To: Dr. Brian Sullivan, Associate Professor From: Sa Dao, Sustainability Advisor Date: February 20, 2012 Subject: Business Interest in Sustainability Natural environment have provided mankind with numerous benefits, ranging from clean drinking water or biomass fuel to the decomposition of waste materials or the regulation of global climate. These ecosystem services are strongly related to human activities, probably right from the start of our species’ existence. Today society is increasingly becoming aware of ecosystem degradation due to various human activities. Attitude towards sustainability has changed within organizations in the past few years and we are in the beginning of an historic wakeup, according to Peter Senge (MIT Sloan Management Review, 2009). However, many businesses still fail to make the connection between the health of natural environment and their corporate performance. Therefore, it is extremely critical for the business community to be aware of the extent in which industry sectors impact the natural environment as well as the risks that ecosystem degradation pose to future economic well-being. According to Brundtland, sustainability is defined as the process that “meets the needs of the present without compromising the ability of future generations to meet their own needs” (EPA, n.d.). From business perspective, to some extent, managing sustainability in an active way means behaving responsibly, driving for continuous improvements and increasing long-term shareholder and social values. Every business today should pay attention to sustainability for many reasons, following are some of them. To stay in business: Businesses must realize that they need to have sustainable practices in order to operate in the long term. In other words, businesses simply cannot thrive if the environment where it operates
is not healthy. As regards to industries and businesses that highly depends on natural resources or directly interacts with our surrounding ecosystem, the way businesses address the issue of sustainability even affects the survival of their organizations. Therefore, companies should take sustainability management seriously if they wish to maintain and grow their businesses in the long run. For instance, two of the biggest beverage corporations in the world- Coca-Cola and Nestle, jointly created the CEO Water Mandate since they have come to realize that water today becomes one of the critical issues in the world and that a lot of countries where they want to expand their businesses are facing serious water shortage. They are aware of the importance of a more integrative management of watershed in the world, without it, “their license to operate and grow as a business is ultimately going to be at great risk” (MIT Sloan Management Review, 2009).
To reduce costs and increase profits:
By using innovative and sustainable approaches, corporations can lower their production costs because companies end up reducing the inputs they use. Moreover, it can help businesses to generate additional revenues from better products or create and capture new business opportunities. As Lovins states in his article “Natural Capitalism”, saving energy and waste is not only an environment action but can also build good business. The new imperative is to cut costs and use resources far more productively. Companies can be highly profitable due to such huge gains in resource productivity (Lovins, 2001).
To innovate and grow
Not only does sustainability help businesses to reduce costs and increase profits, it is now one of the key drivers for innovation worldwide. The ability to create and prepare for new opportunities in the future plays an important role in the long-term success of a business. In other words, in order to stand out among competitors, companies need to constantly generate new ideas and come up with new ways of doing business, especially in times of economic crisis.
Sustainability is considered one of the newest and most powerful tools for businesses to use to innovate. According to Lubin and Etsy, sustainability innovations often times become the source of new revenues and growth. For example, in order to drive innovation across many lines of business, Dow designed 2015 Sustainability Goals that led to new products and technology breakthroughs in areas ranging from solar roof shingles to hybrid batteries. The core business has transformed from reliance on commodity chemicals to advanced materials and high-tech energy opportunities (Lubin & Esty, 2010).
To gain competitive advantages
Businesses have been getting involved in sustainability in a serious manner because they recognize the competitive advantage that can be achieved from sustainable business approaches. By treating sustainability as a primary goal, firms can create new business models that would help to differentiate themselves from their rivals. An example of how a business exploits the sustainability megatrend as a source of brand building and differentiation is GE. Being an early mover, GE not only repositioned itself as an energy and environmental solutions provider but also built a green impression into its brand (Lubin & Esty, 2010). Apparently, getting involved early and adopting an effective sustainability strategy can enable companies to develop competencies that are hard for competitors to match. That competitive advantage will lead to superior performance outcomes in the long term, because sustainability will continue to be at the heart of future development.
To improve company image and to increase shareholder, stakeholder and social values
As stated in “The Natural Environment as Stakeholder”, corporations are now paying more attention to sustainability management because of at least three stakeholder groups: green consumers, green employees and green investors. In the era that everybody is paying attention to the environmental issues, there is no doubt that by engaging in sustainable business practices, businesses can greatly improve their company and brand image. Commitments to sustainable
approaches would help companies to expand and maintain their customer base by attracting green customers who express preferences for products, services, and companies that are perceived to be more eco-friendly than other competitive products, services, and firms. Being green, businesses can also attract new talents, motivate their green employees and increase retention. In fact, a third of all U.S workers would be more inclined to work for an environmentally friendly company and more than half thought their companies should embrace sustainability in more aspects of their business. In addition, by adopting sustainable business practices, firms can draw attention from green investors who choose to invest in environmentally friendly firms because they highly value sustainable practices (Chapter 12 “The Natural Environment as Stakeholder). Individuals and organizations today increasingly “seek out companies with positive environmental, social and governance performance not only because they are morally admirable but because they are more viable in the long run” (Chouinard, Ellison & Ridgeway, 2011) Key issues in overall evaluation of sustainability: In overall, businesses can take a look at a number of key issues that are involved in the evaluation of sustainability, including: -
Evaluating the current system in which they operate
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Identifying the impacts of business upon the natural environment- climate change, energy, water, biodiversity and land use, chemicals and toxics, air pollution, waste management, ozone layer depletion, ocean and fisheries, and deforestation.
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Determining whether the traditional model of industry activity is transformed into a more integrated model- a closed system in which the consumption of energy and materials is optimized, pollution and waste generation is minimized and the effluents of one process serve as inputs for another process (Frosch & Gallopoulos, 1989)
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Assessing management tools used to measure progress such as life cycle assessment, environmental risk assessment, triple bottom line and sustainability indicators.
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Considering leadership and how sustainability is institutionalized
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Evaluating collaborative relationship with business partners and with NGOs.
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Promoting transparency: companies need to build capabilities in sustainability reporting, “to share information on their response to emerging environmental standards to employees, shareholders and stakeholders” (Lubin & Esty, 2010).
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Assessing management integration: how sustainability objectives are integrated into day-today management.
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Finding ways to maintain the continuous improvement
In conclusion, from a business perspective, today sustainability not only helps solving the environmental issues but also is the center of organizational and technological innovations that can yield substantial returns and future success. Therefore, although corporations receive little support from the government, many of them are now showing interest in sustainable approaches and making efforts in reducing the negative impacts upon the natural environment. That is a good sign; nevertheless, there are still more to be done. As Peter Senge said in an interview, companies can stop adopting sustainability measures that do ‘less bad’ and start doing ‘more good’, both for the business and the world around it (MIT Sloan Management Review, 2009). Since there is, still, no technical solution to the environmental issues, sustainability has become a key strategy, if not a requirement, to the survival of any members of the business community. Thus corporations and individuals need to change the way they think and act in order to stay competitive in the years to come. “We’re getting there. Green has hit Main Street - it’s now more than a hobby- but it’s still less than a new way of life” (Friedman, 2009)
