Money is said to make the world go round. But does it also help green the globe?

The global economy is increasingly reliant on natural resources, yet the rate of consumption continues to exceed the speed of regeneration. This unsustainable behaviour is driven by several factors, including population growth, technological advancement, and rising living standards. As a result, there is a growing need to encourage a shift in sustainable behaviour in individuals and businesses.

One way to achieve this is through the use of monetary rewards. By providing financial incentives for sustainable practices, it would appear that consumers and corporations alike would be likelier to adopt green behaviours. In addition to benefiting the environment, this would also have the potential to create jobs and generate economic activity. In short, dangling the proverbial carrot to encourage sustainable behaviour is a win-win proposition that could help address one of the most pressing challenges of our time. Or is it?

Associate Professor of Marketing (Education)Michelle Lee has found the contrary to be true in her publication, When money fails to talk: Unintended consequences of using monetary incentives to elicit sustainable behaviours.

While appealing to one's wallet may appear to be a simple solution for triggering sustainable behaviours, there may be situations in which monetary rewards can backfire. In fact, financial motivations may result in the unintended effect of lowering sustainable behaviours, directly or indirectly. 

Here are three reasons when and why monetary incentives might do more harm than good when it comes to sustainability:

1. Providing monetary incentives can activate a processing mode that is transactional

Not every action in life is motivated by a monetary reward. For example, one might help a stranger move a sofa without the lure of payment, due to a personal desire to be public-spirited or compassionate.

“When no monetary incentive was involved, personal values, such as altruism or a sense of responsibility, are likely to have been the determinants of how much effort one put into collecting donations,” writes Prof Lee.

However, when a financial incentive is introduced, we naturally switch into a “transaction mode” and begin to pay attention to the costs and benefits of our actions. Our efforts then become skewed by whether they are commensurate with the amount of money involved.

Prof Lee cites the example of a study, which found that parents were more likely to arrive late to pick up their children from day-care centres when a fine was imposed. While it would appear that a fine is a logical deterrent for impunctuality, the parents had instead framed the situation as a transaction: They were more likely to arrive late as the fine is perceived as a price they are willing to pay for after-hours childcare.

Likewise, it would appear that monetary rebates incentivise us to recycle. However, when we are financially rewarded for being environmentally-friendly, cost-benefit considerations outweigh other more altruistic motivations.

Instead of recycling because of the intrinsic belief that we’re saving the planet, we might now wonder if it is worth our time and effort, when rebates are involved. And even if the rebates are a driver for kickstarting a recycling habit, the results may only last for as long as the incentive scheme, rather than yielding long-term behavioural changes.

2. Money can prime mental constructs incompatible with sustainable behaviours

As the cliché goes, money changes everything. This truism also applies to sustainable habits. As Prof Lee explains, “the mere presentation or mention of money can also have subtle effects on one’s behaviours outside of one’s conscious awareness, through the mechanism known as priming”.

Priming refers to how the presentation of a stimulus can activate concepts in memory in a way that is beyond one’s conscious awareness. This can then go on to influence one’s preferences, choices, and behaviours.

As money functions as a medium of exchange, to acquire services or goods, or as compensation for our efforts, it primes concepts relating to input versus output and economic utility. On an even more negative level, “people primed with the concept of money worked more and socialised less (Mogilner, 2010), reported less social connectedness (Capaldi & Zelenski, 2016), and showed less compassion and empathy (Molinsky, Grant, & Margolis, 2012)”, notes Prof Lee.

For lasting impact and change, we ought to base our efforts towards sustainability as part of a larger cause. Adding money to the equation would have the opposite effect, resulting in a mindset that is more self-serving, and less charitable and driven by the greater good.

On another level, exposure to a money prime also causes consumers to be more likely to focus on the price of products. Sustainable product options, unfortunately, tend to be more expensive than less green alternatives. A money prime may cause a consumer to be more price-sensitive. If the “rebate or a discount for a sustainable product is not large enough to make it cheaper than competing alternatives, the fact that price will weigh more heavily in consumers’ choice will give the competing alternatives an advantage”.

And even if the consumer purchases due to a discount, they are doing so mainly because of the cash incentive. Take that away and they would be unlikely to remain a loyal customer who would make a repeat purchase of a sustainable item.

3. Monetary incentives can signal that money is the reason that one is engaging in the target action

When it comes to recycling, there are many reasons why people choose to participate. Some may do so out of altruistic motives, believing that taking care of the environment is right. Others may have a more practical motivation, seeing recycling as an environmentally friendly way to reduce waste and energy usage.

However, when other extrinsic motivations such as money are added to the mix, attributing one’s behaviour to a personal attitude becomes diminished. For example, those who recycle may attribute their action to their concern for the environment through a process known as self-perception – the inference of “I care about the environment” is made based on the fact that “I recycle”.  But if a penalty is levied upon those who do not recycle, “one’s attitude about the environment would be discounted as the cause of the behaviour (Jones & Nisbett, 1972)”.

“Thus, while it is possible to incentivise people to adopt sustainable behaviours by rewarding them with money, the compliance would be obtained without a corresponding change in attitude,” Prof Lee elaborates.

“The opportunity for self-perception to drive a change in attitude is therefore lost.”

Ultimately, financial rewards may provide a short-term incentive to change behaviour. Unless the underlying motivations for long-term sustainable behaviour — such as doing our part for the collective good — are addressed, people will simply revert to old habits once the rewards are no longer available.