

And and I think there are a number of dimensions of how that can go. And Wasn't there an organization that listed the seven errors or sins that could accompany greenwashing or that constituted green greenwashing. There's one, one example that comes to mind, this concern hidden trade offs. So let me see if I can conjure an example here. Suppose that I'm in the shipbuilding business. And I make it a point to say that when our ships are finished, they've come to the end of their useful life, their economic life, we make sure that all the steel in them is recycled. And that certainly has a strong appeal, if we can recycle any materials that reduces the need to dig up materials from Earth. But let's suppose that there is another element that I just neglect to mention. The breaking down of those holes occurs in some location, some poor country in the world, where the workers are exposed to tremendous physical risks, risks of chemical exposures and so on. We just don't say anything about that. Now, if some reporter gets ahold of that, and makes an investigate and investigative project out of it gets into the news, there'll be much less trust of anything else that business says about being receptive to the ideas of sustainability. So that sort of thing is to be avoided. Nevertheless, we know that it's almost I'm sure we all experienced this. I'm sure that I've experienced it many times when I'm I'm confronted by something that I could have done better, you know, I may kind of become defensive, or maybe conceal part of the record, or at least all of it if I could. And of course, that fuels further mistrust. So transparency is something that that is an important element of that. And I think I wish I could remember the name of the organization. But well, another element of the same sort of behavior would be to present statements about how great I am with ESG. And maybe we should be careful about the using an acronym without reminding us of the content, occasionally, environment sustainability and governance. But suppose I make claims about my transparency and governance and my efforts toward sustainability. But there is no proof. Which leaves which leaves me as a spokesperson for that business or that agency open to the possibility that somebody will dig up something that is contrary to what I said, because I was not careful to document what I was claiming.

Maureen Farmer

Yes, we had someone—a friend of Westgate had been involved in a really, really interesting, I guess you could call it a recycling project, similar to what you're talking about. But it was done very carefully, and very methodically, and they were misquoted in the news. And this gentleman was able to get a retraction. And it was critical that he, that they did get a retraction because the claims were quite significant in a negative way. But he he and his organization had been very, very careful around their documentation processes, and the claims that were made by the media agencies were media media agency, rather, were just playing wrong. And they were able to kind of, you know, great, regain their reputation as a result of that. But no organization wants that type of narrative in the news. And from your point of view, what what would you say are the most I mean, you just mentioned one transparency, but how, how can an organization be as transparent as possible when they are developing these types of policies and practices.

Dr. Melvin Cross

One would be to develop agencies that are arm's length in evaluating claims, and that that are able to show that they are that they can evaluate these claims. So if I'm appealing to my own internal organization to present the claims, that's vulnerable to suspicion that there is a conflict of interest here. But if there's an arm's length organization that can evaluate the claims, this will this will provide more credibility. And again, I think there are a couple of those around the words I'm thinking of our Global Reporting Initiative. Or GRI. And there's another one called Principles for Responsible Investment. And of course, this would include investment that is sensitive not only to the needs to provide a return to shareholders, but also recognizes the social and environmental issues that are involved in investing in that are becoming increasingly prominent in society's expectations about how economic activity is conducted.

Maureen Farmer

There is a legal structure called B Corp and B Corp, our certified B Corporations are leaders in the global movement for an inclusive equitable and regenerative economy. In order to to earn certification, the company must demonstrate high social environmental performance, make a legal commitment and exhibit transparency by allowing information about their performance and measured standards to be publicly available on their profile. And I don't know if you're familiar with the company called The Body Shop, well, that company is actually a B Corp, a B Corp, and they they are certified. So they have opened their books, so to speak, in terms of all of this, these different transparency factors that they that they submit, you know, on an A reporting basis. And I even spoke to a gentleman not that long ago, he was on the podcast, and he had he's an investment bank, out of Cleveland, Ohio, and they're certified B Corp as well. So there are these trends that are moving, getting companies to move forward, and businesses forward in this area of ESG. that weren't there, you know, 20 or 30 years ago.

Dr. Melvin Cross

And not only that, this can be seen as an opportunity for companies to want to use it. Here's what we are claiming. Here's how we measured it and you here Here are the data you can review it you can Look at our sources. And here is what we're trying to anticipate that we will need to manage. We know that the world comes with risk factors, how will we manage those? So there's, there's at least two elements there, there's the transparency. And there's some metric by which the claim is being measured. So for example, I don't know if it pertains to the body shop or not, but what are our emissions of carbon dioxide per unit of revenue? So that's a possible metric, or what are our emissions of carbon dioxide per employee. So you know, you might be able to think of these different metrics that can be used to measure to quantify what is happening, what the company is doing. And if there's an element of transparency as well, so that anybody who wants to spend a little time can see how the measurement was obtained, then that also makes it more likely that the company can establish a reputation which which will be respected. And which if somebody makes a false claim against is subject to accountability, so if I, so I can't just make a false claim and get away with it. If the person who is subject or the agent who is subject to the false claim, can provide metrics, measurements that show the claim is false. So it sounds to me like there's what we might refer to as a mutually advantageous process being developed, the agency that provides the transparency that provides the certification, maybe it's what I should say, is providing a valuable service. And the the company that takes advantage of that service, is receiving something that enables it to build a reputation. And if it's done well...to protect that reputation.

Maureen Farmer

Absolutely...organizations that are able to demonstrate their value proposition through the strength of brand, you know, will continue to be profitable and sustainable over time.

Dr. Melvin Cross

Well, it may probably also, we'll be able to show that, yes, we are profitable, and we are sustainable. But we recognize that other people are affected by this, and where they can see that we're a benefit to their community. And if that sort of relationship can be developed and maintained, the relationship between the community where the company is located or works, and the company itself has a much better prospect of being fruitful and, and something that can be maintained for a long period of time.

Maureen Farmer

That's an interesting topic. I know that there is a I know, I'm not going to say the name of the bank, I won't remember it anyway. But they're in the UK. And so these efforts have been going on for a very long time. Among many organizations, and many brands, this is not a brand new thing. Obviously, the attention brought to it, I think is is has been showcased for obvious reasons over the past 20 to 30 years. But what I find really interesting is that organizations that have their values, anchored in sustainability, philanthropy often enjoy the longest success, I guess, and I'm going to go back to the organization that I just mentioned, it's a it's a bank and it's over 350 years old, what is very appealing to me with that organization is that they have a philanthropic arm, they actually have a foundation and all of the employees in the company or are involved in their values are aligned with the principles of this bank that has been around for a very, very long time. And they have a century long business plan that they refresh you know, every year or two and keep it live and keep it in my mind You of course, a financial services organization is much different than a manufacturing organization in terms of greenhouse emissions and things like that. But when it comes to the principles of sustainable economic growth and economic development, they are attached to to principles of social development and sustainability whereas some organizations the Madison's well aware of this company, it's a large brand that is is very well known. And I would say that they're probably a fortune 100 brand and very, very different they're they're focused on profitability, although their their messaging says one thing, but their practices say something different.

Dr. Melvin Cross

I was going to mention the historic example. And I think I mentioned early on that I grew up in eastern Montana. So I, I was in my mid to late 20s. By the time I left that, that part of the world. And so as a result, I had some exposure to the history of the state. And the state always has relied on to a considerable extent on extracting resources for its industries, which means that there was a lot of Mining and Smelting in the state. For a long time, the operation at Butte, Montana, by the Anaconda Corporation was conducted on land that was referred to as the richest steel on Earth. There are a couple of mining towns, little cities really larger than a town where this industry developed. And this goes back over 100 years, I think, early, early 20th century, maybe late 19th century when these Mining and Smelting operations were going on. And one of the things that was claimed by the mining companies, the corporations, was that women liked to live in one of these mining towns that may have been Anaconda, Montana, because the air there gave them a pale complexion with rosy cheeks, which was the complexion. Some, I suppose, the beauty standard of the day. And of course, we know how these things change, according to the whims of fashion and standards of beauty. Why did they have pale complexions with rosy cheeks? Because there was a lot of arsenic in the atmosphere as a result of these Mining and Smelting operations. And so this complexion was a symptom of exposure to arsenic.

Maureen Farmer

Wow. So greenwashing to an extreme. 

Dr. Melvin Cross

Well, you wouldn't get away with that now, at least, I hope not in. And I suppose in other parts of the world, though, again, the poor parts of the world, people are exposed to these chemical risks and other risks. And we just, we fail to recognize it. We get our night we get our nice products. But we really don't know what has happened to provide the raw materials that go into those products.

Maureen Farmer

I would like to ask you...what has surprised you most in your career so far?

Dr. Melvin Cross

Well, I think we can we can go back to patterns of economic analysis. It's not so much things that have emerged in a singular moment as a surprise, but more about changes that have been going on. I'll name one, this would go back about 30 years ago, maybe a bit longer than that, when I had a colleague in, in environmental studies, and we were discussing extraction of materials and whether or not we would exhaust so called exhaustible resources. And I made the argument that technology over the last 150 or 200 years ago, had always found a way around shortages of raw materials, and that this would continue to happen. The environmental scientists that are yes, it has happened. But really, the big factor here in these processes of instead of extraction will be the environmental constraints. And our ability to, to manage the waste that comes out of these processes. mine tailings would be one example. The super funds that have been left behind, that's the American label are another example. And I kind of discounted at that at that time. But I've come to believe that he was correct. I had it wrong.

Another thing that, that I've found surprising is kind of the ebb and flow of the reputations of different figures in the history of economics. So again, when I was a student, and this goes back to the late 60s and 1970s. expanse, it spans both my years as an undergraduate and a graduate student. There was, I think, in the air, kind of an idea that Adam Smith and his ideas of a self regulating economy, or just, you know, just a little bit too much to accept really, too naive, naive would be a good way to put it. And there was a comment made by Thomas Carlyle, that this idea of Adam Smith in competition as a regulator of an economy as just being what was this and our Key with a constable was the way Carlyle put it. Then came the collapse of the Soviet Union in the late 80s, in 1990. And so this idea of a central plant centrally planned economy along with, with regulation took a hit. Adam Smith's reputation was greatly Unhatched, as this happened, and the the pulling and hauling over the degree of regulation and the amount of government to be involved in an economy has continued and it's not been resolved. There are different perspectives on this. And we, we appeal the government to solve our problems. But we can have government failure just as much as we can have market failure. And so that idea has developed over time.

And I suppose looking back, again, when I was much younger, this has been a surprise too...how do these reputations, these ideas, come and go? And why is it that in some occasions, we seem to overlook things, and then later realize that it was, it was a big mistake, perhaps even in some cases appalling to overlook what has since been revealed about ideas that were presented long ago? So you know, we go back to 30, or 35 years ago? And the idea Well, yeah, maybe climate is changing, but probably not. 35 years ago, the idea that we were being too concerned about, about climate changing was much more credible than it is now it's pretty hard to, to argue that there's nothing there. We go back to I think it was 1962, when Rachel Carson, probably Silent Spring. And the reaction against that for those who wanted to market chemicals, including DDT was very strong. By that time, I think, as shown and she she was correct. She told us that we were being exposed to many, many different chemicals, we didn't know how they would affect us. Or, for that matter, the planet. And this was this was a new development, it was something that had not been experienced before. And we are still grappling with that. No matter where we go on this planet, and perhaps even a bit beyond, we see the effects of human activity and the materials that we've left behind, including chemicals. So the increasing strength of that strand of Oregon should or should it have been a surprise? Well, I don't know, maybe not. Certainly, in my case, I didn't give it as much credibility as it deserves.

Maureen Farmer

Because you didn't have all the facts either. You know, and I think that's learning.

Dr. Melvin Cross

It is learning. On the other hand, we can go to our education system as well. And we can talk about STEM science, technology, engineering and math. And how important that is. There's another element that we might be might be neglecting. We can have various claims. And we've seen this on both sides of climate debate. If we go back, some say, Oh, we've got evidence we've got, we have data that shows climate. That's not a big deal 35 years ago, in opposition to those who are arguing that yes, it was unfolding, climate change was unfolding, and it would have serious consequences. How do we decide what we believe? You know, how do we sort the claims? And I think it's not sufficient just to have science, technology, engineering and math in that task. We have the softer disciplines as well, the arts that help us to sort some of this out perhaps we don't recognize it. But Charles Dickens, in looking at the industrial revolution of the 19th century, certainly was was conjuring up consequences, you know, that society was really not addressing effectively. And he was also challenging classical economics when he was doing that. So how do we want element of education and experience do we need in order to decide what we what we believe what is worth leaving? How do we measure that evidence? 

Maureen Farmer

It is a very complicated topic. And I think when we look to the natural world, I think we can take a lot of lessons from the natural world and I'm I'm not a scientist or an economist, but I look to the natural world for lessons, what are the lessons that we can learn? Because the natural world has been around for a very, very, very long time. So I don't know where that that takes us. But I do believe that in the spirit of transparency and accountability and governance, I think it's important for all of us to be thinking about being more discerning about the products and services that we consume. And I think a sense of natural curiosity and inquisitiveness can can go a long way, as we are building businesses and building development in our economies.

Dr. Melvin Cross

I think you're right about that. And you did mention diversity, equity and inclusion. And with respect to the natural world, I think we if we're honest, we have to say that we did not take into account the insights of the native populations of the Americas with respect to the place of humans and their activities in the natural world. Are we here to conquer it? Or are we stewards of it?

Maureen Farmer

I think we need to be stewards of it. In my opinion. 

Dr. Melvin Cross

And that is a lesson that we could have learned from our indigenous people much more here than, you know, than we've been paying attention to their insights. I think another element in economics is there are more women in the economics profession now than there were 35 years ago. And this has caused a change in some of the issues and problems that economists examine. For example, there's much more attention now to the economics of families. how are decisions made in families? How does this affect that decisions in the aggregate beyond families? What what are the problems that we need to examine? And if we have more women in the discipline, we begin to realize that we must consider problems that never would get much attention if you left it entirely to males.

Maureen Farmer

Well, I think that women are naturally nurturing creatures or nurturing beings. And so I think that that is a natural extension of that natural propensity. So we are coming to the end of our conversation, Mel and I have one more question for you. Course, and it is what is your favorite restaurant? Now? We're asking people this question, what is their favorite restaurant in their hometown, but it doesn't have to be your hometown. It could be a restaurant and another part of the world that you love to frequent when you're there.

Dr. Melvin Cross

Very good question. There's a place in downtown Dartmouth called the Canteen that I do enjoy. And then there's a small restaurant nearby on Wyse road called—I  think that is it called PHO. 

Maureen Farmer

Oh, yes. It's an Asian restaurant. Right?

Dr. Melvin Cross

That's right. Yeah. And they have very tasty food there.

Maureen Farmer

So, we'll make sure that we have a link to those restaurants in the show notes. And so Mel, I'm just so happy that you were able to join me today. It was a very, very interesting conversation. And I hope we get to do it again soon.

Dr. Melvin Cross

Thank you for the invitation Maureen. Appreciate it!