Making Sustainability Work

Best Practices in Managing and Measuring Corporate Social, Environmental, and Economic Impacts

Marc J. Epstein, Adriana Rejc Buhovac

• Publisher: Berrett-Koehler Publishers
• Year: 2014
• ISBN:
  9781609949952
• Edition: 2
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

NEW EDITION, REVISED AND UPDATEDMost companies today have some commitment to corporate social responsibility, but implementing these initiatives can be particularly challenging. While a lot has been written on ethical and strategic factors, there is still a dearth of information on the practical nuts and bolts. And whereas with most other organizational initiatives the sole objective is improved financial performance, sustainability broadens the focus to include social and environmental performance, which is much more difficult to measure.Now updated throughout with new examples and new research, this is a complete guide to implementing and measuring the effectiveness of sustainability initiatives. It draws on Marc Epstein's and new coauthor Adriana Rejc Buhovac's solid academic foundation and extensive consulting work and includes best practices from dozens of companies in Europe, Asia, North America, South America, Australia, and Africa. This is the ultimate how-to guide for corporate leaders, strategists, academics, sustainability consultants, and anyone else with an interest in actually putting sustainability ideas into practice and making sure they accomplish their goals.

CHAPTER 1
A new framework for implementing corporate sustainability

With growing sensitivity toward social, environmental, and economic issues and shareholder concerns, companies are increasingly striving to become better corporate citizens. Executives recognize that long-term economic growth is not possible unless that growth is socially and environmentally sustainable. A balance between economic progress, social responsibility, and environmental protection, sometimes referred to as the triple bottom line, can lead to competitive advantage.¹ Through an examination of processes and products, companies can more broadly assess their impact on the environment, society, and economy, and find the intersection between improving sustainability impacts and increased long-term financial performance. To aid executives in achieving sustainability, this chapter will:

• Define the principles of sustainability

• Identify important stakeholder relationships

• Introduce a framework—the Corporate Sustainability Model—to guide managers in measuring and managing sustainability performance. This framework will be the basis for the remainder of the book and provides a tool for the implementation of corporate sustainability and the evaluation of corporate impacts

The evaluation of social, economic, and environmental impacts of organizational actions is necessary to make effective operational and capital investment decisions that positively impact organizational objectives and satisfy the objectives of multiple stakeholders. In many cases, reducing these impacts increases long-term corporate profitability through higher production yields and improved product quality. Novo Nordisk, the global Danish-based healthcare company specializing in diabetes care, strives to conduct its business in a financially responsible (profitable for the long-term), socially responsible (patients first), and environmentally responsible (doing more with less) way. The aim is to ensure long-term profitability by minimizing any negative impacts from business activities and maximizing the positive footprint from its global operations: improved health, employment, economic prosperity, and social equity (see Fig. 1.1).

FIGURE 1.1 Novo Nordisk’s triple bottom line business principle

Source: Novo Nordisk (2012) Annual Report

There is growing interest among the business community in the development and implementation of sound, proactive sustainability strategies, including significantly increased stakeholder engagement. The financial payoff of a proactive sustainability strategy can be substantial.² By addressing the nonfinancial aspects of business, companies can improve the bottom line and earn superior returns. The Dow Chemical Company, a global diversified chemical company, focuses on manufacturing efficiency inside the company while maximizing the contributions of Dow products to improve efficiency and expand affordable alternatives. Dow’s manufacturing energy intensity has improved more than 40% since 1990, saving the company a cumulative US$24 billion. Dow is committed to bringing solutions to the challenge of climate change by producing products that help others reduce greenhouse gas emissions, such as lightweight plastics for automobiles and insulation for energy efficient homes and appliances.³

Henkel International, a German-based manufacturer of laundry and homecare products, beauty care, and adhesive technologies, has developed a sustainability strategy to create more value for its customers and consumers, for the communities it operates in, and for the company—at a reduced ecological footprint. Henkel concentrates its activities along the value chain on six focal areas that reflect the challenges of sustainable development as they relate to Henkel’s operations. Figure 1.2 presents Henkel’s six focal areas with five-year targets for 2015. Focal areas are subdivided into two dimensions—“more value” and “reduced footprint”. To accomplish these, the company uses innovations, products, and technologies, but recognizes that these dimensions must be ever-present in the minds and day-to-day actions of around 47,000 employees.

FIGURE 1.2 Henkel’s six focal areas in sustainability performance

Source: Henkel (2012) Sustainability Report

To become a leader in sustainability, it is important to articulate what sustainability is, develop processes to promote sustainability throughout the corporation, measure performance on sustainability, and ultimately link this to corporate financial performance. Corporate citizenship is an important driver for building trust, attracting and retaining employees, and obtaining a “license to operate” within communities. However, corporate citizenship is much more than charitable donations and public relations—it’s the way the company integrates sustainability principles with everyday business operations and policies, and then translates it all into bottom-line results.

For sustainability to be long-lasting and useful, it must be representative of and integrated into day-to-day corporate activities and corporate performance. If it is seen only as an attempt to provide effective public relations, it does not create long-term value and can even be a value destroyer. The key is integrating sustainability into business decisions, and identifying, measuring, and reporting (both internally and externally) the present and future impacts of products, services, processes, and activities. In fact, this book is all about the integration of sustainability into corporate operations to simultaneously achieve increases in social, environmental, economic, and financial performance.

What is sustainability?

To help understand what sustainability is in the context of corporate responsibility, we have broken it down into nine principles (see Table 1.1).⁴ These principles have three attributes:

1. They make the definition of sustainability more precise

2. They can be integrated into day-to-day management decision processes and into operational and capital investment decision-making

3. They can be quantified and monetized

These nine principles of sustainability will be used as a foundation throughout this book. They highlight what is important in managing stakeholder impacts (i.e. the impact of company products, services, processes, and other activities on corporate stakeholders).

Although we are presenting in Table 1.1 a broad definition of sustainability, this book focuses on the criteria that are usually included in sustainability discussions, analyses, measurements, and reports—social, environmental, and economic. So, though the principles of ethics and governance, for example, are important aspects of sustainability, they are not the focus of most corporate applications of corporate social responsibility or sustainability. But the discussion of systems, structures, performance measures, culture, and so forth necessary for implementation can be easily adapted to improve performance on all nine principles.⁵ Further, the formal and informal organizational processes described in this book should be applied to all of these principles.

1. Ethics	The company establishes, promotes, monitors, and maintains ethical standards and practices in dealings with all of the company stakeholders
2. Governance	The company manages all of its resources conscientiously and effectively, recognizing the fiduciary duty of corporate boards and managers to focus on the interests of all company stakeholders
3. Transparency	The company provides timely disclosure of information about its products, services, and activities, thus permitting stakeholders to make informed decisions
4. Business relationships	The company engages in fair-trading practices with suppliers, distributors, and partners
5. Financial return	The company compensates providers of capital with a competitive return on investment and the protection of company assets
6. Community involvement/economic development	The company fosters a mutually beneficial relationship between the corporation and community in which it is sensitive to the culture, context, and needs of the community
7. Value of products and services	The company respects the needs, desires, and rights of its customers and strives to provide the highest levels of product and service values
8. Employment practices	The company engages in human-resource management practices that promote personal and professional employee development, diversity, and empowerment
9. Protection of the environment	The company strives to protect and restore the environment and promote sustainable development with products, processes, services, and other activities.

TABLE 1.1 The broad definition of sustainability performance—nine principles

Source: Epstein and Roy (2003) “Improving Sustainability Performance”

1. Ethics

Ethical companies establish, promote, monitor, and maintain fair and honest standards and practices in dealings with all of the company stakeholders and encourage the same from all other stakeholders, including business partners, distributors, and suppliers. To follow this principle, a company needs to place particular emphasis on human rights and diversity to ensure that workers are treated fairly. This means that, although a company has to adhere to local laws, its ethical practices will often necessitate standards far in excess of industry, international, national, and local guidelines or regulations.

Ethical companies set high standards of behavior for all employees and agents, and have in place effective systems for monitoring, evaluating, and reporting on how the company does business. The reporting of ethical violations to appropriate authorities is also actively promoted.

Ethical companies create codes of conduct, develop ethics education programs, and honor internationally recognized human rights programs.

2. Governance

The governance principle is a commitment to manage all resources conscientiously and effectively, recognizing the fiduciary duty of corporate boards and managers to focus on the interests of all company stakeholders. This duty is of primary importance and is superior to the interests of management. The company follows practices of fair process and seeks to enhance both financial and human capital while balancing the interests of all of its stakeholders.

The company encourages the achievement of its mission while being sensitive to the needs of its various stakeholders. Its mission must be clearly stated and widely understood, and must recognize the interests of multiple stakeholders. The company must have a strategy and performance metrics that are consistent with its mission. The mission, strategy, policies, practices, and procedures are communicated openly and clearly to employees. Decision-making processes are engrained within this principle as performance is directly related to a particular course of action taken by the company.

Companies that value governance evaluate the CEO and senior management on financial and nonfinancial performance and have a board structure that represents a wide range of stakeholder views.

3. Transparency

While the governance principle relates to internal management issues, the transparency principle is about disclosure of information to company stakeholders. Transparent companies provide full disclosure to existing and potential investors and lenders of fair and open communication related to the past, present, and likely future financial performance of the company.

Transparent companies broadly identify their stakeholders. Indeed, companies embracing this principle recognize that they are accountable to internal and external stakeholders, understanding both their informational needs and their concerns about the company’s effects on their lives.

4. Business relationships

Companies must encourage reciprocity in their relationships with suppliers, by treating them as valued long-term partners in enterprise, enlisting their talents, loyalty, and ideas. Companies endorse long-term stable relationships with suppliers in return for quality, performance, and competi...