Why Sustainability Decisions Rarely Optimize: Bounded Rationality in Practice
Sustainability conversations often assume a hidden premise:
If the organization has the data, the targets, and the intent, the “right” decision should follow.
In practice, that premise quickly breaks down.
Not because leaders are careless. But because sustainability decisions are made under tight constraints: limited executive attention, imperfect information, uncertain outcomes, competing priorities, and governance routines designed for shorter horizons.
Herbert Simon’s contribution was to name this terrain precisely. Organizations do not make decisions with unlimited information and unlimited computation. They make decisions with bounded rationality, and that changes what “good decision-making” looks like.
This blog translates Simon’s logic into a sustainability governance context: why decisions rarely optimize, why they often stop at “good enough,” and why sustainability programs fragment into sub-goals that can drift from underlying intent.
The core idea: organizations choose under constraints, not omniscience
Simon contrasts a classical model of rational choice, where the decision-maker can survey all options, compute consequences, and compare trade-offs consistently, with what is actually feasible in complex organizations.
In practice, sustainability decisions fail the assumptions of “perfect rationality” almost immediately:
Not all relevant alternatives are known at the outset
Consequences are uncertain and difficult to compute
impacts are multi-dimensional (cost, risk, time, legitimacy, operational feasibility)
Decision forums rarely have a single, stable logic for comparing trade-offs
Sustainability decisions are complex, multi-objective, and intertemporal, precisely the kind of problems classical rationality handles poorly.
This is not a critique. It is a description.
When sustainability becomes a decision system problem, the question shifts from “Why don’t we optimize?” to:
What decision procedures are actually being used, and what outcomes do they tend to produce under constraint?
Mechanism 1: limited search, the options set is smaller than it looks
Bounded rationality is not only about choosing imperfectly. It is also about imperfectly finding alternatives.
If alternatives are not “given,” decision-makers must search. And search is costly, especially when outcomes are uncertain, and responsibilities are distributed.
In practice, this creates a predictable effect in sustainability:
Teams explore a narrow band of options that fit current operating assumptions
“Feasible” options cluster around what the organization already knows how to fund, approve, and implement
options requiring cross-unit coordination, longer payback, or new capabilities enter later, or never
Limited search narrows ambition before trade-offs are even evaluated.
This matters because sustainability outcomes are often determined upstream: by what never enters the discussion.
Mechanism 2: satisficing, why “good enough” becomes a stable endpoint
When search is costly, and consequences are uncertain, decision-makers often shift from optimizing to satisficing: setting an aspiration level for what counts as “acceptable,” searching until an alternative meets it, then stopping.
In practice, this is not laziness. It is a workable rule for complex problems.
But it has consequences for sustainability initiatives:
Initiatives stop at a threshold of defensibility rather than system-level impact
Effort concentrates on what can be approved within existing governance routines
Programs converge on incremental improvements because they clear aspiration levels faster than structural changes
Satisficing is not inherently negative. It often keeps decisions moving.
The governance question is whether the aspiration levels embedded in decision rules are aligned with the organization’s stated transition intent.
Mechanism 3: aspiration levels, why ambition rises and falls with context
Aspiration levels are not fixed. They adapt with experience and context. In benign conditions, aspirations often rise; in harsher conditions, they fall.
This has direct relevance to the current sustainability environment.
When capital is cheaper, scrutiny is manageable, and stakeholder expectations feel navigable, organizations can sustain higher aspiration levels: deeper decarbonization, longer paybacks, broader value chain engagement.
When conditions tighten, aspiration levels often reset downward, sometimes quietly:
initiatives narrow to “no-regret” efficiency
programs shift from transformation to compliance robustness
language moves from “transition” to “resilience” to “risk management.”
This is not necessarily an inconsistency. It is adaptive decision-threshold management under constraint.
The governance question is whether aspiration levels are being reset explicitly—with documented reasoning—or implicitly through budget rules and approval friction.
Mechanism 4: sub-goals, when measurement becomes the work
Another way organizations make complex goals tractable is by replacing abstract aims with tangible sub-goals that can be measured, managed, and delegated.
This is necessary. Sustainability requires operationalization.
But the same mechanism can create sub-goal displacement: the proxy becomes the objective.
In practice, it shows up as:
Optimizing for what can be measured instead of what shifts the operating model
Treating reporting completeness as progress
Prioritizing indicator performance even when underlying system drivers remain unchanged
Sub-goals are not the problem. Misalignment between sub-goals, incentives, and capital rules is.
Mechanism 5: specialization and fragmentation, why sustainability becomes everyone’s job and no one’s decision
Organizations cope with complexity by dividing decision tasks among specialists, coordinated through communications and authority relations.
Sustainability, by design, triggers this dynamic:
Finance owns capital rules
Operations owns implementation constraints
Procurement owns supplier leverage
Risk owns governance language
sustainability teams’ own disclosure, target integrity, and internal coordination
This distribution is structurally rational, but coordination is never costless.
The result is a familiar fragmentation risk:
Decisions get optimized locally rather than system-wide
Trade-offs get managed through procedural handoffs rather than integrated judgment
Cross-cutting initiatives are slow because no one forum owns the whole decision logic
This is one reason sustainability can generate activity without proportionate operating change.
Procedural rationality: the governance lever that matters most under constraint
A practical implication of Simon’s argument is that decision quality depends not only on what gets decided, but on how decisions are reached under computational and informational limits.
For sustainability governance, this shifts attention away from motivational narratives toward decision design:
What procedures govern trade-offs across objectives and time horizons?
What procedures govern capital allocation under uncertainty?
What procedures convert external attention into funded work with clear accountability?
What procedures prevent sub-goal drift when measurement becomes dominant?
If bounded rationality is the baseline condition, governance quality becomes, in part, the quality of decision procedures under constraint.
Practical tool: Bounded Rationality Audit (5 questions for executives)
Use this in an executive committee, investment committee, or board sustainability agenda. The goal is to identify where bounded rationality shapes sustainability outcomes—and where governance can adjust the decision-making process.
Options set: In the last major sustainability decision, what alternatives were never considered because they were assumed “not feasible”? What made them infeasible—capital rules, capabilities, coordination load, or legitimacy risk? Who would have to authorize reconsidering those alternatives?
Aspiration level: What was the implicit “good enough” threshold that ended the search—payback period, IRR, reputational defensibility, auditability, stakeholder acceptability? Was that threshold explicit and documented?
Search cost: Where does the organization systematically under-invest in search—data, scenarios, supplier engagement, technical exploration—because it is expensive and slow? What decision forum would have to fund an additional search for it to occur?
Sub-goal drift: Which sustainability metrics have become decision targets in their own right (because they are measurable and reportable), even when they are weak proxies for the underlying operating outcome?
Fragmentation: When sustainability trade-offs arise, which functions hold veto power (explicit or de facto)? Is there a single forum that can integrate finance, operations, risk, and sustainability into one decision—without defaulting to the shortest horizon?
How to use the output:
Identify the top two procedural bottlenecks (options set, aspiration level, search cost, sub-goal drift, fragmentation). Then choose one small governance adjustment to test, such as a revised investment gate for transition projects, a cross-functional decision forum with clear decision rights, or an explicit aspiration-level rule tied to the strategy horizon.
References
Simon, H. A. (1978). Rational Decision-Making in Business Organizations (Nobel Memorial Lecture).
