Inflation: Effect of Inflation on Sustainability movement

In today’s Founder’s Thought, we will take a unique angle when exploring the effects of inflation as we examine how they affect recent trends toward sustainability. The sustainability movement is ballooning in popularity as the public becomes more aware of the threats that humanity faces, especially environmentally; however, the sustainability movement has truly picked up steam in the world of finance as impact investing is becoming more and more popular. In today’s Founder’s Thought, we will look at the effect inflation’s rising prices have on the macroeconomic and microeconomic levels.

Cost of Sustainable Goods

Sustainable goods are naturally more expensive than typical goods. This can easily be seen in supermarkets, where organic groceries sell for up to 20% higher than their non-organic counterparts. This is mainly because the unsustainable infrastructure is much more thoroughly developed than those used for sustainable processes. Thus, this underdeveloped infrastructure is put under greater stress and difficult decisions (similar to small businesses discussed in our previous Founder’s Thought, “Inflation: Effect of Inflation on Small Businesses”). Thus, similar to small businesses, these infrastructures are forced to choose between smaller margins and higher costs, most of whom prefer the latter. This makes existing sustainable goods more expensive and out of reach for the everyday consumer, hindering sustainability.

Investment in Green Technologies

Once again, similar to the rising cost of sustainable goods associated with inflation, green technologies become less profitable with inflation compared to their unsustainable counterparts. For example, oil companies have historically been more successful than solar/wind power/hydropower companies during times of rising costs associated with inflation. This lack of financial success makes it difficult for investors to stick with their impact investing methodologies, making it more difficult to support the sustainability movement.

Conclusion

Overall, the adverse effects of inflation on the general economy can not be overstated, but it's mind-boggling to observe the difference in adaptability between green components of our society, such as goods and companies, and their unsustainable counterparts.