Readings: Weybrecht Chapters 7 (Economics) and 18 -PPT 5 Slides

http://sustainabledevelopment.un.org

http://www.uneptie.org

20 The Sustainable MBA

between the private and public sectors) and their role in development (www.johannesburgsummit.org).

2000–2015: In 2000, the United Nations Millennium Summit brought together world leaders who committed their nations to a new global partnership to reduce extreme poverty and set out a series of time- bound targets, with a deadline of 2015, which have become known as the Millennium Development Goals. The eight goals (www.un.org/ millenniumgoals) are:

Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria, and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a global partnership for development.

The Millennium Project was commissioned by the United Nations Secretary-General in 2002 to develop a concrete action plan for the world to achieve the Millennium Development Goals (www .unmillenniumproject.org).

2000–2012: The UN Global Compact was launched in 2000 as both a policy platform and a practical framework for companies that are committed to sustainability and responsible business practices. It is the largest corporate citizenship and sustainability initiative in the world, with over 10 000 corporate participants and stakeholders from over 130 countries. Compact members support broader UN goals, such as the Millennium Development goals, and also the mainstreaming of its ten principles in business activities around the world:

1. Human rights Businesses should support and respect the protection of interna-

tionally proclaimed human rights; And make sure that they are not complicit in human rights abuses.

2. Labor standards Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labor; the effective abolition of child labor; and the elimination of discrimination in respect of employment and

occupation.

http://www.johannesburgsummit.org

http://www.un.org/millenniumgoals

http://www.unmillenniumproject.org

What is Sustainability? 21

3. Environment Businesses should support a precautionary approach to environ-

mental challenges; undertake initiatives to promote greater environmental respon-

sibility; and encourage the development and diffusion of environmentally

friendly technologies.

4. Anti-corruption Businesses should work against corruption in all its forms, includ-

ing extortion and bribery (www.unglobalcompact.org).

2012–today: In 2012, 20 years after the fi rst Earth Summit, govern- ments, NGOs, and businesses came together in Rio, Brazil for Rio+20. The themes included how to build a green economy and how to improve international coordination for sustainable development (www.uncsd2012.org). Discussions are also taking place on what will happen after 2015 (the deadline for the MDGs).

For a full timeline of Sustainable Development conferences and events, see www.iisd.org/sd.

Working together: Stakeholders in sustainability

The UN recognizes nine ‘major groups’ in society. These groups

participate actively in all UN meetings and present internationally

coordinated positions on the issues discussed.

• Women make up half of the global population and are key actors

because of their role and infl uence in communities and fami-

lies. For more, see the work by the Women ’s Environment and

Development Organization (www.wedo.org).

• Children and youth comprise nearly half of the world popula-

tion and will inherit the responsibility of looking after the Earth.

Take a look at International Youth Caucus (www.youthlink.org)

• Indigenous people comprise 5% of the world ’s population but

embody 80% of the world ’s cultural diversity. It is estimated that

they occupy 20% of the world ’s land surface but nurture 80% of

the world ’s biodiversity on ancestral lands and territories. For

more see Tebtebba (www.tebtebba.org). (continued )

http://www.un.org/dpi/ngosection

http://www.uncsd2012.org

http://www.iisd.org/sd

http://www.wedo.org

http://www.youthlink.org

http://www.tebtebba.org

22 The Sustainable MBA

• NGOs perform a variety of services including bringing citizens ’

concerns to government, monitoring policy and program imple-

mentation, and encouraging participation at the community level

(www.un.org/dpi/ngosection).

• Workers and trade unions work at addressing industrial change,

with a high priority given to protection of the work environment

and the related natural environment and promotion of socially

responsible and economic development. See the International

Confederation of Free Trade Unions (www.icftu.org).

• Business and industry have an important role in ensuring that

sustainable practices are incorporated throughout their opera-

tions. See the International Chamber of Commerce (www.iccwbo.

org) and the WBCSD (www.wbcsd.org).

• Science and technology are developing environmentally friendly

technologies and making discoveries in health and disease eradi-

cation, to name just a few. See the International Council for

Scientifi c Union (www.icsu.org).

• Farmers play an important role as agriculture occupies one-third

of the land surface of the Earth and is the central activity for

much of the world ’s population. See the Federation of Agricultural

Producers (www.ifap.org).

• Local authorities include city mayors and local governments.

Because so many problems and solutions have their roots in local

activities, city governments play a key role. See the International

Council for Local Environmental Initiatives (www.iclei.org).

For more on the different actors involved in sustainability, see the Who section at the end of this book.

http://www.icftu.org

3 What does this Mean for Business?

‘We are launching Ecomagination not because it is

trendy or moral, but because it will accelerate our

growth and make us more competitive.’

GENERAL ELECTRIC CEO JEFF IMMELT 2

24 The Sustainable MBA

The business case

You are certainly not alone if you are wondering, ‘What does this

have to do with my business?’ However, the answer is simple – eve-

rything. In 1970, Milton Freidman said ‘There is one and only one

social responsibility of business – to use its resources and engage

in activities designed to increase its profi ts so long as it stays within

the rules of the game.’ Over 40 years on, it is the way companies

create those profi ts and the rules of the game that have changed, as

we realize both the necessity of adopting sustainability into everyday

business practices, as well as the business opportunities this brings.

Today, employees in organizations of all sizes and in all sectors are

applying sustainability strategies to their work and are increasingly

outspoken about the benefi ts. Those who are successful are building

a business case for sustainability that suits the unique needs of their

project, their initiative, their division, or even their whole company.

While the details of the sustainability strategy adopted by each busi-

ness will vary, here are some compelling reasons why businesses are

incorporating sustainability concepts into their day-to-day operations:

1. To reduce costs

2. To preserve resources

3. To comply with legislation

4. To enhance reputation

5. To differentiate

6. To attract quality

employees

7. To satisfy customer needs

8. To meet stakeholder

expectations

9. To attract capital investment

10. To capitalize on new

opportunities

11. To increase transparency

1. Reduce costs. All companies have an interest in keeping costs

in check. Sustainability provides a mechanism to reduce costs by

focusing on using less resources (e.g., raw materials, energy, haz-

ardous materials, people, and water), making processes more effi -

cient, and minimizing or eliminating waste. Often these kinds of

changes are referred to as ‘low-hanging fruit’ or ‘easy wins ’ because,

What does this Mean for Business? 25

at least initially, small changes can have a big impact. However,

larger structural changes that can be more complicated and take a

longer time to implement can also have the greatest impact in the

long run. Procter & Gamble ’s program to ‘Design manufacturing

waste out,’ for example, has saved the company over US$500 mil-

lion and eliminated 2 million tonnes of waste.

2. Preserve resources. A key element of sustainable business prac -

tices is the preservation of the resource base. Companies are realiz-

ing that the raw materials they depend on to produce their products

are being threatened. For example, Brazil-based Natura has a pro-

gram to sustainably use locally available raw materials that form

the basis of their range of cosmetic products. Natura works closely

with certifi ers to guarantee the proper sourcing of its resources and

to promote conservation through compliance with environmental

and social guidelines.

3. Comply with legislation. There are an increasing number of con-

trol mechanisms, regulations, and standards being put in place that

companies must follow. These cover a wide range of areas, includ-

ing discharge of pollution, worker safety, product content, technical

performance, labeling, requirements for reusing and recycling, and

ecosystem protection. Some of these, such as the Global Reporting

Initiative, are currently voluntary but will increasingly be considered

industry standards. Others are mandatory, such as the European WEEE

initiative or ‘take back’ laws, which require manufactures to take back

all vehicles and electronics equipment sold in a particular country and

recycle or dispose of them safely after use. It is likely that regulations

and ‘voluntary’ standards will increase, both in number and stringency.

In addition, the costs or consequences of not conforming, or leaving it

to the last minute to conform, need to be considered in a business case.

4. Enhance reputation. As Warren Buffett puts it, ‘it takes twenty

years to build a reputation and fi ve minutes to ruin it.’ Today, those

fi ve minutes may feel more like 30 seconds. Petrobras, Brazil ’s

national energy company, stunned by a series of catastrophic oil

spills and other accidents around the turn of the century, real-

ized it would have to fundamentally change to protect its business

26 The Sustainable MBA

and reputation. The company launched the biggest environmen-

tal and operational safety program in Brazil ’s history, overhauled

its operations, and pushed cultural change from the top down.

Environmental and social performance is now central to the fi rm ’s

strategy and Petrobras is recognized as a global leader in the oil

and gas sector, led actively by its CEO. 3

5. Differentiate. Being seen as sustainable can help differentiate

your business. This can increase income by securing the loyalty

of current customers and attract new ones, resulting in increased

market share. Businesses can grow revenue from new markets for

sustainable products and services, and they can also grow market

share through better-quality products that benefi t the customer. One

example of this is MAS, a Sri Lankan apparel manufacturer with cus-

tomers including Victoria ’s Secret, Gap, Marks & Spencer, and Nike.

In a market replete with low-cost rivals, MAS differentiated itself

based on its exemplary employment practices (called ‘Women Go

Beyond’), its green plant, and organic and fair trade products. This

persuaded several western fi rms to choose it as a strategic partner.

6. Attract quality employees. The former CEO of IKEA, Anders

Dahlvig, said that the pressure to be ‘green’ is ‘now coming from

underneath, from our co-workers themselves who expect us as a

company to do more, faster.’ Employees are more likely to feel

proud of working for employers who take their responsibilities to

society seriously. More businesses are realizing this, and are prior-

itizing these issues in order to maximize their capacity to attract

and retain skilled and talented employees, which in turn increases

their ability to innovate and compete.

7. Satisfy customer needs. Public expectations of what is pos-

sible are ever increasing. The eco-conscious consumer is a growing

population who expects the brands they buy to meet their green

standards while also meeting their product needs. Many organiza-

tions are getting involved in sustainability because their customers,

clients, or business partners are asking them to. People are increas-

ingly looking to do business with companies that share their level

of commitment.

What does this Mean for Business? 27

8. Meet stakeholder expectations. In 2005 the then CEO of Wal-

Mart, Lee Scott, recognized that the time when CEOs could sit in their

towers and make decisions without consulting stakeholders was over.

‘We thought we could sit in Bentonville, take care of customers, take

care of associates – and the world would leave us alone. It doesn ’t

work that way any more.’ 4 Companies need to earn their ‘license to

operate.’ They kicked off an environmental initiative to improve their

environmental stewardship reputation and increase their bottom line.

Conversely, constant failure to address the concerns and expectations

of these groups will reduce investor confi dence in the fi rm ’s stock,

impacting the cost of fi nancing and thus profi t-making opportunities.

9. Attract capital investment. Just as consumers are becom-

ing more aware of the importance of sustainability issues, so are

investors and shareholders. There is growth in socially responsible

investment and ethically screened funds, embedding ESG issues

into investment analysis, as well as a growth in industry standards

such as the Dow Jones Index, FTSE4Good, London principles for

fi nancial institutions, and Equator principles for project fi nance. As

environmental and social criteria are becoming a standard part of

lending risk assessments, sustainable businesses are more likely to

be able to attract capital from banks and investors.

10. Capitalize on new opportunities. Mexican cement company

Cemex considered ways to create a whole new business around

improving the living standards of the 20 million people with inad-

equate shelter in Mexico. As a result, they now provide housing

for poor people at a profi t through a special program that enables

low earners to pay weekly installments of US$11.50 for 70 weeks

to gradually buy the building materials they need to build a home.

The program, called Patrimonio Hoy, provides quality products on

low-cost credit at fi xed prices, as well as technical building advice.

So far 83 million US dollars have been granted, with an on-time

payment rate of more than 99%. The program has expanded to over

100 centers across Mexico and South America.

11. Increase transparency. Customers, investors, and businesses

are asking for more and more information about what a company

28 The Sustainable MBA

is doing in sustainability, not just in terms of its own operations but

also those of their suppliers and sometimes even the suppliers of

their suppliers. They are being asked to share this information pub-

licly, both good and bad, on their websites, in annual reports, and

increasingly it is required for the growing number of ratings

and awards that categorize companies based on their efforts and

the sustainability aspects of their products.

While the previous list shows some of the reasons you should

consider adopting a sustainability strategy for your business, the

actual reasons why managers are getting involved in the sustain-

ability debate can vary widely. For some, involvement occurs as

part of a personal journey, a realization that what they do today

will affect their children and families, and the desire to contribute

in a meaningful way. Others are forced into reacting as a result of

a public relations scandal or accident, or because customers, regu-

lations, or other employees are asking for action on these issues.

Regardless of how it starts, there are some points to keep in mind:

• Sustainability is already a part of how you do business.

For most businesses this does not mean starting from scratch.

Sustainability is about making the business more effi cient and

can be built into the way that companies already operate.

• It doesn ’t matter how or why you begin . . . Exploring sus-

tainability in a company can begin in the smallest way, such as

through a recycling program or offering employees a subsidy for

taking public transportation to work. Simple, small things can

make an impact over time.

• . . . what matters is how you continue. The benefi ts you get

from particular decisions or choices to start exploring these issues,

or the reasons that you continue to develop them further, might be

quite different from the original reasons you chose to get involved.

• The potentially high cost of inaction for both the business

and society. Even if an organization can fi nd no obvious oppor-

tunities to cut costs or increase revenues through sustainability

initiatives, inaction in this area can lead to increased costs and

loss of revenue.

What does this Mean for Business? 29

• Multiple benefi ts. A positive change in one area can also result

in positive changes in others. For example, applying eco-

design principles to a product can not only result in a superior

product but also save money, give access to new markets and new

customers, and inspire and engage employees and stakeholders.

• The impact is strongest when it is embedded into strategy

and culture. Virtually every sustainability expert will tell you the

same thing – a company will experience some benefi ts of sustain-

ability, but will not maximize these until it is mainstreamed into

the way that the company does business. Look for truly sustain-

able solutions that make sense for both business and society.

• The CEO must be on board. The leading companies in this area

all have programs that were started by, or actively driven and

pushed by, their upper management, in particular their CEOs.

• But employees are key. Without employees engaged and active

in sustainability, a sustainability strategy will go nowhere.

These are some of the primary reasons why adopting sustain-

able business practices makes good business sense. You will fi nd

more details on the business case as it applies to each core disci-

pline throughout the book.

Want more?

Other work on the business case has been done by consulting

fi rms and companies themselves. A few to start with include the

work done by UNEP and Sustainability (www.sustainability.com),

To Whose Profi t? Building a Business Case for Sustainability

by the WWF (www.wwf.org.uk), and WBCSD Business Case

(www.wbcsd.org). The Network for Business Sustainability is

an excellent resource (www.nbs.net). Also take a look at the

many excellent books that explore the business case, including

The Sustainability Advantage by Bob Willard and Green to Gold

by Daniel C. Esty and Andrew S. Winston.

http://www.wwf.org.uk

http://www.sam-group.com/yearbook

30 The Sustainable MBA

The sustainability sales pitch

Author Bob Willard tells the story in his book, The Sustainability

Advantage , of when he worked at IBM. He writes that he spent

six months drafting a letter to the then CEO, Lou Gerstner, asking

him to embed sustainability into IBM ’s business strategy. His let-

ter included phrases such as ‘business will play a vital role in the

health of our planet’ and ‘funding research on causes of environ-

mental issues.’ When written, in 1997, the letter was treated as a phil-

anthropic request and directed to the corporate community affairs

director. Thinking back, Bob says that his original letter should have

said ‘Dear Lou: I have some thoughts on how IBM could increase its

profi t by 38%. Interested? Yours truly . . .’ 5

‘That all sounds nice but . . .’ is a familiar phrase to sustainability

champions. In fact, it seems to be much easier for people to come up

with excuses and reasons for why not, than to try new things, even

if they think that it may make sense. Proper presentation of sustaina-

bility-related projects and strategies is crucial in gathering initial and

continued support. To do so, consider the following advice:

1. Be informed. Collect all the information you can about what is

happening in your own company, in other companies (not just

your competitors), work being done by NGOs, and current issues

relating to the work you want to do. If you know what you are

talking about, it will make answering questions and getting peo-

ple on board a lot easier. 2. Create a coalition. Engage other people who share your view-

point or who are also interested. Focus on getting key people on board who can really help move these issues forward.

3. Pick your moment carefully. Different individuals, teams, departments, or whole companies will be ready at different times to put some of these tools into action. Focus on doing things right the fi rst time, rather than fi nding a quick fi x.

4. Package that information appropriately. People react to information in different ways, so knowing what kind of informa- tion to present to a specifi c decision-making person is key. An HR manager will be interested in employee motivation and hir- ing better people, while a CEO will be interested in reputation, brand, and fi nancial impact.

5. Choose who will give the information. Whether rightly or wrongly, people tend to believe information when it comes from

What does this Mean for Business? 31

certain sources. For example, many are skeptical when NGOs tell business what they should do, as they are seen as outsiders. Find the right people to present the information, people who are well respected in the organization – even the converted skeptic – and you can make your case more compelling.

6. Think of the reasons why not. In bringing these issues to your team or your organization, make sure you think carefully about the objections your company might raise to doing this. Consider the different perspectives around the table, the roles they play in the organization, their backgrounds and personali- ties, and you can gain critical understanding of why people may be unwilling to move on certain issues, as well as ideas on how your interests could converge.

7. Make a strong case. Have a strong case for why people should be interested in moving forward on these ideas. Make sure you outline all the potential benefi ts, both the direct ones and the indirect ones. Just as important, describe what would happen if the organization doesn ’t move forward, such as missed opportu- nities or negative PR.

8. Offer a vision. Offer a vision of where you want to go in the short, medium, and long term, and concrete ideas on how to get there. Use stories, pictures, and videos along with hard facts to make your case. Build excitement about being part of something bigger. Think big.

9. Present the underlying problem rather than your solution. Don ’t just show up at your team meeting proposing your solu- tion. Instead, discuss the original problem that needs solving. This helps an organization or team gather around an issue and work together to solve it.

10. If calling it Sustainability or CSR won ’t work, then don ’t. In marketing, a product is often more successful if it ’s marketed as high-performing rather than solely as an environmentally or socially friendly product. In this same way, if a business is skeptical of sus- tainability, present it as what it is, good business sense, as ways to cut costs, generate revenue, and make production more effi cient.

11. Make it straightforward. Where possible, integrate new thinking and requirement into existing processes, which enables others to more easily revise their thinking about existing company resources. Make it easy and straightforward for people to start. Link projects to the company ’s ambitions, values, culture, and history.

12. Be patient. Even though you may be ready, for others this may

represent a change in mindset and it will take them longer to

come on board.

4 The Sustainability Journey

‘It is not the strongest of the species that survives, or

the most intelligent, but the one most responsive to

change.’

CHARLES DARWIN

34 The Sustainable MBA

The journey

Sustainability is a journey rather than a destination in itself. It starts

with the decision to explore these issues. The obvious issues are

usually visited fi rst – energy consumption, recycling, fi nding ways

to minimize risk. Some companies move past these to the less

obvious opportunities, such as product innovations. Other leading

companies will take the less traveled routes and make discoveries

which will put them ahead of the pack. Sustainability for business

is always changing and evolving. Managers often think that once

they have put a strategy in place, they have reached their destina-

tion. But there is no fi nal destination, it is the journey that counts.

To take your sustainability journey, it is important to understand

where you currently stand and where you want to go. Whether

you are just starting out, or you have already begun to explore

sustainability issues, your journey will be different depending on

the needs of your company. However, there are some common

stages that companies might fi nd themselves at along the way.

Not yet on board . . .

1. Reject sustainability. Rejection may occur because a company

is unaware of sustainability, or believes it has nothing to do with

their business. In some cases, it may be because a company is

involved in illegal activities – either through ignorance or inac-

tion, or deliberate actions. Others will see what they can get

away with, and think that even if they get caught they can still

get around it.

2. Bare minimum. Companies are compliant, but barely so, and

not necessarily on everything. They have no sustainability strat-

egy, and at this level, a company is doing the absolute minimum

required to stay in business. Typically, they only act when a situ-

ation occurs that forces them to react. If they do anything beyond

the bare minimum, they often expect to be rewarded for it.

The Sustainability Journey 35

3. Seen as a cost. Some companies see sustainability as a philan-

thropic activity that is just a cost. There may be other smaller

initiatives, or individuals across the company who are interested

in sustainability, but nothing is coordinated. In some cases they

will communicate things that they haven ’t actually done, or

exaggerate claims for things they have done.

Jump on board . . .

4. Cutting costs. Companies begin exploring the opportunity

to cut costs by reducing consumption. This usually starts with

offi ce-greening projects coordinated by inspired employees.

It can then progress to fi nding ways to save costs across the

operations.

5. Risk management. At this stage, companies begin to see that

governance structures – including policies, performance stand-

ards, management systems, reporting, assurance processes, and

sustainability tools – allow them to better manage their risks.

6. Indirect benefi ts. Companies now begin looking beyond just

saving costs and managing risks, to identify the opportunities

that sustainability can present. They are also beginning to rec-

ognize how it can have a benefi t across the business, such as

internal benefi ts of recruiting better employees and suppliers.

Moving forward . . .

7. Opportunities. Companies are now actively engaged on mul-

tiple fronts, exploring opportunities across the business in the

form of new products, exploring new markets, and partnerships

with outside organizations.

8. Strategic approach. Beyond signifi cant levels of activity on

new opportunities, companies begin to look at these individ-

ual activities across the organization with the goal of bringing

them together as part of an overall strategy. Upper management

36 The Sustainable MBA

is fully involved and reinforces these messages in communi-

cations internally and externally. Sustainability reporting is

adopted throughout the organization. Efforts have become

cohesive, moving the whole company in a common direction.

9. Integrating. Sustainability begins to be really integrated into

the way that everyone at every level does business. It is part of

people ’s job descriptions and is incorporated into compensa-

tion, rewards, and performance evaluations. All departments

are involved in doing their part to move the agenda forward.

10. Continuous improvement. A company works with other

businesses to really push these issues forward, raising the

bar throughout the areas in which they operate. At this stage,

companies continually revisit their processes to make them

stronger and to acknowledge and work on their weak spots.

Some points to keep in mind when trying to assess where you

currently stand:

• Different initiatives will be at different points along this

journey. The inherent complexity of organizations means that

a company or an organization will have many different depart-

ments, projects, and activities that are at different signposts on the

sustainability journey. Use the above model to see where different

parts of the business stand, and also for the company as a whole.

• Sustainability is a complex area that is continually chang-

ing and growing. Everyone is still learning and the bar is con-

stantly being raised. Therefore, it is not just about whether or

not you are involved in the debate, but at what level. Are you:

• Saying you are when you aren ’t really? (Greenwashing)

• Doing just enough?

• Doing the same as other companies in your industry? In other

industries? In your country?

• Doing better than other companies in your industry? In other

industries? In your country?

• Doing the same as other companies internationally?

The Sustainability Journey 37

• Doing better than other companies internationally?

• A leader in this area?

• How to move from one level to the next. There are many driv-

ers that push companies to move from one level to the next.

Most often this will be a passionate CEO or manager, or engaged

employees. It could be a negative event that forces a company to

react. Anything in the business case can be a driver to change.

Ultimately, a company can only reach the higher levels with sen-

ior management involvement, and where sustainability is part of

a cohesive strategy.

• Remember, this all takes time. Sustainability isn ’t a light switch

that you turn on and off. Implementing a sustainability strategy

takes time, energy, resources, real commitment, and often a cul-

tural change within your company. However, done properly, the

paybacks more than justify the investment.

What does a leading company look like?

Companies getting involved in sustainability are providing more and

more information on their activities through their websites, annual

reports, and other communication means. However, even with all

this information, many consumers are not convinced. So how can

you distinguish a leading company from a laggard? Unfortunately,

this is not always easy. We often judge organizations as single enti-

ties, but they are made up of many separate parts, some good and

some not so good. Here are some things you can look at to help you

decide whether a company is serious about these issues:

• Look at whether or not it makes sense. Can you understand

their sustainability strategies? Do their products and messages

make sense? Is their sustainability strategy consistent? Are

they seeing themselves within a larger system of the world?

Are they focusing on the issues that you think are most impor-

tant, or that their stakeholders think are important?

(continued )

38 The Sustainable MBA

• Look at their approach to sustainability. Is the company pro-

active or reactive when it comes to sustainability? Is the company

going beyond minimizing risk to exploring new opportunities?

When a problem occurs or the company is criticized for their

actions/inactions, how does the company react? Do they take

proactive measures to make sure it doesn ’t happen again?

• Look at how they engage. How do they engage with business

and non-business partners, their suppliers, their peers, the com-

munity, their employees? Are they actively involved in sustain-

ability networks at the local, national, or international level? Are

they fulfi lling their membership requirements of these networks?

• Look at the future. Although the past will tell you where the

company has come from and what their record is, it is not neces-

sarily a good guide to future activities. Look at their current per-

formance and published policies and future commitments. How

quickly are they moving? How does this compare to their peers?

Are they focused on continuous improvements? Leading compa-

nies set goals that challenge and inspire. They also have clear

steps that show how they will attain those goals.

• Look at who is driving the change. The commitment of the

board and the CEO is a good indicator of how seriously a com-

pany is taking these issues. Speak to employees working for a

company. Do they know about the company ’s sustainability strat-

egy? Are they involved? Is it part of their jobs? If sustainability

strategy is part of the way that they speak about business then

this is a good sign that management is committed.

• Look at the resources allocated to sustainability. How many

people are responsible for implementing sustainability strategies

within a company? How much power and infl uence do they have?

What kind of budget do these activities have? How much time do

people have to work on these issues?

• Look at how they communicate. Do they make claims in their

promotional materials? Are these backed up? Are they credible, or

are they greenwashing? Do they seem to be genuinely engaged

in these issues? Don ’t just base your opinion on what you hear.

Just because a company is not vocal about its sustainability com-

mitment, in no way means it is inactive. Some companies are very

active in this area but just don ’t have the budgets or choose not

to communicate these efforts widely.

The Sustainability Journey 39

• Look at how they report. Look at the quality, quantity, and trans-

parency in the information they put in their annual reports. Do

they truly understand the issues affecting themselves and their

stakeholders? Do they follow certain reporting guidelines such as

the Global Reporting Initiative?

• Look at the whole as well as the parts. It is often diffi cult to

say whether a whole company is good or bad. All companies will

have examples of successful projects in this area and parts of the

business that need more work. Leading companies are those that

are proud of their successes and who acknowledge and are work-

ing on their weak spots.

• Look at what gets cut. When times get tough, are the sustain-

ability policies the fi rst to go?

Where to fi nd leading sustainable companies

One way to identify which companies are doing interesting work

is by looking at the annual awards and rankings. There are now

countless awards given at the local, national, and international levels,

many of which are mentioned throughout this book. Companies take

their position on some of these lists very seriously and will often use

this in their communication material if they are ranked highly, and

respond by making changes in their organization when lower down

on the lists. A few examples of international rankings include:

• The Global 100 Most Sustainable Corporations in the World,

announced each year at the World Economic Forum in Davos

(www.global100.org).

• The Sustainability Yearbook, an initiative with SAM and PwC

of the world ’s 2500 largest companies based on the Dow Jones

Global Index (www.sam-group.com/yearbook).

• Business Ethics magazine and KLD Research and Analytics ’ list of

100 Best Corporate Citizens (www.thecro.com).

Some tips for navigating the different rankings and awards lists:

• Look at the scope of the award. Is the award being given to com-

panies who are part of a particular industry? Is it about one par-

ticular element of their strategy, such as their approach to supply

chain management, or does it cover the full company and all its

activities?

(continued )

http://www.global100.org

http://www.thecro.com

40 The Sustainable MBA

• Look at which companies are up for the award. Awards don ’t

always invite all companies to enter a given award or ranking.

More often than not, rankings and lists focus on larger, interna-

tional companies, or only those who choose to nominate them-

selves. Does it include both public and private companies? Is it

looking at both big and small ones?

• Look at who is giving the award. Is the ranking or award

being given by a consulting fi rm, the media, consumers, interna-

tional organizations, an NGO? Is it being given by a recognized

organization?

• Look at what kind of data they are measuring. Companies

often tend to use data that are readily and inexpensively available.

Do companies submit the information themselves? Is it collected

through questionnaires, media and stakeholder reports, publicly

available information, interviews directly with the company? Is

the awarding organization doing its own independent research?

• Look at the criteria and weightings. What are the criteria for

the award? Every ranking or award will have a different set of

criteria to determine the winners. These criteria should be trans-

parent and easily accessible in order to give some insight on how

the awardees are being chosen.

5 Getting Started

‘Many companies have already done much to improve

the social and environmental consequences of their

activities, yet these efforts have not been nearly as

productive as they could be – for two reasons. First,

they put business against society when clearly the

two are interdependent. Second, they pressure com-

panies to think of corporate social responsibility in

generic ways instead of in the way most appropriate

to each fi rm ’s strategy.’

MICHAEL PORTER 6

42 The Sustainable MBA

Step by step

In the same way that there are no simple checklists on what to do

to create a successful business, there is also no single way for a

company to incorporate sustainability into its operations. But the

good news is that employees and managers can get involved in sus-

tainability without becoming experts in this area (in fact, the infor-

mation in this book is more than enough to get anyone started).

Employees at all levels are coming up with an incredible variety

of very different ways to bring sustainability into their employer ’s

strategy and operations. For instance, some test out sustainability

tools on a small scale – with a particular product, site, or service –

while others choose to embed it across the whole business.

Every organization will develop these issues in widely different

ways and needs to fi nd the way that works best for their particular

situation, location, client base, or strategy. The following list pro-

vides a guideline for getting started.

1. Understand where you are

now

2. Find out what is happening

around you

3. Decide where you want to

go and why

4. Engage others and

gather support

5. Put your plan in place

and make it happen

6. Keep it going

1. Understand where you are now. Start by taking some time

to think about what kind of company you work for. How is your

organization impacted by society? How does it impact society? What

are the issues that are important to you? Explore what is currently

happening and whether you could build on from initiatives already

taking place in the company or whether to start a new one.

• Where do you currently stand? Does your company reject

sustainability, is it non-responsive because of a lack of aware-

ness? Is it interested but not sure where to start? Has it already

Getting Started 43

started? What kind of expertise is currently in the company in

this area? Are there any projects that already exist to build on?

• How is your organization impacted by society and the envi-

ronment? What issues affect your company ’s operations? Climate

change? Water? Human rights? What issues do your stakeholders

think are important for you to consider? What issues affect your

competitors?

• What impact does your organization have on society and

the environment? How do your operations impact society in

positive ways? What about negative ways? Are you releasing pol-

lutants? Generating waste?

• What issues are important to you? To your stakeholders? What

about to your employees, your customers, your business partners?

• What kind of culture does your company have? Is your com-

pany open to exploring new opportunities? Is it fast or slow to

respond? Is it innovative? Does it have employees who would be

keen to explore these issues?

2. Find out what is happening around you. Once you under-

stand what is happening inside your organization and the issues

that affect you, take a look at what is happening around you in

terms of regulations, best practices, and interesting initiatives that

others are doing.

• What regulations affect you? Understand which regulations

and industry standards affect you and your operations now and

how they could impact you in the future. Above all, make sure

you are compliant with the regulations that affect you.

• What voluntary mechanisms are out there? Which stand-

ards, certifi cation systems, and eco-labels are relevant to your

business? Are your competitors using them? Are your customers

and stakeholders asking for them? Are they becoming widely

accepted industry standards?

• What is the rest of the industry doing? What are your compet-

itors doing? What about the organizations in your supply chain,

your customers, your suppliers? What about other industries?

44 The Sustainable MBA

• Look at the ‘best practices.’ What are the leaders doing in this

area in your sector? What about in other sectors? What challenges

have they encountered and what lessons have they learned that

you can apply?

3. Decide where you want to go and why. Once you understand

what is happening around you and how that affects you now and may

affect you in the future, determine how you are going to proceed.

• What are your drivers? Why are you looking at these issues? Is

it because of a passionate CEO? Are your employees asking for it?

Your customers? What pressures are pushing you to do this?

Are you looking to strengthen your brand, or grow revenue or

market share?

• What is the business case? Translate the drivers into business

reasons. What is the business case? What are the costs? What are

the benefi ts? Will it increase employee retention? Will it serve

to build better products or increase market share? What impact

could it have on your reputation and brand? On your relation-

ship with your stakeholders?

• What frameworks and tools work for you? An organization

can choose a sustainability framework (or create a hybrid) to

develop a vision for sustainability. Is it one offered by an NGO

(such as the Natural Step)? Is it the Triple Bottom Line? Is it a

framework offered in a book or through a consulting fi rm? Is it

your own? Use these as a starting point.

• What is your baseline? Conduct audits and assessment in order

to identify where your strengths and weaknesses lie, to create

a baseline to better understand your business and products and

track progress toward your goals.

• What is the best point of entry? Does your organization want to

focus on a particular issue, such as water or climate change? Create

new or improved products and services? Does it want to start small

with a particular product or process, or does it want to start big?

Are you looking to enter new markets? Do you have any ‘unsus-

tainable’ products that you want to remove from the marketplace?

Getting Started 45

• At what scale? Look at individual processes or groups of pro-

cesses (i.e., production line), a system (lighting or packaging),

a product or product line, a facility, department, or location, by

regional or geographical groups of departments or facilities, or

for the entire company.

• What is the budget? What resources are you willing to put

toward your plan? How many employees, how much of their

time? Will you have a whole team looking at these issues or just

a few people?

4. Engage others and gather support. Experience shows that

in order for sustainability to be successfully mainstreamed into an

operation or business, employees, the CEO, and other stakeholders

must be fully engaged. Engagement requires building active relation-

ships not only with customers and suppliers but also with local com-

munities, social groups, governments, citizens, and employees. Each

has the power to welcome the company with open arms and help it

achieve its goals, or to block, disrupt, and make its life diffi cult.

• Confi rm CEO/management commitment. If the CEO or man-

agement is not on board, sustainability activities will remain

of secondary importance. CEOs must assign clear responsibil-

ity, resources, and authority and communicate these messages

consistently.

• Build cooperation internally. Involve people from across

departments and from all levels of the company. Employees

are also a valuable sounding board, they often sense a problem

before management acknowledges it.

• Engage business partners. Involve suppliers, joint venture

partners, contractors, shareholders, and customers in carrying

out sustainability strategy. Begin implementing sustainability

screens in purchasing decisions.

• Identify and engage stakeholders. This includes all groups that

are directly affected by your operations, including shareholders,

investors, employees, client companies, consumers, local com-

munity groups, and supplier companies. Although this can be a

46 The Sustainable MBA

challenging and time-consuming exercise, stakeholder engage-

ment can help identify potential problems before they arise and

help a company understand the wider context in which it oper-

ates, and where opportunities and threats might come from.

• Outside networks. A business can choose to take part in any

number of different business and sustainability networks avail-

able locally, national, regionally, and internationally, which share

best practices. This includes creating alliances with other com-

panies, NGOs, business industry sector organizations, and indus-

try-specifi c networks.

• Engage your customers. Leverage the unprecedented power of

consumers to share information about companies, products, and

services to promote sustainable products, usage, consumption,

and lifestyles.

5. Put your plan in place and make it happen. Develop a road-

map, revisit it regularly, and build it with clear objectives and goals

to help the company go where it wants to go. Consider short-,

medium-, and long-term perspectives when putting together a

strategy.

• Create realistic targets and objectives. Defi ne actions and

set targets that are SMART (Specifi c, Measurable, Achievable,

Realistic, and Time-Specifi c). Break down sustainability targets

and objectives in order to make them meaningful for individu-

als, subsidiaries, divisions, and departments. Select appropriate

indicators and metrics to help you keep track of your progress.

• Prioritize. Determine what the most important issues are. Be

selective and look at prioritizing based on both importance and

diffi culty. Where do you want to be in 1, 5, 20 years? What do

you have to do to get there?

• Create a structure. Choose a structure that will enable your

strategy to be a success. Will you have a sustainability coordina-

tor? Task forces? A chief sustainability offi cer? Will it be incorpo-

rated into individual jobs? Who will have overall responsibility?

Getting Started 47

• Create pilot projects. Pilot projects and prototypes are a good

opportunity to test ideas and show others the impact they can

have and learn some important lessons.

• Align business systems. Look at ways to embed sustainability goals

across all functions of a business; whether it is revisiting incentive

systems to align them with sustainability goals in the HR depart-

ment or exploring eco-effi ciency and waste minimization opportu-

nities in the production lines. Also look at budgeting and training.

Depending on the strategy you choose, certain systems and pro-

cesses may need to be modifi ed to ensure that day-to-day activities

are performed in a manner consistent with these objectives.

• Give people the tools. Include sustainability targets and objec-

tives in performance appraisal so they have the right incentives.

Run workshops to train staff, ensuring that sustainability is the

responsibility of everyone in the organization and not just of a

specifi c department.

6. Keep it going. It doesn ’t stop once you have started imple-

menting your sustainability plan. With a strategy in place that

engages internal and external groups, and activities starting up,

continue to monitor the progress of your strategies and the impact

they have on your business, both directly and indirectly, and revise

as needed. Successful strategies take time and effort to implement

and should be continually revisited.

• Communicate internally. Do other employees know what

the sustainability strategy is? Do they know what their role is?

Communicate continually internally about status, the successes,

what needs more work, and so on.

• Communicate externally. Publish reports at least annually that

detail your sustainability impacts, goals, and progress, and dissem-

inate information to your stakeholders. Use websites and other

communication media to tell others about what you are doing.

• Monitor. Use status checks and regular audits to monitor how

you are doing and communicate that to all relevant parties.

48 The Sustainable MBA

Getting past internal excuses

This book should be approached with an open mind. Some parts

of it will be directly relevant to you, others won ’t. For sustainability

to work for you and the organizations that you are involved in, you

should take a moment to think about the reasons why, and what

this could mean for your organization, rather than thinking about

the reasons why not. The majority of people have built up a list of

• Scaling up. Review what has worked and what hasn ’t before

increasing the scale of the effort. What lessons have been learnt?

Can they be applied to other parts of the business?

• Look for continuous improvement. Put the plan into action,

with a focus on achieving continuous improvement rather than

trying to reach a goal and then stop. Keep revisiting the process.

A sustainability strategy should complement and build on exist-

ing programs and initiatives.

Want more?

The International Chamber of Commerce (ICC), founded in

1919, ‘serves the world business community by promoting trade

and investment, opening markets, services and the free fl ow of

capital.’ The Business Charter for Sustainable Development has

16 principles, which provide business with a basis for sound

environmental management (www.iccwbo.org).

The Guidelines for Multinational Enterprises of the

Organization for Economic Cooperation and Development

(OECD) are recommendations addressed by governments to mul-

tinational enterprises operating in or from adhering countries.

They provide voluntary principles and standards for responsible

business conducted in a variety of areas (www.oecd.org).

Getting Started 49

internal excuses not to take the plunge into something new. The

following will help you, and those around you, to get past the most

common excuses.

• ‘I have no time.’ Do an audit of your time. This often shows that

you spend a lot of time on tasks that do not actually benefi t your

work. At the same time, the audit can reveal that many of the things

you currently do are already related to sustainability issues.

• ‘It ’s not my job.’ Imagine if everybody said this – nothing would

ever get done! If your job is to help your business be or continue

to be successful, then yes, some of the ideas introduced in this

book are and increasingly will be part of your job.

• ‘I want to make money, not give it away.’ Look at sustainability as

being a tool to reduce costs and increase revenue. Revenue minus

costs equals profi t. Even if you don ’t make money by doing the right

thing, you can certainly lose money if you do the wrong thing.

• ‘I ’m not important enough.’ If you were hired then it is because

you play a role. There is always something you can do regardless

of what position you have within your organization.

• ‘It ’s all too complicated.’ There are a growing number of

resources out there to help individuals and companies explore

these issues (i.e., this book!). Find those things that make sense

to you and start with them fi rst.

• ‘No one else around me is doing it.’ If no one else is doing

it, then you have an even better opportunity; in addition to the

business benefi ts to your organization, it will give you a way to

differentiate yourself and get ahead of the pack.

• ‘My company isn ’t interested.’ Your company is made up of

many different individuals, some will be interested, some won ’t.

Your company may not be interested, but other employees might

be. By connecting with them and creating a group, you may be

able to infl uence your company.

• ‘My company really isn ’t interested.’ You may fi nd rare instances

where these issues are important to you but not to the company

you work for. Remember how many companies there are, and

how many of them can use your skills – it may be time to move

on to one of those.

(continued )

50 The Sustainable MBA

• ‘It costs too much.’ This all depends on how you approach it.

Pursuing sustainability strategies that make sense to your busi-

ness can involve upfront costs with less than hoped for short-

term results. Find the ‘low-hanging fruit,’ where simple changes

to sourcing or processes can make a big difference. And remem-

ber, middle- and long-term results consistently show both busi-

ness and societal benefi ts.

• ‘All this sustainability stuff will pass.’ Whether you like it or

not, this represents the new business reality.

• ‘I ’m not creative.’ Getting involved in sustainability requires

commitment more than creativity. If you really have no ideas at

all, even after reading this book, then support other people who

do have good ideas.

• ‘It isn ’t important in our industry.’ All industries are getting

involved in these issues. Make sure you ’re not left behind. Take

the opportunity to be an industry leader.

• ‘We don ’t really impact the environment.’ Although the

impacts may not always be obvious, every company and every

individual impacts the natural and social environment around

them in some way.

• ‘We can ’t make a difference.’ Companies of all sizes and indi-

viduals in all sectors are making a difference. Some of the leaders

are individuals and small companies.

PART 2

THE CORE TOPICS

Accounting

Economics

Entrepreneurship

Ethics and corporate governance

Finance

Marketing

Operations

HR and organizational behavior

Strategy

52 The Sustainable MBA

Bringing the pieces together: The sustainability puzzle Sustainability ideas are increasingly being explored across all indus-

tries around the world. Within each company, sustainability can be

seen as a giant jigsaw puzzle. The chosen sustainability strategy

sits at the middle of the puzzle and provides the basis for other

areas of the business to get involved in exploring these issues.

Entrepreneurship, economics, ethics, and organizational behavior

provide the corner pieces of the puzzle, with accounting, fi nance,

marketing and operations, and information management tying

everything together.

Entrepreneurship Identifying and exploring new business solutions both inside and outside an organization.

Accounting Building systems, establishing sustainabil- ity targets and objec- tives, and providing sustainability information to infl uence decision-making.

Economics Helping to understand the larger environment in which business works and which business infl uences. Exploring mechanisms to allow companies to internalize costs to society and optimize contributions to economic and social development.

Finance Plays a key role in sending signals to companies that can enable them to invest in longer-term opportunities; and requires them to responsibly and effectively manage their economic, environmental, and social impacts.

Strategy Ensures the right approach is taken for a particular company, and that it is implemented as a real organized effort that mobilizes the whole company.

Marketing Designing and promoting more sustainable options and inspiring change.

Ethics Without good manage- ment, strong corporate governance, ethical behav- ior, and open and trans- parent relationships with stakeholders, sustainability issues, policies, and goals can go nowhere.

Operations Taking responsibility for all the impacts, both social and environmen- tal, across the lifecycle of a company ’s products and services.

Organizational behavior Translating sustainability policy into action and creating a work environment where sustainability is embedded in the culture of the company and every aspect of the employee lifecycle from recruitment to retirement.

The Core Topics 53

This part of the book introduces a range of tools that can be used

to understand how sustainability affects different core areas of a

business. Each core topic provides the following information:

• An introduction of the role the topic plays in sustainability.

• An introduction to the business case for why sustainability is

important to that topic.

• An introduction to the different key concepts and tools relevant

in that topic.

• An overview of some of the challenges faced with moving the

agenda forward in this area.

• A list of some of the trends and new ideas being explored in

this topic.

• Some tips for how you can explore these issues as an employee

or as a consumer.

• Additional resources where you can get more information on

everything introduced in the chapter.

6 Accounting

‘One ton of carbon dioxide is presently trading on

European markets at about £10. A hectare of rainfor-

est stores about 500 tons and therefore has a potential

value of £5,000; but, as the New York Times recently

pointed out, millions of hectares of rainforest are being

cut down to create agricultural land worth £100 a

hectare. Why are we allowing people to be deprived of

their natural habitats, biodiversity to be diminished

and climatic catastrophe to be hastened, and all at a

loss of £4,900 a hectare? There are no easy answers,

but I am sure that part of the blame, and more impor-

tantly of the solution, is down to us accountants.’ SIR MICHAEL PEAT 7

56 The Sustainable MBA

At the 2007 launch of the Carbon Disclosure Project, Bill Clinton

referred to the need for more ‘scorekeepers ’ in sustainability, ‘we

don ’t have the systems in place to know what the problem is, to

know what the progress is to maximize the likelihood of the best

outcome.’ This is a vast uncharted area which is under-organized,

where consumers have imperfect levels of knowledge about what

their options are and what impact they are having. 8 Accountants

certainly can play a crucial role as ‘scorekeepers ’ in building these

systems, helping to establish sustainability targets and objectives,

and providing this information so it can infl uence decisions.

Accounting may not seem like the logical place to start efforts

to green a company, but in fact, without the involvement of the

accounting sector, many initiatives simply never take off. ‘Although

the accounting sector itself might be considered a relatively low-

impact sector in terms of direct environmental and social impacts,

it is the accountant ’s involvement in the twin issues of organiza-

tional decision-making and external reporting that imposes on the

accounting profession the responsibility for understanding, absorb-

ing and articulating the implications of the sustainable develop-

ment debate’ 9 according to the Association of Chartered Certifi ed

Accountants (ACCA). It is this that makes accountants well placed

to infl uence the processes that would make sustainability part of

day-to-day management.

Why is it important?

• The rules of the game are changing. Creating long-term sus-

tainable stakeholder value is slowly replacing maximizing share-

holder return as the prevailing paradigm.

• More people are asking for sustainability information.

Stakeholders are increasingly asking for better, more consist-

ent information to understand how a company is perform-

ing. Governments and the business sector are putting forward

Accounting 57

voluntary and mandatory disclosure and reporting standards

that can signifi cantly impact business. Accountants need to be

able to understand this information in order to report on and

comply with requirements.

• What gets measured gets managed . . . and what gets man-

aged gets done, as the saying goes. One decisive element of any

sustainability strategy is the development of measurable objec-

tives and targets. Accounting has an important role in collecting

data to support the decision-making process and to measure the

results and improvements.

• Better decision-making. Accounting for environmental and

social costs and allocating them to the appropriate processes,

products, or systems allows a company to make better decisions

in relation to strategic planning, projects, material choices, prod-

uct pricing, and product mix. The accounting perspective not

only enables better understanding of the business but also helps

to identify possible cost reductions or elimination, and explora-

tion of potential revenue opportunities.

• Recognizing opportunities. Identifying and gathering the right

kinds of information also permits an organization to anticipate

and adapt to a rapidly changing world, including identifying

new business opportunities and managing risks.

• Getting ahead of the game. Companies will fall behind if they

do not stay up to date and active in this area, in particular in the

current debates, for example around climate change. The efforts

in climate change are increasingly leading to disclosure require-

ments in other areas such as water, energy usage, and emissions.

• Economic instruments. Accountants need to understand how

business may be affected by the increasing number of economic

and market-based instruments associated with sustainability

issues such as permits, liabilities, charges, and taxes.

• Increased demand. Companies are receiving an increasing

number of surveys and requests for information in this area,

which is leading them to disclose more information publicly.

58 The Sustainable MBA

Full or true cost accounting

One of the roles of the management accountant is to measure the

full costs of a fi rm ’s products and services and to correctly assign

them to the appropriate parts of the business. This is important in

The key concepts

The role of the accountant in sustainability is primarily to col-

lect information to assist internal decision-makers (management

accounting); to prepare fi nancial and sustainability information for

external stakeholders (fi nancial accounting); and to provide assur-

ance on the published results.

• Identifying the full costs of

products and services

→ Full or true cost

accounting

• Determining which sustainability-

related issues are important to

the business

→ Materiality

• Setting and measuring progress

toward goals

→ Key performance

indicators

• Measuring the impact of a

company ’s activities in society

→ Measuring social

impact

• Incorporating sustainability into

fi nancial statements

→ Sustainability in

fi nancial statements

• Integrating fi nancial and

sustainability information together

→ Integrated reporting

• Verifying the accuracy of sustain-

able information and claims

→ Assurance

• Reporting on sustainability

programs and progress through

standalone reports

→ Box: Sustainability

reporting

Accounting 59

order to better understand the profi tability of their products, prod-

uct lines, departments, and customers and to make more informed

decisions. Many would argue that clearer identifi cation of those

environmental issues which actually drive costs (i.e., activity-based

costing) will reduce costs, squeeze out ineffi ciencies, and improve

margins. However, many signifi cant environmental and social costs

that could affect these decisions are currently not being identi-

fi ed or measured. Thus, the typical management accountant has an

incomplete understanding of the true costs the business faces.

This can lead to an inaccurate understanding of the true costs

associated with a particular product or process, and can lead man-

agers to miss opportunities to make their products and processes

better and more effi cient.

Understanding the true cost is not only important for strategic

decision-making but also for determining how a product should be

priced. While consumers buy a product based on a price (among

other factors), the price often does not fully refl ect the real cost

of that product to society. Better incorporation of true costs into

products can result in better pricing that allows customers to make

purchasing decisions based on information regarding the costs to

society of a product and letting them know that these costs have

been paid for.

Typically, accounting systems classify costs as direct materials

and labor, manufacturing or factory overhead, general overhead, and

research and development. Conventional environmental expenses

may be classifi ed in any or all of these categories. Several tools aim

at trying to take the environmental expense out of these categories

so that they can be understood independently. For example, a par-

ticular product may need certain chemicals in its production. The

product price may only include the cost of buying those chemicals

but may not include other costs connected with their use, such as

training employees to handle them safely, storing them, and insur-

ing against damage caused by possible spills. Even if the product

price includes all the costs paid by the business, it often does not

60 The Sustainable MBA

include the social and environmental costs associated with use of

those chemicals, such as the eventual damage of a spill on the

health of local people, animals, and plants. Government legislation

has been working to internalize environmental costs through use

of taxes and fi nes to ensure that these costs are being adequately

passed on to the fi rm and thereby more effectively allocating them

to particular products and processes.

Conventional operating costs such as the use of raw materials,

utilities, and waste can be identifi ed and quantifi ed. However, other

costs can be much more diffi cult to identify and quantify. These

include:

• Hidden and overhead costs. Certain types of environmental

costs may be hidden from managers because they are buried

in overhead accounts, rather than being allocated to the par-

ticular project or process to which they relate. This affects the

actual and perceived viability of such activities. These costs can

include:

• Initial costs relating to R&D, eco-design, qualifi cation of sup-

pliers, and evaluation of alternative pollution control.

• Regulatory and voluntary environmental costs such as monitoring.

• Back-end environmental costs that will occur at some point in

the future; for example, the costs of decommissioning an old

laboratory, waste disposal costs, closing a landfi ll, or comply-

ing with future regulations.

• Costs incurred because of past pollution, including clean-up

of closed or existing sites, in order to mitigate current pollu-

tion and prevent future health and environmental risks.

• Contingent or liability costs. These are costs that might be

incurred at some point in the future. These are usually esti-

mated based on the probability of occurrence. Examples include

the costs of remedying and compensating for future accidental

releases of contaminants into the environment (e.g., an oil spill),

or fi nes, and penalties for future regulatory infraction.

Accounting 61

Materiality

There are a growing number of sustainability-related issues, from

water to climate change. No organization can be expected to

respond to all of them, especially when the issues are not all seen

as equally important to them. In the world of fi nance, any issue that

has (very) roughly a 5% impact on the net income has traditionally

• Intangible costs. These are costs that go into one element of

the business but that have consequences for other parts of the

business. For example, a company that cuts its sustainability pro-

gram because they want to save money may experience a drop

in the company ’s reputation, less motivated staff, decreased pro-

ductivity, and increased worker absenteeism.

• Societal costs. These represent the costs of a business ’s impact

on the environment and society for which the business is not

legally accountable (also known as externalities; see Chapter

7 for more details). For example, the cost of delivering goods

includes petrol, but not the emissions of air particulates which

have an impact on human health.

According to the US Environmental Protection Agency (EPA), ‘the

success of environmental accounting does not depend on “correctly”

classifying all the costs a fi rm incurs. Rather, its goal is to ensure that rel-

evant information is made available to those who need or can use it.’ 10

Tools such as Activity Based Costing are used to assign gen-

eral overhead costs to particular products or services. Resources

include the US EPA Introduction to Environmental Accounting

(www.epa.gov), Full Cost Accounting: An Agenda for Action

ACCA (www.accaglobal.com), and CMA Activity Based costing/

management (www.cma-canada.org).

http://www.accaglobal.com

http://www.cma-canada.org

62 The Sustainable MBA

been considered to be material. However, when it comes to sus-

tainability, it is not always so easy to tell because it isn ’t as easy to

put a price tag on the potential impacts. So, organizations need

to determine which issues are material – meaning which issues

could make a major difference to an organization ’s performance

both in the short and long term. According to assurance organiza-

tion AccountAbility, ‘Materiality is determining the relevance and

signifi cance of an issue to an organization and its stakeholders.

A material issue is an issue that will infl uence the decisions, actions

and performance of an organization or its stakeholders.’

The fi rst step in determining which issues are material is to make

a list of all the issues that are, or could be, relevant to the business

and its stakeholders, and collect the information needed to assess

their signifi cance. This includes:

1. Issues that have a direct short-term fi nancial impact. These

are resulting from aspects of social and environmental perfor-

mance that have short-term fi nancial impacts. For example,

carbon emissions have become fi nancially signifi cant for many

companies over the past few years.

2. Issues where the company has made policy-related state-

ments or commitments. Issues are material where a com-

pany has agreed to policy commitments of a strategic nature,

including regulatory or voluntary requirements for non-fi nancial

disclosure. Tesco in the UK, for example, has publicly set out

the signifi cance of its treatment of people to its core business

strategy.

3. Issues which other comparable organizations consider to

be material. To understand the materiality of a specifi c issue

or aspect of performance, look at whether a company ’s peers

consider it material. For example, in the pharmaceutical sector

access to medicine in developing countries is an increasingly

important issue.

4. Issues which stakeholders consider important. It might

sound obvious, but a company should take into account the

Accounting 63

concerns of stakeholders, including employees and customers.

If certain issues are important to your stakeholders, then they

should be taken seriously.

5. Issues that are considered social norms. Areas that are cov-

ered by regulations or could be in the future, best practices, and

emerging norms should all be evaluated to determine which ones

are material to a business. This includes international initiatives

such as the Global Reporting Initiative and the Global Compact.

Companies differ dramatically, so what is material for one com-

pany may not be for another. Not all the issues a company identifi es

will end up being signifi cant to its long-term success. Therefore,

once all the sustainability issues that could be material to an organ-

ization are identifi ed and assessed, they should then be prior-

itized according to criteria determined by its management, such as

whether they are of high, medium, or low materiality.

Many companies map this information into a materiality matrix,

where the extent to which issues are deemed signifi cant to stake-

holders is mapped on one axis and signifi cant to the company on

the other. Therefore, the issues that show up in the top right corner

are signifi cant to both groups while those issues in the bottom left

corner are less signifi cant for the particular company.

Once mapped, and the level of materiality determined for each

issue, this information can be used:

• To determine the scope of corporate reports and other commu-

nication so that they are more strategically aligned and useful to

external stakeholders.

• To promote internal understanding of the link between sustain-

able development issues and business strategy.

• To feed into ongoing strategy development by highlighting rap-

idly emerging issues and enabling them to be factored into strat-

egy development.

Anglo American, a global mining company, has determined

that their most material issue and number one priority is safety.

64 The Sustainable MBA

Key performance indicators

Having the right kind of information at the right time, and in the

hands of the right people, ultimately allows for more effective

decision-making. Once environmental, social, and economic goals

and targets are identifi ed, key performance indicators (KPIs) are

used by organizations to measure their progress against these goals.

Before choosing KPIs, many organizations think they know how they

are doing, however they ’re often surprised when they start collecting

real numbers. In order to be meaningful and effective, a company

should select KPIs in context with the organization and its industry,

so that they make sense for their business and its stakeholders.

The company has created a list of targets around safety and

regularly reports on progress made toward those targets. Based on

their efforts, which have included engaging not just their employees

but unions and government as well, they have seen a decline of

around two-thirds in number of fatalities since 2007. They have

also formed the Tripartite Safety Initiative in South Africa to work

on understanding global safety standards, which has not only

increased safety at Anglo American but also the safety standards of

the mining industry in South Africa.

See AccountAbility ’s work on materiality (www.accountability

.org). The Global Reporting Initiative has guidance on mate-

riality (www.globalreporting.org), as does the International

Integrated Reporting Council (www.theiirc.org). A large number

of companies such as SAP, Daimler, Ford, and Vodafone have

been developing rigorous practices for determining and com-

municating their approach to materiality and have a materiality

matrix in their sustainability reports and/or websites.

http://www.accountability.org

http://www.theiirc.org

Accounting 65

While there is no agreement on which indicators to use or how to

construct them, there is plenty of guidance. The Global Reporting

Initiative, for example, provides guidance for indicators on eco-

nomic performance, environmental, human rights, labor, product

responsibility, and society. It also provides sector-specifi c guidance.

KPIs can be used to measure progress on anything from how an

offi ce greening program is going (e.g., percentage of paper recy-

cled) to something much larger, such as measuring the impact of

certifi cation programs. For example, Danone ’s KPIs on projects

always include environmental measures. The company incorpo-

rates monthly carbon footprint data at an individual product level

in its group fi nancial management systems. They also introduced a

new capital expenditure category, Green CAPEX, which allows for

investing in new projects that show a high environmental interest

but have a longer fi nancial payback period. Changes are incentiv-

ized by, for example, the inclusion of carbon as a KPI in the calcula-

tion of management bonuses.

Whatever KPIs are chosen, care must be taken to present them

clearly. Many indicators start out as absolute numbers of whatever is

easiest to measure. Since these metrics measure basic data (such as

total energy use), it becomes all too easy to draw false conclusions

from this information. For example, a fall in emissions could be due

to a downturn in business rather than effi ciency gains. Therefore,

relative/normalized measures such as ratios can be more useful in

understanding a company ’s performance (e.g., energy use per unit

of output). Some pointers to keep in mind when choosing metrics:

• Make sure the metrics are related to the goals and objectives

of the company. As simple as it may sound, it is important to

make sure that indicators are providing information that is use-

ful to the company and provide data on progress toward the

company ’s goals.

• Choose driving metrics. Metrics should drive performance

rather than just measure outputs. For example, a company try-

ing to improve its compliance record with regulators should

66 The Sustainable MBA

develop metrics that identify and measure the root causes of

non- compliance, rather than simply track the number of occur-

rences of non-compliance.

• Choose leading metrics. Metrics should not just measure things

that occurred in the past, such as energy use, but also capture a vision

for the future (e.g., size and quantity of clean tech investments).

• Leaders are using not just quantitative measures but quali-

tative as well. Explore using KPIs to measure areas that may

not be as simple to quantify, such as intangibles like reputation

with customers.

• Who is the audience for your metrics. Is it management, gov-

ernment, voluntary business initiatives, investors, employees,

consumers? The indicators selected should be relevant to the

audience, give the information needed by or of interest to these

parties, and be easy to understand and use.

• It doesn ’t have to be perfect. A certain level of inaccuracy is

inevitable. The key point is to collect information that is useful

in moving forward. Indicators should allow you to understand

and measure progress. It is better to estimate what you can ’t

measure, rather than leave it out altogether.

• It doesn ’t have to be overly complex. Avoid using too many

indicators. Limit the number of metrics that need attention at

any one time. A lot of the data needed may already be available

within the company.

More guidance on indicators can be found in ISO ’s Environmental

Performance Valuation (ISO 14031) (www.iso.org) and the

WBCSD (www.wbcsd.org) report on measuring eco-effi ciency.

The UN Conference on Trade and Development (UNCTAD) pro-

duced a guide for users and preparers of eco-effi ciency indicators

(www.unctad.org). Also, see Deloitte CFO ’s insights on develop-

ing key performance indicators (www.deloitte.com).

http://www.thesroinetwork.org

http://www.unctad.org

http://www.deloitte.com

Accounting 67

Measuring social impact

Organizations often try to positively infl uence the communities in

which they operate. In order to do this they must be able to defi ne

the social proposition they are offering and measure the impacts of

their activities on the local environment. This is important in order to

improve the effectiveness of programs, increase understanding of

the impact of their work, and communicate the value of that work to

their stakeholders. Indicators are used to measure the impact

of businesses ’ activities on society. According to the Foundation of

Social Return on Investment, there are four main elements needed

to measure social value creation:

• Inputs are the resources you need in order to make something

happen. They are measured as a cost (e.g., cost of program,

value of time contributed).

• Outputs are the direct result of your business objectives or pro-

gram goals (e.g., number of people trained or trees planted).

• Outcomes are changes that occur over the longer term as a result

of the activity (e.g., new jobs, increased incomes, improved sta-

bility of life as a result of programs).

• Impacts are the outcomes less an estimate of what would have

happened in the absence of your program.

Tools such as Social Return on Investment are used in order to

explain social value in monetary terms. Return on Investment (ROI)

is a tool used to understand fi nancial value creation. If you invest one

dollar in a project and more than a dollar is returned, then the project

is probably worth further consideration. Social Return on Investment

(SROI) works in the same way. It is a tool used to understand the

environmental, social, and economic value being created by organiza-

tions. Value is something that cannot always be measured specifi cally,

but SROI tries to provide an approximate value. ‘The essential ration-

ale for calculating SROI separately from fi nancial returns is because

the market ’s valuation of social benefi ts is imperfect. In cases where

it is perfect, there would be no need for an SROI analysis.’

68 The Sustainable MBA

Sustainability in fi nancial statements

Although much of the emphasis regarding sustainability concerns

disclosing information in separate sustainability reports (explored

at the end of this chapter), there is increased work being done

SROI analysis should include both positive and negative impacts

in the assessment and should only include impacts that are clearly

and directly attributable to the company ’s activities. SROI analy-

sis takes organizational time and resources. However, when done

properly, it can be an effective tool to improve your programs and

communicate the value of the work you are doing, whether you are

a commercial company or a not-for-profi t one.

Several organizations have developed systems to better under-

stand social impact. Anglo American created the Socio-Economic

Assessment Toolbox in order to better understand whether its oper-

ations were living up to the company ’s stated goal of making a

contribution to the economic, social, and educational wellbeing of

the communities associated with its operations. The International

Finance Corporation uses a Development Outcome Tracking System

in order to track the development results of its activities to assess

whether or not it is achieving its mission.

The Global Social Venture Competition has resources that help

in measuring social value (www.gsvc.org). Other social entre-

preneurship organizations – such as Skoll Social Edge (www

.socialedge.org), the SROI Primer (sroi.london.edu), REDF

(www.redf.org), and the SROI Network (www.thesroinetwork

.org) – provide many resources. The London Benchmarking

Group is a group of over 100 companies working together to

measure corporate community investment (www.lbg-online

.net). The WBCSD also developed a tool for its members to aid

in measuring impact (www.wbcsd.org).

http://www.gsvc.org

http://www.redf.org

http://www.lbg-online.net

http://www.socialedge.org

http://sroi.london.edu

Accounting 69

on how to include sustainability information in annual fi nancial

reports.

Today, the majority of annual fi nancial reports are still issued with

little or no environmental or social information. However, more

organizations themselves have been exploring ways to incorporate

sustainability and fi nancial information into their annual reports.

Within current standards, environmental issues are treated in

more depth than social issues. Some examples of environmental

issues currently covered by fi nancial reports include:

• Liabilities. These can include having to pay fi nes for non-

compliance with laws, legal fees from court cases by stakehold-

ers against the company, or costs for cleaning up a polluted site.

Liabilities can either be from events that happened in the past,

or provision for events that may happen in the future.

• Intangible assets. Those elements of a business that do not

have a specifi c fi nancial value, but which increasingly represent

a signifi cant part of the value of a company such as brand, intel-

lectual property, and reputation.

Sustainability issues that impact a company ’s fi nancials can also

be included in the narrative sections of the report. This gives man-

agement the opportunity to provide contextual and non-fi nancial

information about how sustainability issues have impacted, or

may impact, fi nancial conditions and results (also referred to as

operating and fi nancial review, business review, management dis-

cussion, and analysis depending on the country).

Other resources include the IFAC Sustainability Framework

(www.ifac.org), KPMG Reporting Surveys (www.kpmg.com),

and IAS Plus (www.iasplus.com). IASB has different resources

on management commentary (www.iasb.org). PwC did a survey

of the Fortune Global 500 companies ’ narrative reporting (www

.pwc.com), as well as among the FTSE 350 companies (corpora-

tereporting.com). Also see the trends section.

http://www.kpmg.com

http://www.iasplus.com

http://www.iasb.org

http://corpora-tereporting.com

70 The Sustainable MBA

Integrated reporting

Companies have several different ways to report on sustainabil-

ity, including sustainability reports (explored later in this chapter)

and reporting on sustainability issues directly in their fi nancial

reports (explored above and in the trends section of this chap-

ter). Increasingly, companies are choosing to integrate the two

reports together into one. The level of integration varies, ranging

from including information on sustainability in the annual report,

to combining the two reports one after the other, or fully integrat-

ing the two sets of information together – also known as integrated

reporting.

Integrated reporting is about exploring the interaction between

fi nancial and non-fi nancial performance. According to the

International Integrated Reporting Committee (IIRC), an integrated

report is ‘a concise communication about how an organization ’s

strategy, governance, performance and prospects lead to the creation

of value over the short, medium and long term.’ It combines the

different strands of reporting (fi nancial, management commentary,

governance and remuneration, and sustainability reporting) into a

coherent whole that explains an organization ’s ability to create and

sustain value.

While sustainability reports are often aimed at engaging a range

of stakeholders, they are often perceived to be of limited use to

investors. Integrated reports are intended for investors as well as

for those stakeholders who want a more holistic view and insight

into the company ’s strategy and performance. They aim to commu-

nicate the factors most important to the creation of value over time.

It is about improving the basis of capital allocation by enabling the

capital markets to better understand a company ’s strategy, align

their models with business performance, and make effi cient and

forward-looking investment and other key decisions.

The Integrated Reporting Committee of South Africa suggests

that the following elements be included in an integrated report:

Accounting 71

• A description of the scope and boundary of the integrated report.

• A concise overview of the organization and its activities, a state-

ment of its business model describing the manner in which

it currently creates value, and an overview of its governance

structure.

• A description of the risks and opportunities that are material to

the organization ’s current and anticipated activities.

• A description of the organization ’s strategic objectives demon-

strating how these have been informed by the risks and oppor-

tunities, including sustainability issues.

• An account of the organization ’s performance in terms of its stra-

tegic objectives, material social, environmental, economic, and

fi nancial impacts, and KPIs and KRIs.

• A statement of the organization ’s anticipated activities and future

performance objectives, informed by its assessment of recent

performance and understanding of societal trends and stake-

holder expectations.

• An overview of how the organization remunerates employees

and senior executives, including factors that could infl uence

future remuneration.

• A brief analytical commentary that refl ects the understanding of

the organization ’s governing structure and executive team regard-

ing the nature of the organization ’s current and anticipated per-

formance in the context of the organization ’s strategic objectives.

One of the challenges to integrated reporting is that many organi-

zations ’ ability to produce quality non-fi nancial data is not as high

as fi nancial data, meaning it needs to be improved by improving

the timeliness and robustness of the data. At Novo Nordisk, who

have been publishing integrated reports since 2004, fi nancial and

non-fi nancial performance is reviewed by the Audit Committee of

the Board at the same time. The process for reviewing performance

is therefore aligned throughout the company and this increases the

robustness of data systems and confi dence in data quality.

72 The Sustainable MBA

Assurance

Annual fi nancial statements are subject to an audit or assurance

process, which is done by an accounting fi rm to ensure accuracy

and enhance credibility. This assurance statement is usually found

There is a push internationally to bring integrated reporting

to the forefront and to develop standards and guidance in this area.

The IIRC was established in 2010 to achieve a globally accepted

integrated reporting framework. Since 2011 all companies listed

on the Johannesburg Stock Exchange are required to fi le their inte-

grated reports on an ‘apply or explain why not’ basis, and most

have. The Corporate Sustainability Reporting Coalition urged UN

member states at the Rio+20 conference in 2012 to require public

and large private companies to integrate sustainability information

in their annual fi nancial reports.

The International Integrated Reporting Council (www.theiirc

.org) is working on a framework for integrated reporting and also

has a database of integrated reports (examples.theiirc.org). Also

see KPMG ’s work in this area (kpmg.com/integratedreporting).

There are a growing number of awards for integrated reports,

including Ernst & Young ’s Excellence in Integrated Reporting

(www.ey.com), PWC ’s Integrated Reporting Award (www.pwc.

co.uk), and the Corporate Register (www.corporateregister.com).

There are a range of resources on this topic coming from South

Africa, including Sustainability South Africa and the Integrated

Reporting Committee of South Africa (www.sustainabilitysa

.org). Also, take a look at the reports of companies such as

Sasol, Eskom, Vodafone, Truworths International, ABSA Group,

Liberty Holdings Clorox, Southwest Airlines, Philips, PotashCorp,

and Vancity.

http://www.theiirc.org

http://www.ey.com

http://www.pwc.co.uk

http://www.corporateregister.com

http://www.sustainabilitysa.org

http://examples.theiirc.org

http://kpmg.com/integratedreporting

Accounting 73

within the fi rst few pages of the report. Although no such regu-

latory requirements exist for sustainability reports, readers are

increasingly looking for voluntary assurance that covers two areas:

• Assurance on management and reporting systems and associ-

ated performance, which assesses the strengths and weaknesses

of the company ’s sustainability programs and initiatives.

• Report content assurance that looks at the accuracy, complete-

ness, reliability, balance, and fairness of the report, similar to the

verifi cation of fi nancial statements on stand-alone sustainability

reports and on integrated reports.

Companies that report on their environmental and social perfor-

mance rely on accounting fi rms, consultancies, certifi cation bodies,

and CSR specialists for assurance of these reports to ensure cred-

ibility. Some – such as Shell, GE, and Nike – have panels of inde-

pendent advisers that provide expert views as an alternative avenue

to enhance credibility.

Although companies are increasingly commissioning assurance

statements (more than 70% of the 250 biggest global companies

have some sort of assurance), there is no single international set of

principles or standard for assurance of non-fi nancial reports. The

leading international standards for assurance are the accounting

standard ISAE 3000 and 3410, as well as the multi-stakeholder-

created AA1000AS, which looks at both the verifi cation of data and

the underlying management and reporting systems. Even with these

emerging international standards, there are still inconsistencies and

wide variations in the approach taken for sustainability assurance.

An assurance statement typically looks at the following:

• Specifi c declarations in terms of what kind of audience the

statement is aimed at, and whether or not it was made indepen-

dently from the company, outlining the respective responsibili-

ties in the audit process of the auditor and the company.

• An outline of the methodology, how the assurance provider

undertook the audit, such as conducting internal interviews,

74 The Sustainable MBA

scrutinizing internal data systems, reviewing external docu-

ments, interviewing external stakeholders.

• In the case of AA1000AS, assurors can provide high assurance or

moderate assurance based on the amount of evidence obtained

and assuror access to that evidence to support statements regard-

ing the following three principles:

• Inclusivity. Has the organization been inclusive in how they

engage stakeholders in achieving an accountable and strategic

response to sustainability?

• Materiality. Have they identifi ed what the material (most

important) sustainability issues are to the organization and to

its stakeholders?

• Responsiveness. Have they responded to these and commu-

nicated appropriately (i.e., establishing policies, objectives

and targets, management systems, action plans)?

• Recommendations and opinions, which offer insight in terms

of performance, strengths and weaknesses, challenges, etc.

In some instances, the reporting organization will also provide a

report to management. Such additional reports should not commu-

nicate different conclusions than those found in the publicly avail-

able assurance statement, but rather include any limitations in the

scope of the disclosures on sustainability, the assurance engage-

ment, or the evidence gathering.

International Auditing and Assurance Standards Board (IAASB)

standards deal with auditing, review, other assurance, quality

control, and related services (www.ifac.org/IAASB). AA1000AS

standards (www.accountability.org). The Corporate Register also

has some guidance on assurance, including trends and exam-

ples (www.corporateregister.com).

http://www.ifac.org/IAASB

http://www.accountability.org

http://www.corporateregister.com

Accounting 75

Challenges?

Despite all the work that is happening in the area of sustainability

and accounting, there are still several challenges.

• Awareness. Many accountants simply don ’t see sustainability as

relevant to their jobs. The fi rst step is to raise awareness about their

crucial role and provide them with further resources and training at

all levels to allow them to incorporate these issues into their work.

• Quantifying the qualitative. There are many diffi culties in

estimating the costs of environmental and social issues across

the full lifecycle of a product or process (see the Valuation box

in Chapter 7).

• Moving from costs to revenues. There is a need to move beyond

seeing environmental initiatives and values as just costs to be suf-

fered (through legislative imperative) or costs to be reduced at the

fi rst possible opportunity. Companies need to identify the business

benefi ts, and ultimately profi ts, that correspond to the costs that

must be incurred for better environmental and social performance.

• Consumers. Responsible companies have competitors who

often price their goods below their true cost, discounting the

social and environmental costs. In some cases managers who

price their goods and services based on full social and environ-

mental costs will suffer until consumers recognize this in their

purchasing decisions.

• Traditional accounting systems were not designed to enable

environmental data to be separately identifi ed or evaluated – such

as data on waste management, compliance with laws, insurance.

There is a need for more robust information, data, methodologies,

and collection systems to allow for more integration of these fac-

tors into decision-making.

• Assets versus costs. Using traditional accounting methods, end-of-

pipe technologies to reduce environmental impacts are accounted

for as assets, while attempts to eliminate sources of pollution at

the source appear as costs. Similarly, investments in training and

76 The Sustainable MBA

development are recorded as costs, while the collective knowl-

edge and experience this creates is not recorded as an asset.

• Short-term versus long-term. There is a need to shift the men-

tality and accounting practices to look more at the long-term

effects, as opposed to simply short-term implications of deci-

sions. The challenge is to incorporate longer-term, less tangi-

ble environmental and social costs into the balance sheet rather

than just measuring short-term tangible metrics.

• Information not tracked adequately or not available.

Available information is often not suffi ciently accurate or detailed

for decision-making purposes. Sometimes the information is col-

lected, but stays within different divisions of the company, where

the accountants may never even become aware of its existence.

These divisions will often have different goals, perspectives, and

even language with regard to sustainability and inconsistencies

may arise in how information is communicated.

• Comparability of data. Company disclosures on sustainability

issues are often inconsistent and diffi cult to compare across a

single industry. Several sustainability threads are common to all

sectors (e.g., energy and water consumption, greenhouse gas

emissions) and should be reported consistently across industries.

Trends and new ideas

– Bringing it all together

– Increased disclosure

– Recognizing unrecognized assets

– Different forms of reporting

– Shadow reporting

Bringing it all together

Until now the accounting profession has dealt with economic,

environmental, and social issues in relative isolation from each

other. However, increasing attempts are being made to bring these

Accounting 77

together in recognition that conventional accounting numbers do

not always tell the ‘full story’ of how businesses impact the environ-

ment in which they work. An example includes work being done

by an initiative called Accounting for Sustainability around ‘inte-

grated thinking,’ which looks at new approaches to accounting that

will enable organizations in business, investment, and the public

sector to better understand, and where appropriate value, ‘external-

ities ’ and incorporate these into decision-making processes (www

.accountingforsustainability.org). The International Integrated

Reporting Council also looks at integrated thinking, the ability of

an organization to understand the relationships between its various

operating and functional units and the capitals the organization

uses and affects. Integrated thinking leads to integrated decision-

making and actions that focus on the creation of long-term, as well

as short- and medium-term, value. All companies rely on a variety

of different forms of capital for their success, including fi nancial

(funds), manufactured (physical objects), human (skills and expe-

rience), intellectual (intangibles), natural (inputs to production of

goods), and social and relationships capital (links between stake-

holders). Value is created or destroyed as a result of the use of,

impact on, and interplay between the capitals caused by the organi-

zation ’s activities (www.theiirc.org).

Increased disclosure

The key role of accountants is in measuring and communicating

information used both internally and externally in decision- making.

One of the key requirements for moving sustainability forward

at the organizational and societal levels is better and more com-

plete information. Several international initiatives are under way to

increase the level of information available and make it comparable

across or between industries. The Carbon Disclosure Project is one

example, which collects data and disseminates information on a

range of environmental issues from the world ’s largest companies

http://www.theiirc.org

http://www.accountingforsustainability.org

78 The Sustainable MBA

and makes it available to a group of institutional investors with

a combined US$87 trillion of assets under management. It holds a

database on corporate climate change and water use information

on companies around the world (www.cdproject.net). There is also

a growing push toward mandatory carbon disclosures; for example,

all companies listed on the main London Stock Exchange are now

required to report their greenhouse gas emissions.

Recognizing unrecognized assets

Accountants are in an ideal position to uncover where potential

revenue-generation opportunities lie and how to take advantage

of them. One example discussed in Chapter 12 is selling waste for

profi t, thereby transforming it from a cost into an asset. The protec-

tion of natural resources can provide in some instances a credit in

market-based regulatory systems that can be sold or traded. It also

gives a company a ‘license to operate’ in a given community. The

Elgin Air Force Base in Florida has 400 000 acres of longleaf pine

forests. Because of its fi re resistance, slow growth, long lifespan,

and high value for lumber and resin, longleaf pine has been logged

almost to extinction. In fact, 72% of all remaining old-growth popu-

lations in the world are at the base. The US Air Force performed

studies in 2004 to assess the potential value of the forest for envi-

ronment, economy, and surrounding communities. Today, timber

sales generate US$1.2 million a year, and 280 000 acres are open

to the public for recreational opportunities that could be worth an

additional US$8–12 million a year in usage fee revenues. 11

Different forms of reporting

Companies are experimenting with and exploring a range of alter-

native options to collecting and presenting their environmental and

social data beyond sustainability and integrated reporting outlined

http://www.cdproject.net

Accounting 79

in this chapter. Because of the importance that the company places

on sustainability, Timberland reports their sustainability numbers on

a quarterly basis rather than yearly. The information is presented

online, comparing progress against the company ’s sustainability

goals. Another example is Puma, who have created an environmen-

tal profi t and loss statement (Environment P&L) that analyzes and

puts a monetary value on key environmental impacts that arise due

to Puma ’s business from the production of raw materials through

to the point of sale and even to the product level. Their work in

this area is inspiring a range of other companies and governments

to explore how the Environment P&L could be mainstreamed and

used across the business sector.

Shadow reporting

In 2010 Hershey released its fi rst CSR report outlining all of the

chocolate company’s sustainability related successes. Shortly after,

a group of activists and NGOs published their own version of

Hershey’s CSR report which instead focused on the company’s

human rights abuses in the production of its cocoa. This kind of

report, also called a shadow report, is put together by NGOs to

supplement or present alternative information to government and

UN reports however there are several instances of NGOs presenting

such reports about companies too. Shadow reports aims to sup-

plement or present alternative information to what the company is

discussing, to highlight issues not raised by the original report that

the shadow report is based on. Friends of the Earth, a large inter-

national NGO has produced a few shadow reports, fi rst in 2009

they released an alternative report for Shell called The Other Shell

Report and in 2009 they did the same for BHP Billiton, both times

focusing on the company’s exaggerated claims. CSEAR (www

.st-andrews.ac.uk/csear) has done some research in this area includ-

ing creating shadow reports for Tesco, HSBC and Ryan Air.

http://www.st-andrews.ac.uk/csear

80 The Sustainable MBA

Want more?

• The major accountancy fi rms are getting more involved in

providing guidance on this issue to their clients and to the

public via their international and country-specifi c websites,

including KPMG (www.kpmg.com), Ernst and Young (www

.ey.com), PwC (www.pwc.com), and Deloitte and Touche

(www.deloitte.com).

• The major international accountancy bodies also have

increased resources for members and the public, including

the Association of Chartered Certifi ed Accountants (www

.accaglobal.com), the Chartered Institute of Management

Accountants (www.cimaglobal.com), and the International

Federation of Accountants (www.ifac.org).

• Some other international initiatives to take a look at include

the UN Intergovernmental Working Group of Experts on

International Standards of Accounting and Reporting (www

.unctad.org/isar) and the report ‘Environmental Management

Accounting Procedures and Principles ’ (www.un.org).

• Many interesting resources are also coming out of national

accounting bodies, for example the ICAEW (www.icaew

.com/sustainability), CPA Australia (www.cpaaustralia.com

.au), and AICPA in the USA (www.aicpa.org).

• The Environmental and Sustainability Management Accounting

Network (www.eman-eu.net), SASB (www.sasb.org), and the

Centre for Social and Environmental Accounting Research

(www.st-andrews.ac.uk) also provide several resources

on the topic. The Accounting for Sustainability Group was

established by the Prince of Wales and has several resources,

including a forum that brings together the work being done

in sustainability by different accountancy groups around the

world (www.accountingforsustainability.org).

• If you are an accountant, also take a look at Accountants

Changing the World (accountantschangingtheworld.com).

http://www.kpmg.com

http://www.cimaglobal.com

http://www.deloitte.com

http://www.icaew.com/sustainability

http://www.un.org

http://www.cpaaustralia.com.au

http://www.aicpa.org

http://www.eman-eu.net

http://www.sasb.org

http://www.st-andrews.ac.uk

http://www.accountingforsustainability.org

http://accountantschangingtheworld.com

http://www.ey.com

http://www.unctad.org/isar

http://www.accaglobal.com

Accounting 81

Sustainability reporting

‘A sustainability report enables companies and organizations

to report sustainability information in a way that is similar to

fi nancial reporting. Systematic sustainability reporting gives

comparable data, with agreed disclosure and metrics.’ GLOBAL REPORTING INITIATIVE

Many organizations are incorporating environmental and social information into their public reports in response to demands from shareholders and other stakeholders for more information so that they may make better-informed decisions about a company ’s perfor- mance in this area.

Organizations of all sizes (including commercial companies, organizations, NGOs, schools, and small companies) are choosing to report on their sustainability strategies for several reasons:

• Increased understanding of risks and opportunities in the short

and long term as well as emphasizing the link between fi nancial

and non-fi nancial performance.

• Benchmarking and assessing sustainability performance with

respect to laws, norms, codes, performance standards, and vol-

untary initiatives.

• Comparing performance internally, and between organizations

and sectors.

• Being transparent and improving reputation and brand loyalty by

enabling stakeholders to better understand the company.

• Demonstrating how the organization infl uences, and is infl uenced

by, sustainability.

Although sustainability reporting remains a largely voluntary exer-

cise in most countries, it is increasing in popularity and in the past

years has moved from an optional but nice activity to one that most

companies are engaging in. Over 95% of the largest global compa-

nies were reporting on their sustainability activities.

Defi ning report content Organizations around the world can

take one of many different approaches, based on local cultures and

regulatory differences, and on availability of the different mandatory

and voluntary initiatives. The most commonly accepted framework

has been created by the Global Reporting Initiative (GRI). The

(continued )

82 The Sustainable MBA

vision of the GRI is that disclosure on economic, environmental, and

social performance is as commonplace and comparable as fi nancial

reporting. The GRI guidelines present four principles for defi ning

report content:

• Materiality. The report should cover topics and indicators that

refl ect the organization ’s signifi cant economic, environmental,

and social impacts, or that would substantively infl uence the

assessment and decisions of stakeholders.

• Stakeholder inclusiveness. The reporting organization should

identify its stakeholders and explain in the report how it has

responded to their reasonable expectations and interests.

• Context. The report should present the organization ’s perfor-

mance in the wider context of sustainability.

• Completeness. The information presented in the report should

be suffi cient to refl ect signifi cant economic, environmental, and

social impacts, and enable stakeholders to assess the reporting

organization ’s performance in the reporting period.

The guidelines also have six principles defi ning report quality:

• Reliability. Information and processes used in the preparation

of a report should be gathered, recorded, compiled, analyzed,

and disclosed in a way that could be subject to examination and

that establishes the quality and materiality of the information.

• Clarity. Information should be made available in a manner that

is understandable and accessible to stakeholders using the report.

• Balance. The report should refl ect positive and negative aspects

of the organization ’s performance to enable a reasoned assess-

ment of overall performance.

• Comparability. Issues and information should be selected, com-

piled, and reported consistently. Reported information should

be presented in a manner that enables stakeholders to analyze

changes in the organization ’s performance over time, and could

support analysis relative to other organizations.

• Accuracy. The reported information should be suffi ciently accu-

rate and detailed for stakeholders to assess the reporting organi-

zation ’s performance.

• Timeliness. Reporting occurs on a regular schedule and informa-

tion is available in time for stakeholders to make informed decisions.

Accounting 83

Finally, the guidelines have an extensive set of indicators which give details on the kind of data that should be included in reports. The indicators cover several areas, including economics, environ- ment, human rights, labor, product responsibility, and society. There is also guidance on unique indicators for particular industry sec- tors (sector supplements) and country-level information (national annexes). GRI provides special guidance for SMEs and microbusi- nesses and has several examples of reports produced by these.

Best practices Companies themselves are also raising the bar by

instituting their own new practices. Some trends include:

• Growth in assurance. An increasing number of reports begin

with an assurance statement (explained earlier in this chapter).

• Materiality. Companies are increasingly choosing to focus

their sustainability reports on the most material issues, leading

to generally shorter reports with greater links to business strat-

egy. Information on less material issues is still available, usually

through the companies ’ websites.

• From risk to opportunity. We are seeing a steady shift toward a

more progressive reporting approach, one that seeks to identify

opportunities for strategic innovation and market building rather

than focusing solely on risk.

• Interaction with investors. Many reports still lack the hard targets

and forward-looking information typically sought by investors, but

this is slowly changing with development of appropriate KPIs.

• Disclosures on public policy initiatives. Most reports currently

fail to suffi ciently discuss and link their sustainability initiatives

and commitments to the lobbying activities they undertake, either

directly or indirectly. A small but growing group of companies are

becoming more transparent in this area.

• Integrated reports. Companies are choosing to report on their

sustainability activities in their fi nancial reports (see the section

on integrated reports in this chapter).

• Mandatory. Although still mostly a voluntary exercise, sustaina-

bility reporting has already become mandatory in some countries,

including France and Denmark, and as a condition of member-

ship to certain networks such as the Global Compact.

• Supplier requirement. Some companies are testing out requir-

ing their suppliers to produce sustainability reports. For example,

(continued )

84 The Sustainable MBA

Microsoft has started a pilot program requiring GRI-compliant

reports from a number of the suppliers they work with, in the

hope of scaling it up to all their suppliers.

• Around the world. The continued growth in sustainability report-

ing is primarily driven by its spread to smaller companies and

emerging markets. Europe is leading in terms of number of organi-

zations reporting, but other geographic areas are catching up fast.

Want more?

See the GRI ’s sustainability reporting guidelines (www

. globalreporting.org). There are several other initiatives aimed

at providing guidance in this area, including Accounting for

Sustainability (www.accountingforsustainability.org) as well as

government-issued national guidelines such as, for example, by

the Government of Canada (www.ec.gc.ca).

The System of Environmental-Economic Accounting con-

tains the internationally agreed standard concepts, defi nitions,

classifi cations, accounting rules and tables for producing inter-

nationally comparable statistics on the environment and its rela-

tionship with the economy (unstats.un.org). See the winners

of different sustainability report awards for a look at differ-

ent approaches – for example, Ceres/ACCA (www.ceres.org),

PWC Reporting Award (www.pwc.co.uk), ACCA ’s Sustainability

Reporting Awards (www.accaglobal.org), GRI ’s Readers ’ Choice

Award (www.globalreporting.org), and Corporate Register (www

.corporateregister.com). SustainAbility, UNEP, and Standard &

Poor’s and KPMG both produce an international benchmark of

corporate sustainability reporting regularly. For regular news on

sustainability reporting, see www.enviroreporting.com/.

http://www.accountingforsustainability.org

http://www.ec.gc.ca

http://www.ceres.org

http://www.pwc.co.uk

http://www.accaglobal.org

http://www.enviroreporting.com

http://www.corporateregister.com

http://unstats.un.org

7 Economics

‘The Earth as a whole is approximately in a steady-

state. Neither the surface nor the mass of the earth is

growing or shrinking . . . None of this means that the

Earth is static – a great deal of qualitative change

can happen inside a steady-state, and certainly has

happened on Earth. The most important change in

recent times has been the enormous growth of one

subsystem of the Earth, namely the economy, relative

to the total system, the ecosphere.’ HERMAN DALY

86 The Sustainable MBA

In 2005, South Korea passed a law requiring all retailers to charge

customers for items that are ‘one-use’ disposable items, such as

paper cups and plastic bags. The results were signifi cant: the use

of paper bags decreased by 24% as many Koreans now bring their

own shopping bags to stores and their own cups to cafés to avoid

the charges. By putting a price on waste, the South Korean gov-

ernment created economic incentives for environmentally friendly

behavior. These regulations impact sustainability through the chan-

nel of economics.

Although economics is often blamed for creating the unsustain-

able world we live in, it plays an important role in sustainability.

Economics is a tool that helps us to understand how we got where

we are now, and more importantly, how to move forward. It helps

to explain the unintended incentives present in society that increase

unsustainable behavior, and can help us change these to incentives

that support the desired, more sustainable behavior.

Economics is also the study of how people choose to use resources.

Scientists agree that drastic action is needed to save the planet and,

if we are serious about doing that, we need to reshape the way that

we use these resources. The good news is that economists are start-

ing to explore opportunities to do just that by creating mechanisms

that assist organizations in internalizing these costs so that buy-

ers and sellers can make decisions based on complete information

about products and services, as well as understanding the broader

social and environmental consequences of the consumption of these

products and services.

Why is it important?

• Because the world is changing. The context in which organi-

zations are doing business is rapidly changing. Where before

the USA, Europe, and Japan were the leading economies, today

Economics 87

there are many other players in the world, including developing

and emerging markets. This is creating a more complex business

environment with increased risks, but also increased opportuni-

ties for business.

• Ecosystem services. Nature provides many freely available

benefi ts such as erosion control, climate regulation, and pol-

lination, not to mention freshwater, forests, and wetlands.

Ignoring the environmental impacts associated with economic

growth will result in these resources becoming more costly for

business.

• Understanding regulatory and market-based instruments.

Many problems in sustainability, such as externalities, represent

market failure where the production or use of a good or service

by the free market is not effi cient. The mechanisms being put

into place to address these market failures will directly affect

businesses.

• Better understanding of the full cost of business and soci-

ety’s decisions. The costs of activities are not always borne by

the parties directly involved, which often results in consumers

demanding more of a particular good or service than they would

if they had to pay a price that included the full costs.

• Increased regulations and standards. Organizations will be

faced with an increase in regulations and standards that they

will have to comply with from the local to the global level.

The key concepts

Economics is about understanding the incentives in place to pursue

unsustainable behavior and in particular how to change these to

support more sustainable behavior. It is also about understanding

the wider environment in which business operates and how this is

changing.

88 The Sustainable MBA

• The rise of consumer societies → Sustainable consumption

• The way we manage shared

resources

→ The commons

• Understanding the costs a

company ’s activities have on

people and planet

→ Externalities

• Using market forces as a way

to protect the planet

→ Market-based incentives

• Re-evaluating the way we

measure progress

→ Re-evaluating GDP

• The impact of emerging

markets on global sustainability

→ Emerging markets

• Understanding the value of

biodiversity

→ Box: Environmental

valuation

• Working with the bottom of the

pyramid

→ Box: Business and the

world’s poor

Sustainable consumption

Consumption patterns have been growing rapidly because of popula-

tion growth combined with the rise of a culture of consumerism. It

is estimated that there will be 9 billion people in 2050, which repre-

sents a huge increase in the number of consumers. Globalization and

increasing economic power are giving more and more of these con-

sumers access to an increasing number of products and services. A

signifi cant amount of GDP is accounted for by consumer spending on

goods and services. However, the resources needed to support these

global consumption patterns are putting unsustainable pressures on

the Earth ’s ecosystems and on human social systems and wellbeing.

Several tools and indices have emerged to measure and track the

state of the world ’s ecosystems. The Ecological Footprint, for exam-

ple, measures how much land and water area a human population

requires to produce the resources it consumes and to absorb its wastes,

using available technology. This technique can be used to calculate

Economics 89

the footprint of an individual, a city, a business, a nation, or the whole

planet. Today, humanity uses the equivalent of 1.5 planet Earths to

provide the resources we use and to absorb our waste. Since the

mid-1980s, humanity has been in ecological overshoot with annual

demand on resources exceeding what the Earth can regenerate each

year. It now takes the Earth one year and six months to regenerate

what we use in a year. If we continue with business as usual, by the

early 2030s it is estimated that we will need two planet Earths to keep

up with humanity ’s annual demand for goods and services.

The problem obviously is that we don ’t have two planet Earths, we

only have one. But with that one planet, if we change our lifestyles

and consumption patterns we can free up the resources needed to

support humanity. As the WWF Living Planet Index Report states,

‘there are many effective ways to change course. While techno-

logical developments will continue to play an important role in

addressing the sustainability challenge, much of what needs to be

done is already known, and solutions are available today.’

Consumers are increasingly concerned with the negative effects

that products they consume have on their health and on the envi-

ronment, as well as the impact of the production process on the

environment. As a result, sustainable consumption policies and ini-

tiatives are broadening to take into account the effects of processes

as well as products, and the provision of services as well as goods.

The need for policies that foster sustainable consumption has been

recognized as a priority at the international level.

The Ecological Footprint (www.footprintnetwork.org). The WWF

Living Planet Index Report is a periodic update on the state of

the world ’s ecosystems (www.wwf.panda.org). The Marrakech

Process is a global multi-stakeholder process to promote sus-

tainable consumption and production (www.unep.fr/scp/mar

rakech). The World Economic Forum also does work on this

topic ( http://www.weforum.org ).

http://www.footprintnetwork.org

http://www.wwf.panda.org

http://www.unep.fr/scp/marrakech

http://www.weforum.org

90 The Sustainable MBA

The commons

According to the UN, over 80% of the world ’s fi sheries are in jeop-

ardy of collapse due to over-fi shing. Restrictions are not working

because fi sh are accessible to everyone, and it is diffi cult to prevent

fi shermen from taking all the fi sh they want. In this situation eve-

ryone races to catch as many fi sh as possible, reaping all the ben-

efi ts of this natural resource but paying none of the costs. In the

long run, when fi sh are caught faster than they can reproduce, this

will result in no more fi sh for anyone. A ‘commons ’ is a geographi-

cal area not owned by any private person or legal entity, and any

natural resources contained in a commons thereby belong to eve-

ryone. These natural resources include the things that we inherit –

such as nature, air, and water. Often, people will misuse or overuse

resources that are freely available, making them increasingly scarce.

This is referred to as the ‘tragedy of the commons.’

How to manage the commons has always been an issue of debate.

Some say a Chamber of Commons is needed to regulate and pro-

tect the commons. Others try to put a fi nancial value on the com-

mons (see Environmental Valuation). Some of the debates raise the

question of whether these common assets which are already being

bought and sold in the market – such as trees, water, and fi sh – are

being responsibly managed on behalf of the general public who

are the ‘owners ’ of these assets.

Tradable permits are one option for protecting the commons. The

European Union defi nes these as ‘an economic policy instrument

under which rights to discharge pollution or exploit resources can

be exchanged through either a free or a controlled permit-market.’

For example, in the case of fi sheries, New Zealand put in place a

quota management system to manage its fi sheries in a sustainable

way. Once it was determined how many fi sh could be caught without

depleting the fi sh population, this number was divided up into quotas

and given to companies. Companies own the quotas, and are allowed

to sell or trade them. The result is that they are treated with the same

respect as any other valuable asset. Today, approximately 80% of fi sh

Economics 91

Creative Commons provides tools to let creatives mark their

work with the freedoms they want it to carry (www.creativecom

mons.org). On The Commons is dedicated to exploring the ideas

and action about the commons (www.onthecommons.org). The

Gridlock Economy by Michael Heller explores how too much

stocks are at or near target levels of sustainable harvest and the total

allowable catch for some fi sh species has even increased.

Another example is from the island of Bali in Indonesia. Rice farm-

ers have been coordinating their use of scarce water for centuries

through social networks built around ‘water temples,’ where they meet

to discuss water allocation issues. Modern analysis shows that the

way they allocate water is close to ideal. However, in the 1960s

the government decided to intervene, bypassing the temples and

hiring hydrologists to install modern water systems and introduce

heavy pesticides. The result was a disaster, so much so that in the

end the government let the farmers return to their original system.

The commons does not just refer to environmental systems.

Knowledge and culture created by society are also part of the com-

mons. Some companies are exploiting traditional knowledge, for

example in relation to medicinal and agricultural plants, and cre-

ating products for which they are awarded exclusive rights under

patent laws (this practice is known as bio-piracy). For example,

the Hoodia cactus plant in South Africa – which has been used

for centuries by the Kalahari San bushmen to suppress hunger –

was patented by a pharmaceutical company and developed into an

appetite-suppressant drug. The pharmaceutical company eventu-

ally returned the patent to the South African Council for Scientifi c

and Industrial Research. In response to incidences of bio-piracy,

databases and archives such as the Traditional Knowledge Digital

Library in South Asia have been constructed to try to stop bio-

piracy by establishing ‘prior art,’ which disallows patents on any-

thing that has been disclosed to the public in some form.

http://www.creativecommons.org

http://www.onthecommons.org

92 The Sustainable MBA

private ownership can create a gridlock rather than wealth. The

Eco-Patent Commons is an initiative to create a collection of pat-

ents on technology that directly or indirectly protects the envi-

ronment, available free of charge (www.wbcsd.org/web/epc).

For an interesting video explaining the commons, see YouTube

(search term: ‘The Commons, video nation’).

Externalities

A company deals with costs and services that have a value set by

the market in the normal course of business. For example, if a

company needs to clean up a polluted site, the cost is processed

through the traditional accounting system. However, the company ’s

activities also give rise to external costs, known as externalities,

which relate to the effects that the company ’s activities have on the

environment and on people. For example, if a company releases

untreated water into a nearby river, this has a detrimental effect on

both the ecosystem of the river and those communities that rely

on the river to survive. In most cases, these costs (cleaning up the

river, helping the people) are currently absorbed by society as a

whole, instead of by the company that damaged the environment.

In contrast, an externality can also be positive. For example, if a

landowner chooses not to develop his or her land and in doing so

preserves a local water source for an aquifer, the landowner usually

won ’t get any economic benefi t from the decision, but society does.

Externalities are important to consider because the costs or ben-

efi ts to the company are often different from the costs or benefi ts

to society as a whole. For example, if the cost of polluting is not

borne by the polluters, then they will feel no economic motivation to

reduce their discharge of waste. If the price of water is set below the

true cost to society of using this resource, this will produce incentives

to use excessive amounts of water. Because these costs and benefi ts

are paid by society as a whole, private economic actors (individuals

http://www.wbcsd.org/web/epc

Economics 93

The Coase Theorem is about the economic effi ciency of an eco-

nomic allocation in the presence of externalities. ExternE is a

project by the EU on externalities (www.externe.info). UNPRI

does work on how externalities affect investors (www.unpri.org).

and corporations) cannot make appropriate and correct calculations

about whether it makes economic sense to go ahead with an activ-

ity. In this sense, externalities are often considered a form of market

failure, since the amount of activity carried out by private parties in

a free market will result in an ineffi cient use of resources.

Economists are interested in externalities as a market failure for

theoretical reasons (e.g., because they can help us to understand

how markets work in different societies) and practical reasons

(e.g., because market failures justify the intervention of government

through legislation, regulations, and other tools that work through

the market). Accounting for externalities is not an easy task because

in many cases the extent of the impact is either unknown or diffi cult

to measure. Even when it can be identifi ed, there are signifi cant chal-

lenges related to measuring and quantifying the impact to society

and the environment. The most effi cient solutions have been to work

with the private companies and individuals to internalize externali-

ties through mechanisms such as taxes and compliance costs.

Market-based incentives

There is a growing realization that one way to reverse the trend of

environmental decline and protect many of our common resources

on Earth is to use market forces. The idea is that certain unsus-

tainable behaviors of fi rms or individuals are caused by a lack of

economic incentives to pursue sustainable behavior. For example,

landowners who have a wetland or an endangered species on

their land may be providing a service to society by choosing not

to develop their land, but in the process are losing the fi nancial

http://www.externe.info

http://www.worldwildlife.org/conservationfinance

94 The Sustainable MBA

opportunity associated with developing that land. In response to

this, market-based instruments (MBIs) are being created to provide

fi nancial incentives aimed at protecting the environment by alter-

ing market prices, setting limits on resource use, improving the

way a market works, and creating a new market where one previ-

ously didn ’t exist. In the case of the landowners, they can collect

payments or ‘credits ’ from the conservation of the land, and can

then sell these credits to developers who are looking to offset the

harm they have caused to the environment. About US$3.4 billion of

regulated biodiversity offset transactions currently occur per year, a

number which could grow to US$10 billion by 2020. 12

Although not all MBIs fi t neatly into a single type, there are broadly

three types: price-based, quantity-based, and market friction.

1. Price-based instruments work by changing the prices of goods

and services to refl ect their relative impact on the environment

by either adding or removing a tax or fee. The advantage of

these mechanisms is that a company knows how much it will

cost to comply, but the overall environmental outcome can be

uncertain. These can take several forms:

• Taxes not only generate the revenue needed to mitigate the

negative impacts, but also raise the price of the good or ser-

vice in question, thereby decreasing the demand. This can be

in the form of charges, fees, or user charges.

• Subsidies in the form of a payment or tax concession can help

encourage changes in behavior that reduce pollution. For exam-

ple, a subsidy could be offered for the purchase of clean tech-

nology in order to achieve a reduction in overall pollution levels.

• Charges can be imposed to encourage companies or individu-

als to change behavior. For example, by charging a volume- or

weight-based fee to dispose of garbage, companies can be

encouraged to minimize the total waste they produce.

• Deposit-refund systems include schemes where a buyer pays

an upfront charge in addition to the price of the product,

Economics 95

which is then refunded when the product is returned. One

common example of this is the beverage container deposit

scheme, which is usually introduced to encourage the return

of drink containers for recycling.

2. Quantity-based instruments involve creating markets for the

right to undertake an activity that has a negative environmental

impact, such as discharging pollutants into a river or the air or

for the right to have access to a scarce resource, such as water.

These are used when there is a measurable target that needs to

be achieved. As opposed to the price-based instruments, these

provide certainty regarding the environmental outcome, but not

for the cost to industry of achieving that outcome.

• Tradable permits (cap-and-trade) involve determining the

amount of pollution that can be released, or how much of a

resource can be sustainably used, and then issuing permits for

that amount. Organizations can only pollute as much as the

permits they own allow. If they put in place mechanisms that

allow them to cut their pollution signifi cantly, they can sell

unused credits to other companies that perhaps have not been

able to cut their pollution.

• Quota management is a way to protect natural resources

such as fi sheries. Once the total amount of fi sh available to

catch is determined, quotas are then given to fi shers. One fi sh-

erman from the Alaskan halibut fi shing industry said about

the quotas put in place in that industry, ‘Most fi shermen will

now support cuts in quotas because they feel guaranteed that

in the future, when the stocks recover, they would be the ones

to benefi t.’ 13

• Offsets are conservation actions designed to compensate

for unavoidable impacts on the environment. For example,

clearing native vegetation for a development can be offset by

protecting another ecologically equivalent area of vegetation.

These are usually only appropriate when the participant has

fi rst taken all available measures to avoid and minimize harm.

96 The Sustainable MBA

3. Market friction instruments aim to infl uence how existing

markets work in order to improve environmental outcomes. One

example of this is through product differentiation in the form of

certifi cation schemes and eco-labels. Putting these on products

enables consumer preferences to be expressed through markets.

For example, the FSC label allows customers to choose products

that are made of wood from sustainable forests, thus increasing

the incentives for companies to produce such products (more

on this in Chapter 11).

There are many potential advantages of MBIs. They can be more

cost-effective for delivering environmental outcomes than regula-

tions or other traditional methods, and often give better results.

They provide fl exibility for participants to choose how they will

reach goals and to reduce pollution beyond targets. In that way

they can act as a more positive infl uencer, leading to more long-

term and self-sustaining solutions. However, markets themselves

do not allow us to solve all problems. Markets are very complex

and it can be diffi cult to predict the outcomes of certain initia-

tives. For this reason, different types of MBIs are currently being

tested around the world, especially around carbon and increasingly

around biodiversity and conservation.

Sources of information on conservation fi nance include

WWF (www.worldwildlife.org/conservationfi nance) and the

Conservation Finance Alliance (www.conservationfi nance.org).

The WBCSD and IUCN have developed a free role-playing game

called ‘Buy, Trade, Sell’ which shows how ecosystem markets

work (www.wbcsd.org). www.ecosystemmarketplace.com and

www.ecosystemservicesproject.org have information on markets

and payment schemes for ecosystem services. The Australian

government also has a useful resource describing MBIs (www

.marketbasedinstruments.gov.au).

http://www.conservationfinance.org

http://www.ecosystemmarketplace.com

http://www.ecosystemservicesproject.org

http://www.marketbasedinstruments.gov.au

Economics 97

Re-evaluating GDP

Economic progress is usually measured by gross domestic product

(GDP). This represents the total dollar value of all goods and ser-

vices produced over a specifi c time period. Although this can give

a pretty good indication of the size of the economy, it does not

include a number of factors that determine the wellbeing of peo-

ple. As author Paul Hawken puts it, ‘We have an economy where

we steal the future, sell it in the present, and call it GDP.’ There are

also several problems with how GDP itself is measured. For exam-

ple, GDP focuses on short-term economic activities rather than on

developments in the assets of natural, economic, and social capi-

tal, which are more important from a long-term, sustainability per-

spective. Both the ‘benefi cial’ activities that cause pollution and the

costly activities necessary to clean up the pollution are counted

toward a country ’s GDP. Cutting down trees and selling timber

boosts GDP, but loss of forests does nothing to decrease it.

Studies often show that as GDP goes up, other measures are

leveling off and even declining. For example, the New Economic

Foundation ’s Happy Planet Index – which ranks a nation ’s progress

based on the amount of the Earth ’s resources its inhabitants use and

the length and happiness of people ’s lives – found that high levels

of consumption do not necessarily guarantee happiness. As Herman

Daly, one of the founders of Ecological Economics, puts it, ‘economic

growth may already be making us poorer rather than richer.’ 14 In

response, several alternatives have been presented which look at

economic, environmental, and social wellbeing. These include:

• Green Net National Product (GNNP). GDP less the costs of

degradation and depletion of natural resources.

• Genuine Progress Indicator/Index of Sustainable Economic

Welfare (GPI). Personal consumption expenditures plus the value

of ‘unpaid’ work, capital services, and education less the costs of

inequality, crime, pollution, loss of leisure, unemployment, and

natural capital depletion.

98 The Sustainable MBA

• Regional Quality of Development Index. Attempts to identify and

connect the components of development quality based on environ-

mental sustainability, promotion of rights, and quality of life.

• Wellbeing Index (WBI). Goes beyond GPI; this index also incor-

porates measures of civil freedom, security, biodiversity, health,

justice, and self-suffi ciency.

• Human Development Index (HDI). Averages three indices

refl ecting a country ’s achievements in health and longevity (life

expectancy at birth), education (adult literacy and school enrol-

ment), and living standard (GDP per capita in PPP terms) (hdr.

undp.org/en/statistics).

Several countries have moved to exploring these alternatives to

GDP. According to the Center of Bhutan Studies, ‘GDP is heavily

biased towards increased production and consumption, regardless

of the necessity or desirability of such outputs, at the expense of

other more holistic criteria . . . Indicators determine policies. The

almost universal use of GDP-based indicators to measure progress

has helped justify policies around the world that are based on rapid

material progress at the expense of environmental preservation, cul-

tures, and community cohesion.’ Bhutan came up with ‘gross national

happiness ’ (GNH). The idea is that a country should not sacrifi ce

elements important to people ’s happiness to gain material develop-

ment, so GNH focuses on not just fl ows of money but also access to

healthcare, free time with family, conservation of natural resources,

and other non-economic factors (www.grossnationalhappiness.com).

The Beyond GDP project in the EU looks at improving measures

of progress, wealth, and wellbeing and has a long list of potential

alternatives (www.beyond-gdp.eu). Redefi ning Progress is a think-

tank based in the USA that is looking at sustainability indicators at

the national, regional, and community level (www.rprogress.org).

See also the Happy Planet Index (www.happyplanetindex.org).

http://www.grossnationalhappiness.com

http://www.beyond-gdp.eu

http://www.rprogress.org

http://www.happyplanetindex.org

http://www.hdr.undp.org/en/statistics

Economics 99

Emerging markets

The global economy is changing from one that was dominated pri-

marily by a few countries, to one where there are a larger number

of global economic powers coming from developing and emerging

economies. Developing world economies will account for nearly 60%

of world GDP by 2030 according to the OECD. The big emerging mar-

kets include Brazil, China, Egypt, India, Indonesia, Mexico, Poland,

the Philippines, Russia, South Africa, South Korea, and Turkey.

Emerging markets are crucial players in sustainability for many

reasons:

• Talent. People have become one of the most highly sought after

and valuable resources on Earth, fought over by multiple com-

petitors. Of the 438 million people to be added to the global

workforce by 2050, 97% will come from developing countries.

• Resources. With increased levels of business comes increased

competition for resources such as energy, commodities, and raw

materials. Since 2000, these economies have been responsible

for 85% of the increase in world energy demand.

• New consumers. With up to a billion new consumers in these

emerging markets, there are plenty of opportunities to grow

market share. Emerging economies will account for more than

half of global consumption by 2025.

• Because they are growing. From the emerging economies,

there are now more than 70 companies in the Fortune Global

500 list of the world ’s biggest companies, a number that is rap-

idly growing as these companies expand and acquire new busi-

nesses. Many everyday brands in Western markets are owned

by companies in the developing world (e.g., Tetley in the UK is

owned by Tata in India).

Emerging market companies fi t into the following categories:

• Fully fl edged globalizers tend to be older, more established

companies that have attained a scale and geographic span on

100 The Sustainable MBA

a par with big Western multinationals (e.g., CEMEX in Mexico,

SABMiller in South Africa).

• Regional players aim to break out of their domestic market in

search of greater scale, often fi xing their sights initially on neigh-

boring markets (e.g., Vina Capital from Vietnam are expanding

into Southeast Asia).

• Global sourcers are interested principally in selling to their

domestic market but, because of resource constraints at home,

they source internationally.

• Global sellers primarily manufacture or source at home, but are

seeking new consumer markets abroad in order to increase sales.

• Multi-regional niche players tend to be smaller companies

operating across multiple regions in niche sectors, usually on

the basis of innovative technology or processes. 15

Where traditionally communication was a one-way street, with

help in the form of aid going from developed to developing coun-

tries, and developed countries holding the power in terms of busi-

ness relations with developing nations, it is increasingly the other

way around, in particular when it comes to sustainability. There is

a growing range of innovations coming from emerging markets,

driven by two factors. First, the cumulative performance of these

companies matters because emerging markets in total are set to

contribute more than three-quarters of global growth by 2025.

Second, those very regions will increasingly be the ones feeling the

pressure of resource depletion the most.

Companies in emerging markets are increasingly proving to be

leaders in this fi eld because:

1. They innovate continuously to turn constraints into oppor-

tunities. Rather than focusing on expensive research into new

technologies they focus instead on making products cheaper,

more widely available, or better suited to local production pro-

cesses while also turning constraints in delivery channels into

opportunities. They are doing this by:

Economics 101

• Using fewer resources . Shree Cement in India which, when

faced with limited access to low-cost energy, developed the

world ’s most energy-effi cient manufacturing process and set a

global benchmark in cement production.

• Turning resource constraints into opportunity . Broad Group

in China, a large producer of air chillers, uses alternative

energy sources such as waste heat from buildings to power its

range of non-electric air-conditioning units.

• Educating customers . Jain Irrigation in India uses dance and

song to explain the benefi ts of drip irrigation to local commu-

nities, which not only allows them to sell effectively but also

to work collaboratively with local communities.

• Giving access to fi nancial assets . Kenya ’s Equity Bank uses

mobile phone technology to enable it to reach small farmers

in rural Kenya by partnering with Safaricom to use the M-Pesa

fi nancial services platform.

2. They embed sustainability into their company cultures.

Companies in these regions are also exploring how to make

sustainability an integral part of how they do business.

• Defi ne a bold vision . In Egypt Sekem, an organic food pro-

ducer, uses organic farming as a way to reclaim desert land,

producing food for the local market and reinvesting the profi ts

into the community. Sekem also shares profi ts with the small-

holder farmers in its network.

• Integrate it into operations . Masisa, a wood products man-

ufacturer in Chile, developed a balanced scorecard on

sustainability.

• Engage their staff . Natura in Brazil invests heavily in staff train-

ing on identifying socio-environmental challenges and turning

them into business opportunities.

3. They proactively shape their own business environments.

Companies in these regions recognize that in order to have a

larger impact they need to engage the wider business system

102 The Sustainable MBA

of regulators, competitors, suppliers, customers, and other

stakeholders.

• Infl uence policies and standards, especially those operating in

weak regulatory regimes . Grupo Balbo, an organic sugar pro-

ducer in Brazil, is working to turn the entire sugar industry in

Brazil into an organic sector.

• Partner to achieve mutual goals . New Britain Palm Oil in

Papua New Guinea works closely with local NGOs to engage

with local communities.

• Raising awareness of the importance of sustainability . Suzion

in India, a wind power producer, helps shape the debate

locally in wind power and works to educate policymakers. 16

There are a growing number of emerging market countries actively

participating in international agreements and organizations, as well

as a wide range of emerging market-specifi c sustainability indexes

such as the SSE Social Responsibility Index in China, the Korea

Stock Exchange SRI Index, the S&P ESG Index in Egypt, the BMV

Sustainability Index in Mexico, and the S&P ESG Pan Arab Index.

Countries in these regions are becoming global leaders in certain

areas of sustainability. For example, South Africa, as discussed in

Chapter 6, is a global leader in integrated reporting. Nevertheless,

the challenge will be to see how emerging countries and compa-

nies in these countries choose to embrace sustainability in their

operations at home and abroad. As The Economist asks, ‘could the

rise of the new champions refl ect the advance of bad forms of capi-

talism at the expense of good forms? . . . How can western fi rms

compete in countries where bribes are seen as an ordinary cost

of business?’ There are many other uncertainties about emerging

markets, in particular local governments and their attitude to the

rule of law. ‘Will theft of intellectual property be punished? Will lax

regulatory enforcement allow your company ’s supply chain to be

contaminated?’ 17

Economics 103

Developing Value: The Business Case for Sustainability in

Emerging Markets (www.sustainability.com/developing-value).

Accenture has a publication with more information, called

Multipolar Business World (www.accenture.com) as does the

World Economic Forum (www.wef.org).

Challenges?

• Uncertainty. Uncertainty is present in how we value all envi-

ronmental and social problems, as well as the policies that are

being put in place to address these problems. Any analysis that

fails to recognize this runs the risk of not only being incomplete

but also misleading.

• Free riders. Free riders are those who don ’t take on their fair

share of responsibilities, but who benefi t from those that others

take on. Free riders in the fi eld of sustainability take the form,

for example, of fi rms that sign up to international initiatives and

use the logo but who fail to pay their dues or follow the require-

ments listed for membership.

• Everyone needs to do their part. In order for sustainability to

move forward, businesses need to do their part but so do con-

sumers, buyers, government, and other actors.

• Determining the tradeoffs. Although we would like to believe

that all sustainability initiatives are win/win, the fact is that many

are not in the short term. This leads us to have to make tradeoffs

in our daily decisions and daily lives. How much are we willing

to pay? What are we willing to do? How far are we willing to go?

• Getting incentives right. Reportedly, only a small fraction of

houses being rebuilt in New Orleans after the hurricane meet

new stricter building codes. Better-built houses are more likely

to survive a storm, but the builders and homeowners know the

http://www.sustainability.com/developing-value

http://www.Changemakers.net

http://www.wef.org

104 The Sustainable MBA

government will pay them to rebuild if it happens again. This is

referred to as moral hazard, ‘where people behave differently if

they are insured against risk. In this case you have a moral hazard

when people choose to build in disaster proven areas because

they don ’t have to take on the full cost of their decisions.’

• Determining what ‘optimum’ means. If you were to ask envi-

ronmentalists, they would say that the optimum level of pollu-

tion is zero, but economists don ’t necessarily see it that way.

Pollution is a byproduct of many things that we value and, there-

fore, some amount of pollution is warranted. For example, even

renewable energy produces some quantity of pollution. The

question therefore is, how much is optimum?

Trends and new ideas

– Alternative trading systems

– A new economic model

– Estimating the cost of inaction

– From free to fee

– Valuing future generations

– Regulatory instruments

Alternative trading systems

The Seikatsu Club Consumers ’ Cooperative Union won the Honorary

Right Livelihood Award in 1989 because it was a form of ‘alterna-

tive economic activity against industrial society ’s prioritization on

effi ciency.’ This network, made up of Japanese housewives, has

approximately 600 consumer cooperatives with 2 million members

in Japan. The cooperative takes advance orders from its members for

daily goods such as eggs and milk, and thus is able to ensure proper

sourcing and good prices. It also works together to ensure the right

quality by refusing to purchase products that are detrimental to the

environment or human health. The club has gone beyond providing

daily goods such as eggs and milk to providing other services such

as recycling, health, education, and childcare.

Economics 105

A new economic model

The conventional neoclassical economic model is based on perpet-

ual growth and is seen as the way to achieving wellbeing. The news

media have been full of articles describing how it took just a few

days for governments to abandon decades of economic doctrine to

try to rescue the fi nancial system. Why shouldn ’t it take as long

to introduce a plan for a new, more relevant economic model?

Other models exist where goods and services are traded with-

out money, also referred to as Local Exchange Trading Systems.

Members earn credit by providing a good or service that they can

later use to pay someone else from the network to provide them

with a different good or service. Transactions are recorded in a cen-

tral location that all members have access to. These are being used

to support local businesses and strengthen communities. Banco

Palmas in Brazil works with the country ’s offi cial currency and a

social currency issued by the bank called the Palmas currency. The

bank is owned and managed by the community and offers loans for

productive activity to stimulate local enterprise and consumer credit,

including a local Palmacard credit card, for products and services

produced inside the community. Their intention is to create a local

fi nancial system based on a network of producers and consumers.

Ashoka Changemakers and the Banking on Social Change com-

petition (www.Changemakers.net). There is a growing number

of communities creating their own local currencies, all with

slightly different approaches ( http://en.wikipedia.org/wiki/

Local_currency ). Also take a look at the work of Time Banks

(timebanks.org), Our Goods (ourgoods.org), and Skillshare

(www.skillshare.com).

http://en.wikipedia.org/wiki/Local_currency

http://www.skillshare.com

http://timebanks.org

http://ourgoods.org

106 The Sustainable MBA

In October 2008 UNEP and leading economists launched the

Green Economy Initiative, which ‘will encourage and enable eco-

nomic, planning, fi nance, labour, environment, and other policy-

makers to support increased investments in environmental assets

and green production while ensuring a fair and just transition

towards a green economy.’ The ambitious plan calls on world lead-

ers to promote a massive redirection of investment away from

the speculation that has caused the bursting ‘fi nancial and hous-

ing bubbles ’ and into job-creating programs to restore the natural

systems that underpin the world economy. Its mission is to com-

municate a global plan for a green industrial revolution to be sup-

ported by strong and convincing evidence of income generated,

decent jobs created, and poverty reduced through investing in a

new generation of assets including: ecosystems (or environmental

infrastructure), clean and effi cient technology, renewable energy,

biodiversity-based products and services (such as organic foods),

chemical and waste management and mitigation technologies, and

green cities with ecologically friendly buildings, construction,

and transport systems. All this could create millions of green jobs.

For more on the Green Economy Initiative visit (www.unep.org/

greeneconomy). Also take a look at some of the winners of the

Nobel Prize in Economics who have been exploring sustaina-

bility (www.nobelprize.org/nobel_prizes/economics/laureates).

Several organizations are also looking at new economic models,

including the Foundation for the Economics of Sustainability

(www.feasta.org), Center for the Advancement of the Steady

State Economy (www.steadystate.org), and the New Economics

Foundation (www.neweconomics.org). Also take a look at the

work by the Ellen Macarthur Foundation around circular econ-

omy (www.ellenmacarthurfoundation.org).

http://www.unep.org/greeneconomy

http://www.nobelprize.org/nobel_prizes/economics/laureates

http://www.feasta.org

http://www.steadystate.org

http://www.neweconomics.org

http://www.ellenmacarthurfoundation.org

Economics 107

Estimating the cost of inaction

One of the areas slowing down global action in sustainability is the

perceived high cost of taking action. In response, there has been an

increased effort to calculate the costs of not taking action in areas

such as water and sanitation, clean air, and climate change. A report

submitted to a UN biodiversity conference in 2008 said mankind was

causing US$68 billion of damage to the planet ’s land areas every year,

through factors including pollution and deforestation. The UNEP

Finance Initiative estimates that environmental costs from global

human activity cost about US$6.6 trillion estimated annually, with

US$2.25 trillion of that caused by the 3 000 largest publicly listed com-

panies. The 2006 Stern Report put a £2.3 trillion price tag on the

consequences of ignoring climate change. It said, ‘The costs of action

to the global economy would be roughly 1 percent of GDP, while the

costs of inaction could be from 5–20 percent of GDP.’ The OECD also

published a report that looked at the costs of inaction on a range of

key environmental challenges such as air and water pollution, natu-

ral resource management, environment-related industrial accidents,

and natural disasters. For example, the costs of natural disasters (e.g.,

fl oods, hurricanes, earthquakes, etc.) to the poorest countries are esti-

mated to be as much as 13% of annual GDP. A KPMG study showed

that environmental costs have risen 50% from 2002 to 2010 for 11

industry sectors. Although the cost of taking the required action today

seems signifi cant, many agree that the costs if we take action today are

trivial compared to how much this will cost us in the future.

Stern Review on the Economics of Climate Change (www

.hm-treasury.gov.uk/sternreview_index.htm), OECD Costs of

Inaction Project (www.oecd.org/env/costofi naction), UNEP ’s

Costs of Inaction Initiative (www.unep.org), and the Global

Environmental Outlook (www.unep.org/geo).

http://www.oecd.org/env/costofinaction

http://www.hm-treasury.gov.uk/sternreview_index.htm

http://www.unep.org/geo

108 The Sustainable MBA

From free to fee

We ’ve seen plastic shopping bags move from being a free handout

to one that consumers are required to pay for in some countries. In

the past, many naturally occurring resources were free (fi sh, water,

and air to name a few). Future generations will increasingly be liv-

ing in an environment where these same resources will be priced.

It is easy to imagine new housing developments that use the clean

air and water in their neighborhood as an important selling point.

The opposite is also starting to happen; sustainable products that

were once more expensive to produce will become increasingly

less expensive as the materials they use are more readily available

and savings from reducing the use of chemicals, petroleum, and

other expensive inputs start to show.

Valuing future generations

If valuing current generations and their environmental needs wasn ’t

diffi cult enough, policymakers also have to contend with how to

value future generations. The question then arises – how much

should be reserved for the needs of the future when making deci-

sions that affect us today? In calculating the costs of greenhouse gas

reductions one needs to see how these compare to the benefi ts of

the reduced risk of climate change many decades, even centuries,

into the future. Should a dollar spent today to prevent climate change

weigh equally against a dollar in benefi ts 100 years from now?

This is where discount rates come in. They are increasingly impor-

tant and used in cost–benefi t analysis and long-range environmen-

tal planning. The decision of which rate to choose can have serious

implications; higher discount rates make investments less attrac-

tive, while lower discount rates make them appear more attractive.

For example, if we estimated the benefi ts of climate change miti-

gation at approximately US$1 trillion 100 years from now, and we

used a discount rate of 5%, that US$1 trillion would only be worth

Economics 109

Regulatory instruments

The regulatory framework within which companies operate is

extensive and complex. As governments become increasingly con-

scious of environmental concerns and the public demand action,

companies are faced with a growing number of regulations that

they must comply with. The situation becomes even more complex

for companies that conduct business across borders where regula-

tions can differ from one jurisdiction to the next, often signifi cantly.

Enforcement of these different mechanisms varies depending on

the nature and location of the regulation. Many have their own

dispute-settlement mechanisms. The European Commission is

exploring plans to take environmental offences to criminal courts.

Infringers could face jail time for dumping toxic waste or ille-

gally trading endangered species, for example. The US EPA has

US$7.6 billion today. Instead, if we choose a rate of 0.1% then that

US$1 trillion 100 years from now would be worth over US$900

billion today, more than 100 times the amount. The Stern Review

chose 0.1% per year to calculate the present value of the benefi ts

of climate change mitigation for future generations. Many environ-

mentalists argue that the discount rate should be zero because it is

immoral to value our wellbeing over that in the future. There is no

correct discount rate. 18

Read What Environmentalists Need to Know About Economics

(2008) by Jason Scorse and Nobel Laureate Robert Salow ’s essay

on ‘Sustainability: An economist ’s perspective explores the idea

of future generations.’ The Long Now Foundation looks at long-

term thinking (longnow.org). UNPRI have also been doing some

work on discount rates (www.unpri.org).

http://longnow.org

110 The Sustainable MBA

Want more?

The World Bank Environmental Economics and Indicators has

many resources, including the Little Green Data Book , available

free online (www.worldbank.org). Other sources include the

International Society for Ecological Economics (www.isecoeco

.org), Vox (www.voxeu.org), World Economic and Social Survey

(www.un.org/esa/policy/wess), and Environmental Economics

– Economists on Environmental and Natural Resources (www

.env-econ.net).

Read: Common Wealth: Economics for a Crowded Planet

by Jeffrey D. Sachs (2009), which argues that the crises facing

Ecolex is a database of information on environmental law at the

international and national levels (www.ecolex.org). The Centre

for Environmental Law (www.ciel.org), International Court

of Justice (www.icj-cij.org), and the Centre for International

Sustainable Development Law (www.cisdl.org) also work in this

area. Guidance for compliance with multinational environmen-

tal agreements can be found at www.unep.org and www.inece

.org. NetRegs helps smaller businesses navigate laws affecting

their activities. An increasing number of voluntary standards

have been developed to fi ll the gaps which currently exist in

regulations. Many of these are explored in the different relevant

sections of this book.

also launched an environmental crimes fugitive website to assist

law enforcement agencies and the general public in fi nding fugi-

tives who have violated environmental laws. At the international

level, the International Court of Justice is one mechanism that can

be used. However, often the most effective is public and political

pressure.

http://www.ecolex.org

http://www.ciel.org

http://www.icj-cij.org

http://www.cisdl.org

http://www.inece.org

http://www.un.org/esa/policy/wess

http://www.isecoeco.org

http://www.voxeu.org

http://www.inece.org

http://www.env-econ.net

Economics 111

humanity are daunting. Capitalism as if the World Matters by

Jonathon Porritt (2005) looks at whether capitalism can be

retooled to deliver a sustainable future. Limits to Growth and

Limits to Growth: The 20-Year Update by Donella H. Meadows,

Jorgen Randers, and Dennis Meadows (1972 and 2004) look at

the consequences of a rapidly growing world population and

fi nite resource supplies. Ecological Economics by Herman E.

Daly (2008) addresses fundamental fl aws in conventional eco-

nomics. Small is Beautiful by E.F. Schumacher (1973) critiques

Western economics. The Natural Advantage of Nations by

Karlson Hargroves and Michael H. Smith (2005) looks at how it

is possible and profi table to achieve sustainable development in

our lifetimes. Enough is Enough by Rob Dietz and Dan O ’Neill

(2013) looks at how to create a new kind of economy.

Environmental valuation

‘Is it true that the service of pollination, provided mainly by

bees for free, is estimated to be at least worth US$ 4 billion

a year to the agricultural sector in the US alone? Or that

coral reefs provide ecosystem services vital to off-shore fi sher-

ies and shoreline protection worth as much as US$ 600 000

per square kilometer? Or that the world ’s protected areas

(accounting for only 12% of total land surface) sustain a

rapidly growing eco-tourism sector, support local livelihoods,

and overall produce benefi ts for society in excess of US$

4 000 billion a year? The answer is yes, but there is the para-

dox: 20% of the world ’s coral reefs and 35% of all mangroves

have been destroyed, and two-thirds of all ecosystem services

degraded, some perhaps beyond repair.’

WBCSD 19

(continued )

112 The Sustainable MBA

Despite growing awareness about the importance of ecosystems and

biodiversity, as well as commitments by the international community

to signifi cantly reduce the current rate of biodiversity loss, ecosystems

continue to be mismanaged, misunderstood, and destroyed. As stated

by the World Bank, ‘There are many reasons for the gap between aspi-

ration and reality. One of the most important is that economic policies

and markets generally fail to value biodiversity or the conservation

of ecosystems. With few exceptions, there is little fi nancial reward for

conserving biodiversity, nor much penalty for destroying it.’ 20

Businesses often place zero value on natural assets and natural

systems. For example, a fi shing fl eet counts the cost of vessels, fuel,

people, and transportation, but it treats fi sh as free. This can lead to

a ‘tragedy of the commons ’ problem: as fi sh become scarcer, they

become more valuable, which encourages more fi shing. Valuation is

diffi cult, because typically neither the economic value nor the degra-

dation of these services is included in the market price. At the same

time, the alternate goods and services needed to replace them – such

as water treatment plants in the case of water – do contribute to

GDP, which can be rather misleading.

Valuing natural resources may seem straightforward; one only

has to consider market transaction prices. However, market prices

do not cover the true value of these resources, or the broader eco-

systems of which they are part. For example, an ecosystem service

plays a signifi cant role in many transactions, as breeding grounds for

fi sh and barriers for storms, or the role of biodiversity in water and

air purifi cation. Ecosystems provide a range of services, including:

• Provisioning – in providing goods such as food, water, raw

materials, and medicinal resources.

• Regulating – in regulating biophysical processes and control-

ling natural processes such as climate and air quality and erosion

prevention.

• Cultural – by providing recreational, aesthetic, or spiritual value.

• Habitat or supporting – in providing habitats for species and

maintaining genetic diversity.

Markets are likely to undervalue ecosystem services if these are not

in some way quantifi ed and recorded. Only then can these values be

Economics 113

used when deciding on alternative uses of ecosystems or the activi-

ties that will impact them. The following criteria are often looked at

when calculating total economic value:

• Direct use value. Ecosystem goods and services that are used

directly by humans, for consumptive uses such as harvesting

food, timber, or fuel, and non-consumptive uses such as recrea-

tional and cultural activities.

• Indirect use value. Ecosystem services that provide benefi t out-

side the ecosystem itself, for example natural water fi ltration,

storm protection function of mangrove forests, etc.

• Option value. Derived from preserving the option to use eco-

system goods and services in the future that are not used in the

present.

• Non-use value. For the enjoyment people may experience sim-

ply by knowing that a resource exists even if they never expect to

use that resource directly.

The Millennium Ecosystem Assessment (MEA) and TEEB are two

groups that have been working to assess the state of ecosystem

goods and services and work toward valuing these. The MEA used

cost–benefi t analysis as the main method for valuation. Typically, this

determines the costs of a project as well as the benefi ts then trans-

lates them into monetary terms. Projects with benefi ts that outweigh

the costs generally move forward. However, this type of analysis may

be misleading, as the true or total value is not included. Although

costs are often known, environmental benefi ts often lack market

value. Benefi ts are often collected over time, while costs are upfront.

As a result, it is often diffi cult to understand what is being measured

or to determine values for what is being measured.

Companies are taking a comprehensive approach, assessing their

impacts and dependencies on ecosystems to provide a fuller pic-

ture. Tools often used include the Ecological Footprint (explored

in the Introduction) and Lifecycle Assessment (explored in Chapter

12). Dow Chemicals partnered with The Nature Conservancy to link

the value of nature ’s services to its business decisions and strate-

gies as well as create a range of tools that could be used by other

(continued )

114 The Sustainable MBA

companies. Puma looked at the impacts, both direct and indirect,

that ecosystem services have on its operations and supply chain and

produced an Environmental Profi t and Loss Statement.

A wide range of tools exist to assist in this area, including cost–

benefi t analysis, sustainable value added, and triple bottom line

reporting. Two of the most commonly used tools are:

• The Environmental Input–Output Model, which looks at an organ-

ization ’s fl ow of goods and services. It looks at how organizations

are linked together, since they use products and/or services from

other organizations to produce their own goods.

• Ecosystem Service Valuation, which looks at how the values of

ecosystem services will change as a consequence of a project.

Valuation includes looking at market values such as the sale of

fi sh caught, but also non-market values.

An assessment can make use of several methods to determine the

value of a benefi t. The decision of which one to use usually comes

down to the time and resources available, and can include:

Direct market methods . . .

• Market Price Method. Estimates economic values for ecosystem

products or services that are bought and sold in commercial mar-

kets. For example, a cultural site could be valued based on the

entrance fees collected.

• Damage Cost Avoided, Replacement Cost, and Substitute Cost

Methods. Estimate economic values based on costs of avoided

damages resulting from lost ecosystem services, costs of replac-

ing ecosystem services, or costs of providing substitute services.

For example, the costs avoided by providing fl ood protection.

• Preventive Expenditure Method. Based on actual expenditure

incurred to prevent, eradicate, or reduce adverse environmental

effects.

• Productivity Approach. Estimates economic values for ecosys-

tem products or services that contribute to the production of

commercial goods. For example, the benefi ts of different levels

of water quality improvement would be compared to the costs of

reductions in polluting runoff.

Economics 115

• Benefi t Transfer Method. Estimates economic values by trans-

ferring existing benefi t estimates from studies already completed

for another location or issue. For example, an estimate of the

benefi t obtained by tourists viewing wildlife in one park might

be used to estimate the benefi t obtained from viewing wildlife in

a different park.

Revealed preference methods . . .

• Hedonic Pricing Method. Uses information from a surrogate

market to estimate the implicit value of an environmental good

or service. For example, housing prices can be used to estimate

how much extra people are willing to pay for residential property

in areas free from traffi c.

• Travel Cost Method. Estimates economic values associated with

ecosystems or sites that are used for recreation. The value of a

site is refl ected in how much people are willing to pay to travel

to visit the site.

Stated preference methods . . .

• Contingent Valuation Method. Estimates economic values for

virtually any ecosystem or environmental service. It asks people

to directly state their willingness to pay for specifi c environmen-

tal services, based on a hypothetical scenario.

• Contingent Choice Method. Estimates economic values for vir-

tually any ecosystem or environmental service based on asking

people to make tradeoffs among sets of ecosystem or environ-

mental services or characteristics. It does not directly ask for will-

ingness to pay – this is inferred from tradeoffs that include cost as

an attribute. For example, a person would state their preference

between various locations for a landfi ll. 21

Once companies have collected this information they can then use

it to plan their strategy moving forward.

• Optimize resource use to minimize environmental degradation,

such as making commitments to reduce resources across the life-

cycle of your products and services in the present and looking at

how to continue to do so into the future (e.g., Unilever ’s commit-

ment to sourcing 100% sustainable palm oil by 2020).

(continued )

116 The Sustainable MBA

Want more?

The Economics of Ecosystems and Biodiversity is a leading source

of information in this area (www.teebweb.org). The EU has put

together a list of valuation studies (www.europa.eu). The World

Resource Institute ’s ‘Corporate Ecosystem Services Review’ is also

a good reference (www.wri.org). Ecosystem Valuation describes

how economists value the benefi cial ways that ecosystems affect

people (www.ecosystemvaluation.org). Several organizations

such as the World Bank, WBCSD, the Millennium Ecosystem

Assessment, the IUCN, UNEP, and the Global Environment

Facility are working on valuating ecosystem services as well as

Natural Capital Project (www.naturalcapital.org) and the World

Resources Institute Ecosystem Services Experts Directory (pro-

jects.wri.org/ecosystems/experts). Other networks of interest are

the Network for Business Sustainability ’s Measuring and Valuing

Environmental Impacts (www.nbs.net) and the Valuing Natural

Capital Collaborative Project (www.corporateecoforum.com/

valuingnaturalcapital). The Natural Capital Declaration brings

together banks, companies, and countries to develop the fi eld of

natural capital valuation (www.naturalcapitaldeclaration.org).

• Invest strategically in conservation and restoration, for example

companies that depend heavily on water are investing in water-

sheds to avert water scarcity that could drive up costs.

• Engage your value chain to bring solutions to scale, for example SAB

Ltd engages hop growers in the Eastern Cape region of South Africa

to conserve water in the agricultural supply chain, which makes up

more than 90% of the water consumed in the beer value chain.

• Build natural instead of manmade infrastructure, for example put-

ting funds into maintaining a wetland near a processing or manufac-

turing plant can be a more cost-effective way of meeting regulatory

requirements than building a wastewater treatment facility.

• Leverage new natural capital markets and investment tools, for

example by exploring payments for ecosystem services.

• Join forces through collaboration and collective action. 22

http://www.teebweb.org

http://www.europa.eu

http://www.ecosystemvaluation.org

http://www.naturalcapital.org

http://www.corporateecoforum.com/valuingnaturalcapital

http://www.naturalcapitaldeclaration.org

http://projects.wri.org/ecosystems/experts

Economics 117

Business and the world ’s poor

‘Beside their philanthropic efforts and their policy infl uence,

companies can contribute signifi cantly to meeting the devel-

opment goals through their core business operations, either

by involving the poor in their supply chain activities, or by

supplying appropriate products and services to improve peo-

ple ’s livelihoods in developing countries.’

WBCSD

In the year 2000, the world ’s leaders came together and signed the

Millennium Development Goals; 8 goals related to poverty, educa-

tion, health, and gender issues for the world to work together to

reach by the year 2015. In 2012 the international community came

together again to discuss the targets post-2015. The Millennium

Development Goals are to:

1. Eradicate extreme poverty and hunger. 2. Achieve universal primary education. 3. Promote gender equality and empower women. 4. Reduce child mortality. 5. Improve material health. 6. Combat HIV/AIDS, malaria, and other diseases. 7. Ensure environmental sustainability. 8. Develop a Global Partnership for Development.

Business ’s contribution to the achievement of these goals has been

through partnerships, aid donations, and other philanthropic activi-

ties, but increasingly its impact has been through a focus on explor-

ing business opportunities directed at and working with the world ’s

poor by creating opportunities for them to improve their own lives.

As stated by the WBCSD, ‘business is good for development and

development is good for business.’

Market-based approaches to poverty reduction focus on ena-

bling opportunity rather than providing aid. Traditionally there has

been an assumption that the very poor are unable to help them-

selves and therefore need charity and aid. However, as the World

Resource Institute (WRI) writes, the fact is that even within the poor-

est communities there are still commerce and market processes.

(continued )

118 The Sustainable MBA

‘A market-based approach thus focuses on people as consumers and

producers and on solutions that can make markets more effi cient,

competitive, and inclusive – so that the BOP (Base of the Pyramid)

can benefi t from them. It looks for solutions in the form of new

products and new business models that can provide goods and ser-

vices at affordable prices.’

Who are they?

The ‘base of the pyramid’ is an expression that refers to the 4 billion

low-income consumers who constitute the foundation of the eco-

nomic pyramid. BOPs are generally ‘not integrated into the global

market economy and do not benefi t from it.’ They are often rural,

very poorly served, dominated by informal economy, and as a result

relatively ineffi cient and uncompetitive. According to the WRI they

share the following characteristics:

• Signifi cant unmet needs. Many have no bank accounts, no

access to modern fi nancial services, phones, water and sanitation

services, electricity, and basic health care.

• Dependence on informal or subsistence livelihoods. Most lack

access to markets to sell their labor, handicrafts, or crops and

therefore have no choice but to sell to local employers or middle-

men, who often exploit them.

• Impacted by a BOP penalty. Many in this segment actually pay

more, either in terms of cash or effort, to obtain basic goods than

most in developed countries.

Market size (US$) Population (%) Buying power (%)

Africa 429bn 95 71

Asia 3.47tn 83 42

Eastern E 458bn 64 36

LA and C 509bn 70 28

Source: The World Resource Institute ’s The Next 4 Billion: Market size and business strategy at

the base of the pyramid .

Why?

Business is increasingly interested in the world ’s poor for several

reasons:

Economics 119

• Companies realize they can make a difference. Companies

have the potential to make a positive impact in communities and

infl uence the business environment, support international norms

relating to corruption and human rights, share know-how, and

engage in multi-stakeholder dialogues.

• Part of a long-term strategy. Companies are starting to see the

need to break out of mature markets and include this large poten-

tial market as part of their company ’s growth strategy.

• Vast amount of opportunities. Over 2 billion people live on

less than US$2 per day and by 2050, more than 90% of the world ’s

population will be living in developing countries. Individuals with

incomes below US$3000 in local purchasing power represent a

US$5 trillion global consumer market, those between US$3000

and US$20 000 a US$12.5 trillion dollar consumer market.

• Conditions are improving. Often the necessary conditions for

doing business – such as transparency, effective legal systems,

low levels of corruption, and effi cient government bureaucracy –

remain poor in many countries (e.g., in Djibouti it takes 185

days to incorporate a business compared with 3 days in Canada).

Although there are still challenges with working in certain mar-

kets, countries are investing time and effort to strengthen their

governance, legal structures, and investment structures.

• Better partners available. There are an increasing number of

partners – such as not-for-profi ts, foundations, and multilateral

organizations – that are not only willing but also able to work

with the private sector in these BOP markets.

• Public expectations of companies are changing. Communities

and consumers are expecting companies to become more involved

in issues such as poverty alleviation and be accountable for the

impact they have on developing countries.

• Transfer lessons learnt to and from other markets. Working

in these new markets can bring about innovative ideas and prod-

ucts that can be used in other developing and emerging markets

in which a company operates.

• Building better capacity locally and internationally. Building

better communities creates better employees, partners, etc. but also

enhances the skills and knowledge of employees and companies.

(continued )

120 The Sustainable MBA

How?

Companies are getting involved in development and poverty allevia-

tion in several ways:

• By collectively engaging in public policy dialogues and through

national or international coalitions, such as the Global Business

Coalition Against HIV/AIDS and the UN Global Compact.

• By buying products or services from the poor as suppliers, emp -

loyers, and distributors. Companies such as Unilever and Starbucks

are working with small-scale producers to source raw materials.

• By providing products and services companies are providing

access to pro-poor fi nancial services (Citigroup, Deutsche Bank,

Credit Suisse), information technology (Microsoft, Dell, IBM),

water and energy (EDF, Suez, General Electric). Health care com-

panies are engaged in R&D initiatives, preferential pricing, and

product donations.

• Through community investment companies continue to donate

money into communities to help strengthen them and empower

entrepreneurs.

• By creating innovative business models that reach and are

accessible to the world ’s poor.

Companies are currently developing and testing new ideas and

business models to work with the poor across the full value chain of

the company, from R&D, raw material sourcing, production, distribu-

tion, and marketing to consumption. According to C.K. Prahalad and

Stuart L. Hart, authors of The Fortune at the Bottom of the Pyramid

(2002), ‘Doing business with the world ’s 4 billion poorest people . . .

will require radical innovations in technology and business models.

It will require MNCs to re-evaluate price–performance relationships

for products and services. It will demand a new level of capital effi -

ciency and new ways of measuring fi nancial success. Companies will

be forced to transform their understanding of scale, from a “bigger is

better” ideal to an ideal of highly distributed small-scale operations

married to world-scale capabilities.’

DuPont Thailand had a program that donated lunches to pupils in

rural locations. It decided to treat the program as a marketing oppor-

tunity in order to fi nd ways to expand the program beyond the two

schools with which they were working. In 2002 they identifi ed several

schools to run a farming program using DuPont corn seeds, materials,

and farming supervision. The crops were sold to local dealers earning

Economics 121

the school over US$10 700, which was invested back into their lunch

programs. DuPont invested US$5 600 in the project and exceeded

sales forecasts in the region for similar seeds as local farmers had seen

the success of that particular variety of corn in their area.

Many businesses, such as P&G, have already learnt numerous les-

sons about the challenges of entering these markets. Based on conver-

sations with UNICEF, the company decided to provide products with

micronutrients like iodine and iron that children in certain countries

were missing and that were key to their growth. In 2000 P&G launched

a product called NutriStar, a low-cost, powdered milk drink with micro-

nutrients. It was launched in the Philippines using strategies similar to

those used to launch other products in developed markets, including

a campaign to educate people on the benefi ts. However, a local com-

petitor copied the product, without all the nutritional content, and sold

it at a lower price. They built on the demand produced by P&G for a

product with micronutrients, but did not provide the same product.

Despite this, P&G has continued to develop their NutriStar range.

Some things to keep in mind:

• Focus on core competencies. Focus on what the company does

well and build from there. Often it requires a shift in mindset.

Look for business and non-business partners locally who could

handle those competencies that your business lacks across the

supply chain, including helping to understand what the real

needs of the market are.

• Focus on high standards. It is key that businesses live up to

high standards in these new markets. There is sometimes a low

level of trust in business in these areas, so companies need to

make a real, honest effort.

• Start early as it takes time. Allocate resources and R&D into

testing new business models and ideas on the ground. Also,

review what your company has done before as there could be

expertise hidden away internally.

• Provide unique products and services. This either means cre-

ating new ones that are appropriate to BOP needs, or adapting

an existing product. This also includes enabling access to these

goods and services through innovative packaging strategies (e.g.,

single use), novel distribution strategies (e.g., service rather than

product), and fi nancing options (e.g., prepayment, collective bill-

ing systems, or incentives for paying). (continued )

122 The Sustainable MBA

• Localized value creation through franchising. Through agent

strategies that involve building local ecosystems of vendors or

suppliers, local entrepreneurs, and SMEs. Local phone entrepre-

neurs and resellers, mini-hydropower systems, community-based

water treatment systems.

• Don’t just rely on market research. Businesses interested in

reaching these markets need to immerse themselves in the lives

of their target customers in order to understand challenges relat-

ing to access, awareness, affordability, etc.

• Two-way learning. There is a lot that companies can learn from

these communities. Keep an open mind.

Want more?

• For more on the Millennium Development Goals and the

post-2015 discussions, see www.un.org/millenniumgoals

and www.unmillenniumproject.org. The World Resource

Institute ’s The Next 4 Billion looks at market size and busi-

ness strategy at the base of the pyramid (www.nextbillion

.net). For more on business and development, see the WBCSD

programs and publications on development and sustainable

livelihoods (www.wbcsd.org).

• The World Bank has several resources including Poverty

Reduction Strategy Papers that help to identify which agency

to work with and understand the development priorities

(www.developmentmarketplace.org). See also www.doing-

business.org, which provides information on doing business

in countries across the world.

• Read: The Fortune at the Bottom of the Pyramid: Eradicating

Poverty Through Profi ts by C.K. Prahalad (2004), which looks

at the immense untapped buying power of the world ’s poor.

The Next 4 Billion: Market size and business strategy at the

base of the pyramid (2007) looks at the 4 billion low-income

consumers at the base of the economic pyramid.

‘Business cannot succeed in a society that fails.’ BJORN STIGSON, WBCSD, PRESIDENT

http://www.un.org/millenniumgoals

http://www.unmillenniumproject.org

http://www.nextbillion.net

http://www.developmentmarketplace.org

http://www.doing-business.org

‘The social entrepreneur wouldn ’t be happy just to

give someone a fi sh or teach them to fi sh – they ’d

want to reinvent the fi shing industry.’ BILL DRAYTON, ASHOKA

8 Entrepreneurship

124 The Sustainable MBA

While large companies usually receive the majority of attention,

it is the small and medium-sized enterprises (SMEs) that make up

90% of all businesses in the world, and are responsible for between

50% and 60% of total employment. They are the fastest-growing

part of the economy and account for the major share of exports

and the bulk of new jobs in most countries. SMEs are responsible

for providing the products and services that larger companies rely

on. They are also largely responsible for innovation. The Babson

Center for Entrepreneurship in the USA estimates that in the last

hundred years, 95% of the signifi cant innovations in products and

services came from fi rms with fewer than 20 employees. 23

SMEs in many cases are leading the way in sustainability.

Because of their small size they are often more nimble and able

to adapt quickly to sustainability practices. There is a major need

for new, innovative business ideas and services and often SMEs

are better positioned than larger companies to provide these. In

addition to SMEs, there are a growing number of entrepreneurs

both outside and within organizations, who have the ability to

identify underserved markets and come up with innovative ideas

to provide new sustainable products and services, either for profi t

or not for profi t.

Why is it important?

• Innovation. There are opportunities and demand for a growing

number of new more sustainable products, services, and tech-

nologies. SMEs and entrepreneurs are in an ideal position to

explore and develop these opportunities.

• Building a stronger business. Many of the points introduced

in the business case introduction are just as relevant to SMEs as

they are to large companies, perhaps even more so. Sustainability

policies and practices can help a small company identify

and manage risks, cut costs, explore new revenue-generating

Entrepreneurship 125

opportunities, fi nd, retain, and have more productive staff, and

increase effi ciency.

• Business partners are asking for it. For those SMEs that sup-

ply, or want to supply, larger companies, these larger companies

are increasingly looking to work with companies that share their

social and environmental values. Failing to take these issues seri-

ously can result in a loss of business opportunities.

• No longer invisible. Gone are the days when SMEs could slip

under the radar. Laws and regulations that once mostly affected

larger companies are starting to apply to smaller ones as well.

• Flexibility. SMEs are able to respond to the changing business

environment with greater speed and fl exibility, meaning they

will be able to integrate sustainability directly into their business

plans more effi ciently.

• Reach and opportunities. SMEs and entrepreneurs may be

able to identify and reach markets and groups that are currently

not being effectively reached, resulting in new opportunities.

This is especially true with the growing number of active social

entrepreneurs working around the world.

• Infl uence. SMEs can have an important impact on larger com-

panies. There are many examples now where SMEs with a strong

sustainability culture have been bought by larger companies

who are interested in capturing and diffusing their approach to

sustainability.

The key concepts

SMEs have a potentially large impact because of their sheer num-

bers. As there are so many different types of SMEs, there are several

different ways these groups are having an impact and can benefi t

from sustainability. While the key concepts presented below are all

important for SMEs, it is worth noting that the other chapters in this

book are equally applicable.

126 The Sustainable MBA

• Entrepreneurs focused on large-

scale change

→ Social/environmental

entrepreneurs

• What are the different options for

new companies?

→ Exploring new business

models

• Working from inside a

company as an entrepreneur

→ Making changes from

within

• Exploring new business

opportunities that are sustainable

→ Generating ideas

• Finding money for new

sustainability ventures

→ Funding

• Toward success → Box: Some advice for

entrepreneurs

• Democratic businesses → Cooperatives

Social/environmental entrepreneurs

Although the defi nitions of what exactly constitutes a social entre-

preneur vary, the term ‘social entrepreneur’ is used to refer to

people who create businesses, both big and small, where social

and environmental issues are at the core of their business offer-

ings. According to the Skoll Foundation, social entrepreneurs ‘seize

opportunities that challenge and change forever established but

fundamentally inequitable systems.’ The Schwab Foundation refers

to a social entrepreneur as a leader or pragmatic visionary who:

• Achieves large-scale, systemic, and sustainable social change

through a new invention, a different approach, a more rigorous

application of known technologies or strategies, or a combina-

tion of these.

• Focuses fi rst and foremost on the social and/or ecological value

creation and then tries to optimize the fi nancial value creation.

• Innovates by fi nding a new product, a new service, or a new

approach to a social problem.

Entrepreneurship 127

According to the Skoll Foundation, the difference between

standard and social entrepreneurship does not come down to

motivation – with entrepreneurs spurred on by money and social

entrepreneurs driven by altruism. ‘The truth is that entrepreneurs are

rarely motivated by the prospect of fi nancial gain, because the odds

of making lots of money are clearly stacked against them. Instead,

both the entrepreneur and the social entrepreneur are strongly moti-

vated by the opportunity they identify, pursuing that vision relent-

lessly, and deriving considerable psychic reward from the process

of realizing their ideas.’ Instead, they say the real difference lies in

the value proposition itself. Social entrepreneurs aim for value in the

form of large-scale, transformational benefi t that accrues either to a

signifi cant segment of society or to society at large.

There are many examples of social enterprises working around the

world. The microcredit movement introduced further in Chapter 10 is

one of the best-known examples. Another is Riders for Health, created

by the Grand Prix motorcycle racing community. This enterprise looks

to tackle a simple yet critical element of the African healthcare sys-

tem: transportation. By providing motorbikes and maintenance sup-

port services, Riders for Health have extended the reach of healthcare

providers to 11 million Africans. The founder of SammaaN, a rickshaw

company in India, found that over 90% of rickshaw drivers were illit-

erate, unable to purchase their rickshaws, and made very low salaries.

The new rickshaw company has worked to improve the lives of its

drivers by redesigning the rickshaws to include, among other things, a

mobile shop that stocks newspapers, water, and mobile recharge cou-

pons to increase the revenue opportunities of the drivers. Drivers are

provided with free uniforms, a savings bank account, free insurance,

and even free evening classes for drivers and their children.

The book The Power of Unreasonable People notes that successful

social entrepreneurs:

• Try to shrug off the constraints of ideology or discipline.

• Identify and apply practical solutions to social problems, com-

bining innovation, resourcefulness, and opportunity.

128 The Sustainable MBA

• Innovate by fi nding a new product, a new service, or a new

approach to a social problem.

• Focus – fi rst and foremost – on social value creation and, in that

spirit, are willing to share their innovations and insights for oth-

ers to replicate.

• Jump in before ensuring they are fully resourced.

• Have an unwavering belief in everyone ’s innate capacity, often

regardless of education, to contribute meaningfully to economic

and social development.

• Show a dogged determination that pushes them to take risks

that others wouldn ’t dare.

• Balance their position for change with a zeal to measure and

monitor their impact.

• Have a great deal to teach change-makers in other sectors.

• Display a healthy impatience (e.g., they don ’t do well in bureau-

cracies, which can raise succession issues as their organizations

grow – and almost inevitably become more bureaucratic).

There are several foundations actively working to advance social

entrepreneurship, including Social Enterprise UK (www.social

enterprise.org.uk), the Skoll Foundation (www.skollworldfo

rum.org), the Schwab Foundation (www.schwabfound.org),

Ashoka (www.ashoka.org), Acumen Fund (www.acumenfund

.org), and Institute for Social Entrepreneurs (www.socialent

.org). Startuplab connects entrepreneurs with founders of suc-

cessful startups for advice and learning (www.mystartuplab

.com). CoFoundersLab is a matchmaking app that connects

entrepreneurs who are interested in starting new ventures

(www.cofounderslab.com). Also take a look at the Unreasonable

Institute (unreasonableinstitute.org). The Global Social Venture

Competition is a global MBA student business plan competition.

Winners get mentorship, exposure, and cash prizes (www.gsvc.org).

Read: Design Your Life, Change the World ( http://www

.profmichaelgordon.com/DYL.pdf ).

http://www.socialenterprise.org.uk

http://www.skollworldforum.org

http://www.schwabfound.org

http://www.ashoka.org

http://www.acumenfund.org

http://www.socialent.org

http://www.mystartuplab.com

http://www.cofounderslab.com

http://www.gsvc.org

http://www.profmichaelgordon.com/DYL.pdf

http://unreasonableinstitute.org

Entrepreneurship 129

Exploring new business models

A number of companies are exploring completely different ways

of doing business to be more sustainable, reinventing the business

model, and looking at how business can do what it does differently.

Throughout the book we look at quite a few examples of this, for

example product service systems in Chapter 12, which looks at

turning a product into a service or companies that take garbage

and turn it into new products.

Many SMEs are in a perfect position to question the way we cur-

rently do business and to come up with innovative new ways of

doing business. The Soap Dispensary in Vancouver, Canada, has

eliminated all packaging and invites customers to instead bring

their own or buy containers that can be fi lled with a variety of soaps,

household cleaners, and other ingredients. Guayaki, while market-

ing yerba mate as an alternative to coffee in the US market, is ena-

bling the reforestation of the Atlantic Forest in Paraguay, Argentina,

and Brazil, which has been largely cut down over the past 30 years.

Guayaki ’s business model is that they partner with local communi-

ties, paying them for the sustainable harvest of shade-grown yerba

mate. In return, the farmers must repopulate their rainforest with

native hardwood trees. Since the income provided by yerba mate

is higher than that from cattle, there is an incentive for local com-

munities to protect and reforest the area.

Rethinking the business model is not just happening with small

companies. There are a growing number of larger companies that

are also exploring alternative business models as a way to deliver

their services, including incorporating aspects of social and envi-

ronmental ventures. Cemex, a global leader in the building materials

industry, created a program in Mexico called ‘blockeras comuni-

tarias,’ where people who want to build a home can use Cemex

cement and a block-making machine to produce bricks. One out

of every two bricks goes to the person producing it; the other is

taken by Cemex to be sold, which enables the project to remain

economically sustainable. The program is so well accepted that

people often need to wait up to two months to use the machine.

130 The Sustainable MBA

Making changes from within

Entrepreneurs are not just individuals working outside an organiza-

tion to develop new ideas. Individuals can also become entrepre-

neurs from within a company or organization, an idea referred to

This model is now being replicated in other countries that the com-

pany operates in. Another example is a partnership between two

organizations, Grameen Bank and Danone Foods. They paired up

to create a unique community-based joint venture in Bangladesh,

which is based on social and environmental concerns and oper-

ates in parallel but independently from the rest of the company. In

2006 they launched a yoghurt product called Shoktidoi designed

to provide for the nutritional needs of Bangladeshi children at an

affordable price that can be bought by even the poorest families.

The plant hires local workers and relies on developing microfarms

which supply raw materials used to produce the yoghurt. The busi-

ness provides income to more than 1600 people within a radius of

30 km around the plant. The plant has a rainwater recovery system

and the yoghurt pots are made of a material that is entirely biode-

gradable. Profi ts are reinvested in the initiative.

Different countries are exploring new alternatives to register compa-

nies that consider themselves social/environmental ventures. Slovenia

recently passed a Social Entrepreneurship Act which gives special

status to social enterprises that employ at least two employees and

generate at least 50% of their total revenues from social entrepreneur-

ship activities, or a business where at least one-third of all employees

come from the most vulnerable groups in the labor market.

Forum for the Future is doing some work around sustainable

business models (www.forumforthefuture.org). WWF Green

Game Changers Bank provides links to case studies of different

business models (www.wwf.org.uk), as does the WBCSD (www

.wbcsd.org).

http://www.forumforthefuture.org

http://www.wwf.org.uk

http://www.entrepreneurship.org

Entrepreneurship 131

as intrapreneurship. Intrapreneurs develop and promote practical

solutions to environmental and social challenges within the organi-

zations they work for, regardless of size.

Companies, in particular larger ones, although often slow to

change, can bring about signifi cant weight when they do change.

Employees working for these companies are in a unique position

to push for change as they have a good understanding of the inner

workings of the company. Working from within can give them

access to resources, such as people and fi nances, to make a differ-

ence. It also enables them to incubate their social idea at lower risk

than if they were to go at it on their own. If the idea becomes suc-

cessful, they have helped drive the future success of the company.

This whole book provides a range of tools for individuals within

businesses and organizations to develop new ideas and see how

they can apply sustainability to their own businesses and be an

intrapreneur. Several ways of engaging employees, in particular

around sustainability, are presented in Chapter 13.

Companies are fi nding that promoting and supporting intrapreneur-

ship from within can bring about potentially substantial advantages.

Because of this they are looking at ways to encourage intrapreneur-

ship by providing employees with the space, time, and resources to

test out new ideas, empowering individuals to make decisions, and

making risk-taking and failure acceptable. It is often not about cre-

ating intrapreneurs as they surely already exist in the organization,

but about fi nding them and helping them. Some companies have

created more structured ways of empowering intrapreneurs:

• Provide space (time and resources) for employees to test out

new ideas . . . Google allocates 20% of employee time to innovate

and the remaining 80% to work on improving existing projects.

• Create more structured roles in the company for intrapre-

neurs . . . Companies such as Dell have formalized the role of

the intrapreneurs with offi cial positions such as ‘Entrepreneur in

Residence’ or ‘Chief Innovation Offi cer.’

• Have internal competitions . . . At movie company Dreamworks

staff are trained on how to pitch new ideas, whether it involves

132 The Sustainable MBA

creative input for a new fi lm or adding a new food choice to the

cafeteria.

• Encourage collaborations across departments . . . 3M allows

employees to use 15% of their time as ‘innovation’ time. The

condition is that they need to share their insights with others

across the company.

• Create an in-house venture capital pool or grant program

to help fund intrapreneurial ideas . . . LinkedIn launched

‘InCubator,’ which is an internal startup incubator where engineers

get 30–90 days away from their regular work to develop ideas for

their own products. The program is highly structured, with rounds

of judging including a fi nal round with the CEO to fi lter ideas for

the most viable and potentially profi table new products.

• Celebrate and reward intrapreneurial behavior . . . through

a range of mechanisms including awards, recognition, and/or

fi nancial incentives such as profi t sharing.

Companies are also looking for entrepreneurs outside the com-

pany and giving them the opportunity to work with and within the

company. This can be by acquiring new companies or by creating

a space for internal initiatives to grow on with some or a lot of

independence. Many companies have discovered the advantages

of having teams, also known as ‘skunk works,’ working apart from

the main, bureaucratic engine of the company on new projects.

This freedom allows them to be creative in ways they could not

from within the company ’s mainstream structures. Companies have

explored several different ways of fostering new enterprise devel-

opment from within their organizations:

• Islands. This involves initiatives being incubated away from the

mainstream business so that they can enjoy a degree of freedom.

One of the best ways to do this is to work from a separate building.

• Bridges. Some projects will have clear but relatively loose links

to the host company, often enjoying more freedom than tra-

ditional business units. Shell ’s wind division in the North Sea

was physically located outside corporate headquarters but with

Entrepreneurship 133

Generating ideas

Small businesses usually think about how to reach new markets

before anyone else does, and typically move faster. So how do they

fi nd their inspiration? Entrepreneurs need to ensure that they are

targeting real opportunities. Some tips on identifying these include:

• Put sustainability at the center right from the start. Taza

Chocolate in the USA makes chocolate from all organic and fair

trade-sourced ingredients. They make their chocolate in small

batches using traditional stoneground techniques and have

incorporated sustainability into all aspects of the business, from

sourcing to operations.

• Put a sustainable spin on something that currently exists.

This involves turning an already existing business into a ‘green’

one. Whole Foods Market is a food store that sells natural and

organic products. It started as one small store in 1980 in Texas

and now has hundreds of stores in the USA, Canada, and the UK.

access to Shell ’s capital and other resources. Their companies

and brand give them access to resources they wouldn ’t enjoy as

a traditional entrepreneur.

• Symbiosis. Intrapreneurs that incubate their initiatives right

inside the host organization. Unilever ’s Shakti program looks

at increasing market share in rural villages in India by provid-

ing women with training in selling, commercial knowledge, and

book-keeping. These women can then choose to set up their

own business or become Shakti distributors. This department

sits at the center of Hindustan Unilever ’s sales department and

is completely integrated into the business.

This book is full of resources for intrapreneurs within any type

of company of any size. Look within the different sections of the

book for more ideas and tools.

134 The Sustainable MBA

• See something that you think can be done better. Sometimes

the idea already exists, but with some tweaks it can be rein-

vented to make it much better. Clif Bar, an industry leader in

all-organic energy bars, began with the founder being frustrated

by the taste of the available energy bars. He thought he could

make a better bar. Two years later, Clif Bar became a reality and

today they focus on continually improving their products, their

company, and the planet.

• Identify a need that can be better fulfi lled. Many entre-

preneurs simply see a need for something and come up with

innovative ideas on how to better fi ll that need. The founder of

Adventerra Games saw a need for fun activities to get kids and

their families excited about saving the Earth. The result is a small

company that invents, produces, and distributes board games

in four different languages that help children and their families

learn about the planet and how they can make a difference by

changing their behaviors and habits.

• Operate in a sustainable way. The business does not sell ‘green’

products per se, yet as part of its mission is working in the fi eld

of sustainability. UKOS, an offi ce equipment supplier in the UK,

was initially skeptical about sustainability. They started by joining

a local network that looked at resource effi ciency to see if there

were ways they could save on resources like gas and electricity.

This led to realizing that they could differentiate themselves from

their competitors by being more environmentally friendly.

• Understand environmental laws, regulations, and standards

as drivers. Current regulations on pollution, safety, product con-

tent and performance, labeling, reusing and recycling, and protec-

tion of endangered habitats and species can all present substantial

business opportunities for those who know how to identify and

assess them. The lengthy time it takes for these to come into effect

often presents a window of opportunity during which time entre-

preneurs can judge whether a profi table business will result.

• Exploit new demand for sustainable technology. Reducing

the volume and toxicity of waste and developing products

Entrepreneurship 135

made from secondary materials, also known as clean tech, have

become big business.

• Change the way a product is presented. Several entrepreneurs

have chosen to sell their food from mobile trucks rather than

restaurants. Gmonkey, a 100% vegetarian food truck in the USA,

uses resources directly from local farms in its products while

Organic Falafel food truck Liba uses leftover cooking oil as bio-

diesel fuel for traveling.

• Create the environment for others to be more sustainable.

GreenEarth Cleaning, founded in 1999, is now the world ’s

largest solution provider for environmentally friendly dry clean-

ing. Customers have the choice to use environmentally safe dry

cleaning processes. It is now used by quality dry cleaners oper-

ating more than 1 500 stores worldwide and works with compa-

nies such as P&G, GE, and Sanyo.

• Identify a resource that is currently being underutilized.

Several companies are identifying resources that aren ’t being fully

utilized and turning those into new business opportunities. In

France old refrigerators are collected, fi xed, and resold by disad-

vantaged youth, a business that took 4 years to become profi table

but is now doing well. Whip Car is a company where individuals

with cars they don ’t use often can register their cars online and

others who are looking to rent a car for an hour or even a few

days can connect and rent those cars directly from the owners.

There are many websites and books to help take your ideas to

reality. One is Entrepreneurship, a website which assists nations

in developing the environment to allow entrepreneurs to organ-

ize and operate a business successfully (www.entrepreneur

ship.org). Ecopreneurist is a collection of regular blogs of green

entrepreneurial ideas from around the world (ecopreneurist

.com). Global Ideas bank is a website full of interesting ideas for

social invention (www.globalideasbank.org).

http://www.globalideasbank.org

http://ecopreneurist.com

136 The Sustainable MBA

Funding

As an entrepreneur, where you look for funding will depend to

a certain extent on the chosen company structure (e.g., not for

profi t or for profi t). There are a growing number of different fi nanc-

ing options for sustainable companies. As with any new business,

social enterprise funding sources are similar to those of traditional

business ventures and can include:

• Family and friends, or personal savings. Often entrepre-

neurs start out by using their own resources and savings, or by

taking loans from family and friends who believe in their vision.

• Foundations. A foundation is a not-for-profi t group that gives

out grants to other organizations and individuals. Each founda-

tion chooses to fund based on different criteria. Some of the

large foundations include the Rockefeller Foundation, Bill and

Melinda Gates Foundation, David and Lucile Packard Foundation,

MacArthur Foundation, and Ford Foundation. Foundations can

be private individuals but increasingly are set up by companies,

such as the Burberry Foundation.

• Investment funds. The Global Environment Fund invests in

businesses around the world that provide cost-effective solutions

to environmental and energy challenges. They have approxi-

mately US$1 billion aggregate capital under management.

• Partnerships and in-kind donations. Funding does not just

have to come in the form of cash, it can also come in the form

of other kinds of resources including people or organizations

donating time, offi ce space, trading of services or products, or

even advice. Combining forces with another entrepreneurial

team can make your business case stronger and provide addi-

tional opportunities for fi nancing from banks and investors.

• Venture capital (VC). Several large VC fi rms have special divi-

sions focused on social, green, and cleantech ventures. In the not-

for-profi t sector, there are also social venture funds developing

which operate similarly to traditional venture funds but expect a

Entrepreneurship 137

different level of return. The Acumen Fund is a non-profi t global

venture fund that uses entrepreneurial approaches to solve the

problems of global poverty. Green VC provides additional news

and resources on green venture capital, funding, and start-ups.

• Angel investors. Angel investors are high-net-worth individu-

als with extensive business experience who invest in compa-

nies. They generally provide advice and a funding amount that

bridges self-funding and large venture capital investments. These

investors add value to the organizations they invest in because

they bring expertise along with capital investment.

• Business plan competitions. There are a growing number of

sustainability awards and business case competitions which have

various prizes, including cash rewards, associated with them. For

example, the Global Social Venture Competition is a global MBA

student business plan competition for social ventures. Winners

get mentorship, exposure, and cash prizes.

• Government and local grants. Government grants can be a

good source of funds for starting social enterprises. Grant writ-

ing, application processes, and making deadlines can be chal-

lenging, so be sure to understand all requirements as early as

possible. There are several websites that can be resources to

fi nding available grants: www.businesslink.gov.uk has a well-

defi ned grant section for UK businesses, www.grantslink.gov.au

in Australia, and www.grants.gov can be a source for US-based

start-ups. Many other countries have similar sites of their own.

• Going public. An IPO is a way for a privately owned SME to

take in additional capital for growth. When Google went public,

it included in the provisions of the original IPO that 1% of its

equity, 1% of its profi t, and 1% of its manpower would go to

solving major world problems.

• Company challenges. A growing number of large companies

involved in sustainability are looking for new ideas to invest

in that could help the company moving forward. GE invited

small businesses with innovative products in renewable energy,

grid effi ciency, and ecohomes/ecobuildings to compete in the

http://www.businesslink.gov.uk

http://www.grantslink.gov.au

http://www.grants.gov

138 The Sustainable MBA

Ecomagination Challenge. Winners were provided with a US$200

million capital pledge from GE and its venture capital partners,

evaluation of the entrant ’s business strategy through in-depth

discussions with GE ’s technical and commercial teams, explora-

tion of partnership opportunities with GE to scale a business

and create global reach, leverage of GE ’s technical infrastruc-

ture and global research centers to accelerate technology and

product development, and the opportunity to utilize existing GE

customer relationships for their go-to-market strategy.

• Investing in individuals. Around the world there are a grow-

ing number of organizations that provide small amounts of

funding to individuals who have passion and an interest in social

entrepreneurship, to enable them to start exploring their idea.

This includes Unltd (unltd.org.uk), Pave (www.pave.com), and

Echoing Green (www.echoinggreen.org).

• Crowdsourcing. A growing number of entrepreneurial ideas are

being funded by the public. Kickstarter, for example, is a fund-

ing platform where since its start in 2009, more than 3 million

people have pledged over US$450 million to fund more than

35 000 creative projects. Mosaic connects investors to high-

quality solar projects. Other similar sites exist for specifi c kinds

of projects and entrepreneurial activities, including IndieGoGo,

Quirky, Etsy, RocketHub, FundRazr, and PledgeMusic.

US International Grantmaking Project (www.usig.org). Investors

Circle is a network of over 200 angel investors, professional venture

capitalists, foundations, family offi ces, and others who are using

private capital to promote the transition to a sustainable economy.

Read: Social Investment Task Force, Social Investment

Manual: A Guide for Social Entrepreneurs (evpa.eu.com).

http://www.pave.com

http://www.echoinggreen.org

http://www.usig.org

http://unltd.org.uk

http://evpa.eu.com

Entrepreneurship 139

Challenges?

• Resources. Insuffi cient technology, expertise, training, and capi-

tal can be a barrier for SMEs interested in adopting environ-

mental and social responsibility. The need to deal with more

pressing matters – such as upgrading the quality of technology,

management, and marketing – often prevents them from taking

a more sustainable approach.

• Part of the problem. There is an increased recognition that

many SMEs are part of the problem when it comes to unsus-

tainable business practices. In many countries, environmental

health and safety inspections of SMEs are either not required

or are not being performed as rigorously as with large enter-

prises. Although one small business may not think that it can

have any impact, collectively they can and do have a major

impact.

• Balancing priorities. Finding time to incorporate sustain-

ability practices into a start-up or SME can be challenging,

as entrepreneurs and SMEs typically have a lot of things to

be thinking about and seemingly never enough time to do

them all.

• Tailored initiatives. There are a growing number of ini-

tiatives open to larger businesses focused on different sus-

tainability issues. However, there is still a lack of initiatives

tailored for small companies, although some organizations

are starting to work on this (e.g., GRI reporting guidelines

for SMEs).

• Gaining recognition. Most of the leaders we hear about in

sustainability are those that have the time and budget to commu-

nicate their successes. The kind of sustainability practices which

are common amongst SMEs, such as their role in the local com-

munity, also need to be celebrated.

140 The Sustainable MBA

Trends and new ideas

– Merging and selling

– Microbusinesses

– Social stock exchange

– Working with big business

– Marketing on a shoestring

Merging and selling

As the number of companies focused on sustainability continues

to grow, these same companies are becoming more powerful and

visible because of an increase in mergers and sales deals. We are

seeing sustainability-focused companies coming together to create

larger companies that are starting to be able to compete against

the mainstream companies. For example, Ecover, a leading environ-

mental cleaning company in Europe, and Method, a leading envi-

ronmental cleaning company in North America, merged to create

the largest environmental cleaning company in the world.

Founders of SMEs focused on sustainability are also seeing the

opportunity to sell sometimes very young companies to much larger

companies. Some larger companies interested in green business are

choosing to buy green companies rather than reinvent the wheel.

When Danone took over Stonyfi eld Farm, the CEO of Stonyfi eld Farm

said he accepted the deal because he wanted to change Danone

from inside in order to have a greater leverage on the food mar-

ket. While Danone took an 80% share in Stonyfi eld Farm, they left

him in complete control. Coca Cola bought a 58% stake in Innocent

fruit juice company, hoping to learn more about its sustainability

approach. This not only gave Innocent access to Coca Cola ’s net-

work, but also enabled it to scale up its sustainability operations.

Microbusinesses

Microbusinesses are small businesses that can easily be replicated

by following proven marketing and operational concepts. These

Entrepreneurship 141

can sell for anything between US$25 and US$6 000. For example,

The HealthStore Foundation, based in the USA, gives healthcare

workers in Kenya microloans to open their own for-profi t Child and

Family Wellness shops that distribute medical products and services

to remote communities in Kenya. Applying the basic principles of

successful franchising, the foundation then trains the franchisees in

uniform procedures, carefully selects locations, and conducts regu-

lar inspections to ensure quality and consistency. The franchise can

also exploit economies of scale to obtain safe and effective drugs at

low costs. Microleasing is another opportunity available. In the case

of Honey Care in Kenya, beehives are sold, or leased, to individu-

als who are also provided with basic training in bee-keeping, basic

record-keeping, and management skills. The group also offers the

farmers a stable and year-round market for their honey by agreeing

to buy their honey at a guaranteed and mutually acceptable price

for a period of 2 years or more, allowing farmers to plan ahead.

Social stock exchange

In order to develop strong social enterprises, large amounts of capi-

tal and support need to be made available. Therefore, organiza-

tions are starting to explore alternatives to the traditional stock

exchange by putting in place exchanges that focus on develop-

ing social value rather than fi nancial value. Global Exchange for

Social Investment, launched in 2002, worked to create such a global

social capital market by linking charitable donors, entrepreneurs,

and investors in funding social businesses in low-income regions

around the world. The Social Stock Exchange in Brazil, launched in

2003, brings together non-profi t organizations with the São Paulo

Stock Exchange investors who are interested in supporting those

efforts. The South African Social Investment Exchange, launched in

2006, makes carefully selected social development projects avail-

able as investment opportunities with a social return. Investors can

buy shares in SASIX projects and can track online how their invest-

ments are performing and view the impact they are having. Keep

142 The Sustainable MBA

an eye out for other social stock exchanges being developed in

England, Germany, New Zealand, Portugal, the USA, and Thailand.

Working with big business

For businesses, working with entrepreneurs can be one of the most

effective ways to explore and ultimately serve underserved mar-

kets. Enabling small, local fi rms to supply goods and services to

larger enterprises creates more effi cient supply chains by optimiz-

ing cost, quality, fl exibility, and other considerations. This can also

allow a larger company to gain the local knowledge and contacts

required to operate effectively and profi tably. It also encourages

small companies to improve their standards and practices to meet

the stricter requirements of the larger company. Often, larger com-

panies include working with and supporting local SMEs as part of

their sustainability initiatives. In 2007, HP globally invested US$47.1

million (or 0.51% of pre-tax profi ts) in educational, economic devel-

opment, environmental, and local community investment projects.

There are several ways for large companies to work with SMEs:

• Create links with local SMEs in the different areas of the value

chain; for example, procurements, agriculture, manufacturing, sub-

contracting, etc. Fortescue in Australia is committed to providing

sustainable business opportunities to local Aboriginal people by

allocating over US$1 billion in contracts to Aboriginal businesses.

• Work to strengthen the SME environment and its role in local

economic development by supporting their activities, provid-

ing fi nancing, training centers, etc. COOP Italia, a large retailing

enterprise, is helping its 350 SME suppliers to meet CSR stand-

ards by providing training and support. TriSelect, a French urban

waste recycling business, offers distance learning for low-skilled

employees to improve their knowledge of health and safety in

the workplace.

• Create new distribution networks . Amanco worked with a

farming cooperative in Mexico to develop a new distribution

Entrepreneurship 143

system that enables it to sell its irrigation systems to small farms

in poor rural areas.

• Deliver better-quality products. SC Johnson is the largest

buyer in Kenya of pyrethrum, produced by some 200 000 sub-

sistence farmers. SC Johnson worked with local organizations

to provide these farmers with better access to manually oper-

ated irrigation pumps, which has not only helped the Kenyan

farmers, but also ensured the long-term availability, quality, and

lower cost of natural pyrethrum for SC Johnson products.

Marketing on a shoestring

In 1997, according to Interbrand, the Body Shop – which had less

than 0.5% of the global cosmetic market – was the 28th most valu-

able brand in the world. How? These companies, who have today

grown into international leaders, looked to market their products

in whatever way they could, online, on-pack, in-store, through their

positions on different issues (in this case animal testing), and through

strong relationships with NGOs. Some common threads to the mar-

keting approach of these companies are:

• Intuition led. Based on the founder ’s intuition and vision rather

than on market surveys, fi nding innovative low-cost techniques

to use because of tight budgets.

• Guerrilla marketing. Online, on-pack, and in-store campaigns

where companies take strong stands on issues which, among

other things, spotlight the controversial practices of their com-

petitors and highlight the comparative benefi ts of their products.

The Body Shop took a stand on animal testing, Ben and Jerry ’s

took a stand on bovine growth hormones.

• Strong relationships with NGOs. Through charitable dona-

tions, cause-related marketing, joint campaigns, or activities in

which they are involved.

• Limited use of mass advertising. Either due to cost constraints

or the necessity to communicate a sophisticated positioning,

144 The Sustainable MBA

they remain consistent with their activist approach. Most compa-

nies have been reluctant to use ‘traditional’ forms of mass media

advertising.

• Their communications focus on the high quality of their

products and services. These companies go beyond social and

environmental selling points (i.e., Patagonia ’s outdoor clothes

have a lifetime guarantee).

• Accountability and transparency. Ben and Jerry ’s was the fi rst

company to voluntarily report on social performance in 1989.

• Using social media. Whether it is Twitter, Facebook, or Pinterest,

social media platforms provide a growing range of ways to reach

your target audience for free.

Want more?

• There are a growing number of resources specially tailored

to SMEs on the subject of sustainability. For example, in the

area of reporting, the Global Reporting Initiatives offer guid-

ance and reporting guidelines for SMEs who want to create

sustainability reports (www.gri.org). CPA Australia created

a guide for assurance of SME ’s sustainability reports (www

.cpaaustralia.com.au).

• There are also many networks that SMEs can join (including

all those mentioned in this book). Some are more tailored

to small businesses, such as the Business Alliance for Local

Living Economies which is made up of nearly 80 local net-

works of independent businesses in the USA and Canada

(www.livingeconomies.org).

• The Effi cient Entrepreneur is an online tool that provides

practical advice on how SMEs can take steps to reduce costs,

increase productivity, and satisfy clients while at the same

time reducing business risks and protecting the environment

http://www.gri.org

http://www.livingeconomies.org

http://www.cpaaustralia.com.au

Entrepreneurship 145

(www.effi cient-entrepreneur.net). The Kauffman Foundation

is one of the largest foundations devoted to entrepreneurship

in the world (www.kauffman.org).

• World Bank Business Environment Snapshots provides infor-

mation about how easy (or diffi cult) it is to do business in

more than 200 countries (rru.worldbank.org).

• The Global Entrepreneurship Monitor (GEM) research pro-

gram is an annual assessment of the national level of entre-

preneurial activity (www.gemconsortium.org).

• Social Innovation Conversations brings social change ideas

through audio lectures, speaker series, and conference

recordings (sic.conversationsnetwork.org).

• The European Union has developed a documentation center

for SMEs with examples of best practice (ec.europa.eu/enter

prise/csr/sme.htm). SME Toolkit contains research by the IFC

and IBM and offers resources to help small businesses in

emerging markets grow and succeed (www.smetoolkit.org).

Business and Development Network ’s SME resources can be

found at www.bidnetwork.org. New Ventures, a program of

the World Resource Institute, promotes sustainable growth in

emerging markets (www.new-ventures.org).

Read: How to Change the World: Social entrepreneurs

and the power of new ideas by David Bornstein (2004), which

provides examples of people around the world who have

found innovative solutions to a wide variety of social and

economic problems. The Power of Unreasonable People: How

Social Entrepreneurs Create Markets that Change the World

by John Elkington and Pamela Hartigan (2008) shows how

social entrepreneurs are solving some of the world ’s most

pressing economic, social, and environmental problems.

http://www.efficient-entrepreneur.net

http://www.kauffman.org

http://www.gemconsortium.org

http://www.smetoolkit.org

http://www.bidnetwork.org

http://www.new-ventures.org

http://rru.worldbank.org

http://sic.conversationsnetwork.org

http://ec.europa.eu/enterprise/csr/sme.htm

146 The Sustainable MBA

Some advice for entrepreneurs

• Failure is an option. The fact is that the majority of entrepre-

neurial projects fail. If failure isn ’t an option, then there is no

room for experimentation or risk or growth. Most successful

entrepreneurs talk more about their failures and the lessons they

learnt that enabled them to have some successes.

• Keep an open mind. Think as if there were no borders, no con-

straints. What could you do? Often companies spend their time

trying to preserve the status quo rather than trying to open new

markets.

• Money does matter. Whether or not you are starting a for profi t,

a not for profi t, or a charity you still need to approach any new

venture as a business. Even not for profi ts need money to operate.

• Focus on solving a problem, not selling a solution. Often peo-

ple are quicker to recognize the problem than the value of a

particular solution. Position your product or service as a solution

to a particular problem that is easily recognizable by your target

audience.

• There is no right or wrong way to do it. There is no one way

to be an entrepreneur. There are no rules as to what you do and

when you do it. For many people it is just something they have

in them. The combination of personal drive and focus combined

with a winning idea makes it happen.

• Focus on people. It doesn ’t matter how great you think your idea

is, if people don ’t buy it, want it, or need it, it won ’t go anywhere.

Without good people working with you, life will be diffi cult so

treat your people well.

• Network. Almost every person that you speak to could possibly

support your success through offering contacts, ideas, references,

time, or even just an ear to allow you to practice speaking of your

organization so that you are more effective in future conversa-

tions with investors.

• Continuous focus on your key priority. Whether it is getting

members signed, selling the product . . . make sure this is a driver

every day as all of the little stuff and side ideas can really distract

from this key success factor.

Entrepreneurship 147

• Do not be afraid to reposition based on new information

gained. If it is discovered that the original idea is not the ideal

solution, avoid becoming discouraged, focus on the specifi c area

of problem or issue, and adjust it to become the ideal solution . . .

continuously remolding the idea so that it achieves the driving goal.

• Don ’t do it alone. Great ideas are usually not developed alone,

but with a partner. If it isn ’t a co-owner or formal partner, there

at least has to be one person to brainstorm with who knows the

plan as intimately as you do and cares about it almost as much. So

much the better if they have good intuition in the areas you don ’t.

• Support. Many people with knowledge, connections, infl uence,

or simply time to burn on Internet research want to help entre-

preneurs. Find them; you don ’t have to do it all yourself.

Checklist for getting started . . .

❑ Identify a problem. What would you like to change? What do you

think could be done better? What is missing?

❑ Think about many possible solutions. Have some of them already

been started? Did they work? If they didn ’t, why didn ’t they?

❑ Pick a solution and devise a strategy. How are you going to sell

that solution in practice?

❑ Think about all the strengths and weaknesses of the ideas.

❑ Build the business case. How are you going to be self-suffi cient?

Are you looking to make a profi t? Will the profi t be reinvested

into the company?

❑ Explore the potential social and environmental impacts your

solutions could have. Look at quantifying these.

❑ Assemble your team. Find a partner – two minds are usually bet-

ter than one.

❑ Network and create partnerships. Which groups can help you

bring your solution forward?

❑ Gather resources to get started, such as offi ce space and initial cash.

❑ Many entrepreneurs and small businesses are also choosing to report.

Of course, the scope and scale is not at the level of large companies.

GRI has a special section for SMEs on sustainability reporting.

❑ Get working! If you succeed, congratulations. If you don ’t, learn

from your mistakes and start again.

148 The Sustainable MBA

Cooperatives

‘The resilience of cooperatives, including in times of crisis,

testifi es to the sustainability and adaptability of the coopera-

tive enterprise.’

INTERNATIONAL LABOUR ORGANIZATION

The UN defi nes cooperatives as ‘business enterprises owned and con-

trolled by the very members that they serve.’ A cooperative is a busi-

ness like any other. It is subject to the same needs and demands. But,

in several important ways, cooperatives are also unique and different.

Most distinctly, a cooperative is created, owned, and democratically

controlled by the people who use it – its members. For cooperatives,

generating a profi t is only part of the story. Cooperatives put people

before profi t by helping their members achieve their shared social,

cultural, and economic aspirations.

Cooperatives seek to optimize outcomes for a range of stakehold-

ers without seeking to maximize the benefi t for any single stake-

holder. In that way they are increasingly important builders of

sustainability. They make signifi cant contributions toward alleviating

world problems such as environmental degradation and resource

depletion, increasing inequality, and a growing global governance

gap. In many cases cooperatives have been innovators in this area.

For example, food cooperatives have provided important innova-

tions in the areas of unit pricing, consumer protection, organic and

bulk foods, and nutrition labeling.

Cooperatives also, by their very nature, internalize many of what

economists would term ‘externalities ’ (see Chapter 7 for more

details). Governance based on balanced democratic control means

a cooperative holds itself accountable for limiting impacts that

might otherwise go overlooked. This makes it an interesting sus-

tainable alternative to the typical viewpoint of a public or private

enterprise.

There are over 1.4 million cooperatives around the world, with

over 1 billion members. The largest 300 cooperatives account for over

US$2 trillion in turnover, equal to the 10th largest national economy.

In India, the consumer needs of 67% of rural households are covered

by cooperatives. 40% of African households belong to a cooperative,

Entrepreneurship 149

and 250 million farmers in developing nations belong to a coopera-

tive. In Finland, 62% of households are part of the S-Group coop-

erative. In New Zealand, cooperatives are responsible for 95% of the

dairy market and the export dairy market and 70% of the meat mar-

ket. Cooperatives are present in nearly all economic sectors, includ-

ing agriculture and food, consumer and retail, industry and utilities,

health and social care, banking and fi nancial services, insurance and

mutual, and a range of other services.

Mountain Equipment Co-op in Canada produces and sells a range

of outdoor equipment and clothing. For CDN$5 you get member-

ship, which allows you to buy from stores located across the coun-

try. The business already has 3.3 million members. Mondragon – a

worker federation cooperative in Spain involved in manufacturing,

retail, and fi nancial services and created to support employment for

residents of the Basque region – is made up of more than 83 000

employees and 9000 students, making it a force to be reckoned with.

Because so many individual consumers as well as SMEs are mem-

bers of cooperatives they have the potential for a signifi cant impact

on sustainability in the business sector, including but not limited to:

• Reducing costs. Several communities are putting into place

wind-power cooperatives where local communities provide fund-

ing for a wind farm that then allows them to reduce their energy

costs in the long term. In North Frisia, Germany, 90% of the 60

wind farms are community owned.

• Empowering individuals. The Vanlaxmi Women ’s Tree Growing

Cooperative was organized by women farmers who had lost access

to their land. The cooperative uses scientifi c agricultural prac-

tices, including horticulture, ago-forestry, drip irrigation, compost

pits, and rainwater harvesting techniques in their operations.

• Recovering from adversity. The Watthan Artisans Cooperative

in Phnom Penh, Cambodia, brings together individuals with inju-

ries from landmines and bombs, suffering from deafness, psycho-

logical scars, or the aftermath of polio. They are trained to work

with cotton, silk, reclaimed hardwood, and recycled materials to

create artisanal products.

(continued )

150 The Sustainable MBA

• Inspiring change. In Brazil, Sicredi Pioneira RS has a member-

ship of 70 000 and is one of 116 credit cooperatives in the historic

Sicredi organization. Sicredi Pioneria supports a range of initiatives

including another cooperative, the Scholar Cooperative, which

encourages students to organize themselves into cooperatives.

• The power of consumers. Seikatsu Club Consumers ’ Cooperative

Union in Japan was started in 1965 by a single housewife, who

organized 200 women to buy 300 bottles of milk in order to

reduce the price. It has since grown and now places an emphasis

on direct product/consumer links and is dedicated to the environ-

ment, the empowerment of women, and improvement of workers ’

conditions. Today there are 600 consumer cooperatives with over

22 million members who buy a wide range of food products,

clothing, publications, and daily goods.

• Setting fair prices. The Kuapa Kokoo cooperative in Ghana

is made up of 6 500 cocoa farmer members who receive a fair

trade price for their cocoa. They also own a 45% share in Divine

Chocolate company, which uses their cocoa to produce high-

quality chocolate sold around the world.

• Selling direct. Associations for the Preservation of Peasant Farming

(AMAP) in Italy allow consumers to deal directly with growers,

committing themselves several months ahead of the harvest to buy

a selection of fruit and vegetables from a particular farmer. AMAP

regularly delivers over 66 000 boxes of fresh vegetables.

• Providing benefi ts. In Stockholm, Sweden, the HSB Housing

Cooperative comprises 31 regional associations representing

330 000 apartments and 555 000 members, about 10% of all hous-

ing in Sweden.

• Providing services to the needy. Cooperatives will do business

where others might not consider it economically viable. Financial

cooperatives are some of the largest providers of microfi nance

services to the poor, reaching 78 million clients living below the

poverty line of US$2 per day. Pamecas in Senegal provides afford-

able insurance for savings and health care to disadvantaged and

low-income families.

• Long-term view. Mondragon in Spain, mentioned earlier, has

groups specializing in cross-product initiatives coming from differ-

ent divisions to explore new business ideas, which eventually are

elevated to the cooperative-wide level for production. A funding

Entrepreneurship 151

mechanism ensures the survival and success of new initiatives.

21% of its sales are for products that are less than 5 years old.

• Break down of organizational silos. Cooperatives can offer a

range of different services to serve more of their members ’ needs.

For example, the Co-operative group in the UK has a presence

in food retail, banking, insurance, funeral care, pharmacy, travel,

and other services.

Want more?

The UN International Year of Cooperatives, International Day

of Cooperatives on July 7th (social.un.org/coopsyear), and

International Cooperative Alliance (ica.coop) are good sources of

information. Stories coop tells the stories of cooperatives around

the world ( http://www.stories.coop/ ), as does news coop (www

.thenews.coop) and the book Building a Better World – 100 sto-

ries of co-operation by Kate Askew. The International Summit

of Cooperatives takes place yearly ( http://www.2012intlsummit

.coop/ ). The World Co-operative Monitor ranks the largest

cooperatives by turnover and industry (www.monitor.coop).

Countries also have their own specifi c cooperative networks,

for example Canada ’s Cooperative Association, iCOOP in Korea,

and the New Zealand Cooperative Association.

http://www.stories.coop/

http://www.2012intlsummit.coop/

http://www.monitor.coop

http://social.un.org/coopsyear

http://www.thenews.coop

9 Ethics and Corporate Governance

‘Let ’s start with what is legal, but always go on to

what we would feel comfortable about being printed

on the front page of our local paper, and never pro-

ceed forward simply on the basis of the fact that other

people are doing it.’ WARREN BUFFETT

154 The Sustainable MBA

If marketing, accounting, fi nance, and the other core topics intro-

duced in this book are the various pieces of the sustainability puz-

zle, each playing its part in creating more sustainable companies,

ethics forms the glue that holds these pieces together. Business

ethics goes beyond choosing to ‘do the right thing’ in day-to-day

operations and business decisions; it is a core principle of good

management and sustainability. Without good management, strong

corporate governance, and open and transparent relationships

with customers, business partners, and stakeholders, sustainability

issues, policies, and goals can go nowhere. Ethics enters into every

aspect of sustainable business, such as quality standards, honest

payment terms for both customers and suppliers, staff relation-

ships, and tax returns to mention only a few. Regardless of your

position in a company, ethics is a foundational part of your job.

Despite its importance, ethics is often forgotten, pushed aside,

or taken for granted. Most companies have some set of ethics and

management codes in place that the company stands for, but many

employees just assume that their company is properly managing

ethical issues. Thus, general managers play an important role in

ensuring that ethical standards are upheld, and in promoting sus-

tainability principles throughout their workplace.

Why is it important?

• Investors are looking for good governance . Investors are look-

ing at companies that have good, strong governance practices and

principles and see sustainability as a proxy for good management.

• Quality of relationships . A company or manager that conducts

business ethically and legally develops higher-quality relation-

ships with customers, suppliers, employees, and others, which

can directly improve the business.

• Reputation . Companies with policies and practices based on less

than the highest ethical standards, or that are enforced with a relaxed

attitude to compliance, risk damaging their reputation. This is espe-

cially true today as news, both positive and negative, travels fast.

Ethics and Corporate Governance 155

• Financial costs . There is clear evidence that in many countries

corruption adds more than 10% to the cost of doing business,

and as much as 25% to the cost of public procurement. Other

unethical behavior can have signifi cant costs, such as fi nes for

non-compliance, lost customers, and damages to brands due to

loss of reputation, to name just a few.

• Legal risks . Many forms of unethical behavior, such as corrup-

tion, are illegal both in the country in which they occur and

in the country the company is originally from. This is particu-

larly relevant for companies based in OECD countries and was

universally recognized in 2003 with the adoption of the UN

Convention against Corruption.

• Indices . Respecting human rights and other topics within eth-

ics are part of the criteria in a number of indices and standards,

such as the UN Global Compact, ISO 26000, and the Dow Jones

Sustainability Index. In 2012, several companies were deleted

from the FTSE4Good for human rights violations.

The key concepts

Good governance comprises the actions that managers and com-

panies need to take in order to ensure legal and ethical underpin-

nings of their organization and operations. Many people consider

ethics and governance to be vague topics; however, there is plenty

of practical and specifi c guidance available for businesses to oper-

ate ethically. This includes:

• Upholding universal human

rights

→ Business and human

rights

• Promoting worker rights and

standards

→ Labor and working

conditions

• Making diffi cult decisions → Ethics and the individual

manager

• Creating strong control systems

in organizations

→ Corporate governance

156 The Sustainable MBA

Business and human rights

The Declaration of Human Rights, which has been translated into

more than 360 languages, is the foundation of international human

rights law. It is codifi ed in international law through two treaties:

the International Covenant on Civil and Political Rights and the

International Covenant on Economic, Social and Cultural Rights,

each of which has been ratifi ed by over three-quarters of all coun-

tries. These, in addition to the International Labour Organization

conventions and laws, provide a universal benchmark for mini-

mum standards of behavior. According to the Offi ce of the High

Commissioner for Human Rights (OHCHR), ‘Human rights are

fundamental principles and standards that enable individuals every-

where to have freedom to live in dignity. All human rights are

universal, interrelated, interdependent and indivisible.’

In order to assist business in understanding the growing number

of declarations related to human rights, the UN Norms for Business

with regard to human rights were compiled. These include:

• Right to equal opportunity and non-discriminatory treat-

ment . Business should ensure equality of opportunity and treat-

ment for the purpose of eliminating discrimination based on

race, color, sex, language, religion, political opinion, national or

social origin, social status, indigenous status, disability, or age.

• Right to security of persons . Business should not engage in,

or benefi t from: war crimes; crimes against humanity; genocide;

torture; forced disappearance; forced or compulsory labor; hos-

tage-taking; extrajudicial, summary, or arbitrary executions; other

• Stopping the misuse of power → Corruption

• Stopping the misuse of power

for private gain

→ Bribery

• Getting access to information → The power of media

• Moving the sustainability

agenda forward

→ Box: The role of the CEO

Ethics and Corporate Governance 157

violations of humanitarian law; or other international crimes

against the human person. Business should observe interna-

tional human rights norms as well as the laws and professional

standards of the country or countries in which they operate.

• Rights of workers . Business should:

• not use forced or compulsory labor;

• respect the rights of children to be protected from economic

exploitation;

• provide a safe and healthy working environment;

• provide workers with remuneration that ensures an adequate

standard of living for them and their families;

• ensure freedom of association and effective recognition of the

right to collective bargaining.

• Respect for national sovereignty and human rights . Business

should:

• recognize and respect applicable norms of international law,

national laws, and regulations, as well as administrative prac-

tices, the rule of law, the public interest, development objectives,

social, economic, and cultural policies (including transparency,

accountability, and prohibition of corruption) and the author-

ity of the countries in which the enterprises operate;

• not offer, promise, give, accept, condone, knowingly benefi t

from, or demand a bribe or other improper advantage;

• refrain from any activity which supports, solicits, or encour-

ages States or any other entities to abuse human rights;

• respect economic, social, and cultural rights as well as civil

and political rights, and contribute to their realization – in par-

ticular, the rights to development, adequate food and drinking

water, the highest attainable standard of physical and men-

tal health, adequate housing, privacy, education, freedom of

thought, conscience, and religion, and freedom of opinion and

expression, and shall refrain from actions which obstruct or

impede the realization of those rights.

158 The Sustainable MBA

• Obligations with regard to consumer protection . Business

should take all necessary steps to ensure the safety and quality

of the goods and services they provide, including observance of

the precautionary principle. They should not produce, distrib-

ute, market, or advertise harmful or potentially harmful products

for use by consumers.

According to the UN Global Compact, ‘Business should support

and respect the protection of internationally proclaimed human

rights and make sure that they are not complicit in human rights

abuses.’ An organization can do this in two ways:

• Sphere of infl uence concerns the boundaries of a company ’s

human rights responsibilities, whose human rights the company

should be concerned with, and which human rights a company

should pay particular attention to. Each company has a partic-

ular sphere of infl uence based on their geographic presence,

industry, size, and particular business relationships, which can

include the workplace (rights of employees), supply chain (part-

ners do not engage in rights abuses), marketplace (products do

not harm customers), community (no negative impacts on the

communities in which they operate), and government (using

infl uence to develop public policy that promotes and rewards

good behavior).

• Complicity is about business ensuring that it does not assist

or encourage human rights abuses committed by governments,

rebel groups, other companies, or individuals. It is made up of

two elements:

• An action or omission (failure to act) by a company or individ-

ual representing a company that ‘helps ’ (facilitates, legitimizes,

assists, encourages, etc.) another, in some way, to perpetrate a

human rights abuse.

• The company was or should have been on notice that its

action or omission could provide such help. 24

Ethics and Corporate Governance 159

Labor and working conditions

Today, globalization has made rights and standards more relevant

than ever and companies need to uphold local and international

labor standards. According to the International Labour Organization

(ILO), a specialized agency of the UN responsible for protecting

and promoting worker safety and standards, such standards pro-

vide the following benefi ts:

• To ensure that economic development remains focused on

improving the lives of human beings rather than treating labor

as a commodity, which can be bought or sold for the highest

profi t or lowest price.

The Declaration of Human Rights (and the short online course

on human rights and business) (www.ohchr.org) and the UN

Guiding Principles on Business and Human Rights (www

.business-humanrights.org). International standards for corpo-

rate responsibility on human rights include the OECD Guidelines

for Multinational Enterprises, the ILO Tripartite Declaration of

Principles Concerning Multinational Enterprises and Social Policy,

the UN Global Compact, and the IFC Performance Standards on

Social and Environmental Sustainability. There are also a num-

ber of voluntary initiatives, often industry-specifi c, including the

Ethical Trading Initiative and the Voluntary Principles on Security

and Human Rights. Take a look at toolkits developed by the

UNEP Finance Initiative (www.unepfi .org/humanrightstoolkit),

the Institute for Human Rights and Business (www.ihrb.org),

and the Guide to Corporate Human Rights Impact Assessment

Tools (www.humanrightsimpact.org). For a good overview,

see Monash University ’s Human Rights Translated: A Business

Reference Guide (www.law.monash.edu.au).

http://www.ohchr.org

http://www.unepfi.org/humanrightstoolkit

http://www.ihrb.org

http://www.humanrightsimpact.org

http://www.law.monash.edu.au

http://www.business-humanrights.org

160 The Sustainable MBA

• To provide an even playing fi eld by helping governments and

employers to ‘avoid the temptation of lowering labour standards

in the belief that it could give them a greater comparative advan-

tage in international trade.’

• To improve economic performance because although many com-

panies believe that there are signifi cant costs associated with

meeting such standards, there is growing research indicating

that compliance often accompanies improvements in productiv-

ity and economic performance.

The ILO has established an extensive series of labor standards,

including a series of ‘fundamental conventions ’ that cover:

• Child labor . The ILO provides a minimum age to be able to

work. In developing countries this is 15 for regular work, 18 for

hazardous work, and 13 for light work while in developing coun-

tries it is 14, 18, and 12, respectively. It is estimated that over 215

million children are involved in child labor. June 12 is the World

Day Against Child Labour.

• Collective bargaining . This is a voluntary process through

which employers and workers discuss and negotiate their rela-

tions in particular terms and conditions of work and can organ-

ize themselves into organizations and trade unions.

• Discrimination and equality . This occurs when a potential

candidate is treated differently or less favorably because of char-

acteristics that are not related to his/her merit or the inherent

requirements of the job. These characteristics include race, color,

sex, religion, political opinion, national extraction, or social ori-

gin and can also include sexual orientation, age, health issues,

etc. This can occur in respect to recruitment, remuneration, hours

of work and paid holiday, maternity protection, job assignments,

training and promotion opportunities, etc.

• Employment promotion . Businesses should endeavor to

increase employment opportunities and standards. Youth

employment opportunities are a particular area where compa-

nies can play a major role, for young men and women as well as

persons with disabilities.

Ethics and Corporate Governance 161

• Forced labor . This is any work or service that is exacted from

any person under the menace of any penalty and for which that

person has not offered himself or herself voluntarily. Providing

wages or other compensation does not necessarily indicate that

the labor is not forced. The ILO estimates that at least 12.3 million

people are victims of forced labor worldwide. Furthermore, labor

exploitation can occur in many forms and includes threatening

workers with severe deprivations such as withholding food, land

or wages and physical violence.

• Freedom of association and the right to organize . Freedom of

association implies a respect for the rights of all employers and

all workers to freely and voluntarily establish and join groups for

the promotion and defense of their occupational interests.

• Occupational safety and health . It is estimated that 160 million

people suffer from work-related diseases and an estimated 337

million fatal and non-fatal work-related accidents occur every year.

The ILO estimates that 4% of the world ’s annual GDP is lost as a

consequence of occupational diseases and accidents. Workers have

an important role to play in ensuring safe work-place practices and

cooperation between workers and management is essential.

• Security of employment . This is about actively managing a busi-

ness ’s human resources needs to provide to the greatest extent

possible stable employment for their employees. Arbitrary dis-

missal should be avoided.

• Wages and benefi ts . This calls for policies with regard to wages

and earnings, hours and other conditions of work, designed to

ensure a just share of the fruits of progress to all and a minimum

living wage to all employed and in need of such protection. It

looks at best possible wages, benefi ts, and working conditions,

promotion of equal pay for equal value.

• Working time . Excessive hours of work and inadequate peri-

ods of rest and recuperation can damage workers ’ health and

increase the risk of work accidents. Most countries have statu-

tory limits of weekly working hours of 48 hours or less. This also

includes overtime and paid holidays.

162 The Sustainable MBA

Swedish jean company Nudie Jeans believes that everyone who

participates in the manufacturing of their clothes should have a

wage enough to live on. So since 2012 they are paying their share

of the living wage to workers at suppliers in India, an increase of

approximately 17% of a worker’s annual salary.

The International Labour Organization provides detailed

information on all labor standards. Read their Rules of the

game, a brief introduction to international labour standards

and visit their Helpdesk for Business (www.ilo.org/business).

International Organisation of Employers (www.ioe-emp.org),

International Trade Union Confederation (www.ituc-csi.org), UN

Global Compact Labour Working Group (www.unglobalcompact.

org), Fair Labor Association (www.fairlabor.org), and Verite Fair

Hiring Toolkit (www.verite.org).

Ethics and the individual manager

Why do managers make unethical choices? Our ethical judgment

is infl uenced by our moral principles, which come both from our

background (e.g., religion, upbringing, social and cultural norms)

and also from norms learned from working in a particular industry

or fi rm. Research shows that there are four main reasons why man-

agers make bad choices:

• A belief that the activity is not ‘really’ illegal or immoral .

Be clear about the kinds of activities that are acceptable, those that

will be tolerated, and what behavior will be condoned.

• A belief that the activity is in the individual ’s or the corpo-

ration ’s best interests . Often this belief results from pressure

to achieve short-term results. To prevent this, do not focus too

much on short-term gains while neglecting the long-term conse-

quences of management decisions.

http://www.ilo.org/business

http://www.ioe-emp.org

http://www.ituc-csi.org

http://www.corporate-ethics.org

http://www.fairlabor.org

http://www.verite.org

Ethics and Corporate Governance 163

• A belief that the activity is ‘safe’ because it will never be

found out or publicized . To discourage this belief, engage in

communications that increase the perceived probability of being

caught, persecuted, and punished, and announce misconduct.

• A belief that because the activity helps the company, the

company will condone it and even protect the person who

engages in it . To prevent this, stress the responsibility of senior

managers to clearly communicate the norm that company loy-

alty should not go against the laws and values of society. 25

Sometimes unethical decisions are made as a result of ‘groupthink.’

It has been observed that a group of people working together will

sometimes make unethical decisions that few, if any, of them would

make individually. This appears to be due to the reluctance of individ-

uals to press for the serious consideration of sensitive ethical issues.

Managers encounter complex business problems on a day-to-

day basis that have strong social and ethical components. These

problems have no simple solution and neither the optimal deci-

sions nor their consequences are always obvious. The Ethics

Resource Centre recommends applying the following ethics fi lters

to decision-making:

• Policies . Is it consistent with my organization ’s policies, proce-

dures, and guidelines?

• Legal . Is it acceptable under the applicable laws and regulations?

• Universal . Does it conform to the universal principles and val-

ues my organization has adopted?

• Self . Does it satisfy my personal defi nition of right, good, and fair?

They have also come up with a six-step ethical decision-making

model for use by managers and their teams:

1. Defi ne the problem . Describe why the decision is called for

and identify the most desired outcome(s).

2. Identify available alternative solutions to the problem .

Consider more than fi ve in most cases. At a very minimum, three

164 The Sustainable MBA

options should be identifi ed to allow people to escape from

having to choose between two opposing options.

3. Evaluate the identifi ed alternatives . Look at the likely posi-

tives and negatives for each and differentiate between what infor-

mation you know for a fact and what you believe might be the

case.

4. Make the decision . Ensure that all members of the team have

clear information about the problem and alternatives.

5. Implement the decision . Once decided, tangible steps should

be put in place to move forward with the solution. A decision

only counts if it is implemented.

6. Evaluate the decision . Did it fi x the problem? Is it better now,

or worse, or the same? What new problems did the solution cre-

ate? What lessons were learned that could be applied to help

next time a similar problem arises? 26

Once a decision has been made, the next most important step is

how employees can voice these concerns or put into place their solu-

tions. This is where the challenge lies for individual employees, as

they often do not know who to turn to or what the repercussions of

exposing what they believe to be unethical behavior will be for them.

Siemens provides employees with in-person and web-based training

on how to make more ethical decisions. They also provide a helpdesk

where employees can call anonymously to get advice on how to han-

dle ethical situations. The company has developed a policy for whistle-

blowers, which includes a confi dential 24-hours-a-day helpdesk in 150

languages and an external ombudsman. There is also no retaliation

against those who have reported compliance concerns in good faith.

For more on this topic visit the Ethics Resource Centre (www

.ethics.org), Business Roundtable Institute for Corporate Ethics

(www.corporate-ethics.org), Caux Round Table Principles for

Business: Ethical and responsible behaviour (www.cauxrount-

able.org), and Giving Voice to Values (www.babson.edu).

http://www.cauxroundtable.org

http://www.babson.edu

http://www.ethics.org

Ethics and Corporate Governance 165

Corporate governance

The OECD defi nes corporate governance as the system by which

business corporations are directed and controlled. The corporate

governance structure specifi es the distribution of rights and respon-

sibilities among different participants in the corporation, such as

shareholders, board members, managers, employees, and other

stakeholders, and spells out the rules and procedures for making

decisions on corporate affairs. Corporate governance also refers

to the rules governing the process through which the company

objectives are set, and the means of attaining those objectives and

monitoring performance.

The OECD Principles of Corporate Governance represent certain

common characteristics that are fundamental to a good corporate

governance framework. These principles are:

• Ensuring the basis for an effective corporate governance

framework . Promote transparent and effi cient markets, be con-

sistent with the rule of law, and clearly articulate the division

of responsibilities among different supervisory, regulatory, and

enforcement authorities.

• The rights of shareholders and key ownership functions .

Protect and facilitate the exercise of shareholders ’ rights.

• The equitable treatment of shareholders . Ensure the equita-

ble treatment of all shareholders, including minority and foreign

shareholders. All shareholders should have the opportunity to

obtain effective redress for violation of their rights.

• The role of stakeholders in corporate governance . Recognize

the rights of stakeholders established by law or through mutual

agreements and encourage active cooperation between corpora-

tions and stakeholders in creating wealth, jobs, and the sustain-

ability of fi nancially sound enterprises.

• Disclosure and transparency . Ensure that timely and accurate

disclosure is made on all material matters regarding the corpora-

tion, including the fi nancial situation, performance, ownership,

and governance of the company.

166 The Sustainable MBA

• The responsibilities of the board . Ensure the strategic guid-

ance of the company, the effective monitoring of management

by the board, and the board ’s accountability to the company and

the shareholders.

When analyzing a company ’s corporate governance structures,

companies such as Deutsche Bank look at four factors:

• Board independence . This is the board ’s ability to act inde-

pendently from management in the best interest of sharehold-

ers, including the board ’s structure, composition, and overall

capabilities.

• Shareholder treatment . This addresses questions relating to

the treatment of minority shareholders as well as issues around

capital structure and its impact on shareholder rights.

• Information disclosure . This focuses on the quality, extent,

and timeliness of the information provided by companies to ana-

lysts and investors as well as internal verifi cation mechanisms.

• Corporate compensation . This addresses the compensation of

directors and executives as well as systems to monitor and meas-

ure this compensation.

For more information on this topic visit IGPG Evaluating and

Improving Governance in Organizations and IFAC ’s Enterprise

Governance (www.ifac.org), Global Corporate Governance Forum

(www.gcgf.org), World Bank Corporate Governance Toolkit (www

.wbginvestmentclimate.org), European Corporate Governance (ec.

europa.eu), International Corporate Governance Network (www

.icgn.org), and OECD Corporate Governance (www.oecd.org/

corporate). The Black List is an annual published list of the least

transparent companies (www.thecro.com).

http://www.oecd.org/corporate

http://www.gcgf.org

http://www.thecro.com

http://www.wbginvestmentclimate.org

http://www.icgn.org

http://ec.europa.eu

Ethics and Corporate Governance 167

Corruption

Corruption is defi ned as the misuse of entrusted power for private

gain. According to the World Bank, corruption is the single greatest

obstacle to economic and social development. The bank estimates

that it costs more than 5% of the world ’s GDP, or approximately

US$3 trillion. For business, corruption is estimated to add 10% or

more to the cost of doing business in many parts of the world

and up to 25% to the cost of procurement contracts in developing

countries. 27 Further research found that moving a business from a

country with low levels of corruption to a country with medium or

high levels of corruption is the equivalent to a 20% tax on foreign

business. 28 The Global Compact and Transparency International

suggest three practical steps to fi ght corruption:

1. Internal . Introduce anti-corruption policies and programs

within the organization and business operations.

• Top management must send consistent messages, directing all

managers to apply stringent codes and high standards, while

at the same time making it clear that these codes are not open

to interpretation.

• A company should adopt its own business principles and eth-

ics code, and publish it to employees.

• Training and continuous efforts must be made to ensure that

principles and codes are integrated into other management

systems.

• Adopt internal reporting procedures to ensure that appropri-

ate systems are in place to ensure that if something does hap-

pen, the company is the fi rst to know.

2. External . Report on anti-corruption work and activities in

the annual communications and share experiences and best

practices.

3. Collective . Collective action among businesses can help busi-

ness managers in making the right decisions. For example,

168 The Sustainable MBA

Publish What You Pay, a coalition of over 200 NGOs, calls for

the mandatory disclosure of the payments made by oil, gas, and

mining companies to all governments for the extraction of natu-

ral resources (www.publishwhatyoupay.org).

Germany chemical company BASF put in place a Chief Compliance

Offi cer who is supported by a network of over 100 compliance

offi cers worldwide. Their work is not only to train employees in

this area but to prevent a wide range of legal violations, including

incidents of corruption.

The growing number of international initiatives aimed at help-

ing companies to stop and deal with corruption indicate how

important anti-corruption practices have become in the global

business community. The UN Convention Against Corruption is

an independent legal instrument against corruption started in

2000, and December 9th is International Anti-corruption Day.

The Global Corruption Barometer is a survey that assesses gen-

eral public attitudes toward and experience of corruption in doz-

ens of countries around the world. The Corruption Perceptions

Index ranks more than 150 countries by their perceived levels

of corruption as determined by expert assessments and opinion

surveys.

For more, visit the International Chamber of Commerce Rules

on Combating Corruption (www.iccwbo.org/policy/anticorrup-

tion), World Economic Forum Partnering Against Corruption

Initiative (www.weforum.org/paci), World Bank Anti-corruption

Knowledge Centre (www.worldbank.org), UN Global Compact

resource section on corruption (www.unglobalcompact.org/Issues

/transparency_anticorruption), and GoodCorporation Framework

on Bribery and Corruption (www.goodcorporation.com).

http://www.publishwhatyoupay.org

http://www.iccwbo.org/policy/anticorruption

http://www.weforum.org/paci

http://www.unglobalcompact.org/Issues/transparency_anticorruption

http://www.goodcorporation.com

http://www.iccwbo.org/policy/anticorruption

Ethics and Corporate Governance 169

Bribery

Bribery is a major part of corruption. According to Transparency

International, bribery is an offer or receipt of any gift, loan, fee,

reward, or other advantage to or from any person as an inducement

to do something which is dishonest, illegal, or a breach of trust, in

the conduct of the enterprise ’s business. Different forms of bribery

include:

• Bribes . An enterprise should prohibit the offer or actual transfer

of a bribe in any form, including kickbacks on any portion of a

contract payment, or the use of other routes or channels to pro-

vide improper benefi ts to customers, agents, contractors, sup-

pliers, or employees of any such party or government offi cials.

The enterprise should also prohibit employees from accepting

bribes.

• Political contributions . An enterprise, its employees, or agents

should not make direct or indirect contributions to political par-

ties, organizations, or individuals engaged in politics, as a way

of obtaining advantage in business transactions. The enterprise

should disclose these contributions.

• Charitable contributions and sponsorship . Ensure that these

sorts of contributions are not being used for bribery. An enter-

prise should publicly disclose all its charitable contributions.

• Facilitation payments . These are small payments made to

secure or expedite the performance of a routine or necessary

action to which the payer of the facilitation payment has legal

or other entitlement. Recognizing that facilitation payments are

a form of bribery, the enterprise should work to identify and

eliminate them.

• Gifts, hospitality, and expenses . The enterprise should

prohibit the offer or receipt of gifts, hospitality, or expenses

whenever such arrangements could affect the outcome of

business transactions and are not reasonable and bona fi de

expenditures.

170 The Sustainable MBA

Several initiatives such as the OECD Anti-bribery Convention

and the anti-bribery provisions of the revised OECD Guidelines for

Multinationals attempt to curb its effect and in fact, for the over 40

countries that have signed the convention, bribery is illegal. The

ICC Rules of Conduct to Combat Extortion and Bribery provide the

following guidance on how to approach anti-bribery policies:

• Enterprises should make their anti-corruption policy known to

all agents and other intermediaries and make it clear that they

expect all activities carried out on their behalf to be compliant

with their policy.

• In order to prevent bribery and extortion, enterprises should

implement comprehensive policies or codes refl ecting these

Rules of Conduct as well as their particular circumstances and

specifi c business environment. These policies or codes should

include (a) training, (b) confi dential channels to raise concerns,

subsidiaries, foreign and domestic.

• All fi nancial transactions must be properly and fairly recorded

in appropriate books of accounts available for inspection by

boards of directors (i.e., no off-the-books or secret accounts);

For more on this topic visit the OECD Anti-bribery Convention

(www.oecd.org). The Business Principles for Countering Bribery

provide a framework for companies to develop comprehensive

anti-bribery programs, both large and SMEs. They also have

an Assurance Framework for corporate anti-bribery programs

(www.transparency.org). See also Principles for Countering

Bribery (www.weforum.org/paci), Resisting Extortion and

Solicitation in International Transactions (www.iccwbo.org), and

the UN Global Compact work on bribery (www.unglobalcom-

pact.org).

http://www.transparency.org

http://www.weforum.org/paci

http://www.oneworldgroup.org

Ethics and Corporate Governance 171

transactions should be inspected within established independent

systems of auditing and comply with all provisions of national

tax laws and regulations.

• The board of directors (or other body) with ultimate responsi-

bility for the enterprise should take reasonable steps to ensure

compliance with these Rules of Conduct.

The power of media

Media companies shape public opinion. They infl uence what we

read, listen to, and watch. Despite this, companies in the media sec-

tor are often overlooked as major social and environmental actors.

The responsibility of the media is not so much in terms of how

sustainable their operations are. Rather, it is about their ability to

infl uence, what they choose to report, what they don ’t report, and

how they report.

Despite this important role, media companies have been slow to

engage in sustainability. Some journalists say that the word ‘sus-

tainability’ itself can be both a common platform to explore these

issues as well as a word that risks making people disinterested.

Often, sustainability stories are given to specifi c ‘environmental’

reporters rather than being embedded into a range of stories, or

are just not reported on at all.

What can be done:

• Develop the capacity of reporters . The UN Global Compact of

Turkey organized a 2-day conference for nearly 30 journalists

from daily national newspapers, television, and trade magazines

with the aim of building the journalists’ knowledge about sus-

tainability issues.

• Create a platform for these issues . The Guardian in the UK

has more than 25 editorial staff specifi cally focused on sustain-

ability and on developing their range of sustainability and busi-

ness-related events and online programs.

172 The Sustainable MBA

• Get information to those who need it . One World produces

Internet and mobile phone applications that the world ’s poor-

est people can use to improve their life opportunities and that

help people everywhere understand global problems (www

.oneworldgroup.org).

• Provide in-depth news on sustainable topics . Many news initi-

atives, in particular online, cover sustainability stories exclusively,

including Inside Climate News (insideclimatenews.org), GreenBiz

(www.greenbiz.org), and Just Means (www.justmeans.org).

• Increase transparency in media companies . The Global

Reporting Initiative has a set of reporting guidelines specifi cally

for the media industry.

In many countries the media doesn ’t have the freedom to choose

what they report, making it diffi cult for citizens to have the informa-

tion they need to make decisions. The Freedom of Press Index and

the Media Sustainability Index rank countries and their media systems

yearly. They look at a range of issues, including but not limited to:

• Free speech . Protection of free speech, free access to media,

access to information.

• Diversity . Diversity of viewpoints, multiple news sources.

• Supporting environment . Institutions that protect the profes-

sional interests of independent media, access to journalistic edu-

cation, entry to media markets, penalties for libeling.

• Ethics and human rights . Crimes against media workers, cor-

ruption, self-censorship, transparency of media ownership.

International Federation of Environmental Journalists (www.ifej

.org). Media CSR Forum is a group of media companies develop-

ing sustainability practices for the media sector (mediacsrforum

.org). Also see the resources section of this book for a list of

media outlets that cover sustainability issues.

http://www.greenbiz.org

http://www.justmeans.org

http://www.ifej.org

http://insideclimatenews.org

http://mediacsrforum.org

Ethics and Corporate Governance 173

Challenges?

• What is legal versus what is ethical . Just because a practice is

not illegal, this does not mean it is ethical. Ethics is much wider

than law.

• Implementation . Ethics programs, codes of conduct, and

other mechanisms put in place to stop unethical behaviors

provide little help if managers at all levels do not know them

or implement them consistently. It is not enough to have

an ethics statement, it needs to be understood, used, and

enforced.

• Consistency . Even companies with strong ethical policies and

processes will encounter problems with ethics. Create a safe

environment where employees can raise concerns about pos-

sible misconduct and wrong doings. Despite the proliferation of

help lines and ethics offi ces, employees still suffer from a ‘fear

of retaliation.’

• Pressures to be unethical . A study based on in-depth inter-

views with 30 recent graduates from the Harvard MBA work-

ing in banks, consulting, and advertising fi rms found that

many young managers received explicit instructions from

their middle-manager bosses or felt strong organizational

pressures to do things that they believed were unethical or

even illegal. 29

• Misleading the public . There are many groups working in the

fi eld of sustainability. While some are working to raise aware-

ness, others are not quite what they seem – they are, in a sense,

‘greenwashed’ organizations. Full Frontal Scrutiny, a joint project

by the Consumer Reports WebWatch and the Centre for Media

and Democracy, looks at raising awareness of what it calls front

groups – organizations that state a particular agenda while hid-

ing or obscuring their identity, membership, and/or sponsor-

ship. This can include organizations that avoid mentioning their

main sources of funding or have misleading names (e.g., the

174 The Sustainable MBA

National Wetlands Coalition actually opposes policies to protect

US wetlands) (www.frontgroups.org).

• Incentives . The fact is that there is still a place in society for

both responsible and irresponsible companies. Good compa-

nies, even good employees, aren ’t penalized for doing the ‘right

thing’ but they are not necessarily rewarded either.

Trends and new ideas

– Transparency and honesty

– The company of the future

– Fair trade

– Crowdsourcing the truth

– Whistleblowing

Transparency and honesty

Increased honesty is helping businesses move forward in sustain-

ability, and protecting them when they encounter problems. In

fact, companies are choosing to disclose more and more infor-

mation, both the positive but also the negative. In its Footprint

Chronicles, Patagonia allows consumers access to the complete

picture of the impact a product has on the environment – the good,

the bad, and the ugly. They openly recognize that they sometimes

have a negative impact, and they are working to minimize this.

Mountain Equipment Co-op (MEC) in Canada disclosed a list of

factory names and locations from where they source MEC-brand

products, the fi rst Canadian retailer to do so. In their annual report

they also discuss their progress made in being a more sustain-

able company and openly discuss their challenges. For more about

transparency and trust, see the Edelman Trust Barometer which

measures the level of trust in institutions, industries, and leaders

(trust.edelman.com).

http://www.frontgroups.org

http://trust.edelman.com

Ethics and Corporate Governance 175

The company of the future

What would a corporation look like that was designed to seam-

lessly integrate both social and fi nancial purposes? Management

Lab wondered what would happen if you asked progressive busi-

ness thinkers to reinvent management for the 21st century, throw-

ing away years ’ worth of assumptions and radically re-imagining

the ways in which companies could work. Some of the thoughts

collected include:

• People . Manage as if everyone mattered – stakeholders, employ-

ees. Work to maximize system success. Enable communities of

passion. Increase trust and reduce fear.

• Purpose . Seek orientation in a higher and broader purpose.

Purpose generates energy, passion, and commitment.

• Rewards . Stretch executive timeframes and perspectives. Change

incentives to reward executives and investors who nurture the

small projects that have the potential to become big ones over

time. Develop holistic performance measures.

• Question . Substantially reduce the gravitational pull of the past.

Explicitly challenge industry (and corporate) orthodoxies.

• Structure . Expand the freedom for autonomous action.

De-organize – dissolve (formal) hierarchy, eliminate silos, and

collapse the distance between center and periphery. Abolish the

myth of the imperial CEO. Lead from behind.

• Decisions . De-politicize decision-making. Surface confl ict –

allow minority views to be heard. Exploit the wisdom of the

crowd in critical decisions.

• Information . Create a democracy of information. Create an

internal market for ideas, talent, and resources.

• Creativity . Overcome the prejudice that people aren ’t crea-

tive; create space and time to give them time to refl ect, dream,

and innovate. De-stigmatize failure and build cultures that

reward much more small-scale innovation (www.management-

lab.org).

http://www.managementlab.org

176 The Sustainable MBA

Fair trade

According to the Fair Trade Labelling Organization (FLO; www.

fairtrade.net), ‘Fairtrade is about better prices, decent working con-

ditions, local sustainability, and fair terms of trade for farmers and

workers in the developing world. By requiring companies to pay

sustainable prices (which must never fall lower than the market

price), Fairtrade addresses the injustices of conventional trade,

which traditionally discriminates against the poorest, weakest pro-

ducers. It enables them to improve their position and have more

control over their lives.’ Today, fair trade organizations around the

world come together under the FLO, which includes over 990 pro-

ducer organizations, 1.2 million farmers, and workers in 66 coun-

tries. Fair trade products are sold in over 120 countries and sales

numbers have been steadily increasing. The six biggest fair trade

products are bananas, cocoa, coffee, cotton, sugar, and tea. The key

objectives of the FLO standards are to:

• Ensure a guaranteed fair trade minimum price which is agreed

with producers.

• Provide an additional fair trade premium which can be invested

in projects that enhance social, economic, and environmental

development.

• Enable pre-fi nancing for producers who require it.

• Emphasize the idea of partnership between trade partners.

• Facilitate mutually benefi cial long-term trading relationships.

• Set clear minimum and progressive criteria to ensure that the

conditions for the production and trade of a product are socially

and economically fair and environmentally responsible.

Crowdsourcing the truth

There are a series of websites and apps that allow the public to

get more engaged in bringing out unethical behavior. Bribespot

http://www.fairtrade.net

Ethics and Corporate Governance 177

is an app that lets users report instances of bribery, including

amounts that were requested. They place the instances on a map

of the world so the public can see where these bribes are tak-

ing place (www.bribespot.com). Bribr does the same in Russia

(bribr.org). TruthMarket is a platform where users can pledge

to pay for others to fi nd evidence for or against the unverifi ed

statements of public and infl uential fi gures (www.truthmarket.

com). Threatened Voices tracks suppression of online free speech

(threatened.globalvoicesonline.org). In India, the zero rupee

note created by 5th Pillar is a tool that aims to help fi ght brib-

ery. When a bribe is asked for the individual can hand over fake

rupees rather than real ones to send a strong message against

corruption (www.5thpillar.org).

Whistleblowing

Whistleblowers, those who release information about suspected

corruption and unethical behavior within an organization, are

often seen as bad individuals, and whistleblowing actions are

often seen as being disloyal and creating a distrustful atmos-

phere. The fact is, this could not be any further from the truth.

Having in place a system where individuals within the com-

pany and who deal with the company – such as suppliers and

buyers – are encouraged to report unethical or corrupt behav-

ior can be an important tool that allows the company to detect

and fi x eventual problems. In addition, these systems can play a

key role in preventing signifi cant fi nancial consequences in the

company, or in extreme cases, have the consequence of bringing

down the whole company, if such fraud were to become pub-

lic. According to a 2007 study by KPMG, 25% of the incidents

of fraud uncovered among 360 incidents analyzed came to light

thanks to a whistleblowing system put in place by companies.

However, only 33% of companies surveyed in Europe had hotlines

http://www.bribespot.com

http://www.truthmarket.com

http://www.5thpillar.org

http://bribr.org

http://threatened.globalvoicesonline.org

178 The Sustainable MBA

for employees to report incidents of possible fraud. In 2008, the

International Chamber of Commerce launched a set of guidelines

aimed at helping companies establish and implement internal

whistleblowing programs:

• Create a whistleblowing program as part of internal integrity

practices.

• Handle reports early on, in full confi dentiality.

• Appoint a high-level executive to manage the whistleblowing

unit.

• Communicate in as many languages as there are countries of

operation.

• Abide by external legal restrictions.

• Allow reporting to be anonymous or disclosed, compulsory or

voluntary.

• Acknowledge, record, and screen all reports.

• Enable employees to report incidents without fear of retaliation,

discrimination, or disciplinary action.

The World Bank ’s anti-corruption program includes a list of

blacklisted companies and individuals, as well as a phone line

to report corruption in bank-related projects (www.worldbank.

org), as does the International Chamber of Commerce whistle-

blowing initiative (www.iccwbo.org). Also look at projects such

as Wikileaks, where individuals publish information online

anonymously (www.wikileaks.org).

http://www.business-ethics.com

http://www.wikileaks.org

Ethics and Corporate Governance 179

Want more?

• There are quite a few resources on different groups that are

often the victims of human rights abuses. For example, for

more on indigenous peoples see the State of the World ’s

Indigenous People (www.un.org), the UN Declaration on

the Rights of Indigenous Peoples (www.un.org), the ILO

Convention on Indigenous Peoples (www.ilo.org), and the

work of NGOs in this area – such as the Indigenous People ’s

International Centre for Policy Research and Education

(www.tebtebba.org).

• Several rankings exist of the most ethical companies, includ-

ing the ‘100 Best Corporate Citizens ’ (www.thecro.com) and

Business Ethics Magazine 100 Best Corporate Citizens (www.

business-ethics.com).

• The Conference Board is a global organization based in

the USA working to help businesses strengthen their per-

formance and better serve society (www.conference-board

.org).

• The Institute of Business Ethics has a range of Briefi ngs

and Good Practice Guides on ethics and business (www.ibe

.org.uk).

• Business in Society Gateway is a comprehensive online

resource center on business in society issues and corporate

responsibility (www.businessinsociety.eu).

Read: The Market for Virtue: The Potential and Limits of

Corporate Social Responsibility by David Vogel (2006), which

provides an analysis of the CSR movement in the USA and

Europe.

http://www.un.org

http://www.ilo.org

http://www.tebtebba.org

http://www.thecro.com

http://www.conference-board.org

http://www.ibe.org.uk

http://www.businessinsociety.eu

180 The Sustainable MBA

The role of the CEO

‘Senior management commitment is key to a company ’s suc-

cessful approach to corporate responsibility; while it is essen-

tial that senior management assign clear responsibilities,

resources and authority to company managers for address-

ing corporate responsibility issues on an ongoing basis,

leadership in these matters rests with the chief executive, the

chairman and board directors.’

INTERNATIONAL CHAMBER OF COMMERCE

The World Economic Forum conducted a survey of CEOs around

the world, which indicated that business leaders have three

responsibilities:

1. Our companies ’ commitment to being global corporate citi-

zens is about the way we run our own business . The greatest contribution we can make to development is to do business in

a manner that obeys the law, produces safe and cost-effective

products and services, creates jobs and wealth, supports training

and technology cooperation, and refl ects international standards

and values in areas such as the environment, ethics, labor, and

human rights.

2. Our relationships with key stakeholders are fundamental to

our success inside and outside our companies . Being global corporate citizens requires us to identify and work with key

stakeholders in our main spheres of infl uence: in the workplace,

in the marketplace, along our supply chains, at the community

level, and in public policy dialogue.

3. Ultimate leadership for corporate citizenship rests with us

as chief executives, chairmen, and board directors . Although it is essential that we assign clear responsibilities, resources, and

leadership roles to our managers for addressing these issues on

a day-to-day basis, ultimate responsibility rests with us (www.

weforum.org).

It has been said time and time again that without the support of senior management, initiatives cannot have their full impact. The

http://www.weforum.org

Ethics and Corporate Governance 181

role of the CEO is not only to steer the ship in the right direction, but also to be able to see over the horizon and be able to plan ahead. As such, the chief executive plays a key role as a champion on sustain- ability strategies:

• CEOs can make sure the issues are part of information conversa-

tions that take place on a daily basis and make sure it is part of

their language.

• CEOs can make sure they walk the talk by sending clear and

consistent messages about the importance of sustainability in the

organization, and matching this with their own actions.

They are the ultimate supporter and enabler of the issues within their organization, and thus have a vital role to play in a company ’s adoption of sustainability.

Want more?

The International Business Leaders Forum works with busi-

ness, governments, and civil society to enhance the contribution

that companies can make to sustainable development (www.

iblf.org). There are several annual surveys that look at CEOs ’

thoughts on sustainability, including Accenture and the UNGC

CEO study (www.accenture.com). CEOs are increasingly writing

articles and blogs which include their organizations ’ commit-

ment to sustainability. Many also have Twitter accounts that you

can follow, as do their companies ’ sustainability managers.

Read: Several CEOs of leading sustainability companies

are releasing books about their work, for example Mid-Course

Correction: Towards a Sustainable Enterprise: The Interface

Model by Interface CEO Ray Anderson (1998) and Let My People

Go Surfi ng: The Education of a Reluctant Businessman by

Patagonia CEO Yvon Chouinard.

http://www.iblf.org

http://www.communityinvest.org

10 Finance

‘If you want to make capitalism sustainable, you

might as well start with capital.’ NICK ROBINS, AUTHOR

184 The Sustainable MBA

Martin Hancock, the former chair of UNEP Finance Initiative

from Westpac, tells the story of a man who turned to him dur-

ing a conference on sustainable banking and whispered, ‘It must

be serious if the banks are coming around the table.’ Indeed,

sustainability must be making real progress if the fi nance sector,

known for being conservative, is starting to become interested.

One might even argue that fi nance is the most important sector

in sustainability, as it reaches every corner within companies and

throughout the economy.

According to the International Finance Corporation, ‘The biggest

impact of banks, investors and insurers on sustainable develop-

ment is not their own environmental footprint but their pivotal role

in allocating fi nancial capital between different economic activities,

both at home and abroad.’ 30 The fi nancial sector plays a key role

by sending signals to companies that can enable them to invest in

longer-term opportunities. Financial institutions, such as banks, are

also partially responsible for managing social and environmental

risks in decision-making and lending, as well as helping identify

opportunities for innovative product development in new areas

related to sustainability. In addition to what they choose to fi nance,

the fi nancial sector can have a crucial impact by not investing in

products, initiatives, or projects that are unsustainable or damaging

to society and the environment.

Why is it important?

• To better understand companies . Evaluating environmental,

social, and governance (ESG) factors can lead to a more thor-

ough understanding of both the risks and opportunities and how

these will impact the bottom line both today and in the future.

• To anticipate problems . Many investors are reacting to bad

corporate governance news rather than anticipating poten-

tial problems. A greater consideration of these issues allows

Finance 185

investors and fi nancial professionals to see the problems before

they occur and plan accordingly.

• To increase profi tability . For companies that are able to move

beyond merely looking at risks and to start identifying and act-

ing on opportunities, there are many avenues to explore, for

example in sustainable energy, cleaner production, biodiversity

conservation, and the fast-growing environmental technology

industries.

• Intangibles . ESG issues can have a strong impact on intangible

assets such as reputation and brand, which can represent over

two-thirds of the total market value of a listed company. As the

Chartered Financial Analyst Institute puts it, ‘Investors should

consider what a company does to maintain and protect one of

its most important assets: its reputation.’

• As part of your fi duciary responsibilities . According to

UNEPFI, ‘appropriate consideration of these issues is part of

delivering superior risk-adjusted returns and is therefore fi rmly

within the bounds of investors ’ fi duciary duties.’

• As a proxy for good management . Groups such as Goldman

Sachs ’s Sustain use management of environmental, social, and

governance issues as a proxy for overall strong company man-

agement. ‘Because the world is more diffi cult to operate in, we

think there are certain factors companies will need to man-

age if they are to succeed.’ 31 Investors have a preference for

companies with strong governance and are prepared to pay a

premium for this.

• Increased demand . There is an increased demand for sustain-

able fi nance options, from businesses and customers.

• Mergers and acquisitions . Sustainability issues should be of

particular concern for those involved at all stages of the M&A

lifecycle, including target screening, deal structuring and valu-

ing, assessing the strategic, fi nancial, and operational goals of

the deal, merger integration, and long-term planning for opera-

tions or exit strategies. These issues can affect both the viability

and the ultimate value of deals.

186 The Sustainable MBA

The key concepts

Sustainability affects both the fi nancial sector and fi nancial activi-

ties undertaken by a company.

• Incorporating sustainability

issues into investments

→ Sustainable investment

• Integrating ESG criteria into

investments

→ Integrating ESG

• The responsibilities of those

people who manage money

→ Fiduciary responsibilities

• Shareholders seeking to

infl uence companies

→ Shareholder engagement

• Providing global indexes to

benchmark sustainability

performance

→ Ratings and indexes

• Exploring sustainability

issues within projects

→ Project fi nance

• Providing fi nancial services

to the poor

→ Box: Microfi nance

Sustainable investment

According to the World Economic Forum, sustainable investing (SI)

‘is an investment approach that integrates long-term environmen-

tal, social and governance criteria into investment and ownership

decision-making with the objective of generating superior risk-

adjusted fi nancial returns. These extra-fi nancial criteria are used

alongside traditional fi nancial criteria such as cash fl ow and price-

to-earning ratio.’ Sustainable investment, also referred to as socially

responsible investment or responsible investment, is a term used to

describe an investment process which takes environmental, social,

ethical, and governance considerations into account. This process

is in addition to , or is incorporated into , the usual investment selec-

tion and management processes and can be adopted across asset

Finance 187

classes (private equity, real estate, etc.). There is increasing demand

for each of the different forms of SI:

1. Screening of investments

• Negative screening . SI started with investors choosing not to

invest in sectors or companies that were seen as ‘bad’ because

of their policies, actions, products (e.g., tobacco and weapons),

or services (e.g., gambling). For example, the Co-operative

Asset Management in the UK has a long list of areas, deter-

mined in part by customers, where they will not invest.

• Positive/norms-based screening . Portfolios are chosen based

on a set of non-traditional criteria, which can include environ-

mental, social, governance, and ethical issues. These screens are

seen as having an impact on both fi nancial and non-fi nancial

measures. Common positive screens include energy effi ciency,

environmental management, and employment standards.

• Best in class . A subsection of positive screening, this involves

selecting the best performers based on environmental, social,

and governance parameters. There are a growing number of

indexes that provide information on these companies.

• Sustainability themed . Investments are made in themes

of assets specifi cally related to sustainability, such as clean

energy, green technology, or sustainable agriculture.

2. Stakeholder engagement . Fund managers actively engage with

companies in which they invest to seek improvement on environ-

mental, social, and governance issues if their research indicates a

shortfall in these areas.

3. Proxy voting and shareholder resolutions. Owners exercise

their right to vote and their right to fi le shareholder resolutions

in order to achieve better management outcomes from the com-

panies they invest in. Even ESG resolutions that attract less than

majority support can still capture the attention of a corporate

board and lead to change. GE ’s Ecoimagination was created in

part because of an environmental resolution raised by a group

of nuns, even though at the time it only gained 24% support.

188 The Sustainable MBA

4. ESG integration . Sustainability issues are incorporated into

investment decision-making in the same way as other fi nancial

information based around seeking opportunities or avoid-

ing risk associated with these issues. One example of a group

working in this area is GenerationIM. They don ’t have one team

doing the sustainability analysis and another doing the fi nan-

cial. Instead, each analyst is trained to do both.

5. Community investing . Investor capital is used to fi nance or

guarantee loans to individuals and organizations that have his-

torically been denied access to capital by traditional fi nancial

institutions, such as disadvantaged urban and rural communi-

ties (www.communityinvest.org).

There are a wide range of different types of sustainable invest-

ment, some of which – at the ‘ethical’ or deep green end – are

very much about saving the Earth or meeting other social or envi-

ronmental objectives, which deliberately take precedence over

fi nancial objectives. Investors in this type of product, driven by

ethical values more than fi nancial value, make up a small minority.

The term ‘responsible investments,’ on the other hand, represents

investments that are focused much more on the potential for more

attractive returns over the longer term by taking advantage of ESG

trends or better managing ESG risks. Financial returns are still the

driver and there is a clear recognition that it is simply not possible

to maintain strong fi nancial returns over a long period of time if

they are achieved at the expense of people or the environment.

Global Sustainable Investment Alliance is made up of differ-

ent associations including Europe (www.eurosif.org), the USA

(www.ussif.org), Canada (www.socialinvestment.ca), Asia (www

.asria.org), Australia and New Zealand (www.responsibleinvest-

ment.org), Japan (www.sifjapan.org), and Africa (www.Africasif

.org). FS Insight has a section on Sustainable and Responsible

http://www.eurosif.org

http://www.ussif.org

http://www.socialinvestment.ca

http://www.responsibleinvestment.org

http://www.sifjapan.org

http://www.Africasif.org

http://www.asria.org

Finance 189

Investments with a range of resources (fsinsight.org). Mercer

created a dictionary on the language of responsible invest-

ment (www.mercer.com/ri). Global Impact Investing Network

is working to increase the impact and scale of impact investing

(www.thegiin.org).

Read: A Hitchhiker’s Guide to Research on Social and

Sustainable Investment by Lloyd Kurtz (2013), Sustainable

Investing by Cary Krosinsky and Nick Robins (2008).

Integrating ESG

Financial markets have great transformational power to accelerate

the transition toward more sustainable business practices and value

creation. The integration of ESG factors into mainstream investment

analysis is therefore key to moving the business sector forward.

Sustainable or responsible investment recognizes that the gen-

eration of long-term sustainable returns is dependent on stable,

well-functioning, and well-governed social, environmental, and eco-

nomic systems and that ESG issues are an increasingly fundamental

part of assessing the value and performance of an investment over

the medium and longer term. It requires investors and companies

to acknowledge the full spectrum of risks and opportunities facing

them in order to allocate capital in a manner that is aligned with

the short- and long-term interests of their clients and benefi ciaries.

There is an increasingly strong case for sustainable investing.

Evidence indicates that sustainable investing can lead to better

risk-adjusted fi nancial returns that help to identify new oppor-

tunities for revenue improvements. The investment community

is becoming increasingly active in this area thanks to a growing

awareness of these issues and increasing demand from asset own-

ers and retail investors as well as increased external pressure from

stakeholders such as the media and NGOs. Investors themselves

http://www.mercer.com/ri

http://www.thegiin.org

http://fsinsight.org

190 The Sustainable MBA

are becoming more active in this space and coming together in net-

works to move this space forward. The Principles for Responsible

Investment, an investor initiative in partnership with UNEP FI

and the UN Global Compact, currently has over 1000 signatories

representing US$32 trillion in investment capital, and the Carbon

Disclosure Project has over 700 institutional investors representing

US$78 trillion signed up.

Although surveys have shown that the majority of the main-

stream investor community believes sustainability should be part

of discussions with fi nancial analysts, only half admitted that they

had achieved that. The challenge is similar to the ‘chicken and the

egg’ scenario; more investors would consider ESG information if

more corporations provided it and more corporations would pro-

vide ESG information if investors demanded it.

So how do we move forward? There is a need to improve ESG

information and ensure that it is widely shared between corpo-

rations and investors, ensure that both corporate executives and

investors have the skills to assess ESG factors, and link incen-

tives in the investment chain to more long-term adjusted fi nancial

performance.

• Investors . Asset owners and managers play a role in develop-

ing performance measurement systems for fund managers that

balance long term and short term. Traditional valuation models

do not suffi ciently integrate ESG factors, which means inves-

tors need to be trained to be able to incorporate them into their

decision-making process. In particular, investors should look at

how ESG factors contribute to long-term investment strategy,

and how to access materiality of these factors and work with

companies to determine fi nancial material KPIs. Investors can

also demonstrate more active ownership through engagement,

shareholder resolutions, and/or proxy voting.

• Corporations (listed and non-listed) . There is a need to strength-

en communication between investors and corporate executives

around ESG issues, including what issues are fi nancially material

Finance 191

and in what timeframe. This is increasingly being done through

CEO presentations, integrated reports, and structured, regular

dialogue about not just how ESG factors are fully integrated

into the process of developing corporate strategy, but also the

process of corporate capital allocation. There is furthermore a

need to link the remuneration of corporate executives not only

to short-term fi nancial results but also to longer-term fi nancial

and non-fi nancial performance.

• System-wide level . In order to mainstream responsible invest-

ing, changes need to be made to the system as a whole. This

includes, but is not limited to, changing our focus from being

disproportionately on the short term to putting equal weight

on the medium and long term. Accounting bodies and public

authorities play a key role in creating frameworks and tools to

enable companies to disclose information. Last but not least,

business schools need to incorporate responsible investing into

their training so that the next generation knows how to do this.

One of the main challenges is bringing together the informa-

tion required to make decisions, as it is often diffi cult to acquire

consistent, comparable, and audited information. Many are fi nding

that companies themselves are frequently doing more than they

disclose (see Chapter 6) and sometimes more than their ratings

would suggest (see ‘Ratings and indexes ’ in this chapter). Much of

the ESG data is presented without context, which can be mislead-

ing because of different disclosure requirements around the world.

There are a growing number of companies, such as Trucost, who

aim to make it easier for investors to get their hands on environ-

mental data right next to fi nancial data to allow them to make

better decisions. There are also a growing number of CEOs push-

ing investors to take these issues more seriously. For example, on

an analyst call, Paul Polman (CEO of Unilever) criticized analysts

for not doing more to understand the company ’s Sustainability

Living Plan, which is a core part of their strategy today and mov-

ing forward.

192 The Sustainable MBA

A good resource for responsible investment is the Principles for

Responsible Investment (www.unpri.org), which also has an aca-

demic network with research in this area, as well as the UNEP

Finance Initiative (www.unepfi .org). The Chartered Financial

Analyst Institute (CFA) has done some work in ESG, including

a manual for investors on these issues (www.cfainstitute.org).

See WWF ’s 2050 Criteria Guide to Responsible Investment in

Agricultural, Forest and Seafood Commodities (wwf.panda.org);

International Corporate Governance Network ’s Model Mandate

Initiative, a model contract between asset owners and their fund

managers (www.icgn.org); CFA Institute ’s Asset Manager Code of

Professional Conduct (www.cfainstitute.org). The International

Federation of Accountants has several resources, including Project

and Investment Appraisal for Sustainable Value Creation. They

also give out prizes for Sustainable Investor and Investment of the

year (www.ifac.org). Also see the World Economic Forum ’s work

on sustainable investing (www.wef.org). Specifi c topics include:

• Property . Global Real Estate Sustainability Benchmark (www

.gresb.com); UNPRI Responsible Property Investing resource

database (www.unpri.org).

• Hedge funds . Hedge Fund Standards Board standards (www

.hfsb.org); discussion paper on the responsible investment of

hedge funds (www.unpri.org).

• Private equity . The Environmental Defense Fund (business

.edf.org) and the IFC (www.estoolkit.com) have both cre-

ated tools with leading private equity players which provide

a framework to assess and improve ESG management

across the investment lifecycle. See also the EVCA Professionals

Standards Handbook (www.evca.eu) and Private Equity

Growth Capital Council Guidelines for Responsible Investment

(www.pegcc.org).

http://www.cfainstitute.org

http://www.icgn.org

http://www.cfainstitute.org

http://www.wef.org

http://www.estoolkit.com

http://business.edf.org

Finance 193

Fiduciary responsibilities

Today, the majority of investment assets are controlled by pension

funds, mutual funds, insurance companies, or other institutional

investment funds. In the case of pension funds, the assets are over-

seen on behalf of benefi ciaries by a relatively small number of

trustees who act as fi duciaries to control large pools of retirement

savings. Legally, their job is to act in the best interests of the savers

whose money is in the funds.

However, are they? What exactly are the best interests of those

individuals? A report by UNEP and Freshfi elds law fi rm says,

‘This is where the interesting questions concerning

fi duciary responsibility come to the fore: are the best

interests of savers only to be defi ned as their fi nancial

interest? If so, in respect to which horizon? Are not the

social and environmental interests of savers also to be

taken into account? Indeed, many people wonder what

good an extra percent or three of patrimony are worth

if the society in which they are to enjoy retirement

and in which their descendents will live deteriorates.

Quality of life and quality of the environment are

worth something, even if not, or particularly because,

they are not reducible to fi nancial percentages.’

Many funds fail to look at these issues for two reasons. Many fi du-

ciaries question whether they are legally allowed to take action on

such issues, despite the growing body of evidence that ESG issues can

have a material impact on the fi nancial performance of their portfolio.

However, as the report says, ‘On that basis, integrating ESG consid-

erations into an investment analysis so as to more reliably predict

fi nancial performance is clearly permissible and is arguably required

in all jurisdictions.’ Much of this boils down to the simple rule of the

Precautionary Principle: whereby if one may, through exercising a

degree of caution, avoid exposing oneself (or one ’s investments) to

risk, one should certainly take appropriate steps to do so.

194 The Sustainable MBA

The second reason that many funds fail to integrate ESG issues into

their investment decisions relates to the culture of investing. Investors

have a ‘herd mentality’ in that they assume safety in numbers by fol-

lowing largely similar strategies when it comes to investing. In part

they do this because of the pressure felt to justify their existence

based on a quarterly if not daily basis by focusing on short-term profi t

opportunities. According to William Donaldson, former Chairman of

the Securities and Exchange Commission, ‘Over time, analysts have

become obsessed with the question of whether a company meets its

quarterly EPS numbers and not with whether a company is built to

last. And because of the considerable clout of the sell-side analyst,

this shift from long-term thinking to short-term results has echoed

through to company management and to professional investors.’ 32

Fortunately, things are changing. The fi nancial crisis is leading to

major changes in public attitudes and regulations. The focus is on

fi lling the gaps in the regulatory apparatus and legislative frame-

works that allowed banks to get into such deep trouble with such

unsustainable investments. In some countries, such as France, ESG

issues must be considered for investment, and have been put into the

investment management mandate issued to fund managers by the

French retirement reserve fund. In 2010 Intel amended its corporate

charter to include mandatory reporting on corporate responsibility

and sustainability performance after an investment fi rm introduced

a shareholder resolution asking them to. Intel ’s decision was also

infl uenced after their corporate council stated that under Delaware

law, directors had fi duciary duty to address these issues.

A range of states in the USA have passed legislations enabling

companies to register as a Benefi t Corporation. Benefi t Corporations

are a new class of corporations that create a material positive

impact on society and the environment, expand fi duciary duty to

require consideration of non-fi nancial interests when making deci-

sions, and report on overall social and environmental performance

using recognized third-party standards. A range of companies have

changed their status to Benefi t Corporation, including Patagonia

and Seventh Generation.

Finance 195

Shareholder engagement

Shareholders are becoming more aware of the fi nancial risks asso-

ciated with social and environmental issues and are deciding to

voice their concerns with companies in which they own shares.

Long-term activists are being joined by mainstream investors who

are both looking to shape and infl uence companies through their

rights as shareholders.

A shareholder proposal is a document that a shareholder formally

submits to a publicly traded company asking the company to take

a specifi c course of action. There are two kinds of proposals made.

1. Governance Proposals focus on traditional management issues

such as election of directors, board structure, and compensa-

tion as well as increased transparency, disclosure, and corporate

investments in sustainability.

2. Social and Environmental Proposals call for changes in a com-

pany ’s response to issues such as climate change and employee

discrimination.

Proposals can be submitted by individuals but are most likely

submitted by one of the following groups on behalf of a group of

individuals:

• Socially responsible investors who make decisions based on a

company ’s social, environmental, and governance performance

as well as fi nancial returns. For example, Calvert Investment

Management and Trillium Asset Management asked Smuckers

Jam Company to report within 6 months on its plans for manag-

ing climate change risks to its coffee supply chain.

A few resources on the topic include The Prudent Trustee (www

.genfound.org), UNEPFI ’s Fiduciary Responsibility (www.unepfi

.org), and A Climate for Change – a trustee ’s guide to under-

standing and addressing climate risk (www.carbontrust.co.uk).

http://www.carbontrust.co.uk

http://www.genfound.org

196 The Sustainable MBA

• Pension funds are not only increasingly applying a sustain-

ability lens to their investments but also doing a lot of research

in this area. Several retirement fund groups, including the New

York City Retirement System, recently urged Hewlett-Packard Co.

to address corporate governance policy and board composition.

• Faith-based institutions were instrumental in creating the

movement of shareholder activism, a movement which gave rise

to the Interfaith Center on Corporate Responsibility, an asso-

ciation of 275 faith-based institutional investors who sponsor

200 shareholder resolutions a year on behalf of its members

who view their investments as a catalyst to promote justice and

sustainability.

• Special interest groups use resolutions to promote their own

issues such as animal welfare. These resolutions usually get low

votes but can be an effective way of raising awareness about a

particular issue.

• Individuals who own a certain amount of shares are also put-

ting forward proposals.

• Labor unions are looking at using their shareholder power to

infl uence companies in the areas of labor rights and worker

safety, for example.

• Foundations such as As You Sow, which utilizes proxy voting

to fi le resolutions on a range of issues and in partnership with

other NGOs and organizations around the topics of energy, envi-

ronmental health, waste, and human rights.

The number of resolutions being fi led has been steadily increas-

ing. While shareholder votes are typically advisory in nature, they

send a strong message to management about issues of concern to

investors. Companies do not have to comply with the vast majority

of shareholder proposals; however, those with good management

values generally respond to the concerns raised and those that do

not respond put themselves at further risk. Most shareholder con-

cerns are addressed successfully via dialogue and do not end up at

the resolution stage. In 2012, Calvert Investments won commitments

Finance 197

from Colgate to source 100% certifi ed palm oil for their products.

Shareholders also pushed companies such as Garmin and Crocs

to publish sustainability reports. In 2009, in response to share-

holder resolutions fi led by among others Bard College Endowment,

McDonald ’s agreed to formally survey and promote best practices

in pesticide use reduction within its American potato supply chain.

This agreement led to the withdrawal of a shareholder resolution

fi led by the university endowment, as well as a project to share best

practices across the industry in this area.

One challenge is that many shareholders do not know what their

money is invested in, and if it is being invested through a fund,

what that fund is investing in. There are several projects to raise

awareness in this area. For example, Calvert Social Index, which

measures the social performance of the largest 1000 US-based com-

panies, has a service called Know What You Own, which allows

you to see what is in your US mutual funds and if the companies

held meet Calvert ’s social standards.

Ceres is a US coalition of investors, environmental groups, and

other organizations that among other things track proxy vot-

ing. Resources include Proxy Voting for Sustainability (www

.ceres.org). The CEO Pay Survey (info.gmiratings.com), Council

of Institutional Investors (www.cii.org), and Proxy Democracy

(www.proxydemocracy.org) are all interesting resources.

Investor Environmental Health Network is a partnership with

investment managers who – through dialogue and shareholder

resolutions – encourage companies to adopt policies to reduce

and eliminate toxic chemicals in their products (www.iehn.org).

Transparent Democracy (transparentdemocracy.org) provides

tools for investors to use their voting power to produce positive

changes in the companies they own.

http://www.cii.org

http://www.proxydemocracy.org

http://www.iehn.org

http://www.ceres.org

http://info.gmiratings.com

http://transparentdemocracy.org

198 The Sustainable MBA

Ratings and indexes

A variety of external ratings, rankings, indexes, and awards are

seeking to measure and track the environmental, social, and gov-

ernance performance of leading sustainability-driven companies

around the world. They provide asset managers with increasingly

reliable and objective benchmarks to manage sustainability portfo-

lios and are used as a basis for responsible investment decisions.

They are also being used by consumers to infl uence their buying

decisions and by employers looking at where to apply for jobs.

For these reasons it is important that these ratings be accurate and

credible.

For businesses, participation in these programs can have several

benefi ts:

• Communication of their sustainability efforts to a wide audience,

thus enhancing their reputation and brand as a good corporate

citizen.

• Third-party authentication for their ESG efforts, if the ESG fi rms

rate them well or include them in indexes.

• Access to additional investment through inclusion on sustain-

ability indexes.

• Understanding of their own strengths and weaknesses,

identifi cation of potential opportunities for improvement, and

self-benchmarking against competition through the response

process and research fi rm feedback.

• Many companies also link management performance evaluation

on ratings and indexes.

There has been a signifi cant increase in ratings since 2005 (from

21 to over 110 today) as well as an increase in the variety of such

ratings and how information is collected to create them. For some,

the information is collected through surveys sent directly to busi-

nesses and is complemented by additional information collected

through various media and stakeholder reports. Some are focused

Finance 199

entirely on publicly available information. In some cases analysts

personally contact individual companies to clarify points that arise

from the analysis of the information collected. Some indexes pro-

vide in-depth information about their methodology on their web-

site, while others disclose very little information on what they base

their decisions on.

There are several different types of ratings. Investor-focused indexes

tracking the fi nancial performance of leading sustainability-driven

companies internationally are increasingly important for investors

and analysts. Launched in 1999, the Dow Jones Sustainability Index

chooses companies based on a set of criteria and weightings cover-

ing economic, environmental, and social areas. Every year the 2500

largest companies in the world are invited to take part in the assess-

ment, which looks at:

• Economic dimensions. Codes of conduct, compliance, corruption

and bribery, corporate governance, risk and crisis management.

• Social dimensions. Corporate citizenship, labor practice indicators,

human capital development, social reporting, talent attraction and

retention.

• Environmental dimensions. Eco-effi ciency, environmental reporting.

Another example is the FTSE4Good Index series launched in

2001. To be included, companies need to demonstrate that they

are working toward environmental management, climate change

mitigation and adaptation, countering bribery, upholding human

and labor rights, and supply chain labor standards. A small num-

ber of sectors – such as tobacco and weapon companies – have

been excluded. Companies who do not comply are taken off

the list.

Indexes are also active at the national level. Brazil Nuevo Mercado,

part of the São Paulo Stock Exchange in Brazil, has stricter reporting

rules and expanded share-owner rights, in order to attract invest-

ment from outside the country. The promise of greater transparency

200 The Sustainable MBA

and higher corporate governance standards by the companies listed

has led to great increases in foreign capital invested in Brazilian

listed companies. 33 The Janzi social index consists of 60 Canadian

companies that pass a set of broadly based environmental, social,

and governance rating criteria.

A second group of indexes and ratings are those that are consumer

focused. Also introduced in Chapter 11, this includes ratings such

as Greenpeace ’s Supermarket Seafood Sustainability Scorecard or

more product-level ratings such as Good Guide and the Sustainable

Consortium. These ratings can be more infl uential for a company ’s

brand image.

A third group of indexes and ratings are those that are industry,

region, or topic focused. This includes Tomorrow ’s Value Rating,

Global 100 World ’s Most Sustainable Companies, regional indexes

such as the Asian Sustainability Rating, topic specifi c such as CR

Magazines 100 Best Corporate Citizens or the Carbon Disclosure

Project Leadership Index, or more industry-specifi c ones such as

the Access to Medicine Index which measures pharmaceutical com-

panies ’ efforts to improve universal access to medicine.

As the number of indexes grows, so does the number of surveys

companies are being asked to fi ll out. One challenge companies

are facing in this area is that fi lling out the surveys takes up

company resources, in particular time. In an attempt to solve this

issue, HSBC has started having regular webcasts where analysts

are invited to hear about the sustainability strategy and ask ques-

tions – hoping that these regular conversations will minimize the

requirements to fi ll out questionnaires. Companies are encourag-

ing fi nancial institutions and information requestors to take steps

together to improve the information-request process in order to

increase the likelihood of participation. There is also a growing

movement to take these specialized indexes and merge them into

traditional indexes in order to have all the information available

in the same place.

Finance 201

Project fi nance

Environmentalists, who have for decades been raising awareness

on the negative social and environmental impacts of certain large

infrastructure projects, are now beginning to make the connection

between the projects they campaign against and the fi nanciers

who back those projects. At the same time, fi nanciers have begun

to understand that social and environmental risks pose a threat to

long-term shareholder value and must be taken seriously.

Project fi nance, according to the Equator Principles, ‘is a method

of funding in which the lender looks primarily to the revenues gen-

erated by a single project both as the source of repayment and as

security for the exposure.’ Project fi nance is generally used to fi nance

Sustainable Stock Exchanges Initiative is a coalition of stock

exchanges representing more than 4500 companies working

together in this area (www.sseinitiative.org). Other indexes

include the London Stock Exchange ’s Corporate Responsibility

Exchange Sustainability indexes, KLD Indexes Bloomberg SRI,

ASSET4, and NASDAQ OMX CRD Global Sustainability 50 Index.

SAM and PwC ’s Sustainability Yearbook breaks down the leading

companies into Gold, Silver, and Bronze classes (www.sam-group

.com). SB20 is a list released yearly of the world ’s top sustain-

able stocks (www.sustainablebusiness.com). Also see UNEPFI ’s

publication Understanding Corporate Sustainability Disclosure

Requests (www.unepfi .org), consulting fi rm SustainAbility ’s

Rate the Raters (www.sustainability.com), and the work of the

Global Initiative for Sustainability Ratings (ratesustainability

.org). Also see the box ‘What does a leading company look like?’

in Chapter 4.

http://www.sseinitiative.org

http://www.sam-group.com

http://www.sustainablebusiness.com

http://ratesustainability.org

202 The Sustainable MBA

large projects such as processing plants, mines, infrastructure, dams,

and power plants. Owing to their complexity, size, and location, these

projects often have challenging environmental and social issues that

may include involuntary resettlement, loss of biodiversity, impacts on

indigenous and/or local communities, worker safety, pollution, etc.

Because these large projects generally face high scrutiny from regu-

lators, civil society, and fi nanciers, there is often a need to allocate

more resources to manage environmental and social risks and, more

importantly, prevent them from happening in the fi rst place.

In 2002, led by the World Bank Group ’s International Finance

Corporation (IFC), banks working in the project fi nance sector

developed the Equator Principles, a common set of environmental

and social policies and guidelines that could be applied globally

across all industry sectors. The principles are voluntary and aim to

ensure that projects – whether they are large infrastructure projects

such as dams or smaller projects – are fi nanced in a manner that is

socially responsible and refl ects sound environmental management

practices. Basically the institutions that are signatories have com-

mitted to not providing loans to projects where the borrower will

not or is unable to comply with social and environmental policies

and procedures.

While voluntary standards and principles are an encouraging step

toward sustainable business in the project fi nance world, imple-

mentation of these standards and principles is where the greatest

challenge lies. Sometimes, despite a company ’s efforts in this area,

things go wrong. In these cases increasingly institutions are look-

ing to put mechanisms in place to create a space for those in the

communities negatively affected by the project to have a voice. In

Chapter 9 we looked at, for example, the UN Business and Human

Rights Guiding Principles, of which one is around grievance mecha-

nisms. One example of such a mechanism is the Compliance Advisor

Ombudsman (CAO), an independent recourse mechanism for the

International Finance Corporation and Multilateral Investment

Guarantee Agency – two private-sector arms of the World Bank

Finance 203

Group. The CAO responds to complaints from communities affected

by IFC/MIGA-sponsored projects with the goal of enhancing social

and environmental outcomes on the ground and provides greater

public accountability for the work of the two agencies. The CAO

has three roles: fi rst, acting as a neutral third party to help resolve

community/company disputes using dispute-resolution approaches,

such as mediation, facilitated dialogue, and participatory pro-

cesses that are voluntary between the parties; second, overseeing

compliance investigations of IFC ’s/MIGA ’s social and environmental

performance; and third, acting as an independent advisor to the

World Bank Group President and IFC/MIGA senior management on

systemic social and environmental concerns.

See the Equator Principles (www.equator-principles.com). The

IFC applies certain good practice standards to all the projects

it fi nances to minimize their effect on the environment and on

affected communities (www.ifc.org/sustainability). The CAO has

some good resources in this area, as well as in-depth details on

the cases they are working on (www.cao-ombudsman.org). There

are a growing range of independent accountability mechanisms

for large international banks ( http://www.cao-ombudsman.org/

about/partners/ ). BankTrack is a global network of civil society

organizations tracking the operations of the private fi nancial

sector and its effect on people and planet (www.banktrack.org).

Challenges?

• From short term to long term . The fi nancial sector is built

around institutional incentives that reward short-term results

more than long-term ones. Pressure to meet quarterly targets

and market expectations makes it challenging to focus on long-

term results.

http://www.equator-principles.com

http://www.ifc.org/sustainability

http://www.cao-ombudsman.org

http://www.cao-ombudsman.org/about/partners/

http://www.banktrack.org

204 The Sustainable MBA

• Shareholders and customers . There is still a disconnect bet-

ween shareholders ’ professed values and what they expect

from their investments. The same is true of customers, who

are pressuring banks to move forward on these issues with-

out supporting the banks ’ efforts by using these products.

There are many reasons why this is the case, including staff

and customers not being aware of the different sustainability

products on offer and a continuing belief that all responsible

investment products will underperform fi nancially.

• Failure to price . The failure to put a correct price on environ-

mental and social goods and services that really matter means

that they are often ignored or undervalued. The fi nancial system

as it is now has limited capacity for exploring the wider social

impact of investments.

• Competencies . Most analysts have limited knowledge of sustain-

ability, and new analysts are not receiving enough training to

use non-fi nancial criteria in fi nancial valuation.

• Free-riders . Companies will pay less than their peers for pro-

tecting the external environment if they can get away with it,

and may even be rewarded by an increase in their share price

(in the short term at least).

• Siloed thinking . Many products and discussions are focused

only on one topic, for example climate change. But is that really

your biggest and only risk? The range of sustainability issues is

very broad, and all aspects should be considered.

• Cost payback analysis . The number of years required for

some sustainability projects to pay for themselves may appear

high with a traditional payback analysis. However, many times

these are revealed to be more than cost-effective over the long

term.

• Access to better information . The current availability of data var-

ies widely between companies, sectors, and regions, and is based

on different voluntary and mandatory reporting regulations.

Finance 205

Trends and new ideas

– Cross-disciplinary collaboration

– New landscape for corporate

ownership

– Long-term value

– The role of the CFO

– Insurance sector

– A new kind of bank

Cross-disciplinary collaboration

While many had their thoughts and opinions not just on what caused

the fi nancial crisis but how to prevent it from happening again,

an unlikely group emerged with their suggestions; the biologists.

A number of biologists have been advising the Bank of England on

how to reform global fi nance. This is part of an emerging trend of

interdisciplinary thinking around sustainability, brought up several

times in this book. Making sense of the relationship between the

individual and the system is what biologists do. After taking a look

at a model of the fi nancial system they were able to see parallels

with their work in biology. For example, less stable ecosystems

have less diversity and a high degree of connectedness between

species. The banking model is a system that is not only relatively

homogeneous but also very connected – meaning, like an ecosys-

tem in the same state, it is very vulnerable to shocks. Another fi eld

of biology also had its say; infectious disease epidemiology noted

that when a disease outbreak occurs, the superspreaders need to

be identifi ed and isolated from the rest of the population. In bank-

ing, during the crisis, the equivalent of the superspreaders (those

institutions with the most toxic debt), instead of being isolated,

were supported with taxpayer money and encouraged to merge

with others. 34 Biologists are now working at providing some feed-

back on how, based on their experiences in their own fi eld, the

fi nancial sector could be strengthened.

206 The Sustainable MBA

New landscape for corporate ownership

Shareholders in large companies are no longer limited to the

wealthy, privileged few. Today, working people around the world

have their pensions and other life savings invested in shares of

the world ’s largest companies. For example, the biggest share-

holding body in Canada is the teachers and civil servants of

Ontario, while in Denmark it is the workers ’ pension fund. TIAA-

CREF, the pension plan for US teachers and university staff, itself

controls about 1% of all US stock market capitalization, and

CALPERS, the California Public Employees Retirement System, is

almost as big. Through pension, insurance, and savings institu-

tions millions are inheriting power. So, as the World Economic

Forum puts it, ‘Each pensioner owns a tiny interest in a vast

number of companies. From the telecoms of Panama to the

chemical companies of Germany, from the electronic companies

of Silicon Valley to the oil wells of Nigeria, millions of citizens

are the benefi cial owners.’ This is important for two reasons.

First, it means that the responsibility of investors will increas-

ingly be to meet the intrinsic interests of owners in the long

term, owners who represent people internationally. Second, this

group of people could start speaking up as they become more

aware and engaged.

At the other end of the spectrum, approximately 11 million

high-net-worth individuals (HNWI) worldwide hold at least US$1

million in fi nancial assets, a number which is increasing rapidly.

These investors are increasingly interested in green tech and alter-

native energy investments in their portfolios (12% of HNWI and

14% of ultra-HNWI), according to the World Wealth Report pro-

duced yearly by Capgemini and RBC. A yearly study by Eurosif

found that sustainable investments by HNWI rose to 1.5 trillion

euros in 2012 compared with 729 billion euros in 2009, refl ecting

persistent demand even in volatile markets.

Finance 207

Long-term value

Jack Welch, the former CEO of GE, was quoted as saying ‘Shareholder

value is the dumbest idea in the world. (It) is a result, not a strategy.

Your main constituencies are your employees, your customers and

your products.’ The recent economic and fi nancial events sent out a

clear message about the consequences and costs of short-termism.

Survey after survey reports CEOs, senior executives, and sustainability

experts agreeing that short-term profi t motives are one of the biggest

obstacles to environmentally responsible business and that the pressure

to deliver immediate fi nancial results is a big barrier to sustainability

efforts. In response to this the CEO of IKEA, Mikael Ohlsson, was

quoted as saying ‘While many current-day CEOs may agree in princi-

ple, the pressure of quarterly earnings reports can nevertheless push

executives to favor short-term profi ts over long-term success.’ He also

said ‘What is good for our customers is also good for us in the long

run. We are not on the stock exchange, so we can act long term.’

Another interesting quote comes from an article in the FT which

says ‘Strong total shareholder returns are what ultimately matter to

investors in a company. But there are reasons to think that share-

holder value, like happiness and many of life ’s other good things,

is best achieved by not aiming at it too directly.’ For example, an

executive is compensated based on stock price which means that

over the 3 years they have the job, they may take dangerous short-

term business risks, the results of which will only become evident

long after those options have been monetized. 35

Several projects are under way to look at how we can move away

from short term to long term. Aspen Institute ’s long-term value

creation guidelines focus on corporate–investor communication

and look at aligning company and investor compensation policies

with long-term metrics (www.aspenbsp.org). Also see The Future

Quotient by Volans (www.volans.org) and the World Future Council

(www.worldfuturecouncil.org).

http://www.aspenbsp.org

http://www.volans.org

http://www.worldfuturecouncil.org

208 The Sustainable MBA

The role of the CFO

Traditionally, the CFO has not been involved in sustainability,

instead running the numbers and letting others handle these issues.

Not any more. The role of the CFO is in integrating sustainability

with business planning to support targets and objects to embed

sustainability within the core decision-making of the organization.

CFOs can link sustainability to business performance systems to

drive better decisions and then apply fi nancial expertise to ensure

they create more value.

Moreover, the corporate fi nance team often leads key business

processes, such as budgeting, capital appropriations, internal and

external fi nancial reporting, executive compensation, and energy

management that directly affect the achievement of sustainability

goals. So, CFOs are increasingly pushing sustainability and becoming

active about their efforts in this area. One-third of CFOs surveyed

on behalf of Deloitte by Verdantix said that they are ‘fully involved

in all aspects ’ of sustainability strategy at their fi rms; another 36%

said they are periodically involved and these numbers are increas-

ing. The Chartered Institute of Management Accountants provide

the following guidance for CFOs to get engaged:

• Make it strategic, not just tactical.

• Apply a fi nancial mindset and link sustainability business

performance.

• Identify and use the right metrics consistently.

• Improve the process of data collection, analysis, and reporting.

• Integrate with business planning and reporting.

There is a range of papers on the role of the CFO in sustainability

produced by the different consulting companies, such as Ernst &

Young, Deloitte, and Accenture in partnership with the Chartered

Institute of Management Accountants (www.cimaglobal.com).

http://www.cimaglobal.com

Finance 209

Insurance sector

The insurance sector is the world ’s largest economic sector, which

reaches virtually every customer and business around the world.

Without insurance, businesses and individuals would be afraid to

take the risks that are necessary for the continuous development of

a capitalist society. It is in the insurer ’s interest to reduce risks and

improve sustainability. According to UNEPFI, ‘The insurance indus-

try is a strong lever for implementing sustainability due to its size,

the extent of its reach into the community and the signifi cant role

it plays in the economy.’

The sector is increasingly concerned with climate change,

health, man-made risks, and environmental liability, to name a

few. Two types of insurance products have appeared in response:

(1) products which differentiate insurance premiums on the basis

of environmentally related characteristics; and (2) products spe-

cifi cally tailored for clean tech and emission reduction activities.

Argentina ’s government is the fi rst in the world to require com-

panies involved in potentially hazardous activities to purchase

insurance covering environmental damage to the country. In 2012

the Principles for Sustainable Insurance were created to provide

guidance for insurance companies on how to progress in this

area (www.unep.org/psi). Another initiative in this area is Climate

Wise, which is working to develop the insurance industry ’s strat-

egy on climate change and currently includes over 40 members

(www.climatewise.org.uk).

A new kind of bank

It is probably safe to assume that most individuals are not happy

with their bank for some reason or another, from hidden fees to

poor service. Combine high customer dissatisfaction with the cur-

rent global fi nancial turmoil and it is easy to conclude that banking

is an area just begging for innovation and change. Now some banks

http://www.unep.org/psi

http://www.climatewise.org.uk

210 The Sustainable MBA

are stepping up to answer the call for change – from new product

offerings to redefi ning the whole concept of banking to be more

transparent and inclusive.

Many mainstream banks, such as Nedbank in South Africa, have

now started exploring how to be more sustainable fi rst in their

operations, for example by sending statements, invoices, and other

notices by e-mail to save paper, but more importantly in the sus-

tainability-related fi nancial services and products offered to retail

and business customers. ‘Green mortgages ’ are available with

considerably lower interest rates for clients who purchase new

energy-effi cient homes and/or invest in retrofi ts. A range of green

loans are available in all categories including home equity loans

and car loans. An increasing array of credit cards donate a percent-

age of every purchase to different charities.

Where individuals and small businesses are getting fed up with

the big banks, they are turning to a growing number of successful

alternatives. In the UK, the Co-operative Bank continues to grow

largely due to the explicit ethical policy fi rst launched in 1992,

which is based on continued customer consultation. In Europe,

Triodos Bank is committed to transparency and the realization of

social, environmental, and cultural objectives in day-to-day bank-

ing. As a result, it only fi nances enterprises and organizations

that add social, environmental, and cultural value. Community-

based banks are often more focused on small business loans and

personal service to the community. Umpaqua Bank sets up its

branch locations like neighborhood hubs, with a focus on com-

munity and a range of green products and free events and semi-

nars. ShoreBank Pacifi c reported its tenth consecutive quarter of

record earnings. San Francisco-based New Resource Bank formed

in 2005 with the aim to build a bank that was ‘by the people for

the people’ of their community. Khazana, a bank in India, is exclu-

sively run by and for children, in particular street children who

earn just US$1 a day. Started in 2001, it now has 400 branches in

six countries.

Finance 211

Want more?

• The Chartered Financial Analyst Institute (CFA) has done

some work in ESG, including a manual for investors on these

issues (www.cfainstitute.org). The GRI has a special supple-

ment for the fi nancial services sector that provides guidelines

for reporting (www.globalreporting.org). CFO released ‘The

role of fi nance in environmental sustainability efforts ’ (www

.cfo.com).

• Several international initiatives are working to build under -

standing of the impacts of environmental and social con-

siderations on fi nancial performance. The UNEP Finance

Initiative is a global partnership between UNEP and the

fi nancial sector, with over 170 institutions. Signatories (rep-

resenting more than US$15 trillion) include most of the

major banks (www.unepfi .org). The London Principles out-

line seven characteristics that underpin the sustainability of

fi nancial markets (www.cityofl ondon.gov.uk).

• Ceres is a coalition of investor groups, environmental organi-

zations, and investment funds that engage directly with

The Collevecchio Declaration, signed by over 100 NGOs, calls

on big banks and investors to take responsibility for the envi-

ronment and socially harmful impacts of their activities. ‘Green

Financial Products and Services ’ by UNEPFI has a long list of

different products now being offered by banks (www.unepfi

.org). The Financial Times and IFC give out sustainable bank-

ing awards yearly: past winners for sustainable bank of the

year include Nedbank (South Africa), Itau Unibanco (Brazil),

YES Bank (India), Standard Chartered (UK), and Credit Suisse

(Switzerland).

http://www.cfainstitute.org

http://www.cityoflondon.gov.uk

http://www.cfo.com

212 The Sustainable MBA

Microfi nance

‘We are aiming at a world where a wide variety of strong insti-

tutions jostle and compete with one another for poor people ’s

business, innovating and improving services to earn their

loyalty.’

CEO OF CGAP

For the most part, the fi nancial sector works well in countries where

individuals have a place to put their money, borrow, and have access

to a variety of other fi nancial services. The story is very different in

developing countries, where around 2.5 billion people have no or

little access to fi nancial services and when they do have money, they

have nowhere to put it.

companies on environmental and social issues. Based in the

USA, it currently has more than 70 members and 60 compa-

nies who follow the Ceres principles (www.ceres.org).

• Network for Sustainable Financial Markets (www.sustaina-

blefi nancialmarkets.net) and FSinsights (fsinsight.org) are

both groups of academics and fi nance-sector professionals

exploring how to make the fi nancial markets deliver long-

term sustainable value.

• The Climate Principles are a voluntary framework to guide

the fi nance sector in tackling the challenge of climate change

(www.theclimategroup.org). The Natural Value Initiative

works with the fi nance sector to evaluate biodiversity risks in

their portfolios (www.naturalvalueinitiative.org). The Finance

Lab looks at how to innovate across the whole fi nancial sys-

tem (thefi nancelab.org).

Read: Sustainable Banking and Finance: People, the

Financial Sector and the Future of the Planet by Marcel Jeuken

and J. Smits (2001).

http://www.ceres.org

http://www.sustainablefinancialmarkets.net

http://www.theclimategroup.org

http://www.naturalvalueinitiative.org

http://fsinsight.org

http://the%EF%AC%81nancelab.org

Finance 213

Historically, banks dismissed the opportunity to provide ser-

vices to the poor because it was not seen as a viable alternative,

and the barriers to working in certain countries, and reaching the

customers, were seen as insurmountable. In the 1970s the shift to

microfi nance began – as different groups in Columbia, Brazil, and

India started testing the disbursement of microloans to individu-

als (often women, pensioners, artisans, and small farmers), which

could be used to start or build up their businesses.

The initiatives were a success. One woman in Bolivia who sold

fl owers from a street corner in La Paz, together with three other

women, was able with a small loan from ACCION International to buy

fl owers in bulk at a much cheaper rate. Because of her strong repay-

ment record, she was approved for larger loans until she was able to

borrow on her own. Today she has been able to send all three of her

children to school and even has money left to make improvements on

her house.

Some 97–99% of loans from well-performing microfi nance institu-

tions are repaid. Experts point to several reasons for this repayment

success. First, these loans represent one of few, often the only, oppor-

tunities poor people have to access money. Second, prompt repay-

ment of loans allows individuals to have access to more funds and

other fi nancial services, which builds a continuing cycle of creating a

better, more sustainable life for themselves. Also, in some cases group

lending is used where a number of individuals provide collateral or

guarantee a loan through a group repayment pledge. The incentive to

repay is enhanced based on peer pressure to pay (the stick) and peer

support to help a member in diffi culty (the carrot): the group has a

structural incentive to get involved because if one person in the group

defaults, then other group members are required by the contract to

pay back the loan.

Microfi nance is often seen as a win/win solution. The availabil-

ity of fi nancial services to the world ’s poorest gives them oppor-

tunities and options to go beyond meeting basic needs, increase

their household income, save, and take on credit. Many microfi -

nance institutions report having better returns on equity than large

banks do.

Today the boundaries between microfi nance and the formal fi nan-

cial sector are starting to break down and the term ‘microfi nance’ now

(continued )

214 The Sustainable MBA

encompasses an ever-growing range of organizations and services,

experimentation and new entrants, new delivery channels, and new

clients. Finca, for example, provides micro-energy loans that allow

Ugandans to buy solar energy systems for their homes. This provides

opportunities for a wider range of individuals to access microfi nance

and not just entrepreneurs. In effect, microfi nance is now going

mainstream – with national and international banks such as ICICI,

Citigroup, Deutsche Bank, and HSBC testing the waters. Development

fi nance institutions such as the International Finance Corporation are

also getting involved.

Although the benefi ts and success of microfi nance are clear, there

have been some growing pains for this movement. Some institutions

are charging higher interest than usual, up to 200%, and siphoning

money to unrelated activities. Over-indebtedness, lack of profes-

sionalism, and corporate governance are also common criticisms of

institutions. There is still much work that needs to be done.

• From a charity to a business . Work needs to be done to change

something that started as a charity into a proper business. This

includes bringing down the cost of operation, which at the moment

is very high, increasing effi ciency, and focusing on human capital.

• Information sharing . There is a need to increase transparency

regarding performance, which is currently low, and share infor-

mation systems such as client credit histories.

• Interest-rate ceilings . Some countries impose interest-rate ceil-

ings that discourage fi rms from entering the market, because

these ceilings make small loans cost more than large loans.

• Expensive . Because of the small size of the loans and fi xed

transaction costs, the interest on the loan can be high. However,

informal lenders can charge 100–150% per annum, so while

microfi nance is expensive, it still offers funds at rates way below

the informal loan market.

• Beyond business loans . Microfi nance is slowly expanding to

provide a larger variety of services for the poor, including credit,

savings, remittances, insurance, and different kinds of loans for

both consumers and businesses.

• Source of money . The money in microfi nance has historically come

from charities, governments, and international organizations, with

Finance 215

growing interest from large banks and private investors. Going

forward, microfi nance applicants will increasingly be funded

by domestic savings and local banks with the aim to help build

domestic fi nancial markets. Increasing interest from mainstream

social investors, a very fragmented sector, will continue to cause

shifts and consolidations.

It isn ’t just fi nancial institutions getting into microfi nance – several

platforms have emerged online inviting the general public to invest

their money in microfi nance. Kiva, MyC4, and Zidisha are all per-

son-to-person microlending websites where individuals can browse

through real individuals in need of funding, including entrepreneur

profi les. Once a person chooses who they want to loan to and make

the loan, they receive e-mail updates and can track repayments.

Technology is also being used to make it easier for people to

have access to their money. In Kenya, the M-Pesa telecommunica-

tions system allows people to send money over mobile phones.

Cash is handed over to registered retailers who credit customers ’

virtual accounts. Customers can then send between 100 and 35 000

shillings via text message to another person, who can then pick up

the money at another registered retailer using a secret code and ID.

Want more?

• UN Capital Development Fund has an online course on

microfi nance which provides a good introduction (www

.uncdf.org). The year 2005 was the International Year of

Microcredit and the website has quite a few resources on the

topic (www.yearofmicro credit.org). CGAP is an independ-

ent policy and research center dedicated to advancing fi nan-

cial access for the world ’s poor. It also produces a yearly

survey of microfi nance (www.cgap.org). The Microfi nance

Gateway is a large online resource on microfi nance including

research, publications, articles, news, and job opportunities

(www.microfi nancegateway.org). Over 2000 MFIs report to

the Microfi nance Information Exchange (www.themix.org). See

Principles for Investors in Inclusive Finance (www.unpri.org).

http://www.yearofmicrocredit.org

http://www.cgap.org

http://www.microfinancegateway.org

http://www.themix.org

http://www.fitchratings.com

http://www.uncdf.org

216 The Sustainable MBA

• Forbes magazine regularly ranks the 50 top microfi nance

institutions. Leaders include ASA in Bangladesh, Bandhan in

India, Banco de Nordeste in Brazil, Fundacion Mundial de

la Mujer Bucaramanaga in Colombia, and FONDEP Micro-

Credit in Morocco (www.forbes.com).

• Rating agencies such as Moody ’s (www.moodys.com),

Fitch (www.fi tchratings.com), and Standard & Poor ’s (www

.standardandpoors.com) have begun either to rate microfi -

nance transactions like bond issuances or to rate the insti-

tutions themselves, and provide research on the subject.

Microrate is a rating agency dedicated to the evaluation of

microfi nance institutions (microrate.com).

Read: Creating a World without Poverty: How Social Business

Can Transform Our Lives by Muhammad Yunus (2008), who

won a Nobel Peace Prize in 2006 for his work on microfi nance

with Grameen Bank. More than Good Intentions by Dean Karlan

(2011), Financial Promise for the Poor by Kim Wilson (2010),

Confessions of a Microfi nance Heretic by Hugh Sinclair (2012).

http://www.forbes.com

http://www.moodys.com

http://www.standardandpoors.com

http://microrate.com

1 11 Marketing

‘Sustainable Marketing is about infl uencing customer

behavior to create both profi t and positive societal

change. It is about what you market and the way in

which you market.’ BUSINESS IN THE COMMUNITY

218 The Sustainable MBA

Marketers are both the supervillains and superheroes of sustain-

ability. As supervillains they spend their time encouraging people

to buy more, promoting unsustainable consumption. As the WWF

puts it, ‘Marketers are blamed for a multitude of sins: encouraging

ever greater consumption of alcohol, fatty foods, empty calories,

water and biological resources; using too much packaging; limiting

the useful life of products so that people are forced to replace them

earlier than necessary; producing greenhouse gases. The list seems

never-ending.’ 36 On the other hand, as superheroes, ‘the real power

lies in the hands of the marketer – the creative folks who have the

power to design and promote cleaner products and technologies

and help consumers evolve to more sustainable lifestyles.’ 37

The way that people buy and consume products has an impact on

the planet and society. So as superheroes, marketers can use their

power to inspire and orient positive changes in consumer behavior

in several ways. First, they work to identify, anticipate, and satisfy

customer requirements profi tably by identifying opportunities for

more sustainable products. Second, they market their products

in a responsible way that does not promote over-consumption or

misinformation through greenwashing. Third, they communicate

information about the product and how best to use and dispose of

it so we can make more educated decisions.

Why is it important?

• Opportunities . Although surveys differ (estimates range widely

from 5% to 75%), a potentially large percentage of consumers

are ready and looking to purchase products on sustainability

grounds but currently don ’t because these products are either

not accessible or unavailable. It is a growing market that is not

yet being effectively reached.

• Bad news can spread quickly . Whether the news has substance

or not, the rise of social networks and infl uencers means that you

are not the only one developing your marketing message. Not

Marketing 219

having a consistent, well-thought-out message will be picked up

and can have a lasting negative effect on your brand.

• Good news can also spread quickly . If you take sustainability

seriously, and it shows through in your products and marketing

campaigns, others will do the marketing for you by spreading

the news as best practice. In some markets, such as organics

and fair trade products, governments and NGOs run awareness

campaigns that indirectly promote products with these labels.

• Return on ignoring . By being transparent in their communica-

tions with stakeholders, companies can build trust and loyalty

with their customers. Leading companies in this area are build-

ing their reputations on years of work rather than a campaign

they can stand behind for a month.

• Internally and externally . Marketers have a crucial job in pro-

viding consistent messages about sustainability and the com-

pany not only to external customers, but also, perhaps more

importantly, to employees and internal teams.

• Impact is in the use . Considering that the majority of the impact

of a product (80%) is actually in the way that it is used and

disposed of, marketers can play a key role in educating the

consumer on how to best use and dispose of the product in order

to reduce the full lifecycle effects of the company ’s products.

• Selling products . A company can put a lot of effort and invest-

ment into creating a new, more sustainable product but if the

marketing department doesn ’t do its job, the product will not

sell – sending a strong message to the company that sustainabil-

ity isn ’t worth it.

The key concepts

Marketers are present throughout the lifecycle of a product and

have many opportunities to embed sustainability in their work in

the following ways:

220 The Sustainable MBA

People

Increasingly, customer concern for the environment and society is

translating into a demand for more sustainable product options and

choices. The extent of this increased demand, however, is a conten-

tious issue.

Numerous studies propose numbers of consumers being pre-

pared to buy ‘green’ that range from 5% to 75%. Private research

fi rms and the producing companies themselves are working to seg-

ment the green consumers to better understand who their customer

• Identify who your customer is → People

• Identify what your customer

wants

→ Products

• Determine how much to charge

for those products/services

→ Price

• Determine how best to sell

those products/services

→ Place

• Determine the best way to

present and protect those

products

→ Packaging

• Communicate your sustain-

ability commitments and

characteristics

→ Eco-labels

• Increase awareness about the

issues that are important to

your company

→ Social marketing

• Help raise money for causes

that are important to your

stakeholders

→ Cause-related marketing

• How to promote your sustain-

ability commitments

→ Box: Advertising dos and

don'ts

Marketing 221

is and what they want. This has resulted in an ever-growing variety

of groupings, for example:

• Those who will buy sustainable products no matter what.

• Those who will buy green but expect high standards and quality.

• Those who are not sure what to think but do want to buy green

if it is easy and straightforward.

• Those who are completely confused as to what to buy and there-

fore end up not buying green.

• Those who stay away from green products and are uninterested

in this area altogether.

The majority of consumers are in the middle group. They are

ready to purchase green but infl uenced by a variety of different

sustainability factors to different degrees.

It has proved diffi cult to isolate the so-called ‘green consumer’ for

several reasons:

• Some studies tend to overstate green behavior by focusing on

what people say they do, but not on what they actually do.

• Other studies understate the potential by focusing on only one

element of green products (e.g., whether a consumer would buy

products that are organic but not looking at products designed

to increase effi ciency).

• The potential market can be overlooked by looking only at the

demand for existing products but not the potential demand for

products that do not yet exist in this area.

• Decisions are based on a range of factors often combined

together. Consumers will choose a hybrid car for both environ-

mental and cost-saving reasons, or may choose organic food

because it tastes better and is healthier, not just because it is

better for the environment.

• As mainstream products become more sustainable, consumers

will be buying green whether or not they consciously realize it.

• Consumers are not always familiar with or may not truly under-

stand the meaning of the terms used in the surveys – such as

222 The Sustainable MBA

‘green,’ ‘sustainability,’ etc. They do not necessarily know what

exactly a green product is or how to recognize a green company.

• By attempting to relate a consumer ’s environmental concerns

to what they purchase, we may be looking in the wrong place.

Many of the signifi cant contributions the consumer can make

toward environmental quality actually come from product use,

maintenance, and disposal.

Therefore, when considering why people would purchase sustain-

able products, it is more important to understand the compromises

and tradeoffs consumers are being asked to make. Getting to this

stage will then allow companies to focus on providing the products

that people actually want and need, thereby making it simple for

consumers to do their part. Some of the hurdles to be overcome are:

• Performance . Many consumers still see ‘green’ products as

being inferior. Consumers are looking for green products that

work as effectively, or better than, non-green options. Often,

they will not buy green products on the basis of environmental

benefi ts alone, and instead are looking for added selling points.

• Price . Consumers don ’t want to pay much extra or sacrifi ce qual-

ity for greener products. They will only pay a premium if they

feel that premium is justifi ed, based on the guarantee of certain

environmental or social factors, or added value to the consumer.

• Personal benefi t . Consumers are looking for products that

aren ’t just making an impact far away, but that impact them

directly as well. They will be more likely to respond to product

attributes that will personally benefi t them, such as ‘safe,’ non-

toxic, cost-effective rather than just biodegradable or fair trade.

• Convenience . Consumers will tolerate only minimal inconven-

ience in using green products and don ’t want to have to go out

of their way to buy them. Products need to be easy to use and

available at mainstream distributors.

• Information . Many consumers may be interested in buying more

sustainable products but currently lack the right information at

Marketing 223

the right time to make those decisions. They don ’t necessar-

ily expect companies to have perfect green credentials, but will

look for a commitment to improve and evidence backed by facts,

for example through recognized eco-labels.

If a product is of high quality, readily available, and at a reason-

able price it has the potential to capture market share. In an inter-

view with Harvard Business Review , Steve Bishop from Ideo said

‘don ’t bother with the green consumer.’ He said that companies

spend time trying to connect with those people who really under-

stand the issue, the green niche so to speak, but in the process risk

alienating their base who have different values and who are inter-

ested in solving their own personal needs before saving the planet.

The solution? Rather than focusing on the features of a product,

focus on consumer needs in order to cater to all consumers.

Those involved in marketing sustainable products should be

interested in the following categories of consumers:

• The ever-growing confl icted consumer . This group, which is

estimated at being anywhere between 25% and over 50% of

consumers in some markets, believes that the companies they

currently buy from are unethical and are building resentment

toward the brands. Examples include certain fast-food restau-

rants for the perceived damage their food causes to children.

This is a group of apparently loyal customers that are ready to

leave as soon as a more ethical alternative product or service

becomes available.

• Another important consumer group for green products is

women . Women spend about 85 cents of every dollar spent

and make more than half of family and business-to-business

spending decisions. 38 Consumers are taking sustainability labels

seriously and are asking companies to react to these issues.

• Product evangelists are your free sales force, they are the ones

that do not just believe in your product, but believe in it so

much that they will tell others about it. Finding the right tools to

224 The Sustainable MBA

Products

A sustainable product is one that provides environmental, social,

and economic benefi ts over its full lifecycle. Some could argue that

there is no such thing as a truly sustainable product. All products

need energy, water, and materials to be designed, produced, and

used. But much work is being done to reduce the impacts of prod-

ucts across the lifecycle.

Companies have two fundamental choices when it comes to cre-

ating sustainable products. First, they can take an existing product

and make it greener. This involves many of the concepts introduced

in eco-design, including using more sustainable materials, produc-

tion processes, disposal, etc. Second, they can identify customers ’

engage with this group will increase sales, loyalty, and generate

consumer insight.

• With increased levels of awareness about sustainability issues,

young people are not just getting involved, but are increasingly

infl uencing their parents ’ decisions in this area.

Sustainability consumers often get put into a group described

as LOHAS (Lifestyles of Health and Sustainability) (www.lohas.

com). Much of the research in this area is done by companies

themselves or research companies such as Roper Green Gauge

survey (www.gfkamerica.com), GlobeScan Green Behaviour

Segments (www.globescan.com), and the National Geographic

Society ’s ‘Greendex’ (environment.nationalgeographic.com).

You can also fi nd information about demand for different prod-

ucts from specialist organizations. For example, to fi nd out more

about the demand for fair trade products see www.fairtradefed

eration.org or for social investment see www.socialinvest.org.

http://www.lohas.com

http://www.gfkamerica.com

http://www.globescan.com

http://www.fairtradefederation.org

http://www.socialinvest.org

http://www.fairtradefederation.org

http://environment.nationalgeographic.com

Marketing 225

needs and wants and develop entirely new products that are able

to better address these in a more sustainable way.

Consumers are looking for a variety of different kinds of sustain-

able product options (or combinations of), including:

• Products that present a solution . This could be a product that is

a better alternative to what is currently available. The focus is on

identifying a need and providing a product that satisfi es that need.

• Products that are safer . Several sustainability products, for

example those that use fewer chemicals and have more natu-

ral ingredients such as organic, aim at providing healthier, safer

options for consumers (e.g., green cleaning products such as 7th

Generation and Ecover).

• Products that save money . Many green products on the mar-

ket right now, especially new technologies (both very simple or

complex), allow consumers to not only reduce their energy or

water use for example, but also to save them money (e.g., solar

panels which enable a consumer to both generate their own

power and sell excess power into the grid).

• Products that make them feel good . Certain products may or

may not have any intrinsic sustainability characteristics but the

companies producing them or the products themselves support

causes that the consumer perceives to be important. Supporting

those products makes the consumer feel as if they have done

their part in making the world a better place.

• Products that make them look good . Some consumers are

looking for products that look like they are green in order to

communicate to others their green credentials (e.g., hybrid cars

or green luxury goods).

• Products that make it easy to switch . Consumers are looking

for products that make their life simpler, not more complicated,

and they are looking for products that make it easy to switch.

Consumers are also looking for products, brands, or retailers that

are doing the work for them, such as products that all uphold

certain standards so that they do not have to think about every

single purchasing decision.

226 The Sustainable MBA

Price

A post on the blog of TerraCycle ’s founder explains some of the

dilemmas that companies face with price. The company has a line

• Products that are high quality . Consumers are looking for

products that are high quality (e.g., Mountain Equipment Co-op

in Canada guarantees its products, which can be returned at any

time for exchange, refund, repair, or credit).

• Products that aren ’t doing harm . Consumers are increasingly

interested in supporting products that are not doing harm to

society and the environment, in particular as the levels of aware-

ness increase about the impacts of many of these products and

processes.

Marketers have a role to not only question the underlying assump-

tions behind product development, but also, in some cases, to

question the product altogether. Some producers may assume that

consumers need to physically own a product in order to be satisfi ed

with their purchase. But generally, it is the use of the product itself

rather than the purchase that generates the satisfaction. With this

in mind, marketers should rethink not only the way that products

are designed, but how the entire product experience is designed.

Can the product be rented, borrowed, reused, or repaired? Will it

need to be disposed of? Traditional discussions around the pur-

chase itself need to make way for more discussions about what

happens after the purchase.

See Chapter 12 for more information on the design of sustain-

able products. IDEO in collaboration with BSR has created

design toolkits for social impact and human-centered design

(www.hcdtoolkit.org).

http://www.hcdtoolkit.org

Marketing 227

of eco-friendly cleaners that are just as good as synthetics and, in

some cases, better. They are packaged in used soda bottles and

retail at US$2.99, cheaper than other eco-brands, but 70 cents more

expensive than other household cleaners. ‘So here ’s the question,’

asks Tom Szaky: ‘Our sell through at our retailers is very strong, so

we could keep our price at $2.99, and be the best price in the eco-

fi eld but still be a premium to the national brand. Or we could cut

our margin and either match or even beat the prices of the conven-

tional brands. It would hurt margin, but it should increase market

share. It would be a bold but tempting move since we may be able

to gain market share beyond the “eco-cleaner” category. What do

you think we should do?’

Pricing products is a tricky business, whether they are green or

not. Getting the price right is crucial; price it too high and you may

miss the mainstream market but price it too low and consumers

may see it as a lesser quality product. Price consistently comes up

as a barrier to moving sustainability to become more mainstream,

but it is not alone. It is only one part of the decision-making pro-

cess for customers, along with quality for example. ‘How much

more would you be willing to pay for greener products?’ contains

a powerful message which promotes the image of the environment

as an additional cost burden on business and consumers. It would

perhaps be more appropriate to ask consumers, ‘Do you want to

continue buying products that are inexpensive because they dam-

age the environment?’ 39

While the pricing of the product from the company ’s side often

rests on their actual costs, what a consumer is willing to pay for a

more sustainable product is more related to the perceived value it

brings to both the customer and to the environment and society as

a whole. Determining how much a consumer is willing to pay for a

sustainability product comes down to these points:

• The perceived value (fi nancial) . This has to do with the total

value that the customer is getting from the product or service

228 The Sustainable MBA

itself, and how much value they are getting from this product as

opposed to another one. This includes:

• Operating costs . CFC light bulbs, for example, may be a little

bit more expensive than traditional light bulbs to buy, but they

will cost the consumer less over time because they last longer

and use less energy.

• Indirect costs . Is the product worth enough to the consumer

that they are willing to go out of their way to buy it? Is it

higher quality, or does it result in increased consumer satisfac-

tion? Is the product easy to fi nd, easy to use?

• The perceived value (ethical) . This does not have to do with

the product itself, but rather with the claims that the product

makes. How much does the consumer value the environmental

and social guarantees the product is making? This also depends

on how much knowledge the consumer has about different

issues, and therefore whether they are able to understand the

positive changes that the company has made to society or to

the environment. It also has to do with how far they believe the

impacts being claimed are true. This includes:

• Direct impact . Supporting a product that was made using sus-

tainable materials, sustainable processes, fair trade, recyclable

materials, etc. For example, a consumer choosing to buy paper

that is recycled and FSC certifi ed knows that they are protect-

ing forests and supporting the responsible management of the

world ’s forests.

• Indirect impact . For example, some companies will link parts

of their profi t to social and environmental causes relevant to

or of interest to their business. This is either through the price

you pay, or as a percentage of profi ts. Customers then feel

that they are doing something good by buying the product,

especially if they care for the cause, and that if they are being

asked to pay a premium it is going to the right place (see

‘Cause-related marketing’).

Marketing 229

Another challenge in this space is companies who overcharge

for green products knowing that a particular group of consum-

ers will be willing to pay for them. A study by Accenture found

that 60% of respondents admitted to charging a premium of 5%

to 25% compared with non-sustainable goods. The price premium

on sustainability items was often seen by the customer as a sort

of sustainability tax, and taxes are typically meant to penalize and

discourage a behavior. Surveys show that consumers overwhelm-

ingly want to buy healthier, greener products but do not want to

pay more for them. Therefore, competitive pricing is sustainability ’s

path to mass-market adoption. Wal-Mart has realized this and is

working to provide more sustainable options at competitive prices.

Place

The place in the marketing mix generally refers to where and

when consumers will acquire a particular product or service. This

includes several elements such as where the product is made and

how the products are transported (see Chapter 12 for more). Here

we will focus on where the product is being sold; the retailer. In

this context, retailer includes any organization that sells and deliv-

ers a product to the consumer, and it can include supermarkets,

stores, restaurants, and department stores.

Retailers have often been perceived as not only playing a passive

role in sustainability, but in some cases being part of the problem.

According to UNEP, the world ’s 200 largest retailers account for 30%

of worldwide demand. Therefore, actions by retailers have a sig-

nifi cant effect in this area, and in many cases, retailers are actually

leading the changes. Wal-Mart, for example, states that with roughly

10 000 suppliers, 200 million customers each week at 10 000 retail

units in 27 countries and more than 2.2 million associates, they

‘have the ability to reach and infl uence people on a level unattaina-

ble by any other company.’ Their strategy includes goals and targets

in their supply chain, in the products they sell, their employees, and

230 The Sustainable MBA

the communities they operate in and source from. Wal-Mart aims

to be supplied by 100% renewable energy, to create zero waste, and to

sell products that sustain our resources and the environment.

Retailers have a number of areas to review in building and

improving sustainability:

• Store management . Retailers should ensure that their own

operations are sustainable, and that they are controlling and

managing their environmental and social impacts in energy

and water conservation, waste management, and recycling in

stores and distribution centers. Over 130 Kohl department stores

in the USA now have 40% of their power provided by solar

panels on the roof. Because of the high upfront costs of the panels,

SunEdison, a solar energy services company, paid for the

panels and is selling the electricity to Kohl.

• Site selection . Retailers are looking not just at how they build

their new buildings but also where. Tesco, a supermarket chain

in the UK, has looked to build new stores on brownfi elds, mean-

ing redeveloping lands in urban areas for new uses rather than

expanding outward to rural or agricultural areas.

• Where products come from . The sourcing of consumer prod-

ucts includes working with suppliers to favor development of

products that are more sustainable. For example, Starbucks

started integrating conservation principles into its best-buying

practice, and by working with Conservation International imple-

mented CAFE standards which set ambitious goals to ensure

high-quality coffee is grown and processed in a manner that is

both socially and environmentally responsible.

• Eliminating unsustainable products . Some retailers are elim-

inating products they consider to be unsustainable from their

stores and, where possible, offering more sustainable alternatives.

After a 6-month consultation with its over 100 000 members, The

Co-op, a food retailer in the UK, revised its product portfolio in

support of more sustainable options, including banning the sale

of eggs from caged hens in favor of free-range and organic eggs.

Marketing 231

• Educating the customer . Retailers are providing more sus-

tainable options for their customers to choose from. They are

also educating their staff about these options, and pricing and

promoting them appropriately. Spanish supermarket Eroski

offers – as part of their campaign for more responsible con-

sumption – a school for consumers where they can learn, among

other things, how FSC-certifi ed forests are managed.

• Where the product is placed . Retailers are making more sus-

tainable products easier to fi nd and easier to buy. Green prod-

ucts in some countries are confi ned to the health food aisle

or store, which can limit the number and kinds of customers

these products potentially attract. Offi ce Depot publishes a spe-

cial catalogue with its green offerings (over 2200 items), and

in-store these offerings are placed alongside less green alterna-

tives which has signifi cantly increased sales.

• How the product is sold . Retailers are also exploring new ways

to get the products to consumers in the fi rst place. Allegrini, an

Italian producer of biodegradable detergents, developed Casa

Quick. Casa Quick takes its detergents in mobile vans from

house to house and allows families to refi ll their bottles, paying

only for the quantity taken. Consumers receive a kit of plastic

fl asks which are easy to carry from house to van.

• Presentation of products in-store . Several international

companies – such as Unilever, IKEA, McDonald ’s, and PepsiCo –

are working together through the global initiative Refrigerants

Naturally! to combat climate change by replacing harmful gases

with natural refrigerants in point-of-sale cooling machines.

• Retailing differently . The REI (an outdoor company) store in

Boulder, Colorado, is not just a LEED-certifi ed green building

but also a community center. The fl oor plan is designed around

a central resource area with meeting rooms, information kiosks,

and a children ’s play area.

• Reverse logistics . Retailers can also provide a spot for consumers

to bring back products for reuse and recycling. Many electronic

232 The Sustainable MBA

Packaging

Packaging is the fi rst part of the consumer ’s tangible experience

with your product. If a product or a company promotes itself as

green and then uses excessive or unsustainable packaging, it is not

sending a consistent message to the customer. Packaging should

not only be seen as something that protects the product, but also as

an opportunity to connect with the customer and transmit informa-

tion about the product, what it is made of, how best to use it, and

how to dispose of it when a consumer is fi nished using it. There are

two components to sustainable packaging:

stores already have facilities to collect used batteries and super-

markets will collect used plastic bags. Electronic store Best

Buy offers several recycling programs to the public, whether

they bought the products at the store or not. They can bring

them in for free recycling, they can trade in used electronics

for gift cards, they can bring them in for repairs via their ‘Geek

Squad’ program, or they can sign up for the Buy Back program

when they buy a new product, allowing the customer to bring

the product back in-store for a partial refund at the end of the

product ’s life.

There are several groups looking at this topic, including the

Retail and Industry Leaders Association ’s Sustainability Initiative

(www.rila.org) and Greening retail (www.greeningretail.ca). For

more, look at the fi ve largest retailers in the world: Wal-Mart,

Carrefour, Tesco, Metro AG, and Schwarz.

http://www.rila.org

http://www.greeningretail.ca

Marketing 233

1. The packaging. Companies are making the packaging itself

more sustainable. This includes looking at:

• Materials used . According to the Sustainable Packaging

Coalition, sustainable packaging is packaging that:

• is benefi cial, safe, and healthy for individuals and commu-

nities throughout its lifecycle;

• meets market criteria for performance and cost;

• is sourced, manufactured, transported, and recycled using

renewable energy;

• maximizes the use of renewable or recycled source materials;

• is manufactured using clean production technologies and

best practices;

• is made from materials healthy in all probable end-of-life

scenarios;

• is physically designed to optimize materials and energy;

• and is effectively recovered and utilized in biological and/

or industrial closed-loop cycles.

• Reducing the amount of packaging . The European Packaging

Directive, for example, sets strict requirements to prevent the

use of excessive packaging. In response to this, Danone spent

three years re-engineering their yoghurt packaging to signifi -

cantly reduce the packaging used, saving the company US$2.5

million a year in the process.

• Proper packaging . Getting rid of all packaging is not the

answer either. Under-packaging can be as much of an issue as

over-packaging in terms of wasted energy and resources from

ruined goods. Packaging needs to be considered in the con-

text of the design and manufacturing of the product.

• Packaging across the lifecycle of the product . Producers must

think about how much is being used and what kinds of

materials are being used as part of the packaging, whether

it is primary (the packaging customers see), secondary (the

234 The Sustainable MBA

packaging used to ship to retailers), or tertiary (the packaging

used to ship the products from the manufacturers).

• Keeping it simple . Amazon ’s Frustration-Free Packaging initia-

tive is designed to free customers from diffi cult packaging.

Instead of being packaged in hard-to-open and hard-to-recycle

plastic and cardboard packaging, Amazon works with leading

manufacturers such as Microsoft and Mattel to package prod-

ucts in a simple, recyclable cardboard box.

• The design of the packaging . O2 redesigned their packaging

to encourage customers who didn ’t need a charger to opt out

of receiving a new one when they upgraded their phone. This

had a multiple knock-on effect, allowing phones to be posted

through letterboxes (reducing courier deliveries), and offering

a simple way to recycle their current phone.

• Rethinking the packaging . There are large numbers of innova-

tions in the area of sustainable packaging – from stores such

as Upackaged in London, which only sells products in bulk

and encourages customers to bring their own packaging, to

toys whose packaging can be transformed into a second toy.

• Eliminating packaging . In 1985 Swiss retailer Migros began

selling toothpaste tubes without the unnecessary boxes they

usually come in and went on to remove excess packaging

from everything from yoghurt to drinks.

2. The messages on the package. Companies should also take

the opportunity to communicate with the consumer through the

packaging in the following ways:

• Sustainability information . Several companies take the space

on the packaging as an opportunity to communicate their

commitments and actions in this area, including goals and

information on the causes that are important to the company

as well as how the consumer can get more involved.

• Materials used (or not used) . Timberland ’s EcoMetrics label

is a sort of nutritional label for shoes that lets customers

know exactly what went into making the shoes. It lists the

Marketing 235

product ’s energy use, global warming contribution, and mate-

rials effi ciency.

• How to use . Labels are also the ideal location to give users

simple and easy-to-understand information about how best

to use the product in order to minimize the negative impacts,

and also maximize the positive impacts.

• How to dispose of . Labels are being used to provide informa-

tion for consumers on what to do with the product, or packag-

ing, once they are fi nished with it. This can involve:

• Providing details on how the product itself can be returned,

repaired, or reused . Kiehls, a skin and hair product com-

pany, has a loyalty card which is stamped every time a cus-

tomer returns an empty Kiehls container. Once you get a

certain number of stamps, you can get free products. Other

companies provide fi nancial incentives, for example a

deposit that is refunded if you return the used packaging

or a discount on your next purchase.

• Providing details on how to dispose and recycle . Marks and

Spencer in the UK provides clear information on its packag-

ing telling the consumer which parts of the packaging are

recyclable and which are not.

Sustainable Packaging Coalition works to promote more sus-

tainable packaging options (www. sustainablepackaging.org).

The Packaging Design Library showcases packaging innovation

and solutions that implement sustainable attributes (spcdesign-

library.org). The Reusable Packaging Association has created an

online calculator to help businesses determine the cost savings

of converting to reusable packaging from single-use corrugated

packaging (usereusables.com). The Sustainability Consortium is

leading industry-wide efforts to create a sustainability labeling

system for consumer goods (www.sustainabilityconsortium.org).

http://www.sustainablepackaging.org

http://www.sustainabilityconsortium.org

http://spcdesignlibrary.org

http://usereusables.com

236 The Sustainable MBA

Eco-labels

As the market for socially and environmentally preferable products

continues to grow, so does the need for customers to sift through

the increasing number of environmental and social claims used in

the marketing of these products and services and to understand

what they mean. Eco-labels, found on a wide variety of products,

tell consumers about certain environmental or social standards the

product complies with. Labels exist for a wide range of product and

service qualities, including, but not limited to, energy and other

resource effi ciency, sector-specifi c labels, organic and other food-

related labels, social labels such as fair trade, recycling, product

content, and design.

The variety and types of eco-labels continue to grow, and many

eco-labels are introduced throughout this book in the relevant

areas. According to the ISO standard on eco-labels (14020), there

are three major categories of eco-labels.

Type 1: Third-party claims are awards given by a third party

requiring a product to meet certain independently set criteria. These

show leadership characteristics rather than just presenting informa-

tion, and are often accompanied by public awareness campaigns to

educate consumers about what the label means. (For more on this,

see ISO 14024.) Examples include:

• Regional and national eco-labeling schemes such as the EU

Flower, Germany ’s Blue Angel – considered the fi rst and oldest

environmental label, Nordic Swan, Japan ’s Eco Mark, India ’s

Indocert, and New Zealand ’s Environmental Choice.

• Sector- or issue-specifi c labels which have a narrower focus than

national programs, such as the Rainforest Alliance certifi cation

which promotes and guarantees improvements in agriculture

and forestry, the Fair Trade label which guarantees producers

were paid fair prices, or industry-specifi c labels such as the

chemical industry ’s Responsible Care Initiative.

Marketing 237

Type 2: Green claims are the manufacturers ’ or retailers ’ own

declarations. Since these are not given by a third party, it is more

diffi cult for consumers to compare them with other brands or to

fully understand what the claim means. (For more on this, see ISO

14021.) Examples include:

• Statements such as ‘100% recycled,’ ‘natural,’ ‘carbon neutral,’ and

‘environmentally friendly.’ Where not regulated by law, or no

evidence is shown, these statements are often not reliable and

are found on products that are not always what they claim to be.

• Company private labels. Private label initiatives have a wide

range of truthfulness and usefulness. An example of a well-

regarded private label is the Philips ’ Green Logo, which is used

on electronic products that meet certain environmental cri-

teria across the whole lifecycle. Products with the logo have

been certifi ed by external auditors that they are 10% more effi -

cient than other products on the market within a given product

category.

Type 3: Environmental declarations quantify information

about a product based on lifecycle impacts and should allow

products to be compared easily because they consist of quantifi ed

information about aspects such as energy output. Unlike other

labels they do not judge products, leaving that task to consumers.

Rather, they provide something similar to a nutrition label found

on food products but instead this label outlines environmental

impacts throughout the lifecycle. Compared with type 1 and type 2,

much less work has been done in this area but some examples

include labeling products with their carbon footprints (www.car-

bontrust.com) and Timberland ’s ‘nutritional label’ featured on its

products that gives buyers information about the environmen-

tal footprint of that product. (For more on this, see ISO 14025;

also see the Global Type 3 Environmental Product Declarations

Network – www.gednet.org.)

http://www.carbontrust.com

http://www.gednet.org

238 The Sustainable MBA

Good eco-labeling initiatives involve the participation of gov-

ernment, industry, and commercial associations, retailers and

companies, consumers, as well as other interested parties such

as academics, media, and the international community. A product

must comply with all the required criteria to be awarded a label and

must be retested regularly. According to the Global Eco-Labelling

Programme, an effective labeling program should:

• Be voluntary . It should be the decision of the business to par-

ticipate in the program.

• Distinguish leadership . Claims should not imply a product

is exceptional if all other products share the same general

characteristics.

• Be based on sound scientifi c and engineering principles with a

strong focus on lifecycle considerations to assure customers that

all aspects of the product ’s development have been taken into

account.

• Be credible . Often eco-labels are managed by well-respected and

recognized third-party organizations and used by well-respected

companies, which increases the product ’s credibility.

• Be measurable and comparable . Claims should be made only

if they can be verifi ed. Methods used can include international

standards, recognized standards, or methods developed by

industry, provided that they have been subjected to peer review.

• Be based on open and accountable processes that can be moni-

tored and questioned. They should operate in a business-like

and cost-effective manner.

Several challenges exist in this area. The range of existing and

new eco-labels is making it confusing for customers to understand

what it all means, especially when private company labels are

added to the mix. Some labels have strict requirements to adhere

to while others require very little effort to get certifi ed. However,

more work is being done in this area to make it easier for consum-

ers and companies to understand these labels.

Marketing 239

Social marketing

Social marketing refers to programs and campaigns that aim to raise

public awareness in order to introduce more sustainable behaviors

relating to the environment (e.g., energy or water conservation and

waste reduction) or society (e.g., health, voting). Social marketing

does not look to sell a product or service, but rather to encourage

or modify a behavior by applying traditional marketing principles

and techniques to infl uence a particular audience ’s behaviors for

individuals ’ and society ’s benefi t.

The goals of social marketing can include:

• accepting a new behavior (e.g., composting food waste);

• rejecting a potentially undesirable behavior (e.g., starting

smoking);

• modifying a current behavior (e.g., increasing physical activity

from 3 to 5 days of the week);

• abandoning an old undesirable behavior (e.g., talking on a cell

phone while driving).

Social marketing campaigns can be focused either on one-time

actions (e.g., install a low-fl ow showerhead) or on promoting

The Global Eco-labelling Network is a non-profi t association

of third-party, environmental performance labeling organiza-

tions founded in 1994 to improve, promote, and develop the

‘eco-labeling’ of products and services (www.globalecolabelling

.net). The European Eco-label catalogue aims to help European

consumers distinguish greener, more environmentally friendly

products of high quality ( http://ec.europa.eu/ecat/ ). The

Consumers Union Guide to Environmental Labels in the USA

looks at providing information to consumers about eco-labels

(www.greenerchoices.org/eco-labels).

http://www.globalecolabelling.net

http://ec.europa.eu/ecat/

http://www.greenerchoices.org/eco-labels

240 The Sustainable MBA

repeated behavior (e.g., take 5-minute showers). One example is

the Rock the Vote campaign in the USA, which aimed to engage the

political power of young people through the use of music, popular

culture, and new technology to incite young people to register and

vote in elections.

Governments and not for profi ts regularly run these sorts of cam-

paigns, but increasingly industry is doing so as well, as a way to

gain support for their sustainability efforts. As NGO Utopies puts

it, ‘these campaigns often seek to encourage consumers to behave

responsibly and are usually the work of companies which, having

incorporated social responsibility into the products or services they

supply, require a matching commitment from their customers for

their actions to be really effective.’

Among the best-known private-sector social marketing campaigns

was the Body Shop ’s Against Animal Testing campaign in the mid-

1990s, which led to a UK-wide ban on animal testing of cosmetic

products and ingredients in 1998 and raised awareness with con-

sumers about their products which were not tested on animals. The

‘look behind the label’ campaign at Marks and Spencer in the UK

was an educational campaign aimed at teaching its customer base

to appreciate the changes that the company was about to make

to their products relating to fair trade, sustainability, non-GM, and

animal welfare. It then followed with Plan A, outlining all the steps

that the retail company was going to take to be more sustainable

in those areas. In France, food retailer Leclerc conducted a cam-

paign about the impact of plastic bags in 2003 that was followed by

the adoption of an amendment banning non-biodegradable plastic

bags in stores. Social marketing applies traditional marketing tech-

niques to sell a particular behavior rather than a product or service.

These include:

1. What is the issue that you are communicating about and

why is it important? What is the behavior you want to change

Marketing 241

and why? Take a look at successful campaigns that have taken

place around the world as a starting point. Understand why peo-

ple don ’t want to change and help them get over those hurdles.

2. Who are you communicating with and why? This is the

group of people that the campaign will be focused on. Focus on

target markets that are ready and willing to act rather than one

that is resistant to change.

3. What are your messages? The message should include clear

instructions on how to act. Make sure it is simple and doable.

Sometimes this message will be accompanied by a physical

product that helps with the change. For example, encouraging

people to use less water could be accompanied by a list of

where to buy low-fl ow showerheads.

4. What are they giving up/gaining? The audience should be

given information about the costs (both monetary and non-

monetary) of the current and any alternative behavior (e.g.,

smoking includes the cost of a box of cigarettes but also the

cost to your health and the health of others around you). You

can also add incentives to help guide the behavior, for exam-

ple having special lanes on the highways for cars with two or

more people.

5. How will your message reach the audience? This includes

how you promote the message as well as the physical location

where the audience will perform the desired behavior or where

the message is made available to the public.

6. How will you know if the campaign has been a success?

Social marketing campaigns will also often include working

on laws or regulations that infl uence the desired behavior.

Monitoring the campaign allows you to learn how the message

changed your target audience, whether it had an impact, and

revise it as needed. Use prompts such as stickers and commit-

ments to motivate people to continue to change. Let people

know how the campaign went.

242 The Sustainable MBA

Some resources in this area include UNEP and Futerra ’s

Communicating Sustainability – How to produce effective public

campaigns (www.unep.fr/scp/) and the Social Marketing Institute

(www.social-marketing.org). Network for Business Sustainability

systematic review of business-driven social change (www.nbs

.net). For more, also see the box ‘Managing change’ in Chapter 13.

Read: Social Marketing by Philip Kotler, which provides a

good introduction, and Good Works! by Nancy Lee.

Cause-related marketing

Cause-related marketing differs from social marketing in that it

focuses on raising awareness and concern for a social issue (e.g.,

global warming), but it typically stops short of trying to change the

behavior itself. Companies explore cause-related marketing as a

way of differentiating themselves, or of enhancing their reputation,

and also to increase sales and contribute to a cause that is impor-

tant to their stakeholders. Cause-related marketing usually involves

a partnership between a for-profi t company and a not-for-profi t

organization promoting the product to raise money for the not for

profi t. Cause-related marketing can take several different forms:

• Sales based . Donation programs, where a company donates

a percentage of its sales to a particular charity over a certain

period of time.

• Support for customer-aligned charities . Provide funds to char-

ities that support causes that are important to your stakeholders.

• Support causes aligned with business purpose . Endorse a

cause that is a natural extension of the company ’s own business.

The phrase ‘cause-related marketing’ was fi rst used by American

Express in 1983 to describe its campaign to raise money for the res-

toration of the Statue of Liberty. American Express made a donation

to the Statue of Liberty every time someone used its charge card

http://www.unep.fr/scp

http://www.social-marketing.org

http://www.causemarketingforum.com

Marketing 243

in the area. As a result, at the time not only did they raise US$1.7

million for the project but the number of new card holders grew by

45% and card usage increased by 28%.

The success of a cause-related marketing campaign depends on

fi nding the balance between doing something that benefi ts your

company and what your customers perceive as being good for the

community. Some tips:

• Pick a not-for-profi t or issue that means something to

your target market . Over 1000 businesses worldwide make

up One Percent for the Planet, where members contribute 1%

of sales to environmental groups around the world. Mountain

Equipment Co-op joined in 2007 and has since contributed over

US$17 million toward conservation, including launching – with

Canadian Parks and Wilderness Society – The Big Wild, an ambi-

tious project to protect at least half of Canada ’s public land and

water wild forever.

• Give your customers a way to showcase their good deed .

The RED campaign was created to raise awareness and money

to help women and children affected by HIV/AIDS in Africa.

Companies involved sell a range of red-colored products such

as Motorola red phones, American Express red card, Apple ’s red

iPod, Gap ’s red t-shirts, and red Converse shoes. A percentage of

each RED product sold is given to AIDS programs through the

Global Fund.

• Combine efforts for bigger change . The Glue Network pro-

vides a platform for companies and their customers to come

together to raise money to make a bigger change. A range of

brands from around the world empower their customers to

invest their charity dollars in particular projects that the custom-

ers believe are most important.

• Give people something to talk about and get engaged in .

Innocent drinks organize a ‘super gran woolly hats ’ promo-

tion every year in the UK to raise money for Age Concern (over

25 000 older people die of cold-related illnesses every winter in

244 The Sustainable MBA

the UK). The public are taught, through the website and knit-

ting sessions at grocery stores, to knit miniature hats. Innocent

puts the hats on top of their bottles around Christmas time and

25 pence for every bottle sold with a hat on it is given to Age

Concern. Through this campaign over £1 million has been raised

since 2008.

• Give what you do best . Quite a few companies are explor-

ing the ‘one for one model,’ where for every product sold the

same product goes to a person in need. For every pair of TOMS

shoes purchased, a pair of new shoes is given to a child in need.

Ark Collective sells backpacks and then donates one to a poor

schoolchild in the USA. Warby Parker not only donates a pair

of glasses for every one sold but also provides training to low-

income entrepreneurs in developing countries to start their own

businesses selling glasses.

• Be consistent . Made for Good is a consortium of like-minded

apparel brands that support a range of charities and issues includ-

ing curing diseases, educating our youth, assisting the poor, and

protecting the environment. A percentage of all product sales is

used to raise money for these charities.

The Cause Marketing Forum offers several resources on the topic

in its knowledge center (www.causemarketingforum.com).

Read: Cause Marketing for Nonprofi ts: Partner for Purpose,

Passion, and Profi ts by Jocelyne Daw (2006) and The Art of

Cause Marketing: How to Use Advertising to Change Personal

Behavior and Public Policy by Richard Earle (2002).

Challenges?

• Green and choice fatigue . Customers are being bombarded

with so many different kinds of sustainability messages and

Marketing 245

products that they often do not know which are real and which

aren ’t. The growing prominence of eco-labels is helping, but

also adding to the confusion.

• Increased risk either way . There is a risk of not moving into

green marketing but also a risk when a company does. Sometimes

the media is more inclined to question and attack relatively good

companies attempting to move forward on sustainability, rather

than highlighting the poor environmental performance of com-

panies who have not become involved in sustainability.

• Lack of overarching standards . There is a lack of stand-

ards for determining exactly what makes a green product or

a green company. Increased regulations and public awareness

are needed to help educate consumers how to understand the

increasing number of standards.

• Getting pricing right . Sustainable products are seen as being

more expensive and often consumers don ’t understand why.

• Choice editing . Should retailers be taking unsustainable options

off the shelves to favor more sustainable options?

• Consumer support . Many companies report producing more

sustainable products based on consumer demand but then con-

sumers don ’t buy these.

• Confusing messages . Marketers can work to promote more

sustainable products, but this only works if consumers are able

to accurately and effectively interpret the information they give

and the claims they make on their packaging.

Trends and new ideas

– Green = inexpensive

– Eco-iconic to

eco-embedded

– Understanding how people

think

– Communicating with the

customer virtually

– Popups

– Buycotts

– The barcode reinvented

246 The Sustainable MBA

Green = inexpensive

Green products are generally seen as being more expensive than

conventional choices. This may be true now, but the future is likely

to see a dramatic shift. In fact, the same reasons that explain why

green products have historically been priced higher could become

the reasons why they are more affordable. For example:

• Full costs across the lifecycle . Green products often already

include many of the costs that other products don ’t (such as the

cost of disposal), making them more expensive. When comparing

traditional costs of manufacture, many green products actually cost

less to produce and to use. They also cost society less in terms of

other direct costs and indirect costs, such as pollution and health

effects. As more companies begin to analyze and incorporate the

true full cost of production, we may actually see a complete fl ip,

where unsustainable products become much more expensive.

• Economies of scale . Pricing often comes down to simple sup-

ply and demand. Many of the materials used in these products

have been more expensive because there has been less of a

demand for them. As the demand goes up for more sustainable

alternatives and they are produced in larger quantities, the price

of these products could go down. At the same time, the cost of

unsustainable options is going up, for example products pro-

duced using petroleum products.

• Providing certain guarantees . These types of products are often

providing a set of guarantees regarding safety, sourcing, health,

and environmental impact that may cost a little bit more to insure.

As regulations and industry standards start requiring all products

to uphold certain standards, other non-green products may also

start to bear these costs, creating a more even playing fi eld.

Eco-iconic to eco-embedded

Green products and services have moved from eco-ugly (ugly, over-

priced, low-performance, unsavory yet eco-friendly versions of the

Marketing 247

‘real thing’) to eco-chic (eco-friendly stuff that actually looks as nice

and cool as the less sustainable originals) to eco-iconic. Eco-iconic

is defi ned as ‘eco-friendly goods and services sporting bold, iconic

markets and design, helping their eco-conscious owners show

off their eco-credentials to their peers.’ Eco-iconic is not about all

green products. It is about those that from their appearance or

stories actually show that they are green and in doing so attract

recognition from their peers, in the same way as traditional status

symbols do. The best-known examples are cars such as the Toyota

Prius. A New York Times article asked the question, ‘Why are Prius

sales surging when other hybrids are slumping? Because buyers

want everyone to know they are driving a hybrid.’ Another, perhaps

more important, trend that is slowly overtaking it is eco-embedding,

‘making products and processes more sustainable without consum-

ers even noticing it, and, if necessary, not leaving much room for

consumers and companies to opt for less sustainable alternatives ’

(trendwatching.com).

Understanding how people think

One way of bringing about change, fast, is to make it normal. The

Sacramento Municipal Utility District in the USA began sending

out statements in 2008 to 35 000 randomly selected customers,

rating them on their energy use compared with that of neighbors

in 100 homes of similar size. Customers who scored high earned

two smiley faces on their statement. Good conservation got one

smiley face. The utility found that customers who got the person-

alized energy report worked to cut their energy bills by 2% more

than those who didn ’t, a number which seems small, but has a

big impact. 40 In the book Yes! , the authors write of how they were

able to boost participating in a towel recycling program by 26%

just by rewording the card to suggest that the majority of hotel

guests reused their towels, suggesting it was the social norm to

participate rather than something to save the environment (www

.neurosciencemarketing.com).

http://trendwatching.com

http://www.neurosciencemarketing.com

248 The Sustainable MBA

Communicating with the customer virtually

One of the oldest adages in marketing is that ‘word-of-mouth is

the best advertising.’ Customers have always received informa-

tion and made choices based on word of mouth. But the level of

information has exploded with the Internet and social media. The

amount of information overwhelms – stories, opinions, and facts

highlighting both good and bad practices are constantly shared

through blogs, wikis, and other social networks where people

with the same interests come together to discuss those interests.

These networks are not only being used by consumers interested

in learning more about sustainability, but increasingly by compa-

nies as a way to connect directly with their current or potential

customers. Product developers are tapping into them to gather

intelligence and ideas, directly from the customer, on what kind

of products they should provide and how to make their current

products better. Starbucks at mystarbucksidea.force.com is a space

where users can post and vote on ideas for everything from new

products to store design.

Popups

Retailers are starting to explore a whole new kind of retail space . . .

one that either doesn ’t last or doesn ’t stay in one place. Brands

are using empty retail space to create popup stores to increase

awareness of their products or create some buzz. Others are cre-

ating tiny versions of their stores that can be moved around into

public spaces. Illy created a temporary coffee shop out of a stand-

ard shipping container in Venice, complete with tables and chairs.

Timberland created a micro shop in New York City made out of 450

discarded plastic drinking bottles. Honest Tea put up unmanned

popup shops across the USA that relied on an honor system where

passers by who wanted to buy one of their products had to drop

US$1 into a box.

http://mystarbucksidea.force.com

Marketing 249

Buycotts

Groups have been involved in boycotts for years, encouraging con-

sumers not to buy a particular product or from a particular com-

pany because they are seen as unethical or unsustainable. Today

this is being fl ipped around. Buycotts are when individuals are

actively encouraged to spend their money at particular stores as

a way of supporting the sustainability efforts of those companies.

Several groups are setting up around the world to coordinate these

buycotts, including Carrotmob. Here, organizers make an agree-

ment with a business that wants to make a change, then Carrotmob

organizes hundreds of people to visit that business on a particular

day. The business then uses the money to make the proposed social

or environmental improvement (carrotmob.org).

The barcode reinvented

Labels are taking on a life of their own. Marketers have been

exploring opportunities to tap into the potential of the one item

that billions of people have with them all the time and use the

most throughout the day: their cell phones. How? Through the use

of a barcode called the Quick Response (QR) code. These special

barcodes are designed to be read by mobile phones with built-in

cameras, a feature now standard on cell phones. Companies put a

special barcode on posters, magazines, interactive billboards, even

lawns. Once scanned by the cell phone camera, a message or set of

instructions (such as a website or phone number) embedded in the

QR code is revealed automatically on the phone ’s display. In Japan,

senior citizens use the QR code to check bus times. Others are

printed on t-shirts, directing interested people to visit the website

of the wearer. Companies are also exploring snap tags, which can

also be scanned with a phone camera. Apps for the phone are also

proving very popular. Clorox, for example, has an app that pro-

vides up-to-date information on all the ingredients in its products.

http://carrotmob.org

250 The Sustainable MBA

Advertising dos and don ’ts

How not to communicate . . . greenwashing Although there is

clearly a rise in sustainability leaders, it seems that there is also a

parallel rise in greenwashing. According to TerraChoice, greenwashing

is ‘the act of misleading consumers regarding the environmental

practices of a company or the environmental benefi ts of a product

or service’ (note that companies will also ‘greenwash’ social issues).

It is believed that the term comes from a journalist who, in 1986,

was covering the hotel schemes where you choose to keep your

towel rather than washing it ‘for the good of the environment.’ The

journalist examined the record of companies who promoted these

schemes and concluded that since they did almost nothing else for

Want more?

WBCSD Driving Success: Marketing and Sustainable Development

(www.wbcsd.org/web/publications/marketing.pdf); UNEP ’s Sus-

tainable Consumption and Production Advertising section has

several documents on communications, advertising, and market-

ing including a toolkit called ‘Sustainable Communications: A

toolkit for marketing and advertising courses ’ (www.unep.org/

dtie). Smart: Know-Net The Sustainable Marketing Knowledge

Network is an online resource that brings together the worlds

of marketing and sustainability ( http://www.cfsd.org.uk/smart-

know-net/index.htm ).

Read: The Green Marketing Manifesto by John Grant (2007),

which provides a roadmap on how to organize green marketing

effectively and sustainably. The New Rules of Green Marketing by

Jacquelyn A. Ottman (2011) looks at how value-based sustain-

ability marketing has become a critical organizational capacity.

See also Sustainable Marketing: Managerial–Ecological Issues

(1999) by Donald A. Fuller.

http://www.wbcsd.org/web/publications/marketing.pdf

http://www.unep.org/dtie

http://www.cfsd.org.uk/smart-know-net/index.htm

Marketing 251

the environment (at the time), and since towel schemes increased

their profi ts by reducing washing costs, guests had to be cynical of

their motives. So why do people greenwash? Some say it is because of ignorance,

some do it for quick wins. The best reason for avoiding greenwash- ing is that you should be spending your money on something better, something which helps people change behavior, to adopt a greener way of life. Ultimately it is your credibility and reputation that are on the line, and once lost, these are very diffi cult to regain. Consumers and marketers should think twice about:

1. Green and social imagery. Just because something is packaged

green and has trees on it or has pictures of children and farm-

ers, it doesn ’t mean that it is actually environmentally or socially

friendly.

2. Using general statements. The same thing goes for products

that use statements such as ‘socially friendly,’ ‘natural,’ ‘bio,’

‘hypoallergenic,’ etc. When checked, many of these fail to live up

to their promises unless accompanied by a recognized eco-label

or regulated by government. Surprisingly many of these, such as

the word ‘natural,’ are not regulated by national legislation even

though they can be very misleading.

3. Missing the point. A product that is water effi cient could be

very energy ineffi cient. Beware of companies using one claim to

distract from the key sustainability issues of a particular product.

4. When a label is not all it claims to be. Having an environmen-

tal management system in place, or an environmental or social

policy, or being part of a voluntary network, does not automati-

cally make a company, or a particular product, more sustainable.

Make sure these are backed up with policies and practices that

are auditable, quantifi able, and have targets and objectives.

5. Giving options consumers can ’t act on. Saying that a prod-

uct has an environmental or social feature that consumers not

only can ’t check, but also can ’t follow up on is misleading. This

includes products that are recyclable but where no facilities cur-

rently exist to recycle them. The recent push for biodegradable

bags could be another example, as many of these are only biode-

gradable in certain environments, not when buried in landfi ll.

(continued )

252 The Sustainable MBA

6. When it isn ’t really as good as it seems. This relates to claims

that may sound good but aren ’t really doing what they say. For

example, organizations which claim to be carbon neutral or have

carbon-neutral services when neutral was achieved by buying

offsets rather than through actual energy effi ciencies.

7. The product may be good, but the company defi nitely is

not. It is hard to take claims made about environmentally and

socially friendly products seriously when the company produc-

ing the product has been shown to be anything but environ-

mentally and socially friendly. This includes companies that

advertise or speak about corporate ‘green’ commitments while

lobbying against pending or current environmental laws and

regulations.

8. Baby steps. When a product makes tiny improvements and

makes a big fuss about it. For example, a magazine claiming to

have turned green because one issue was made of 10% recycled

paper, leaving you wondering about the other 90% and all other

issues of the magazine.

There are several NGOs and online groups working to bring out examples of greenwashing, including the CorpWatch Greenwash awards (www.corpwatch.org) and Greenpeace (stopgreenwash. org). Greenwashing index allows people to view company ads and judge for themselves whether they are greenwashing or not (www.greenwashingindex.com). Consumers can report what they believe to be greenwashing to national advertising organizations in many countries and often these organizations will follow up on claims made.

How to communicate . . . responsible marketing There are

an increasing number of advertising and marketing codes, both

mandatory and voluntary, which outline responsible marketing

practices at the international, national, and company-specifi c level.

These include regulations dealing with misleading or deceitful

advertising, voluntary codes, and professional association codes. A

few such ideas include:

1. Be good. Do not market to groups by creating unnecessary pres-

sure or concerns. For example, companies who use awareness

campaigns to scare people about a supposed illness and then

http://www.corpwatch.org

http://www.greenwashingindex.com

http://stopgreenwash.org

Marketing 253

sell the medicine. Unilever ’s Marketing Principles require that

marketing practices do not convey misleading messages, do not

undermine parental infl uence, do not suggest time or price pres-

sure, and do not encourage unhealthy dietary habits.

2. Be honest. Be transparent about what you are doing and share

your successes and your challenges. Don ’t just make stuff up,

make sure whatever you do, say, or claim is backed up and easy

for the reader to understand. Seventh Generation reports on

all the things that are wrong with its product and that it is still

working on those areas. Innocent included on its fruit juice bot-

tles how much of the content of the bottle was recycled and that

they were working on the rest (a year later they were at 100%).

Avoid abusing consumers ’ concern for the environment or tak-

ing advantage of their possible lack of knowledge in this area.

3. Be creative. It seems that all ads for green business use trees

and fl owers. Look at other ways of getting your message out.

The Creative Gallery on Sustainability Communications includes

around 1000 campaigns produced by companies, public authori-

ties, and NGOs from all over the world ( http://www.unep.fr/scp/

communications/ads.htm ).

4. Be positive. Stay away from doom and gloom and instead sur-

prise the customer with a positive message. Keep the message

simple and easy to remember.

5. Be consistent. Consistency should exist between your engage-

ment or initiatives and your image and product lines. It should be

reinforced across your marketing messages as well as between

your internal and external operations.

6. Make the connection. Communicate how products are relevant

to people ’s lives and needs. Empower your customers by giving

them something they can do. Get your customers involved.

7. Focus on what is important to your audience. Toyota Prius

focused on fuel economy and quiet ride more than saving the planet.

Link environmental and social benefi ts to things that concern cus-

tomers in their daily lives and of which you can measure the impact.

Consumers are bombarded with messages everyday from suppos- edly green companies. A lot of the information makes it seem that no matter what a company says, nothing is changing. There are lots of

(continued )

http://www.unep.fr/scp/communications/ads.htm

254 The Sustainable MBA

Want more?

For more on responsible marketing and different advertising

codes, see ISO 14020 standard (www.iso.org) and the International

Chamber of Commerce consolidated codes of advertising and mar-

keting communication (www.iccwbo.org). Also see professional

associations such as the European Advertising Standards Alliance

(www.easa-alliance.org). At the national level different groups are

set up, for example UK Committee of Advertising Practice (www

.cap.org.uk, www.ipa.co.uk), US National Advertising Review

Council (www.narcpartners.org), and the Better Business Bureau

(www.bbb.org). Companies themselves also have marketing and

advertising codes.

companies that are truly working on these issues. For the consumer, here are some tips on how to do your part:

• Don ’t assume that everyone is lying or telling the truth , just pay

attention to what they are claiming (for example, on their labels

and packaging) and use your common sense to see if it looks right.

• Don ’t blindly believe all the bad things or good things you read ,

check the sources of the information and where possible check

more than one source.

• Question companies who aren ’t doing anything at all . . . or who

seem to be doing too much . Don ’t hesitate to contact those com-

panies and request that they do something or fi nd information

to back up what they say they are doing. You are one of their

stakeholders, they need to listen.

• Report misleading messages . Many countries, including at the inter-

national and company levels, have guidelines for environmental

and social marketing claims. In many instances, customers who feel

that a company is not telling the full truth can report them to rel-

evant authorities who will investigate. Following a complaint to the

Council of Better Business Bureau, Clorox was told to make changes

to some of the claims it made on how its green products work.

• Reward companies who you feel are doing it right . Either through

buying their products, telling the company, or telling others.

http://www.easa-alliance.org

http://www.ipa.co.uk

http://www.narcpartners.org

http://www.bbb.org

http://www.cap.org.uk

12 Operations

‘You can ’t be remarkable by following someone else

who ’s remarkable . . . The thing that all great com-

panies have in common is that they have nothing in

common.’ SETH GODIN, AUTHOR

256 The Sustainable MBA

Chefs around the world are exploring molecular gastronomy, mix-

ing science with cooking. Forward-thinking chefs such as Heston

Blumenthal bring food to a whole new level by questioning the

assumptions about what food is and redefi ning what food could be.

One of his treats is a candied beetroot and grapefruit lollipop with

edible wrappers which look like plastic but melt in your mouth.

Edible packaging may not take off anytime soon in the world of

business, but it does refl ect an increasing number of innovative

ideas to make the lifecycle of products and processes more sustain-

able – which can, and will, help businesses fl ourish.

Increasingly, successful businesses share three characteristics with

chefs like Blumenthal: (1) they question assumptions; (2) they think

across disciplines; and (3) they are creative about the way that prod-

ucts are made. These characteristics underlie modern operations man-

agement. Operations management is all about a company ’s supply

chain and product lifecycles: its products and services; how they are

designed, how they are made, how they are used, and how they are

disposed of. It is the area that has the biggest direct impact on sustain-

ability, since all the things we make and the way we make them affect

our natural and social resources. Sustainability brings innovation into

the supply chain, challenging our assumptions about the way things

have always been done, and creating products and processes that are

not only better for business, but better for society as well.

Until recently, management in many companies believed that

what happened in parts of their supply chain, from design choices

to overseas contractors, was not their responsibility. Today, organi-

zations are realizing that not only is it their responsibility, but that

proper management can bring about competitive advantages. As

we continue to move into the 21st century, sustainability and opera-

tions management will increasingly go hand in hand.

Why is it important?

• There ’s a lot of room for improvement . Considering that on

average, 80% of a product ’s overall cost is a consequence of its

Operations 257

design, 93% of product materials do not end up in saleable prod-

ucts, 80% of products are discarded after fi rst use, and 99% of

materials used in the production of or contained within goods

are discarded in the fi rst six weeks, there is obviously a lot of

room for improvement and innovative ideas. 41

• Responsibility is shifting up the supply chain . Not long ago,

it was up to the consumer to choose to be greener, but today,

consumer demand is shifting this responsibility to the retailer

to provide these products. In some countries it is becoming

mandatory to display the environmental performance of some

products, either on the product labels or the shelves. As more

retailers decide to engage in more sustainable procurement

strategies, the companies making the products will also have to

uphold those standards in design and production.

• Reduce costs and improve operational effi ciency . By using

fewer and safer source materials and less energy, transportation,

and water resources, and by making processes more effi cient,

a company can signifi cantly reduce production and labor costs.

Creating simpler products that are easier to disassemble and

recycle reduces waste and disposal costs and gives a company

the potential to reuse products. It can also reduce labor costs

through reduced need for training.

• Compliance with existing and future legislation . Steady

increases in legislation and regulations drive operations manage-

ment decisions on many fronts. Regulations are being enacted to

increase transparency in supply chains and standards, such as the

European Union ‘take back’ laws, which require manufacturers to

take back vehicles and electronic equipment sold in a particular

country and recycle or dispose of them safely after use. Increasingly,

we are seeing product taxes put in place to discourage people

from buying certain products; banned materials lists are covering

more and more substances (e.g., chemicals) and packaging waste

and pollution prevention regulations are on the rise.

• Increased risk of bad press . Organizational stakeholders, the

media, and others no longer hesitate to expose and report any

questionable aspects of a company ’s supply chain, including

258 The Sustainable MBA

incidents of child labor, forced labor, illegal waste dumping, and

product recalls. This can result in signifi cant losses not only to

sales, but also to a company ’s hard-earned reputation.

• Improved quality and customer satisfaction . Many consum-

ers are looking for products that allow them to save money but

also make them feel they have made a positive impact on society

and the environment. Delivering and promoting simpler, more

effi cient products that have reduced operational costs and result

in reduced environmental impact can mean improved customer

satisfaction and increased market share. Eco-labeling schemes,

‘design for’ products, and other environmental awareness pro-

grams are creating an increasingly educated consumer who is

not only willing to buy products designed for the environment

and society, but may even boycott those that are not.

The key concepts

The operations management approach to sustainability involves

analyzing products and processes throughout their whole life cycle

and ultimately aims to have zero impact. However, products and

services are produced and distributed through complex supply

chains, where to potentially reach zero impact one needs to:

• Design the product smartly

upfront

→ Eco-design

• Use non-harmful materials

and components

→ ‘Green’ chemistry

• Create more effi cient

processes

→ Doing more with less

• Use sustainable technologies

to support these processes

→ Sustainable technology

Operations 259

Eco-design

Eco-design, also known as ‘design for the environment,’ concerns

designing or redesigning a product or service to take into account

the environmental (and social) impacts throughout its lifecycle.

Best practices in eco-design involve:

• Re-thinking the product and its functions from raw materials

on up in order to make it more effi cient, thereby reducing use of

energy and other natural resources.

• Re-ducing energy and material consumption throughout a

product ’s lifecycle.

• Re-placing harmful substances with more environmentally

friendly alternatives.

• Selecting materials that can be Re-cycled , and building the prod-

uct so that it disassembles easily to allow recycling.

• Designing the product so parts can be Re-used .

• Improving the product durability and ease of Re-pair so that the

product does not need to be replaced as often.

Products that follow some or all of the above-mentioned eco-

design concepts often state that they are a ‘design for’ product

(e.g., design for water conservation, design for disassembly, etc.).

• Source them through

optimized supply chains

→ Suppliers and contractors

• Move products and services

from point A to point B

→ Transportation

• Move from waste treatment

to waste prevention

→ Waste management

• Consider sustainability

aspects across all stages

→ Box: Lifecycle assessment

• Bring information together to

enable better decision-making

→ Box: Information technol-

ogy/information systems

260 The Sustainable MBA

Eco-design principles can be applied to a single product or service,

or a production process. Computer company HP, for example, has

been working to design products that are easier to recycle by inte-

grating clear design guidelines and checklists to assess and improve

the recyclability of its products. They do this by using modular

design to allow components to be removed, upgraded, or replaced,

eliminating glues and adhesives by using snap-in features, reduc-

ing the number and types of materials used, using single plastic

polymers, and using molded-in colors and fi nishes instead of paint,

coating, or plating.

Some things to keep in mind:

• Understand your existing products . When redesigning an

existing product, a good way to understand eco-design and

how it can relate to your project involves physically taking apart

the product, looking at the different components, and identify-

ing excessive use of materials as well as opportunities to make

improvements in packaging, product use, production, materials,

and disposal.

• Understand what people really want or need . The key to suc-

cessful design is to observe what people do and understand

how people feel and think and to use these observations as

inspiration for designing or redesigning a product. Often there

is a disconnect between what people say and what they actually

do, which is why the insights cannot simply come out of market

surveys or focus groups: people often don ’t say what they think

or do what they say.

• Create designs that engage the customer . The key is to create

products and services that inspire engagement and encourage

positive behavior. Many people buy the Toyota Prius not for the

return on investment, but for the experience. One of the features

drivers like is the constant information displayed about the fuel

economy drivers are getting and how they can get more. Drivers

can then take this information and compare it with other users

through an online forum on the Toyota website.

Operations 261

‘Green’ chemistry

Because of changing oil prices, new regulations, and pressure from

consumers and retailers, industrial chemistry is working to clean

up its act. Green, or sustainable, chemistry is about designing,

developing, and implementing chemical products and processes

that reduce or eliminate the use and generation of substances that

are hazardous to people and the environment. It involves rethink-

ing the chemicals themselves, and how they are being used, as

well as searching for greener, more environmentally and socially

acceptable alternatives. Considering that chemistry – chemicals and

chemical processes – delivers over 95% of all the products used in

society, green chemistry is a key area in sustainability. Green chem-

istry involves:

• Designing safer chemicals, with little or no human or environ-

mental toxicity.

• Designing less hazardous chemical syntheses.

• Using renewable materials such as wastes or byproducts from

other processes.

• Using safer solvents or avoiding their use altogether.

For more on eco-design look at the Design for Sustainability

manual (www.d4s-de.org) and ‘Aligned for Sustainable Design,

An ABCD Approach to Making Better Products ’ by IDEO and BSR

(www.bsr.org). There are several networks in this area, includ-

ing O2 (www.o2.org) and the Designer Accord (www.designers

accord.org). Clean Production Action is an NGO that works on

solutions for green chemicals, sustainable materials, and envi-

ronmentally preferable products (www.cleanproduction.org).

Read: EcoDesign: The Sourcebook by Alastair Faud-Luke

(2002), provides hundreds of examples of innovative eco design.

http://www.d4s-de.org

http://www.designersaccord.org

http://www.o2.org

http://www.cleanproduction.org

262 The Sustainable MBA

• Increasing energy effi ciency by running reactions at room tem-

perature and pressure.

• Designing chemicals that degrade after use rather than accumu-

lating in the environment.

• Providing real-time information during syntheses to minimize or

eliminate byproducts.

• Minimizing the potential for accidents. 42

Internationally, a number of regulations and laws govern use or

prohibition of chemicals ’ transportation and disposal, including the

Rotterdam Convention on the Prior Informed Consent Procedure for

Certain Hazardous Chemicals and Pesticides in International Trade

and the Stockholm Convention on Persistent Organic Pollutants.

In Europe, REACH (Registration, Evaluation, Authorization and

Restriction of Chemical Substances) gives greater responsibility to

industry to manage the risks from chemicals and provide safety

information on the thousands of substances in use. A large number

of companies – such as BASF, Microsoft, and Johnson & Johnson –

are phasing out chemicals considered harmful.

Legislation is not the only driver. Many organizations are using

green chemistry as a way to produce unique and innovative prod-

ucts in the market, often to fi ll a demand by the consumer for more

natural products. German carpet producer Donau-Tufting decided

to remove heavy metal colorings and vulcanization chemicals from

the carpets they make. The company gained an advantage in the

market over its competitors, when the new carpet rapidly achieved

an additional 25% turnover.

Reducing or eliminating the need for hazardous chemicals means

a company does not need to invest in training and systems to

manage and dispose of the waste. Dow Chemical Company, an

international company which has a focus on exploring sustainable

chemistry options, leases the use of its organic solvents rather than

selling them through SAFECHEM. Once the customer is fi nished

with them, rather than being left with the responsibility to dispose

Operations 263

of them, Dow recovers the chemical and, where possible, recycles

it for future use.

There are also a growing number of initiatives from companies

who are releasing more information on the ingredients used in their

products, in particular the chemicals. SC Johnson has put together

a website which provides a closer look at the ingredients it uses in

its products (www.whatsinsidescjohnson.com).

The main green chemistry initiative is Responsible Care, the

industry ’s global voluntary initiative (www.responsiblecare.org),

which is coordinated by the International Council of Chemical

Associations (www.icca-chem.org). National and regional per-

spectives include the Royal Society of Chemistry ’s Green

Chemistry Network (www.rsc.org), SETAC (www.setac.org),

EPA ’s Green Chemistry Program and Green Chemistry Challenge

(www.epa.gov/greenchemistry), and the ACS ’s Green Chemistry

Institute (www.acs.org/greenchemistry). International and

global programs include the UNEP Strategic Approach to

International Chemical Management (www.saicm.org), the

Inter-Organization Programme for the Sound Management of

Chemicals (www.who.int/iomc), and ICIS ’s blog on green chem-

istry (www.icis.com/blogs/green-chemicals). The campaign for

safe cosmetics (safecosmetics.org). Greener Industry is an

excellent resource on the range of chemicals (www.sustain-ed

.org) and ‘Substitute it now’ from the International Chemical

Secretariat provides a list of almost 400 that they are pushing to

be phased out of products (www.chemsec.org). Zero Discharge

of Hazardous Chemicals is a group of major apparel and foot-

wear brands and retailers leading the industry in this area (www

.roadmaptozero.com).

http://www.whatsinsidescjohnson.com

http://www.responsiblecare.org

http://www.icca-chem.org

http://www.rsc.org

http://www.setac.org

http://www.epa.gov/greenchemistry

http://www.acs.org/greenchemistry

http://www.saicm.org

http://www.who.int/iomc

http://www.icis.com/blogs/green-chemicals

http://www.sustain-ed.org

http://www.chemsec.org

http://safecosmetics.org

http://www.roadmaptozero.com

264 The Sustainable MBA

Doing more with less

Enter an appliance store in Europe or the USA, for example, and

you will see energy labels showing the energy usage of the differ-

ent products. Consumers, whether to cut bills or be more respon-

sible, are looking for products that use less energy and water.

Businesses are also interested in cutting their energy and water use

for the same reasons. The growing international movement focused

on sustainable consumption and production has roots in both the

private and public sectors. The idea is that natural resources can be

used more effi ciently – it ’s not just about consuming and producing

less, but also consuming and producing differently.

Two concepts that put this idea into practice are gaining

momentum:

Eco-effi ciency , developed by the WBCSD, ‘is a management

philosophy that encourages business to search for environmen-

tal improvements which yield parallel economic benefi ts.’ It is not

simply about making incremental effi ciency improvements; it is

about stimulating creativity and innovation in search of new ways

of doing things throughout the full value chain. The philosophy

encompasses three broad objectives:

• Reducing the consumption of resources – including energy, mate-

rials, water, and land – while also enhancing the recyclability

and durability of products and closing material loops.

• Reducing the impact on nature – including air emissions, water

discharges, waste disposal, and dispersion of toxic substances –

while focusing on the sustainable use of renewable resources.

• Increasing product or service value – providing more benefi ts to

customers through product functionality, fl exibility, and modu-

larity plus additional services, focusing on selling the functional

need that customers want.

Cleaner production is a preventative approach to environ-

mental management where environmental impact is minimized.

Operations 265

For more, see the WBCSD Eco-Effi ciency Learning Module and

case studies (www.wbcsd.org). For cleaner production, see

UNEP Cleaner Production and the International Declaration on

Cleaner Production (www.uneptie.org/scp). In 1994, UNIDO

started setting up Cleaner Production Centres to help SMEs,

large enterprises, industry associations, universities, consult-

ants, and policy makers in developing and transition countries.

UNIDO also has a cleaner production toolkit (www.unido.org).

IISD has a series of case studies (www.iisd.org).

UNEP, who introduced the concept in 1989, defi nes it as ‘the

continuous application of an integrated preventive environ-

mental strategy to processes, products and services to increase

overall effi ciency, reduce risks to humans and the environment.

Cleaner production can be applied to the processes used in any

industry, to products themselves and to various services pro-

vided in society.’

Sustainable technology

Technological innovation is an important part of fi nding solutions

to our economic, social, and environmental problems. These tech-

nologies are generally categorized into four areas:

• Remediation technologies treat environmental problems after

they have occurred and attempt to repair or remediate the

damage. These include soil and water cleanup methods, and are

typically very expensive.

• Abatement technologies capture or treat pollutants before they

escape into the environment using physical, chemical, or biolog-

ical mechanisms to reduce emissions, like clean coal or sewage

http://www.uneptie.org/scp

http://www.unido.org

http://www.iisd.org

266 The Sustainable MBA

treatment systems. Abatement technologies are usually capital

intensive, require lots of energy and resources to operate, and

generate their own waste.

• Pollution prevention technologies include improved or alterna-

tive industrial and agricultural processes that avoid the produc-

tion of pollutants (e.g., paper making that eliminates chlorine

bleaching) as well as alternative products that result in less

pollution through their use and disposal (e.g., lead-free petrol,

biodegradable detergents, mercury-free batteries, and water-

based paints).

• Sustainable technologies are the ultimate goal, and focus on

achieving low or no ecological impact (100% recyclable and

non-toxic) and using resources effi ciently. Examples include

daylight-sensitive lighting, bicycles, cost-effective non-polluting

renewable energy technologies, and non-bleached recycled paper.

Clean technology or ‘cleantech’ is considered by many to be the

largest economic opportunity of the 21st century. The venture capital

industry invested US$8.4 billion in cleantech in 2008. Clean technol-

ogies are technologies that reduce or eliminate their environmen-

tal impact through resource effi ciency, improving performance, and

minimizing waste. Cleantech is seen as so key to the future of their

business that GE has committed US$10 billion cumulative investment

from 2010 to 2015 in cleantech. They have been looking in particu-

lar at renewable energy, effi ciency, and smart grid technologies.

There are a growing number of innovations in sustainable tech-

nology in the fi elds of renewable energies such as solar, wind, and

alternative fuels, but also in agriculture, infrastructure, recycling,

effi ciency, transportation, and storage. Initiatives are abundant, at

all levels and in all industries in this area. For example:

• Devices that collect energy to generate electricity are being fi tted

to bicycles in Times Square, revolving doors in the Netherlands,

and even dance fl oors in night clubs.

• Xerox research concludes that 40% of paper printed in the

offi ce is discarded after one use, so the company is developing

Operations 267

reusable paper where the image disappears after 24 hours and

is reusable 10 times.

• A scientist in Taiwan invented an organic chlorophyll battery

which can supply electricity within 10 seconds of being made

wet with water or any kind of beverage.

• The ‘soil lamp’ is an LED light that takes advantage of the elec-

tricity generated by the chemical reaction between metallic strips

of zinc and the minerals and organisms in damp soil.

• Smog-eating cement was invented in Italy and in the presence of

light, breaks down air pollutants like carbon monoxide, nitrogen

oxide, and benzene through a natural process called photoca-

talysis. It is now being used in buildings across Europe, as well

as North America.

• Kites are being explored instead of windmills as power genera-

tors. Kites eliminate the need for expensive infrastructures such

as towers, and have the potential to supply energy at a fraction

of the current cost of electricity in Europe today.

Innovation in existing technologies goes beyond alternative

energies; it can also be applied to bring about social change. Social

change innovations are occurring in the information and telecom-

munication areas in particular. For example, Vodafone ’s mobile

payment service allows customers without bank accounts to use

mobile phones for fi nancial transactions. Citi ’s biometric ATM

allows customers in developing countries to access services using

fi ngerprints.

For more, take a look at the ‘Information technology’ box at

the end of this chapter. Also see the Technology hype cycle

developed by PSFK (www.psfk.com). Greentech media offers

up-to-date news on cleantech companies and investment activi-

ties and insights (www.greentechmedia.com).

http://www.psfk.com

http://www.greentechmedia.com

268 The Sustainable MBA

Suppliers and contractors

Why is a close relationship with your suppliers important? One

reason: the failure of supplier relationships can have a catastrophic

effect on company brand and image. This is clearly illustrated by

the example of Nike in the 1990s. The company was held account-

able by the global public for the child labor practices of their

suppliers in Asia, which in turn had a long-standing detrimental

effect on its reputation. Today, companies are realizing that they

are accountable to their stakeholders and the public for activities

throughout their whole supply chain, including the actions of their

suppliers. By working closely with suppliers, companies of any

size can minimize the risk of unknowingly being exposed to nega-

tive impacts, and can also understand the environmental and social

impacts their products and services have throughout their full life-

cycle, while exploring ways of creating a better product. Suppliers

usually know their products inside and out, putting them in a good

position to help maximize effi ciencies and minimize waste. At the

end of the day, their business is your business as well.

PepsiCo works closely with their suppliers to ensure that they

are working with like-minded companies, and to see what they can

learn from suppliers who are further ahead in this journey than

they are. As their sustainability strategies evolve, they expect their

suppliers to evolve with them. According to John C. Scott, PepsiCo

Director of Responsible and Sustainable Sourcing, ‘Setting expecta-

tions for performance with suppliers is good for PepsiCo because

it results in suppliers running their businesses more effectively and

reducing costs, which ultimately translates into having a better eco-

nomic relationship with the supplier. While we recognize we still

have a lot to learn in this area, we ’re working with them while we

continue to refi ne our approach.’

As you execute your supplier selection strategy and build sup-

plier relationships, keep the following points in mind:

• Create a policy for improving the economic, environmen-

tal, and social sustainability performance of suppliers .

Operations 269

Integrate sustainability criteria into supplier contracts (e.g.,

minimum performance standards, code of conduct, performance

against targets). Ford Motor Company requires ISO 14001 certi-

fi cation from 5000 of its suppliers with manufacturing facilities.

To help suppliers meet these goals, Ford developed and pro-

vided ISO 14001 Awareness Training and created Environmental

Recognition awards that recognize suppliers for outstanding

environmental achievement and innovation.

• Work with suppliers to help them craft their sustainability

strategies . Consider hosting a forum where suppliers and buy-

ers can discuss and question decisions, and can move forward

with real action items. You are likely to fi nd that many suppli-

ers don ’t know where to start and such a forum allows them

to learn from the buyer and other suppliers who have already

started the journey. Because of a desire to certify its suppliers

that are using forestry products, PepsiCo brought nearly 200 of

its largest suppliers together with leading not for profi ts, NGOs,

and government organizations to explain PepsiCo ’s approach

and commitment to work with credible organizations that pro-

mote responsible business practices, and how those programs

tie into expectations for PepsiCo ’s suppliers. Through their sup-

plier outreach programs, PepsiCo also empowers employees to

work with suppliers to set goals and monitor improvement in

resource conservation programs such as Energy Star and carbon

disclosure.

• Conduct a baseline assessment of suppliers ’ current sus-

tainability performance . HP ’s Supplier Environmental

Performance Review Questionnaire aims to provide a tool to

gather consistent information on supplier environmental prac-

tices, and to optimize the transfer of environmental performance

information between purchasers and suppliers. The Body Shop,

Canon, and McDonald ’s have all instituted rating systems to

evaluate existing and potential suppliers on a number of sus-

tainability criteria while others, such as P&G and Wal-Mart,

use sustainability scorecards with their suppliers. Vendors with

270 The Sustainable MBA

higher ratings receive a larger percentage of business while

increasingly vendors who fail to qualify risk not getting their

contracts renewed.

• Don ’t ignore the suppliers of suppliers . Many suppliers are

themselves managing other suppliers, an area where problems

can easily arise if not managed carefully. Companies need to

work to make sure their values spread throughout the supply

chain. Novo Nordisk ’s sustainable supply chain management

program, launched in 2002, works with their main suppliers as

well as their second-tier suppliers (those that supply to main

suppliers) to support human rights and labor standards, as well

as to ensure that sound environmental practices are in place.

• Send consistent messages . Many suppliers work with different

companies at the same time. Thus, one of the major challenges

for suppliers is keeping track of each company ’s individual sus-

tainability programs and targets that it must meet. In order to

ensure that suppliers are receiving consistent messages in terms

of minimum standards from the different companies they work

with, several international initiatives have also been put into

place to help. AIM-PROGRESS is a group of large international

companies working together to develop common guidelines on

responsible sourcing. Sedex is a service that connects businesses

and their global suppliers to share ethical data.

• Support local suppliers. Wherever possible focus on working

with local suppliers and even on developing and empowering

the local business network. In South Africa, Spier Vineyard’s

procurement strategy focuses on supporting locally owned busi-

nesses with a focus on creating more wealth and jobs for the

local community.

• Take a step by step approach. In recognition that their suppli-

ers are at different levels when it comes to sustainability, IKEA

created a staircase model applicable to suppliers delivering or

producing articles that contain solid wood, veneer, plywood, or

layer-glued wood. Suppliers range from level 1 where the origin

Operations 271

of the wood must be known and must not originate from intact

natural forests, all the way to level 4 where forests are certifi ed

through the Forest Stewardship Council.

IKEA aims to have 100% of its suppliers at level 4. This has

brought multiple benefi ts. For example, the number of wood sup-

ply chain audits conducted in 2007 decreased from 90 to 50 due

in part to the increased documentation requirements for full FSC

chain of custody certifi cation.

Fair Factories Clearinghouse provides information on labor prac-

tices in factories around the world (www.fairfactories.org). In

the USA, the Green Suppliers Network is a collaborative venture

between industry, the US Environmental Protection Agency, and

the US Department of Commerce (www.greensuppliers.gov).

For more on ethical supply chains, see Sedex (www.sedex.org

.uk) and AIMProgress (www.aim.be).

Transportation

Transportation systems move goods and people around the globe.

However, our increasing reliance upon traditional transporta-

tion systems brings its own set of problems to bear: air and noise

pollution, traffi c congestion and road accidents, over-reliance

on non-renewable resources, as well as land use to name a few.

Companies today are looking not just at how their products are

created and packaged, but also at the impact that transportation

has on the lifecycle of a product. Across the sector many initiatives

are taking place to positively impact fuel effi ciency, and environ-

mental and personnel safety:

• Cars and trucks . Companies are choosing to buy more fuel-

effi cient vehicles, including hybrids and electric cars, and are

http://www.fairfactories.org

http://www.greensuppliers.gov

http://www.sedex.org.uk

http://www.aim.be

272 The Sustainable MBA

fi lling up with alternative fuels where they are available (www

.greenfuels.org) or even using vegetable oil from restaurants.

Driver training programs result in better driving practices that

not only reduce fuel consumption, but also improve road safety

(www.greener-driving.net). In order to reduce the incidence

of chemical transport highway accidents, Dow Chemicals and

DuPont jointly introduced a Behavior-Based Safety Program to

infl uence the behavior of drivers through observation, coaching,

and communication. Wal-Mart, which owns the second largest

private truck fl eet in the USA, has committed to doubling its

fl eet ’s fuel effi ciency by 2015. SC Johnson saved US$1.6 mil-

lion annually through its Truckload Utilization Project, which

combines multiple customer orders and different products to

send out the most fully loaded and best confi gured trucks in

order to maximize each truck ’s carrying capacity and shipping

routes. Shipping companies such as UPS, FedEx, and DHL have

similar policies.

• Maritime shipping . Transportation by sea underpins global

trade, with 90% of the world ’s international trade traveling

by sea. While not without its own problems, shipping by sea

generally has a lower environmental impact than air or road

transport. One example of vessel operators and port authorities

working together to reduce pollution is the Los Angeles port in

the USA, which now provides clean electrical hook-ups shore

side to avoid cruise and container ships from having to oper-

ate generators and engines while docked. Shipping company

Bremen introduced the world ’s fi rst cargo vessel with the inno-

vative SkySails towing kite system. This wind propulsion system

harnesses wind energy to assist in propelling the ship, and

depending on wind conditions can lower fuel costs by between

10% and 35%. A small freighter could save over US$250 000 in

fuel costs per year using this system. The Global Industry Alliance

is encouraging the shipping industry to share approaches on

limiting the number of invasive species transferred in ballast

http://www.greener-driving.net

http://www.greenfuels.org

Operations 273

water, the leading cause of introducing marine alien species

(globallast.imo.org). The Sustainable Shipping Initiative brings

together some of the biggest names in the maritime sector to

look at how they can contribute to – and thrive in – a sustainable

future (www.ssi2040.org).

• Air transport . The volume of passenger and freight trans-

port by air is expected to continue to grow, as are demands by

stakeholders to make air travel more sustainable. At the current

rate of growth in air travel and transportation, the UK ’s Royal

Commission on Environmental Pollution calculates that, by 2050,

emissions of greenhouse gases from aviation will account for

more than half of the UK ’s impact on global warming. To combat

this, the International Air Transportation Association – as well as

the Clean Sky initiative in Europe – are working to cut the indus-

try ’s emissions. One way to achieve this is through advances in

aircraft technology that improve fuel effi ciency, while simulta-

neously reducing both operating cost and pollution. The use

of composite materials to reduce weight was introduced in the

Airbus A380. The industry is also researching ideas like aircraft

with blended wing bodies that would make less noise and use

up to 25% less fuel than conventionally shaped aircraft.

Operations managers reviewing their transportation strategy

should keep in mind the importance of sourcing raw materials

locally where possible, as this can not only reduce transportation

costs, but also help support the local industries that supply them.

Scania, a leading manufacturer of heavy trucks and buses as well

as industrial and marine engines based in Sweden, has the follow-

ing recipe for sustainable transportation:

• Transitioning now to renewable fuels.

• Increased investments in developing hybrid technology.

• Driver training can improve fuel effi ciency by 10–15% and results

in lower damage and maintenance costs.

http://www.ssi2040.org

http://globallast.imo.org

274 The Sustainable MBA

• Correct tire pressure, rolling resistance accounts for about 30%

of a vehicle ’s fuel consumption.

• Improved effi ciency of transport system by eliminating empty or

near-empty runs.

• Greater cargo capacity through longer vehicles and maximized

cargo space.

• Reduced air resistance by correctly fi tting objects mounted on

the truck.

• Better fuel economy with the latest technology.

It isn ’t just about getting goods and services across the globe

but also people, see the International Association of Public

Transportation for making public transportation more sustain-

able (www.uitp.org). For more, see the WBCSD ’s Sustainable

Mobility Project (www.wbcsd.org), ICLEI ’s work on sustainable

transportation options in the city (www.iclei.org), and WEF

(www.weforum.org). For more on sustainable transportation,

see Chapter 16.

Waste management

Believe it or not, waste has become exciting. We may have once

thought of waste as dirty, uninteresting, expensive, and useless, but

today, numerous pressures are combining to make waste manage-

ment a focal point in sustainability. Faced with increasing regula-

tions, public pressure, raw material and landfi ll shortages, and the

need for increased resource effi ciency, companies are moving away

from the waste treatment approach and toward waste prevention

and reuse.

Apart from obvious environmental and societal benefi ts, cost

remains the most serious driver for improving waste management.

http://www.uitp.org

http://www.recyclematch.com/marketplace

http://www.iclei.org

http://www.weforum.org

Operations 275

Treatment, handling, transportation, and disposal of waste all

add signifi cant costs to a business, especially when the waste is

hazardous. Hidden costs, such as the loss of raw materials, cost of

treatment, time and energy, are often ignored and can increase the

true price tag of waste as much as fi ve to twenty times.

From a business point of view, pollution and waste represent

incomplete, ineffective, or ineffi cient use of raw materials. Since

waste does not enhance customer or stakeholder value, it has no

place in business. According to the New Zealand Business Council

for Sustainable Development, ‘Zero Waste means a 100% resource

effi cient economy where, as in nature, material fl ows are cyclical

and everything is re-used or recycled harmlessly back into society

or nature. “Waste” as we think of it today will cease to exist because

everything will be viewed as a resource.’ Today, many global com-

panies such as DuPont and Xerox are aiming for zero waste. Carpet

company Interfacefl or has a mission to achieve zero waste. They

defi ne waste as any cost that doesn ’t produce value to their cus-

tomers, including scraps or materials sent to landfi lls as well as

resources, time, and energy wasted when they don ’t do things right

the fi rst time. This also includes zero emissions and zero oil, a

tough challenge since carpets are currently made with oil.

In rethinking waste management, companies should fi rst and

foremost identify what the waste streams are, and how much waste

is being generated throughout the lifecycle and supply chain from

raw materials to packaging. Then a company should look at:

1. Preventing the waste altogether. Considering product design

to avoid producing waste in the fi rst place.

2. Reducing waste . Minimizing the amount of waste produced

through design, procurement, and less packaging.

3. Recycling and reusing . Where waste cannot be prevented, as

many of the materials as possible should be recovered through

recycling or reuse.

4. Improving disposal and monitoring . Where there is no other

choice, waste should be disposed of safely and appropriately.

276 The Sustainable MBA

Several waste management strategies are rapidly gaining popu-

larity that address one or more levels of the waste hierarchy:

Extended producer responsibility . The EU has several direc-

tives that oblige member states and EU producers to set up and

participate in product take-back schemes for electronic goods and

automobiles. These schemes, also called EPRs, have been estab-

lished to push for changes at the source that reduce the environ-

mental impacts of products throughout the lifecycle. EPRs place the

physical and fi nancial responsibility on producers to recover and

then dispose, recycle, or reuse their products. These schemes can

also be extended to include the responsibility to provide informa-

tion on the environmental and social properties of the products

manufactured. Overall, the EPR strategy not only encourages com-

panies to follow principles such as eco-design and minimization

of hazardous materials, but also shifts the cost of waste collection

away from municipalities. It also forces producers to better inter-

nalize the full costs of waste.

Turning a product into a service . Schindler, an elevator com-

pany, determined that rather than selling its high-quality elevators

as a product, it would rent out a ‘vertical transportation system’ to

its customers. The decision benefi ts everyone. The company keeps

the asset on its books and remains responsible for all service and

repairs. Schindler can also invest in providing the most up-to-date

quality product they can and provide more tailored solutions to

the needs of their customers, which helps them attain their profi t

objectives. Xerox ’s leasing program recovers and reuses materials

and components from copiers, including toner. Both Schindler and

Xerox represent a new trend – companies that are exploring what

is known as Product Service Systems (PSS), moving from selling a

product to renting the service that the product provides. The idea

of PSS is nothing new; launderettes, movie theaters, and libraries

are all based on the same principle. What is new is the way that

increasing numbers and types of businesses are exploring these

opportunities by re-examining the original assumptions behind an

Operations 277

existing product, material, or service decision. Instead of traditional

product decisions based on resources available, and ability to sell,

these companies are focusing on the original need the product ful-

fi lls and providing that service instead.

Byproduct synergies (also known as industrial ecology or

industrial symbiosis) involve a range of organizations – such as

companies, offi ces, and government – acting together as a single

ecosystem, taking one company ’s byproducts and waste and selling

or sharing them as primary inputs to another company. The idea

behind byproduct synergies is to design and operate industrial sys-

tems as living systems.

• Within a company . BASF ’s Verbund is an integrated sys-

tem within its manufacturing plants that allows byproducts

and waste from one plant to serve as the raw materials in

another plant. Calculations show that this saves the company

about €500 million each year at the company ’s Ludwigshafen

site alone.

• Between two companies . The Carlton United Brewery in

Australia sells the extra yeast produced in its brewery to Kraft,

which uses it to make Vegemite, a popular yeast-based spread.

• On a small scale . Green Zone in Sweden combines a Ford

car service center, a Statoil fuel station, and a McDonald ’s, all

of which are heated using a central heat pump and ground

source technology. Surplus heat generated by the McDonald ’s

grills as well as the heated coolant water from Statoil ’s refrig-

eration system is transported to the central heat pump, thus

allowing the buildings to benefi t from the energy surplus

(www.greenzone.nu).

• On a large scale . In the Danish industrial town of Kalundborg,

over 20 partners share waste and other materials including Asnacs

(the largest coal-fi red plant in Denmark), Statoil (an oil refi nery),

Novo Nordisk (a large biotechnology company), a plasterboard

company, and the town of Kalundborg (www.symbiosis.dk).

http://www.greenzone.nu

http://www.symbiosis.dk

278 The Sustainable MBA

There are also a growing number of initiatives internationally that

enable one business to sell their waste, regardless of what that might

be, to another business. Recycle Match, for example, allows sellers to

post waste or recyclables, buyers can bid on the materials, and the

materials go to the best bid (www.recyclematch.com/marketplace).

Some companies have similar systems set up internally as well.

Ensuring quality . A number of corporations are looking at pre-

venting waste from occurring in the fi rst place, in part by ensuring

quality and minimizing waste. Many quality-focused approaches

originate from Japanese business mentality. Hoshin Kanri says

that the success of the product or process development is directly

linked to the ability of an organization to put into practice its stra-

tegic goals. Kaizen is ongoing, continuous improvement. It can be

implemented in corporations by improving every aspect of a busi-

ness process in a step-by-step approach, while gradually develop-

ing employee skills through training and increased involvement.

Poka-Yoke is designed either to prevent an error from happening

or to make an error obvious at a glance. This approach aggressively

seeks to eliminate the possibility of errors and waste and to increase

resource effi ciency in the entire product lifecycle. Lean manufac-

turing , based on the methods pioneered in the Toyota production

system, focuses on eliminating waste, enhancing quality, and deliv-

ering value to customers while achieving environmental perfor-

mance goals at the lowest cost. Lean manufacturing derives specifi c

strategies and actions from the idea that environmental waste does

not add value to the customer, is a sign of ineffi cient production,

and that it affects production fl ow, time, quality, and cost. Lean

typically targets seven kinds of waste: overproduction, inventory,

transportation, motion, defects, over-processing, and waiting.

Creating new products from old ones . Some companies are

exploring how they can create new products using waste from old

products. Terracycle collects non-recyclable packaging from a range of

food and drink items and turns it into backpacks and other items sold

in major department stores. Method cleaning company makes new

Operations 279

plastic bottles using waste plastic recovered from the ocean. Starbucks

is doing research to see how they can transform food waste – in par-

ticular the 5000 tons of used coffee grounds produced each year –

into a key ingredient used in making plastic, laundry detergent, and

other everyday products. Worn Again works with large companies to

turn their existing textile waste – through upcycling, downcycling, and

reuse – into new products. For example, they created a range of bags

and accessories for Virgin Altantic using old airline seat covers.

Tapping into garbage dumps . There are several threads of

thought that now involve how garbage that has already been dis-

posed of in landfi lls can be mined for resources. Methane gas pro-

duced by decomposing garbage in dumps in New Jersey is captured

and used as fuel to generate electricity. There are 21 landfi lls being

used like this in the state, and 445 across the USA. Dumps are also

being mined for materials. For example, in the USA about 680 000

tonnes of aluminum cans are thrown out every year, totaling about

US$1.83 billion worth of metal per year. The world throws away

18 million tonnes of electronic waste each year, and one tonne of

scrap from discarded computers can contain more gold than can

be produced from 16 tonnes of ore. So, why aren ’t more companies

tapping into this? As mining garbage is costly and often hazardous,

many are fi nding that the best use of their resources is to stop prod-

ucts from reaching landfi ll to begin with. 43

There is no lack of websites and resources on waste, for exam-

ple at the national level (www.environment.nsw.gov.au/waste),

regional level (www.europa.eu), and international level (www

.uneptie.org/pc/hazardouswaste). The Plastic Disclosure Project

is working to reduce the environmental impact of the world ’s

rising use of plastics (www.plasticdisclosure.org). For infor-

mation on recycling symbols, see www.thedailygreen.com/

green-homes/latest/recycling-symbols-plastics-460321.

http://www.environment.nsw.gov.au/waste

http://www.europa.eu

http://www.plasticdisclosure.org

http://www.thedailygreen.com/green-homes/latest/recycling-symbols-plastics-460321

http://www.uneptie.org/pc/hazardouswaste

http://www.thedailygreen.com/green-homes/latest/recycling-symbols-plastics-460321

280 The Sustainable MBA

Challenges?

• Gathering information . The transparency of supplier informa-

tion is not always available and accurate, especially when you

are looking beyond just a company ’s suppliers to also look at the

suppliers of those suppliers.

• Misalignment between companies and their suppliers . Often

there is a lack of effective communication between companies

and their suppliers. Suppliers do not have fi nancial incentives,

such as increased orders or preferential contracts, and are not

given any support for putting in place sustainability systems.

Also, each company has different requirements for its suppliers,

making it complicated and expensive for suppliers to engage.

• Large number of standards . The increasing number of

regulatory and industry codes with different requirements is

generating confusion, and often results in multiple audits all

with different recommendations.

• These efforts take time . Sometimes it is unrealistic to look at

the whole supply chain. Changes are often easier to make incre-

mentally, or one step at a time. Companies should adopt a pro-

cess of continuous improvement.

• Ideas . The biggest challenge often lies in just learning how to

tap into your creativity and to imagine the possibilities.

Trends and new ideas

– Inspiration from nature

– Products that do more

– Traceability

– Manufacturing differently

– Instant feedback

– Exploring new materials

– Co-creation

Operations 281

Inspiration from nature

Tapping into nature for inspiration is nothing new. What is gaining

momentum is the use of nature as inspiration for new and better tech-

nologies, an idea made popular through the concept of biomimicry.

Biomimicry ‘studies nature ’s best ideas and then imitates these

designs and processes to solve human problems.’ Nature is the source

of ‘technologies ’ that have been used by the natural world successfully

and sustainably for the past 3.8 billion years. Increasingly, biologists,

engineers, architects, and business leaders are coming together to

learn how to tap into and use nature as inspiration for the develop-

ment of new products or to completely redesign existing ones.

So how does it work? The Shinkansen bullet train in Japan,

which travels at 200 miles per hour, used to make lots of noise as

it emerged from tunnels. The chief engineer, an avid bird-watcher,

tried modeling the front of the train after the Kingfi sher bird ’s long

pointed beak, which enables the bird to dive from air into water

with very little splash. The result was a train that was not only qui-

eter but used 15% less energy, even when the train traveled 10%

faster. One does not need to be a biologist to explore these oppor-

tunities as they surround all of us.

Some tips to get started in product design through biomimicry:

1. Don ’t ask ‘What do I want to design?’ Instead, ask ‘What do I

want my design to do?’ and ‘Why do I want my design to do that?’

2. Ask ‘Does nature do this function, and if so, how?’

3. Explore natural models by going outside and doing fi rst-hand

research.

4. Brainstorm multiple solutions.

Products that do more

We are starting to see the beginning of a new era, in which

both companies and consumers are not just content with ‘doing

282 The Sustainable MBA

no harm,’ but actually look for ways to ‘do more good.’ Already

we see homes installed with solar panels ‘selling’ excess energy

back into the power grid. What ’s next on the horizon? Perhaps,

cars that not only generate enough energy to run themselves but

also put extra energy into the electrical grid and engines that

fi lter the air, releasing it cleaner than it came in. The next time

you are waiting in line, keep an eye out for fl oors that use the

footsteps of pedestrians to generate power, a great way to pro-

vide the energy needs of supermarkets and railway stations. The

Spinnaker Tower in Portsmouth, UK, will be using this technol-

ogy on the stairs that visitors go up to reach the 560ft high view-

ing platform. The next wave of global consumerism will focus

more on selling products that make it easy for people to ‘go

green’ and on allowing consumers to save money . . . or even

make money by being green.

Traceability

Throughout this chapter, we have talked about how companies

are looking at environmental and social issues across their sup-

ply chains. How they make their supply chain more sustainable

is often communicated to the consumer through eco-labels (see

Chapter 11). But eco-labels are merely a starting point for some

companies and consumers. In the past, consumers got information

about the positive and negative aspects of product lifecycles from

consumer websites, but increasingly the producers themselves

are providing that information via the ‘backstory’ as it is called.

Icebreaker, an outdoor clothing company based in New Zealand,

has tagged its garments made from merino wool with a code that

customers can enter on the website to check out the product ’s

history – known as a ‘Baacode.’ In Japan, grocery shoppers can

use cell phones to scan RFID tags on food items to fi nd out more

details about the origins.

Operations 283

Manufacturing differently

Companies are exploring a range of ways to make their factories

more sustainable, many of which are explored throughout this

book. PepsiCo has come up with an interesting plan to reduce

water consumption by aiming to using the water taken from the

350 000 potatoes it uses annually. Since potatoes are made up of

80% water, it is hoped that within the next few years all water used

in UK factories will be from the potatoes, taking them off the water

mains completely.

NGOs have been increasingly active in identifying and organiz-

ing campaigns against companies who are pursuing unsustainable

activities in their manufacturing facilities. Greenpeace, for example,

has had a series of campaigns including Detox and Dirty Laundry,

which raise awareness and push for action against pollution coming

from textile manufacturing plants in China. As a result, companies

such as Nike, Puma, and Adidas are pledging to eliminate chemical

discharges throughout their supply chain by 2020 and formed the

Sustainable Apparel Coalition to collaborate in taking action.

Instant feedback

People are being asked on a day-to-day basis to make decisions

about changes to their lifestyles in order to prevent something bad

from happening in the future, a future their children will see, but

they themselves may never see. Many sustainability messages focus

on issues that are not tangible for the consumers, either because they

are occurring far away, will not occur during this lifetime, or are dif-

fi cult to observe on a daily basis. The solution is to focus on those

things that do impact consumers, and communicate this to them.

According to the UNEP/Wuppertal Institute Collaborating Centre

on Sustainable Consumption and Production, 80% of data currently

collected focuses on impacts from manufacturing; however, 80% of

284 The Sustainable MBA

the impacts themselves occur during end use. More and more we

will see companies providing information to customers to enable

them to use and dispose of the products sustainably. This includes

monitors that show how much energy, gasoline, and water is being

used in real time and how this translates to money saved and envi-

ronmental impact.

Exploring new materials

Many eco-friendly raw material alternatives are being explored for

use in everything from textiles to building materials, including algae,

soya, bamboo, organic cotton, and hemp. For example, Patagonia

makes fl eece sweaters using recycled plastic bottles. Bioplastics

which have similar properties to plastic but are made of natural

sources such as corn, potatoes, tapioca, and sugar are already being

used in cars and shampoo bottles. Car manufacturers are looking

at making greener cars using bananas, pineapples, and dandeli-

ons. Dell ships its servers in mushroom-based packaging instead of

foam. Researchers in Spain have even found a way to turn leftover

cheese into food packaging. There is even an annual competition

focused just on rethinking the brick to make it more sustainable

(www.brickstainable.com). Nike has a Sustainable Materials Index

which lists over 16 000 materials used in their products each year.

Websites such as Ecolect (www.ecolect.net), Materia (www. materia

.nl), and Material Connexion (www.materialconnexion.com) pro-

vide searchable databases and information on a variety of sustain-

able materials options.

Co-creation

Companies have been using crowdsourcing for years now as a way

of involving their customers and the general public in their brands.

Random Hacks of Kindness is a community of over 5500 innova-

tors who work to make the world a better place by developing

practical, open-source technology solutions to respond to some of

http://www.brickstainable.com

http://www.ecolect.net

http://www.materia.nl

http://www.materialconnexion.com

Operations 285

the most complex challenges facing humanity. They work on solv-

ing problems posted by companies such as Yahoo! and Nike (www.

rhok.org). An Austrian manufacturer asked customers to come up

with new fl avors for its all-natural hemp milk drink. In the USA

one politician started a ‘Make your own law’ contest, inviting the

public to write legislation with the promise that the best would be

introduced as a bill.

Now we are seeing a move toward co-creation, when individuals

or groups come together to design a whole new product or service.

The car industry has tried to innovate for the past 100 years, but for

the most part cars look the same as they always have. Loco Motors

has an online community of car lovers who collaborate and com-

pete to design vehicles incorporating sustainability and effi ciency,

for regional communities. The winning designs are then produced

and sold to those communities.

Want more?

Global Environmental Management Initiative (www.gemi.org/

supplychain/) is one of many organizations with guidelines and

resources on supply chain management.

The Green Grid has taken up the challenge of developing

standards to measure data center effi ciency, which includes both

the facility and the IT equipment inside it. Members include Intel,

Microsoft, Dell, IBM, and Google (www.thegreengrid.org). The

Electronic Industry Citizenship Coalition is a group of companies

working together to create a code of best practice for the world ’s

major electronic brands and their suppliers (www.eicc.info).

Read: Cradle to Cradle by William McDonough and Michael

Braugart (2002 and 2009) calls for a new industrial revolution;

Factor Four: Doubling Wealth – Halving Resource Use by Ernst

Ulrich Weizsacker, Amory Lovins, and L. Hunter Lovins (1997)

explores a new form of resource productivity (www.wupper-

inst.org/FactorFour).

http://www.rhok.org

http://www.gemi.org/supplychain

http://www.thegreengrid.org

http://www.eicc.info

http://www.wupperinst.org/FactorFour

286 The Sustainable MBA

Lifecycle assessment

The lifecycle approach (LCA) looks at the environmental and

social aspects and impacts of a product or a service across all

stages of production and consumption, from design to disposal.

For each part of the LCA, the company looks at the inputs, what

is needed to make the product, for example, energy, materials,

labor, and outputs, what comes out of the system, e.g., prod-

ucts, waste, emissions. Lifecycle thinking can be applied at sev-

eral different levels; to the whole product, just one part of the

system, or a particular decision for a material. Companies then

choose to either make changes across the whole lifecycle, or just

those with the biggest impact, or a combination that represents

incremental improvements. For example, when P&G conducted a

lifecycle assessment of its laundry detergents it found that 85% of

greenhouse gas emissions were coming from customers heating

the water to do the laundry. In response to this new informa-

tion, it developed cold-water detergents that both saved custom-

ers money on energy bills and reduced their emissions. It was the

fi rst company to launch cold-water detergent in both the USA and

Europe. According to the UNEP/SETAC Lifecycle Initiative, a lifecycle

approach promotes:

• Awareness that our selections are not isolated but are part

of a larger system. For example, the decision to purchase offi ce

paper. It takes 24 trees to create 50 000 sheets of paper and 2.3

cubic meters of landfi ll space to dispose of it. Thus, the choice

to procure recycled paper and paper products from sustainably

managed forests and to reuse and recycle paper after use impacts

multiple points in the system.

• Making choices for the longer term and considering all

environmental and social issues associated with those.

Thinking about the whole lifecycle of a product helps avoid

making short-term decisions that can have a lasting negative

infl uence, such as over-fi shing or releasing pollutants into

the air.

Operations 287

• Improving entire systems, not single parts of systems. Lifecycle

thinking was initially designed to prevent decisions, for exam-

ple, that fi x one environmental problem but cause another unex-

pected or costly problem to arise. This approach helps prevent

shifting problems from one lifecycle stage to another, from one

region of the world to another, and from one environmental or

social issue to another.

• Informed selections but not necessarily ‘right’ or ‘wrong’

ones. Lifecycle thinking helps put the decisions that are made

about products and processes into context to look at the unin-

tentional impacts of our actions, such as damaging nature or sup-

porting unfair labor conditions. If we fully understood the impact

of these actions, we might choose to act differently, in the best

interests of people and planet. 44

For businesses, this approach also helps to understand products, processes, and services better and the impacts these can have on the environment, on society, and on the company at every step. Companies can make better decisions and fi nd opportunities to improve products and processes and ultimately, their bottom line. For companies such as Johnson and Johnson, tracking of the life- cycle costs avoided as a result of sustainability projects has helped them to build a strong business case for environmental goals and programs.

Tips on conducting lifecycle assessment

• Understand what your goal is before starting. This includes why

you are looking at your product ’s lifecycle, and what kind of

information you need to know in order to make the necessary

decisions.

• Determine how much information you need. There are so many

different elements of a product that you can gather information

on that it can very quickly become overwhelming.

• Understand that the lifecycle will not give you all the answers.

It should be used as one component of a decision-making

process.

(continued )

288 The Sustainable MBA

The lifecycle assessment checklist

The following checklist provides a range of topics and issues to

address in analyzing the lifecycle of a product: Design. The lifecycle begins at the design table, where design-

ers of products or services decide on what the product or service will be produced, the need it fulfi lls, and the resources needed to produce it.

❑ Follow the principles of eco-design to create simpler designs with fewer components that are easy to separate for repair and recy- cling, and are modular to permit easy repair, recycling, upgrades, or service; and create effi cient production processes that aim for zero impact.

❑ Uphold labor standards and human rights throughout the lifecycle. ❑ Design products that minimize the use of chemicals, incorporate recycled and recyclable materials, use more durable materials and reduce waste and energy use during production and use.

Sourcing material. Once the materials have been selected, they need to be sourced (e.g., wood, minerals, water, etc.).

❑ Use materials with less environmental impact, for example timber from sustainable forests.

❑ Work with suppliers that use sustainable processes to extract raw materials.

❑ Source locally available materials and resources. ❑ Apply green chemistry to production processes, and minimize and phase out purchase, use, handling, and disposal of materials and substances that are hazardous or toxic.

❑ Work with suppliers to increase supply chain effi ciency. ❑ Use byproducts or wastes from one process in another product or process.

Production and manufacturing. Raw materials are transformed into the product through a series of processes.

❑ Use eco-effi ciency and clean production concepts in production processes.

❑ Reduce material variety and weight. ❑ Aim for sustainable technologies. ❑ Meet all applicable environmental regulations, safety and perfor- mance standards, and labor and human rights standards.

Operations 289

❑ Sell byproducts to others as primary inputs.

Packaging and transportation. Once created, a product is then packaged and transported to distribution centers and to the customer.

❑ Use minimal, robust, reusable, returnable, recyclable packaging. ❑ Look at innovative solutions such as labeling the product instead of packaging.

❑ Design products that are easier to transport and store. ❑ Use reusable or recyclable shipping containers, pallets, skids, or packaging.

❑ Use fl eet management tools, techniques, and technologies to opti- mize distribution and shipping effi ciency.

Use. How the product or service is actually used has quite an impact on the overall lifecycle of a product.

❑ Use fewer resources and cause less pollution and waste during use. ❑ Optimize functionality and service life by communicating multi- functional, modular features, part load operations, upgradeability, energy effi ciency, simplicity, increased durability, reliability, reus- ability, easy maintenance.

❑ Educate users about how to best use and dispose of products. ❑ Look at other inputs needed for use (such as for cleaning or maintenance).

❑ Increase the service intensity and/or leasing options of your products. ❑ Encourage customer sharing, swapping.

Disposal and end of life. Finally, the end of the lifecycle is how the product is disposed of after use.

❑ Reduce environmental impact of disposal by allowing easy reuse, recycling, ease of disassembly, ability to remanufacture.

❑ Find innovative uses for waste. ❑ Label reusable and recyclable content. ❑ Educate consumers about how to dispose of products. ❑ Provide product refurbishment, remanufacturing, refi lling, or other services.

❑ Offer exchange or take-back program for old or used products. Swedish jean company Nudie Jeans provides consumers with free repair kits to fi x jeans. Kits include denim patches, needle, thread, thimble and even a booklet and online video to help with the repair.

290 The Sustainable MBA

Want more?

Several international networks exist to help users put this think-

ing into practice, including the UNEP Lifecycle Initiative (www.life

cycleinitiative.org) and the European Platform on LCA (ec.europa

.eu). The US EPA ’s site has a good resource section (www.epa.gov).

There are some alternatives to LCA. See the Input/Output

tool developed by CarnegieMellon (www.eiolca.net).

The lifecycle approach can also be used for decisions we

make on a daily basis as consumers. Websites have examples

of the lifecycle of consumer goods, such as ‘Good Stuff: Behind

the scene guide to things we buy’ (www.worldwatch.org) and

‘Behind the Label’ (www.behindthelabel.org).

The standards for LCA are ISO 14040 and ISO 14020 (www

.iso.org).

Information technology/information systems

Information technology and systems play a key role in allowing an

organization and society to move forward with sustainability goals

by facilitating the collection and analysis of information which can

allow a business and its employees to make better, more sustainable

decisions both at work and in their everyday life. Because IT and IS

are so important to sustainability, these topics are also brought up

throughout the different chapters of the book.

Green IT

Information technology (IT), which is often also called information

and communication technology (ICT), describes the technology and

equipment used to display, process, transmit, or store information.

The IT industry is currently responsible for 3% of the global carbon

footprint and IT applications have a very large potential to enhance

performance across the economy and society (the remaining 97%).

According to the Global E-Sustainability Initiative (GESI), IT-enabled

solutions offer the potential to reduce GHG emissions by 16.5% and

yield US$1.9 trillion in savings.

http://www.lifecycleinitiative.org

http://www.worldwatch.org

http://www.eiolca.net

http://www.behindthelabel.org

http://www.tcodevelopment.com

http://ec.europa.eu

Operations 291

Telstra in Australia, for example, estimated that the use of telecommunications could reduce the country ’s greenhouse gas emis- sions by 5% by 2015 using wireless and GPS to schedule personnel between jobs at remote sites to reduce distance traveled, enabling fl exible working for knowledge workers to save offi ce space, to have devices that turn off when they are not being used, and replacing business air travel with video conferencing. Some elements of green IT include looking at:

• Reducing energy use . Green IT is very much about making

electronic equipment more effi cient and sustainable, both in

the production of the equipment, its use, and eventual disposal/

recycling/reuse.

• Choosing electronic products . Companies are increasingly buy-

ing electronic equipment that is more sustainable. Several tools,

such as the Electronic Product Environmental Assessment Tool

(EPEAT) and eco-labels such as Energy star and Blue Angel, help

make that choice easier.

• Reducing toxicity . Some IT equipment contains hazardous sub-

stances such as fl ame retardant, mercury, and cadmium. In the

EU, the Restriction of Hazardous Substances initiative (RoHS)

restricts the use of certain hazardous materials in electronic prod-

ucts. IT equipment also often includes the use of non-renewable

resources such as lead, tin, or copper.

• Increasing product longevity . End of life accounts for a large

part of the IT industry ’s ecological footprint. Creating equipment

that is upgradeable, modular, and lasts longer is key.

• Greening data centers . A lot of work is being done around

making data centers more effi cient, in particular in terms of air

management and cooling systems.

• Dealing with e-waste . Electronic waste is a big problem because

it contains toxic material. Some e-waste can be sold because it

contains substances that can be recoverable, such as gold and

silver. Countries and regions, such as Europe, have regulations

which ban e-waste from landfi lls.

• Ethical issues . A growing discussion revolves around explor-

ing the ethical issues in new IT innovations, such as issues

around the 3D printing of weapons, artifi cial intelligence, or

privacy issues.

(continued )

292 The Sustainable MBA

Green IS

Information systems (IS) are any combination of information technology

and people ’s activities that support operations, management, and

decision-making. Green IS refers to the design and implementation of

information systems that contribute to sustainable business practices.

For example, IS can help an organization reduce transportation costs

with fl eet management systems and dynamic routing of vehicles to

avoid traffi c congestion and minimize energy consumption. Green IS

is increasingly being developed to give us access to information on

demand, to know where things are at any given moment – whether

that be a package or a person – and to provide a single source of

accurate data to help with decision-making. Uses also include:

• Creating smarter, more sustainable cities such as smart buildings,

logistics, vehicles, grids, etc.

• Creating smarter supply chains by bringing together information

from across the supply chain, including the ability to share infor-

mation around logistics, management, tracking, monitoring but

also resource reuse and recycling.

• Creating smarter organizations by bringing together information

that already exists around sustainability across the system and

gathering new information to raise awareness and provide infor-

mation for better decision-making.

• Taking the data and putting it into perspective so people can col-

lect, analyze, report, set strategies, set targets all from the same

viewpoint.

• Putting the information into the right person ’s hands, whenever

they need it and wherever they are.

UPS has a project called telematics, where its delivery trucks each have a black box that records data such as seatbelt usage, harsh braking, idling time, reversing, speed, and routes. The data is then mined to determine how the company could use its fl eet better. UPS was able to cut idle time by 24 minutes per driver per day with an estimated fuel saving of US$188 per driver per year. With 90 000 drivers, this has made a big impact not only on the bottom line but also in terms of reducing emissions and resource

Operations 293

consumption. Unilever, PepsiCo, Marks and Spencer, and other companies that make up the Cool Farm Institute – a group help- ing growers to reduce the carbon footprint of their produce and livestock – produced a free online tool for farmers to calculate and reduce their footprint. Another sustainable agriculture group made up of companies such as Wal-Mart, Kellogg, and Coca Cola created the Fieldprint Calculator, a free tool to help growers analyze how their farming practices impact natural resources.

The increased availability of information through IT and IS is also helping consumers and individuals to make smarter decisions in their daily life. This can include monitors that give real-time infor- mation on energy use in the house, for example. In the USA and Canada, ‘NEST’ smart thermostats are being installed in homes which not only allow remote control from smart devices but also learn your heating/cooling patterns and save energy when the home is empty. SAP is looking at a project to see if they can break down an indi- vidual ’s ecological footprint within a particular company. Employees would receive a message stating what their footprint in the company this year was, and what percentage of fellow employees had the same footprint, to raise awareness and encourage action. The bike- sharing scheme Velib in Paris is successful because of its sophis- ticated information system. Each station has a computer terminal from which an individual can purchase a subscription, recharge an account, or determine available bicycles at nearby stations. RFID tags that connect each bike to the station enable the locking mechanism. Green IS increases the convenience of Velib, meaning more people use the service.

The challenge with IT and IS in an organization is that there is often limited organizational capacity to commission and manage these types of projects. In addition, organizations often have a ‘busi- ness as usual’ approach to IS and IT – meaning that they are reluc- tant to change because of the high costs of implementation or the perceived lack of return on investment. New technology and infor- mation systems often require individuals to learn how to use them, which can take a lot of time and effort. However, companies are increasingly realizing that they cannot move forward with their sus- tainability goals unless they have access to information, and IS is key in providing this.

294 The Sustainable MBA

Want more?

The Global e-Sustainability Initiative is a collaboration of major ICT companies (gesi.org). The Global Alliance for ICT and Development (GAID) and the EU Code of Conduct on Data Centres assist with measures to improve energy effi ciency. Several organizations have carried out surveys on global ICT, including the Global ICT Sustainability Index and the OECD. National strategies include Denmark ’s Action Plan for Green IT, Korea ’s Comprehensive Program for Green ICT, and Japan ’s Green IT Initiative. Other resources include the Electronic Product Environmental Assessment Toolkit (www.epeat.net), PC Green Label (www.pc3r.jp), and TCO Certifi cation (www .tcodevelopment.com). For more on this topic look at exam- ples in every chapter of this book, as well as the Energy sec-

tion in Chapter 16.

http://www.epeat.net

http://www.pc3r.jp

http://gesi.org

13 HR and Organizational Behavior

‘CSR – HR = PR. If employees are not engaged,

Corporate Social Responsibility becomes an exercise

in public relations. The credibility of an organiza-

tion will become damaged when it becomes evident

that a company is not “walking the talk”.’ CANADIAN BUSINESS FOR SOCIAL RESPONSIBILITY

296 The Sustainable MBA

At a recent sustainability conference, the keynote speaker address-

ing one of the challenges of sustainable development said, ‘Money

is not the issue, it ’s people!’ The speaker had a point. Companies

everywhere are putting in place sustainability programs but are

not always seeing the benefi ts and impacts that they expect. This

is because the success of a sustainability strategy depends on being

able to integrate these issues into the company ’s culture and the way a

business operates on a day-to-day basis. To do this you need to

align the key systems and processes on which delivery of an organi-

zation ’s sustainability programs depend (e.g., managing change,

developing competencies, supporting engagement, managing talent,

encouraging diversity, recruitment). All managers within an organi-

zation play a role in embedding sustainability into the culture of that

organization.

The Human Resources department generally has constant links

with all groups within a company, and a fi nger on the pulse of the

whole organization. The people in this department play a key role

in promoting positive behavior, creating an engaging work force,

and creating an environment where sustainability is embedded in

every aspect of the employee ’s lifecycle, from recruitment to retire-

ment. Not only should HR play a key role in the development of a

sustainability strategy, it should also play an even more important

role in implementing that strategy by embedding it into the way the

organization works, making sure that what a company says they

are doing is consistent with what they are actually doing.

Why is it important?

• Highly strategic issue . More than half of the Global Reporting

Initiative indicators can be considered to be related to HR. There

is a growing international consensus that human capital man-

agement will become the biggest strategic issue for business.

HR and Organizational Behavior 297

Poor human capital management is considered to be one of the

biggest threats to the long-term success of global business.

• Changing labor markets . Taking sustainability issues seriously

will help companies recruit and retain top talent. Graduates

and potential employees at all levels are increasingly asking to

work for companies with serious commitments to environmen-

tal, social, and ethical responsibility and know how to identify

corporate ‘greenwashing’ rhetoric.

• Saves money . It is a myth that HR represents the ‘soft’ side of

business. In fact, HR is a costly business if not taken seriously.

Replacing an employee often costs two or three times his or her

salary. Keeping employees happy and motivated reduces recruit-

ing and attrition costs and reduces absenteeism.

• Increased productivity . Organizations with an internal com-

mitment to sustainability experience happier employees. Not

only do they get involved in meaningful activities, they bring

employees together and teach them new skills. Studies show

that 75% of employees who consider their employers to be sus-

tainable exhibit high levels of commitment and that employees

with high levels of commitment perform 20% better than their

peers and are 87% less likely to leave the organization. 45

• Reputation . No matter how slick the web and media presenta-

tions, a company ’s sustainability policy may be perceived merely

as greenwashing if its employees are not informed and actively

engaged in carrying out this policy through their relationships

with customers and stakeholders.

The key concepts

Embedding sustainability thinking into a company ’s organization

involves integrating it into the underlying systems and processes

that govern behavior within that organization.

298 The Sustainable MBA

• Systems and processes to

embed sustainability thinking

→ Creating a culture of

sustainability

• Sending consistent messages

about sustainability across

the company

→ Communication

• Attracting and hiring the

right people to carry out that

strategy

→ Recruiting

• Retaining those employees in

the organization

→ Employee engagement

• Providing incentives and

rewards that are in line with

sustainability

→ Motivation and rewards

• Providing employees with the

right tools

→ Talent development and

training

• Advice for ensuring success-

ful change programs

→ Box: Managing change

Creating a culture of sustainability

The story often goes like this: XYZ company decides to get involved

in sustainability, puts together a sustainability strategy with goals,

sends an internal memo around the organization saying they are

now going to be more sustainable, but neither implements the

strategy nor achieves the goals. What went wrong?

Putting in place systems and processes related to sustainabil-

ity within an organization is not always enough. Few managers

understand that in order to be successful and really reap the full

benefi ts, they must be committed to mainstreaming sustainability

into the values and belief systems already present in the organiza-

tion. Organizational habits – the way in which people work and make

decisions, on a day-to-day basis – must be understood and molded

HR and Organizational Behavior 299

to accept the necessary changes, move forward, and make sustain-

ability goals possible. Sustainability isn ’t just something you do, it

is a way of thinking that can be applied to everything you do; a

sort of lens through which to see the world in a more environmen-

tally, socially, and economically profi table way. If all employees see

through this lens then the necessary changes are embraced and

new opportunities emerge.

Of course, embedding sustainability into the culture of an organi-

zation is easier said than done. A company ’s culture is made up of

the values, beliefs, underlying assumptions, attitudes, and behav-

iors shared by a group of people. It is a set of rules that govern

how employees work together, some written but mostly unwritten.

A culture is not just something you create, or that you can simply

change. It is formed over time by the people, processes, and sys-

tems that a company follows, and is a result of taking action and

being consistent. Every organization has its own unique culture,

so not surprisingly some cultures will make it more challenging to

embed sustainability thinking than others. Several elements con-

tribute to an organization ’s culture:

• The founder . The basis of a company ’s culture is commonly

formed by the founder of the company and the values that she

or he based the company on. If the founder built the company

upon values that are intricately linked to sustainability or that

support sustainability, it will be easier to embed sustainability

into the culture.

• The CEO . The individual at the top of the organization has a tre-

mendous infl uence over how an organization operates. People

take action based on her or his words and actions. A consistent

message from the top will help to push change across the com-

pany. An inspired leader will play a key role in motivating and

inspiring others to action.

• The employees . Many times the culture of a company is created

not by those at the top but rather is created from the bottom up

by the employees themselves.

300 The Sustainable MBA

• Management . A large part of culture is also driven by the man-

agers of a company, what they pay attention to, how they react

to situations, how they communicate with others, what they

reward, and which issues they consistently support.

• Mission, value statements . Many organizations have a set of writ-

ten rules such as mission statements or formal declarations that

attempt to explain what the company stands for. It is not enough

to just have these, they must really represent what the company is

and where it wants to go and be part of the culture. Many compa-

nies make changes to these to refl ect their focus on sustainability.

• Codes of conduct . Codes of conduct throughout the organiza-

tion guide the behavior of people by telling them what behav-

ior is and what is not acceptable in the workplace. These take

the form of both written and unwritten codes (i.e., culturally or

historically accepted ways of behaving). These should be under-

stood and practiced by the organization.

• What is rewarded . How employees are judged, rewarded, and the

criteria for promotion and fi ring tells a lot about what is expected of

employees and how seriously sustainability is taken by the company.

• How people interact . How people interact within the organi-

zation. Do they work together, do they share information, or is

there competition within? This isn ’t just about those in the com-

pany, but also the perceptions of potential employees, business

partners, customers, etc. that can be even harder to change.

• Material aspects . These are tangible aspects of culture which

are often the most important ways in which culture is mani-

fested, reinforced, and communicated. This can include rites,

and rituals. How the offi ce space is organized and used can also

say a lot about the culture of an organization.

Communication

Everyone agrees that communication is important. Nevertheless,

many companies are not communicating their sustainability strategies

HR and Organizational Behavior 301

effectively to their employees in a way that allows them to become

actively engaged and involved.

Different companies have chosen different ways of communicat-

ing their sustainability strategies to employees. Shell produced a

biodiversity management primer brochure that brings together the

information that employees need to know about the company ’s

position in relation to biodiversity. It explains what biodiversity

is, why it is important for the company, what the company ’s com-

mitments are and, most importantly, what managers at Shell can

and should do to manage their impacts and help conserve bio-

diversity. The CEO of carpet company Interface meets with sen-

ior management regularly to discuss sustainability issues. Those

senior managers then go on to communicate the message to their

staff. This continues until all members of staff have been informed.

Approaches to communicating sustainability are both top-down

and bottom-up.

Communication on sustainability should answer the following

three questions:

1. Why is sustainability important to the company? Why are

these issues important to the company? How do they affect

the company? Why have leaders of the company chosen to act?

Once an individual understands the why, most of the battle is

already won.

2. What is the company doing about it? Information should be

given relating to how the company is reacting to this risk or/and

opportunity. Is there a new partnership, a new code of conduct,

a new goal? If an issue is truly important to the company and

there is a strong reason why, employees will see that message

delivered consistently through the different levels and processes

of the company.

3. What can employees do? Communication should not only be

about raising awareness of the direction of a company and its

sustainability strategy. A major part of communication needs to

be aimed at how this affects the employee and what their role is.

302 The Sustainable MBA

Recruiting

Recruiting is a two-way process. A company ’s engagement in sustain-

ability depends in large part on the kind of people it has working

for it. The company needs to adjust recruiting processes to attract

employees with the necessary skills. To be competitive in recruiting,

companies can no longer ignore sustainability because graduates

and new employees are asking for it and are often pre-assessing the

social and environmental performance of companies before choos-

ing an employer. Potential employees are increasingly looking to

work for companies that have a good reputation, are ethical, provide

a good work environment, and share the same beliefs as they do.

When looking at embedding sustainability into your recruitment

processes, consider the following:

• Recruiting strategy . The fi rst step of HR in supporting the com-

pany ’s sustainability strategy is to align its recruitment strategy

with it. This means aligning recruitment processes (including

job descriptions) to that sustainability strategy based on identify-

ing the skills, experience, knowledge, and aptitudes of potential

staff members. A clear strategy makes people want to work for

you and ensures that you get very strong applicants who know

why they want to work for you.

• External communication . Candidates for recruitment should

be sent consistent messages about what the company repre-

sents through the company website, the recruiting website, and

all other recruiting communications. Information on what the

For more information take a look at the work being done by

the Institute for Sustainable Communication (www.sustainable

communication.org), UNEP, and Futerra in this area (www.unep.fr),

as well as on company websites. For more on communicating

sustainability see Chapter 11.

http://www.sustainablecommunication.org

http://www.unep.fr

HR and Organizational Behavior 303

company is doing in sustainability should be consistent across

all communications and should be easily accessible.

• The interviewer . Interviewers should be armed with knowl-

edge about the company ’s sustainability policies not just so they

ask the right questions, but also so they can answer those that

interviewees may ask them. If the individual giving the interview

cannot answer simple questions made by the interviewee about

the company ’s sustainability direction, then this can send the

message that it is not everyone ’s business, and that the company

isn ’t serious about it.

• The employment package . When putting together a package

to recruit employees into the company, look at all the different

elements of that package from pension funds (sustainable of

course) to opportunities for employees to take paid or unpaid

time off to do community service.

• Job description . An individual ’s job description sets out what

they will be expected to do and what their roles and responsi-

bilities are. Sustainability should be incorporated into this.

• First messages . Once you have the right people you need to set

their expectation of how things work in the company. If it really

is important these messages will be delivered consistently and

from the start. Employees arrive at a company fresh and open

to learn, so take the opportunity to inform them as soon as they

enter the door. This involves not just training (explained further

on) but also the way new employees are introduced to the com-

pany. Are offi ce greening projects emphasized during the tour of

the buildings and facilities? Are these issues introduced to new

employees from day one?

• Current employee recommendations . Current and past

employees can be very effective ambassadors, spreading the

message about what a company stands for to the public, poten-

tial customers, and also to potential employees. According to

a survey by KPMG, only 20% of workers who felt that their

bosses lacked integrity would recommend the workplace to

recruits. In comparison, 80% of the respondents who believed their

304 The Sustainable MBA

Employee engagement

Organizations are looking for employees who will give 100% to

the organization, who will go above and beyond what is expected.

Employees are looking to work for companies with a stimulating

environment. Employee engagement is when both meet: when an

employee is committed to the organization and pushes forward its

missions and goals. Engaged workers are much more likely to be

committed and productive. Studies done by PwC show that employ-

ees who are more committed to their employer perform 20% better

than their peers and are 87% less likely to leave the organization.

However, engagement is an attitude that is nurtured over time.

Some of the drivers of engagement include:

• A sense of feeling valued and involved, with the potential to

make a positive difference to the company.

• Freedom to voice ideas that managers not only listen to but

respond to.

• Opportunities to develop on the job.

• A sense that the leaders of the organization care about the well-

being of employees and the planet.

company managers had strong ethics would recommend their

organization.

IEMA (www.iema.net) and Business in the Community ( www

.bitc.co.uk ) have both separately developed competency maps

displaying the core competencies required by people to inte-

grate a sustainable development perspective into their work.

The International Society of Sustainability Professionals ( www

.sustainabilityprofessionals.org ) as well as Net Impact ( www

.netimpact.org ) have both produced studies around the skills

required for sustainability.

http://www.iema.net

http://www.bitc.co.uk

http://www.sustainabilityprofessionals.org

http://www.netimpact.org

HR and Organizational Behavior 305

• A feeling by employees that they are well informed about what

is happening in their organization.

• The belief that managers and the CEO are walking the talk.

Companies that engage employees on issues of sustainability

fi nd the benefi ts diffuse throughout the organizational hierarchy.

Involved employees are a source of knowledge and provide feed-

back to management about ways to move forward. Employees

want to understand the contribution that they can make. There are

countless ways to engage employees in your sustainability efforts

in a way that benefi ts the employees, the company as a whole, and

often the environment and the community:

• In defi ning the strategy . IBM ’s Big Green Innovations program

includes environmentally focused initiatives, looking at advanc-

ing water management, alternative energy, and carbon manage-

ment. The idea came out of the IBM innovation jam in 2006,

which involved 150 000 employees blogging for two to three

days, and resulted in 30 000–40 000 new ideas. These were nar-

rowed down to 10, which the company decided to adopt, of

which Big Green Innovations was one.

• In identifying problems . Employees can be useful sensors in

identifying problems before they occur. One company has a

program in place that involves all of its employees in identify-

ing health, safety, and environmental risks. Every employee is

required to report at least one potential environmental hazard

into the system each year.

• In coming up with solutions . Employees are often best placed

to identify ways that their jobs could be done better. In order to

take advantage of this, many companies have systems in place

so that when employees are asked for their ideas and sugges-

tions they can be processed, assessed, acted on, and feedback

given. The 3M Corporation has been doing this since 1975, when

they set up their 3P program (Pollution Prevention Pays), which

relies on the voluntary participation of employees to identify

306 The Sustainable MBA

ways to reduce pollution across operations. Innovative ideas are

recognized with 3P Awards. Projects must meet three criteria:

• Eliminate or reduce a pollutant.

• Benefi t the environment through reduced energy use or more

effi cient use of manufacturing materials and resources.

• Save money – through avoidance or deferral of pollution

control equipment costs, reduced operating and materials

expenses, or increased sales of an existing or new product.

• In the local community . Employees are increasingly asking

for opportunities to get involved in the communities in which

their businesses are working and are looking to work for com-

panies that provide those opportunities. Employees who are

active in community projects through their company are more

likely to feel a stronger sense of belonging to the company,

increasing employee morale, motivation, and commitment. Intel

Corporation is an example of a company that embraces the

volunteerism philosophy. Among its many programs, its Intel

Involved Program enables employees to volunteer thousands of

hours in the communities where they work.

• By giving them time to explore these issues . Bill Gates, in his

speech at the Davos Summit in 2008, called on corporations to

‘dedicate a percentage of their top innovators ’ time to issues that

could help people left out of the global economy. This kind of

contribution is even more powerful than giving cash or offering

employees time off to volunteer.’ Companies such as 3M and

Google dedicate 15%–20% of employees ’ work time to projects

of their choosing.

• By encouraging healthier lifestyles . Wal-Mart ’s Personal

Sustainability Project (PSP) is a voluntary project that helps the

company ’s employees integrate sustainability into their own lives

by making small changes to everyday habits. PSP Captains are

trained in each offi ce to educate other employees about the pro-

gram. Employees then choose a goal to improve their own health

and wellness or the health of the planet over the next four to

HR and Organizational Behavior 307

Motivation and rewards

Once an overall strategy and direction for the company is decided

upon and goals and targets have been set, the next step is to rally

the full organization around reaching those goals. Sustainability

targets will not be reached simply by telling people that they exist.

To be truly effective, incentives need to be put in place to ensure

that sustainability targets and goals are met. Rewards should focus

on promoting and reinforcing the desired behaviors; they should

be promoted within the organization and easily understood by all.

Here are some pointers:

• Be clear on the objective . Decide what kind of behavior you

want to promote and reinforce and clearly align incentive pro-

grams to reward that behavior. Objectives need to be inspiring

and not be seen as merely an extra burden for employees.

• Identify and eliminate de-motivating factors that under-

mine the achievement of sustainability goals . Give individu-

als who are in a position to make sustainability changes, but do

not have suffi cient authority or fi nancial and human resources

necessary to achieve the sustainability goals, the tools to be able

to make changes.

• Performance appraisal . Employees are often given individual

and team targets on which they are appraised at the end of the

year. If measurable long-term sustainability goals and targets are

important to the organization they should be incorporated into

seven weeks to monitor progress. Unilever ’s Personal Vitality cam-

paign launched in 2005 is focused on promoting the wellbeing of

employees in terms of fi tness of body, heart, mind, and spirit.

Many companies have employee engagement strategies. Check

their websites for more information.

308 The Sustainable MBA

these appraisals and it should be clear that employees will be

judged on their success. An employee who is compensated for

maximizing short-term accounting earnings is less likely to be

committed to long-term projects.

• Promotion and bonus eligibility . With sustainability tied

into job descriptions and performance appraisals, bonuses and

promotions can therefore be tied to reaching set sustainability

goals. SC Johnson has a company Greenlist that provides envi-

ronmental ratings for all ingredients used in its products. Annual

Greenlist goals are tied to the bonuses of people at offi cer and

management level. Further bonuses are set within the relevant

R&D groups and linked to annual merit increases.

Understanding what motivates people is key to providing an

incentive structure that will motivate a company ’s employees to

achieve its sustainability goals. Employees are not just motivated

by fi nancial reward, they are often equally or more motivated by a

wide range of factors – everything from feeling a sense of achieve-

ment, advancement, and belonging to something else (e.g., chal-

lenge, contribution to society, sense of ownership and involvement

in a project, fi nancial rewards, intellectual interest, job security,

pride in organization, recognition and respect, responsibility, and a

sense of wellbeing of the work environment).

Talent development and training

In order to be successful, a company ’s sustainability strategy must be

understood and practiced throughout the organization and not just

by a few managers or specialists. Employees need to be given the

tools to be able to implement sustainability in their jobs. Therefore,

sustainability should be part of the initial training from day one

until the day the employee leaves the company. This can be done by

using training to raise the general awareness about sustainability in

the company and what its priorities are, the strategy, how it affects

employees, and what their role is in implementing it. Training can

HR and Organizational Behavior 309

also be about specifi c parts of sustainability that are relevant to

different job functions. These topics should also be embedded into

already existing training that is required for specifi c jobs.

There are several delivery methods for training. In-class training

courses can be used to raise the general awareness about these

issues as well as provide specifi c tools and knowledge. One way

is to identify key personnel and ‘train the trainers ’ who will help

spread the message. PwC did this by sending its top 400 employees

to a sustainability executive leadership program. Another way is to

use web-based training, often simple online modules that are com-

pulsory for employees to complete and which allow managers to

track their progress online in order to ensure that their employees

are fulfi lling these requirements.

Some elements of sustainability are not easy to learn through web

modules or in-class lectures, but need to be experienced in order

for the employees to learn both the knowledge and skills required.

These include certain skills that are critical for all aspects of the

company, including exploring and implementing new ideas, ques-

tioning the standard ‘business as usual’ practices, multidisciplinary

thinking, creativity and innovation, leadership and networking to

name but a few.

• Basic skills . Marks and Spencer, a British retailer, has been provid-

ing free literacy and numeracy classes to workers in their supply

chain in Morocco. The factories have rearranged their work sched-

ules to allow the employees to take the 3-hour classes on the prem-

ises. This literacy training program has involved more than 1000

supply chain workers in Morocco, increasing productivity by 15%

as workers read instructions themselves and need less supervision.

• Secondments . A growing number of companies send some of their

employees to international organizations and NGOs for a short

duration. The individuals learn a set of skills and leadership capabil-

ities and the organization benefi ts from their application when the

employee returns. For example, consulting fi rms sending employ-

ees to work in international organizations.

310 The Sustainable MBA

• Job rotation . Some companies aim to integrate sustainability

principles into everything they do. After a stint in a sustainabil-

ity position an employee goes on to a new department where

he or she can share the experience and knowledge with a new

team in a new work context.

• Placements . Top employees at Accenture have the opportunity

to work on non-profi t consulting projects in developing coun-

tries with the Accenture Development Partnership. It started off

as an activity to recruit and train staff but today has grown to be

part of the strategic direction of the company to provide a new

range of services to customers in developing markets.

• Community engagement . The prime objective of community

involvement has always been and will continue to be to benefi t char-

ities and communities. However, increasingly volunteer programs

are proving to be not just good for the communities, but also good

for the companies involved. Volunteer opportunities can develop

certain skills for employees including communication, teamwork,

managerial, professional, and technical skills to name a few.

Often companies will raise the awareness of employees and then

wait for miracles to happen. Most employees – and in particu-

lar managers – have a series of big folders sitting on their offi ce

shelves from past training sessions that they rarely look at again.

Post-training follow-up is just as important as the training to sup-

port newly trained employees who are motivated to apply their

ideas and skills about sustainability to their work. There is no point

sending them off to training if there is no way for them to incorpo-

rate this new knowledge into their regular jobs.

A growing number of NGOs, consulting fi rms, and businesses

offer sustainable business courses at different levels and for dif-

ferent durations. Several universities now offer short and longer

programs around sustainability and business.

HR and Organizational Behavior 311

Challenges?

• Raising the importance of HR in general . Most do not fully

understand the crucial role of HR in an organization, let alone the

role that HR plays in sustainability. HR is often seen simply as a

support function rather than a strategic piece of the puzzle. The

fact that titles usually seen around the executive table are CEO,

CFO, CIO, COO but typically no CHRO, serves as a reminder that

HR is not seen in the same way as other support functions.

• Bringing it all together . Many companies will have differ-

ent employee engagement activities happening throughout the

organization but not one overarching strategy to bring them all

together in a strong, clear, consistent message.

• Building capacity . Employees in HR themselves are often not

equipped with the skills and tools to play a part in contribut-

ing and implementing sustainability strategies. There is a need

to build their knowledge as key players in infl uencing others in

the organization. Leaders must make sure that the organization

is ready for the changes and that this isn ’t seen as adding work

to people ’s jobs.

• Joint role of management and HR . HR ’s role is to implement

management decisions, and without top management working

with HR none of the corporate goals and targets can succeed.

Neither can do it without the other but often there is little com-

munication between the two.

• Cost versus asset . Employee and related programs are often

seen as a cost to be controlled rather than an important asset

in an organization. Community engagement programs, training,

and personnel development are seen as costs without looking at

the benefi ts to the overall profi tability of the organization.

• Measuring effectiveness as well as effi ciency . HR can play a

vital role in measuring the impact that its programs have on the

state of implementation of the company ’s sustainability strategy.

Often the correlation is diffi cult to see.

312 The Sustainable MBA

• Benefi ts are often intangible . A key challenge is that many of

the benefi ts of sustainability practices at an employee level are

often diffi cult to measure. For this reason they are often ignored.

• Training is key . A survey by Accenture and the UN Global

Compact found that 1 in 4 CEOs felt that the lack of skills and

knowledge about sustainability with their senior and middle

managers was one of the main challenges in being able to put

together and implement a sustainability strategy.

Trends and new ideas

– Linking pay and sustainability

– Diversity

– Skills for sustainability

– Creating great workplaces

– Changing the way we talk

– Rise of the CSO

Linking pay and sustainability

Increasingly, companies are factoring achievement of sustainability

goals into their employee salary and bonus programs. For example,

at Novozymes the company pays 25% of the annual bonus based

on short-term fi nancial measures, 25% on long-term fi nancial meas-

ures, 25% on short-term sustainability measures, and 25% on long-

term sustainability measures. Companies like Alcoa link 20% of

variable compensation plans to sustainability. A growing number

of companies also link employee bonus structures to sustainabil-

ity, including linking sustainability performance targets to bonuses.

For example, GSK set a target for energy consumption and man-

dated a 5% reduction in one year and linked that to bonuses. At the

end of the year they ended up reducing energy use by 11%.

One of the tools being explored as a means of mainstreaming

sustainability issues into appraisal systems is the sustainability bal-

anced scorecard. The balanced scorecard is already being used by

HR and Organizational Behavior 313

Diversity

In the past, companies sought to increase diversity for many reasons,

but increasingly there are clearer business reasons for implement-

ing a diversity plan. As companies expand geographically, they will

encounter greater diversity of their customer base. Having employ-

ees from a variety of socio-economic, ethnic, linguistic, and religious

backgrounds will give companies an edge in predicting and under-

standing consumer preferences, and allow them to communicate

more effectively with their customers. Diversity of educational and

skill backgrounds also brings different ways of viewing and solving

problems to an organization. Look at the innovative work being

done through the biomimicry movement (see Chapter 12), where

biologists are sitting at the table with businesses to fi nd profi table

many companies and is a performance measurement framework

that adds non-fi nancial performance measures to traditional fi nan-

cial metrics to give managers and executives a more ‘balanced’ view

of organizational performance. A sustainability balanced scorecard,

as the name suggests, incorporates the sustainability measures and

targets of an organization into performance metrics. These new

expanded versions are being used to integrate sustainability into

operations. For example, McDonald ’s uses a scorecard that links

performance indicators to relevant environmental guidelines for

suppliers. The scorecard is intended as a tool for suppliers to meas-

ure and report upon performance related to a particular guideline.

HSBC uses scorecards to measure sustainability development on an

individual basis and gives incentives based on this.

For more on this topic see Ceres ‘The road to 2020,’ the ‘UNPRI ’s’

‘Integrating ESG Issues into Executive Pay,’ and WBCSD ’s ‘People

Matter Reward.’

314 The Sustainable MBA

business solutions inspired by nature. Investors say that the strength

of some companies is their cultural diversity. Schlumberger, a lead-

ing service company in the Oil and Gas sector operating in over

80 countries, employs over 118 000 employees from more than

100 countries. Investors consider one of its major competitive

advantages to be the diversity of its international workforce.

In 1989 B&Q, a UK hardware store, opened a store entirely staffed

by workers over the age of 50 as an attempt to tackle the problem

of high average annual staff turnover. There were 7 000 applications

for 55 jobs. The store was a success; staff turnover was reduced by

about 80%, absenteeism was 33% lower, profi tability was 18% higher,

stock leakage was cut by more than half, while productivity and costs

remained the same compared to similar stores. Today, 25% of its 35 000

workforce are aged 50 or over (in 2006 the oldest employee was 92

and 20% of employees were under the age of 24). This policy is based

on the belief that its customers, stores, and offi ces benefi t from new

ideas and expertise from a mix of both younger and older employees.

SAP, a large software company based in Germany, has a partnership

with Danish social business Specialisterne where the company plans

to employ hundreds of people with autism as software specialists. It

has been shown that people with autism have special competencies

that can be used in this labor market. Adecco, a multinational tempo-

rary work agency operating has programmes which assist, support

and train disadvantaged people for labor integration. This includes

disabled people, single mothers, people aged over 45, Olympic and

Paralympic athletes, and long time unemployed.

DiversityInc’s Top 50 Companies for Diversity ranks companies

based on diversity. ( www.diversityinc.com ) Sodexo, one of the lead-

ers in this ranking, has 25% of executive bonuses linked directly to

diversity objectives.

Skills for sustainability

As seen earlier in this chapter, a number of organizations are

trying to map out the skills required not just by a sustainability

http://www.diversityinc.com

HR and Organizational Behavior 315

professional or individuals looking to work in the fi eld of sustain-

ability, but by all individuals working in the business sector to

ensure that sustainability becomes mainstream in their organiza-

tions. These include but are not limited to:

• Infl uencing . The ability to infl uence change, infl uence leader-

ship, and others who can make sustainability happen within an

organization.

• Communication . The ability to communicate at all levels of the

organization with various stakeholder groups, in particular gov-

ernment and not for profi ts. The ability to communicate infor-

mation to different groups in the way most relevant to those

groups.

• Knowledge . Be knowledgeable about the issues, of the business

and industry, of stakeholder groups, of how to get things done

within the organization, and who to work with.

• A range of soft and hard skills . The ability to network, build

consensus, project manage, exhibit leadership skills, and solve

problems.

• Global awareness . The ability to see what is happening outside

the company, outside the industry, outside the country in this fi eld.

• Inspiration . The ability to inspire and motivate those around

you, to think outside the box, to be positive but realistic.

Creating great workplaces

Creating a work environment where employees can succeed goes

beyond upholding basic labor standards. It is about creating an

environment where innovation is both encouraged and expected.

It is about creating a work environment that people want to be in.

Good places to work tend to receive more qualifi ed job applica-

tions, have lower levels of turnover, higher levels of customer sat-

isfaction, greater creativity and innovation, and benefi t from higher

productivity and profi tability. According to the Great Place to Work

Institute, the quality of a great workplace is measured by three

interconnected relationships; the relationship between employees

316 The Sustainable MBA

Changing the way we talk

If you want to change the way your organization approaches sus-

tainability, it may be as simple as changing the way that you talk

and the language that you use. Changing the kind of language you

use to refer to sustainability can raise awareness about the issues

and get people excited about it. For example:

and management, between employees and their jobs/company, and

the relationship between employees and other employees. Some

things that can make a great place to work include:

• Work environment . Noise, lighting, color, safety, and food.

• Flexibility . Job sharing, sabbaticals, telecommuting, fl exible

working hours.

• Work–family benefi ts . Domestic partner benefi ts, adoption

assistance, eldercare services, childcare services.

• Work–life balance . Gym memberships, professional training or

educational support, medical checkups, language courses, rest-

ing rooms, washers and dryers.

• Profi t sharing . Companies are fi nding more ways to share their

profi ts with employees through programs such as stock options

and deferred profi t sharing.

• Unusual . Scuba diving certifi cation, relaxation rooms, dance

classes – you name it, some company is trying it.

Many organizations around the world release lists of the best

places to work yearly, including Fortune 100 Best Companies to

Work For ( money.cnn.com/magazines/fortune/best-companies ),

‘World ’s Most Admired Companies ’ ( money.cnn.com/magazines/

fortune/most-admired ), and the Great Places to Work Institute

(www.greatplacetowork.com). See Chapter 16 for more on cre-

ating a better, greener work environment.

http://www.greatplacetowork.com

http://money.cnn.com/magazines/fortune/best-companies

http://money.cnn.com/magazines/fortune/most-admired

HR and Organizational Behavior 317

• Moving away from blaming and complaining to taking responsi-

bility and doing something.

• Moving away from vague, dull terminology to words that are

clear and that inspire.

• Moving away from making people feel guilty to inspiring people

to get involved.

• Moving away from wishes and hopes to making strong commit-

ments to action.

• Moving away from ignoring to getting informed.

• Moving away from seeing all the reasons why not to looking at

all the reasons it could be.

• Moving away from seeing it as a problem, a risk, or a cost to see-

ing it as an opportunity.

• Moving away from it being someone else ’s responsibility to tak-

ing responsibility.

• Moving away from you the individual to us the team, the organi-

zation, the community, the country, the planet.

• Moving away from being told or telling people what to do to

working together to determine what needs to be done.

• Moving away from one-time events to continuous progress.

• Moving away from boring to fun.

• Moving away from saving the planet to language that speaks

more to individuals and business. 46

Rise of the CSO

In 2004, DuPont named its fi rst Chief Sustainability Offi cer. Since

then several other companies have followed. Although there is no

standardized guidelines as to what the scope and authority of the

role is (usually splitting their time evenly between core business and

operations, internal engagement, external engagement, and devel-

oping strategy), each year more and more companies of all sizes

are creating a space for this position. Their backgrounds are always

different but they all have a deep knowledge of their company and

318 The Sustainable MBA

industry and have been part of their companies for many years. Not

all are given the role of CSO. Many are made director, VP, SVP, even

chief green offi cer but all report to or close to the CEO.

Companies are also putting in place a range of new Chief Offi cer

spots, such as Chief Innovation Offi cer, Chief People Offi cer, Chief

Learning Offi cer, Chief Knowledge Offi cer, all of which often have

something to do with sustainability. However, as the trend is on the

rise so are those who say that the position isn ’t necessary at all but

instead should be everyone in the executive core ’s responsibility.

Many CEOs themselves have been quoted as saying that it is in fact

their responsibility to be CEO and CSO. Others, such as GE and

Unilever, have decentralized sustainability across the management

team and appoint leaders to run specifi c initiatives.

For more information on CSO take a look at CSO Backstory

(www.weinrebgroup.com), Accenture ’s ‘The Chief Executive

Offi cer ’s Perspective’ (www.accenture.com), ‘Portrait of the

Sustainability Executive’ (www.pwc.com), BSR and UN Global

Compact ’s work on board adoption and oversight of corporate

sustainability (www.bsr.org).

Want more?

The World Business Council for Sustainable Development has

published an introductory guide on Human Resources and

Sustainable Development (www.wbcsd.org).

Associations such as the Chartered Institute of Personnel

Development (www.cipd.co.uk) and the Society for Human

Resource Management (www.shrm.org) are increasingly doing

research and work in this area.

http://www.weinrebgroup.com

http://www.cipd.co.uk

http://www.shrm.org

HR and Organizational Behavior 319

Read: Leading Change Towards Sustainability by Bob

Doppelt (2003), a change management guide for business, gov-

ernment, and civil society. Organizational Change for Corporate

Sustainability by Dexter Dunphy (2003). Get them on your Side

by Samuel Bacharach (2005) looks at how to overcome resist-

ance in the workforce. CSR for HR by Elaine Cohen further

looks at the role of HR in sustainability.

Managing change

Sustainability, no matter what you are trying to do, all comes down

to change: changing the way something works, the way that peo-

ple think, the way that people act, behaviors, assumptions, etc.

However, some 50%–70% of all major programs of change fail to

meet their objectives, including many change programs relating

to sustainability. So, understanding and taking change seriously is

key to sustainability.

There are many reasons why initiatives fail, but ultimately change

programs often do because they fail to engage the very people they

are trying to change – including the underlying thought patterns,

outlooks, and behaviors of employees. Whether change is a major

one (e.g., a merger) or a minor one (e.g., a recycling program) here

are some tips:

• Get to the root cause of the problem . Be clear what you are

trying to change and why. Change the right things for the right

reasons. Focus on the causes not the symptoms.

• Create a vision . Know where you want to go. Set audacious tar-

gets that inspire debate and that unite people. Be fl exible.

• Gather information . Take time to observe how people do their

jobs every day. Ask people how they think things should change.

Understand what makes people tick and why people might resist

change.

(continued )

320 The Sustainable MBA

• Get support . Unless the change process is coming from and sup-

ported by upper management it will go nowhere. Identify those

who support and those who do not support the change. Build a

coalition of people who will help bring about the change. Understand

the nature and culture of the organization, the relationship net-

works. Understand who the key people in your organization are

that can infl uence the desired outcome.

• Create ownership . Involve people in creating the vision and the

plan. If they feel they are part of the change they are more likely

to implement the change.

• Identify change champions . Identify and train key people who

are aware, motivated, and seeking to take action to act as cham-

pions and be a point of communication and motivation in the

group.

• Empower people . Survey after survey show that people are inter-

ested in these issues but there is a gap between interest and

action. This is in part because of information overload. Make the

change relevant to people and their job. Give them the knowl-

edge, tools, and opportunities.

• Take different approaches . Recognize that behavior change

does not take place in the same way for all people and that dif-

ferent people may be at different points along the change curve

(awareness, motivation, action).

• Recognize people’s emotional response to change . Ignorance

(not knowing), shock (the fi rst response), denial (pretending

it isn ’t important or true), anger (blaming yourself or others),

depression (feeling as if nothing I do can make a difference), res-

ignation (letting go of old ways), exploration (exploring benefi ts

of change), integration (taking ownership of the change).

• Lead by example . Ensure that senior managers are leading by

example. Employees will have a hard time changing their behav-

ior if they do not see those above them doing so.

• Manage expectations . Don ’t get employees too excited about

sustainability and then not deliver – focus on keeping energy

levels up, but not so high that they will tire people.

• Choose your fi ghts wisely . You will not be able to change eve-

rything, or everyone.

HR and Organizational Behavior 321

• Communication . Focus your messages. Be clear and consistent.

Use stories and best practice. Be honest.

• Create a sense of urgency . Change does not necessarily fail

because of resistance, rather because of inertia within the organi-

zation. Creating a sense of urgency can provide that push for an

organization to really get on top of things.

• Be patient . Often there is a delayed response to changes in an

organization.

• Celebrate wins and learn from failures . Failure allows you a

chance to understand where you went wrong and to learn from

your mistakes. Celebrate wins to keep momentum and positive

energy levels up.

• Institutionalize new approaches . Change should become a

part of the way people operate.

• Just get started . Don ’t worry about all the details before getting

started, just get started. Having pilot projects can be a good way

to learn lessons and test out approaches.

• Keep it light . People fi nd change hard enough as it is so make it

as easy as possible for them. Don ’t use guilt or make people feel

like it is going to increase their workload.

We tend to remember 10% of what we read, 20% of what we hear,

30% of what we see, 50% of what we read, hear, and see, 70% of

what we say, 90% of what we both say and do.

1 14 Strategy

‘The fact is, the prevailing approaches to CSR are so

fragmented and so disconnected from business and

strategy as to obscure many of the greatest opportuni-

ties for companies to benefi t society. If, instead, cor-

porations were to analyze their prospects for social

responsibility using the same frameworks that guide

their core business choices, they would discover that

CSR can be much more than a cost, a constraint, or

a charitable deed – it can be a source of opportunity,

innovation, and competitive advantage.’ MICHAEL PORTER

324 The Sustainable MBA

Until recently, the management of social and environmental issues

was largely driven by external factors and the response by business

mostly tactical and communications driven. Today these issues have

ascended to the corporate agenda as issues that are increasingly

‘real.’ With this increased awareness and acceptance is coming a

slow, but necessary shift to mainstream these issues into the overall

strategy of a company.

If sustainability is a puzzle, strategy is the centerpiece which

keeps everything together. Incorporating sustainability into strat-

egy not only shows that a company is taking these issues seriously,

more importantly it ensures a real organized effort rather than

small, unconnected activities. It inspires employees and mobilizes

the whole company and its supply chain toward common goals

that benefi t both the company and society at large. The goal: that

sustainability is so integrated it becomes hard to distinguish from

the day-to-day business of the company.

Why is it important?

• To take full advantage of opportunities . Partial or bolt-on

approaches don ’t work. Although individual projects across the

organization can have limited success, an organization will not

truly see the benefi ts of sustainability unless it is integrated into

a company ’s strategy at all levels.

• To mobilize the whole company . A strong, clear, and inspiring

sustainability strategy can guide the actions of employees and

get them motivated and excited. A company can better under-

stand its business and maximize the indirect benefi ts which a

coordinated approach to sustainability can bring.

• Stakeholders are asking for it . Shareholders, regulators,

customers, employees, and business partners are increasingly

expecting companies to explore these issues and can tell the

difference between a company that takes these issues seriously

and one that does not.

Strategy 325

• Risk is changing . Business is being confronted with an increas-

ing variety and number of risks. A business ’s ability to achieve

its objectives depends on being able to recognize and deal with

these. Recognize that not all risk is downside, and that some

risks also present opportunities.

• No longer just for ‘high-risk’ companies . Sustainability has

moved beyond being an issue just for companies in sectors like

oil and gas, who have an obvious impact on the environment and

society. Today, companies in virtually all industries are affected

by sustainability issues.

• Differentiation . In today ’s business reality you can ’t just do

what everyone else is doing, you need to be different, unique.

In addition, companies can shape their industries. There is a

lot of room for companies to become leaders locally, nationally,

regionally, and internationally in these issues.

The key concepts

Embedding sustainability into a company ’s strategy involves

developing an understanding for what the issues are, how they will

affect the business, and its ability to continue to do business in the

future.

• Understand the wider business

context you are working in

→ The wider business

environment

• Understand how sustainabil-

ity affects your industry

→ Understanding where you

stand

• Understanding the sources

and magnitude of risks

→ Understanding risks

• Exploring a wide range of

sustainability strategic options

→ Sustainability strategies

• Setting the direction for the

company

→ Goals and targets

326 The Sustainable MBA

• Working and learning from

others

→ Working with others

• Companies active in

infl uencing wider change

→ Infl uencing change

• Getting things right the fi rst

time

→ Box: Why do initiatives fail?

• Identifying and involving

stakeholders in strategic

decisions

→ Box: Stakeholder

engagement

The wider business environment

An organization needs to understand the broader environment in

which it operates and how this environment can and will affect

their operations. Several tools already used by managers are being

expanded to include relevant sustainability issues. These tools are

being used not just to see the big picture, but also to explore what

the future may bring and how this may affect the way they do

business. Based on this information, an organization can decide

whether they are interested in just keeping up with the change, or

playing a key role in shaping their industry.

ESTEMPLE: PEST (political, economic, social, and technologi-

cal trends) is one such tool. It is a process technique that outlines

how forces in the larger business environment will change over

time. This process has been expanded further to include other

trends: 47

• Economic . Health and direction of the economy (or economies)

in which the fi rm competes. Variables include GDP levels, infl a-

tion, interest rates, money supply, unemployment, and dispos-

able income.

• Social . This can include demographic variables such as popu-

lation size, age structure, geographic distribution, ethnic mix,

Strategy 327

income distribution as well as tastes, fashions, attitudes, and

values.

• Technological . This can include understanding current technol-

ogies (e.g., products, processes, materials), as well as emerging

or undeveloped technologies.

• Ecological . This can include concerns for sustainability of the

physical environment, greenhouse gases, waste disposal, envi-

ronmental policies, and energy consumption.

• Media . The increasingly important infl uence of media on busi-

ness, politics, and society – as an opinion former and shaper –

and its power to affect outcomes.

• Political . This can include government stability, alignment at

the international level, taxation and fi scal policy, foreign trade

regulation, social welfare policies.

• Legal . This can include employment law, health and safety, and

product safety.

• Ethical . This includes the rising number of codes affecting the

ways a business should operate, which increasingly have a fi nan-

cial impact on the company ’s performance.

Sources of information for ESTEMPLE include the Economist

Intelligence Unit (www.eiu.com), World Bank (www.worldbank

.org), and Business Environment Risk Intelligence (www.beri

.com). International Futures is an integrated global modeling

system which presents demographic, economic, energy, agri-

cultural, socio-political, and environmental subsystems for 183

countries ( ifs.du.edu ). Gapminder provides time series of devel-

opment statistics for all countries (www.gapminder.org). World

Values Survey is a worldwide network of social scientists study-

ing changing values and their impact on social and political life

(www.worldvaluessurvey.org).

http://www.eiu.com

http://www.worldvaluessurvey.org

http://www.beri.com

http://www.gapminder.org

http://ifs.du.edu

328 The Sustainable MBA

Understanding where you stand

A range of widely used management tools can be applied to help

guide your thinking on sustainability, whether it be for a whole

company or for a particular activity. Because these are familiar

tools in business, they can be a good starting point for a conver-

sation about sustainability. ‘Five forces ’ is a tool widely taught in

MBA courses, used to analyze the competitive forces that shape an

industry and that can infl uence business profi tability. The fi ve ele-

ments it considers are:

• How hard is it for new companies to enter this industry?

The threat of new entrants is usually based on the entry barriers

for that market, or in other words, when it is too time-consuming

or expensive to enter easily. This can include, for example, pat-

ents for green technology. While usually new entrants to a mar-

ket are considered a threat, sometimes this can turn out to be a

good thing. For example, when Clorox entered the green clean-

ing product market with its green cleaning brand Green Works,

rather than taking away market share from other smaller brands

such as Seventh Generation, it actually played a role in growing

the overall market.

• Threat of substitute products or services . As with competi-

tors, today new innovative products and services are not just

affecting their own sectors, but can also have a huge impact

across sectors. New forms of service delivery are bringing in

greater profi ts while also enabling companies to build customer

loyalty and long-term competitive advantage. Many consumers,

as introduced in Chapter 11, are looking to switch to more sus-

tainable options once they become available.

• Rivalry among established fi rms . Who are the existing com-

petitors in the industry and what is the level of competition? In

the past new innovations and companies usually only affected

specifi c sectors; however, today innovations in sustainability are

impacting across sectors regardless of the size or location of the

Strategy 329

company. Many companies are choosing to work together to

further sustainability issues, for example through initiatives such

as labeling schemes.

• The power of buyers . Who is buying the industry ’s products

and how easy is it to negotiate with them? Many organizations

that have made a commitment to sustainability are now also

looking at the products and services they are buying. One exam-

ple is The Warehouse, New Zealand ’s largest mixed retailer, who

in 1999 declared a national corporate goal of zero waste. In

order to reach this goal, the companies it buys from – its suppli-

ers – were given radical packaging reduction targets.

• The power of suppliers . Who supplies the industry ’s inputs

and how hard is it to negotiate with them? This includes raw

materials, labor, and expertise. For example, some suppliers of

green products and services charge a premium for the products,

not just because of high costs associated with them, but also

because there is a higher demand for these products with not a

lot of suppliers offering them.

SWOT is another strategic planning tool used to evaluate a com-

pany’s or project ’s strengths and weaknesses in relation to the exter-

nal opportunities and threats. It is also used once objectives have

been identifi ed to help in pursuing those objectives. For example,

a traditional SWOT analysis conducted on labor issues within the

supply chain of a company could look like this:

• Strengths . These are attributes of the organization that help in

achieving the objective. For example, the company has partner-

ships with some NGOs who specialize in this area. Some of their

suppliers have sustainability related certifi cations.

• Weaknesses . These are attributes of the organization that are harm-

ful to achieving the objective. For example, the labor practices of

some of the company ’s suppliers are not known and could be bad.

• Opportunities . These are external conditions that are helpful

to achieving the objective. The company could have access to

330 The Sustainable MBA

new customers if all of their suppliers meet minimum or high

labor standards. Suppliers themselves will also benefi t as higher

labor standards can create a more stable and productive workforce.

• Threats . These are external conditions that are harmful to

achieving the objective. Poor labor standards could become

known by the media or stakeholders and have a serious effect

on reputation and ability to keep customers.

Different organizations have been looking at how to better incor-

porate sustainability into the traditional SWOT analysis, for exam-

ple the World Resources Institute ’s work around a sustainability

SWOT (or sSWOT). The elements of this include:

• Environmental challenges . Look at which environmental chal-

lenges impact your business/project and connect these with

other big trends that are shaping future markets. For example,

links between climate change and future commodity costs.

• Threats . Where are environmental challenges creating broad

threats to future business value, both directly and indirectly?

For example, how may higher costs or supply chain disruptions

threaten a company ’s own costs or its suppliers, customers, or

markets?

• Opportunities . Where is there a growing gap where you can

create new solutions for environmental challenges? Look at

those threats where current and best practices are not suffi cient

to meet the scale and pace of the problem. For example, a com-

pany that manages fl eets of corporate cars might see an oppor-

tunity in the lack of affordable low-carbon vehicles or fi nancial

incentives for sustainable transportation.

• Strengths . In what unexpected ways can you apply your

strengths to environmental challenges? Start with your competi-

tive advantage but also broader strengths such as corporate cul-

ture. Include conventional strengths or new and creative ways of

leveraging existing competencies. For example, GE and DuPont

have remained on top because of their ability to adapt and apply

Strategy 331

core strengths and are now positioning themselves to provide

solutions to environmental challenges.

• Weaknesses . Look at your vulnerabilities, obstacles, risks, or

blind spots and potential partners who could help in bridging

some of these gaps. For example, a water utility and electric

power utility may want to partner to manage water resources

more effectively amid changing climate conditions and ensure

an adequate supply for the community.

• Act . Prioritize and act on your fi ndings. What can you do in the

near term, mid-term, and long term? What should you invest in

today so that you can lead markets tomorrow?

Understanding risks

According to the WBCSD, ‘The challenge for the corporate sector

is to understand how different sources and magnitude of risk are

likely to affect them (positively or negatively) over the long term. In

order to gain that understanding, companies need to take a genu-

inely holistic approach that includes a consideration of sustainabil-

ity as well as commercial, political, and societal risks.’

A business ’s ability to achieve its objectives depends on it being

able to recognize and deal with risks. Not managing these risks

properly can have a major impact on business reputation and also

on fi nancial, social, or environmental performance, as many so-

called non-fi nancial risks can rapidly become material. Business is

being confronted with an increasing variety and number of risks

relating to sustainability. Global population increases are leading

to increased demand, and scarcity of resources like clean water.

With increased interconnectedness related to growing population

densities comes greater levels of international trade and signifi cantly

improved information sharing across the globe. Increased globali-

zation of markets has led to increased complexity in the way busi-

nesses operate. A threat may build slowly from a number of small

events, but one of those events can be the catalyst that sets off an

332 The Sustainable MBA

uncontrollable reaction. A relatively minor incident in one country

can have a bigger impact elsewhere.

The WBCSD identifi ed a list of mega-risks, part of the ever-

increasing variety of risks that companies are confronted with, that

present unprecedented challenges as well as potential opportuni-

ties to companies and governments alike. These include:

• Energy and climate . The environmental impacts of rising

energy production and consumption are introducing uncertain-

ties to industries, such as oil and gas, reinsurance and agriculture.

• Demography . As the population continues to grow, population

dynamics are at the root of almost every trend shaping tomor-

row ’s business climate.

• Intangibles . The value of corporations is increasingly made up

not of tangible assets such as property and land, but of intangi-

ble assets such as reputation, brand, trust, and credibility – up

to 75%.

• Globalization . Globalization is creating increasing interde-

pendence, making it all the easier for dangerous viruses, pol-

lutants, and technical failures to spread. The legal framework in

which companies do business remains local, even though the

world has ‘gone global.’

• Political risk and terrorism . Political risk is by no means a

new threat, but changing political realities have amplifi ed its

magnitude and thereby its capability to disrupt critical systems.

• Ecological risk . The world economy depends on a base of

natural resources that is showing signs of severe degradation.

Without improved environmental performance, future business

operations will be exposed to additional risks such as rising

prices for water, materials, and waste disposal.

• Litigation risk . There has been an exponential increase in soci-

ety ’s willingness to get involved in litigation, primarily driven

from the USA.

• Infrastructure and security . Health services, transport, energy,

food and water supplies, information and telecommunications

Strategy 333

are examples of sectors with vital systems that can be severely

damaged by a single catastrophic event or chain of events.

• Pandemic and health risks . Despite a century of rapid pro-

gress in improving human health, many people still do not have

access to basic healthcare or hygiene to protect them from infec-

tious agents in the environment, and many new and serious

risks continue to grow.

• Innovation and technology . New technologies offer substan-

tial benefi ts, but are seldom risk-free. In some cases the risks are

not always obvious at the time of introducing a new technology,

for example freons and the ozone hole.

For business, these mega risks translate into:

• Market risks . For example, regulatory bans, reduced market

demand for products, degradation of product quality by environ-

mental factors, customer boycotts.

• Balance-sheet risks . For example, remediation liabilities, insur-

ance underwriting losses, impairment of real property values,

damage assessments, and toxic torts.

• Operating risks . For example, costs of cleaning up spills and

accidents, risks to workers, safety from handling hazardous

materials, rise in prices of material and energy.

• Capital cost risks . For example, product redesign to meet new

industry standards or regulations, costly input substitutions to

meet new industry standards or regulations.

• Sustainability risks . For example, competitive disadvantage

from energy or material ineffi ciencies, impact of mandatory

take-back rules, future taxes and regulatory restrictions.

• Legal risks . For example, companies being held responsible for

actions that were legal at the time but later determined to be harmful.

• Liability risks . For example, penalties and fi nes, higher insur-

ance premiums, product liability costs, site remediation costs.

• Reputation risks . For example, attacks on your image, bad-

mouthing of your product, and boycotts.

334 The Sustainable MBA

Sustainability strategies

Companies have taken a wide range of different approaches when

it comes to their sustainability strategies. Some companies take

a whole-company approach while others approach it separately.

Some examples include:

• Sustainability at the heart of how a company does business .

For some companies, sustainability is an integral part of how the

For many, sustainability begins as an exercise in identifying and

managing risks to the business. Risk is often defi ned as those

things that stop or limit a company from achieving its objectives.

However, this is only half the story. As the WBCSD puts it, ‘the

traditional approach to risk has been fragmented, largely reactive

and focused on the short term. Because risk is multi-dimensional,

managers tend to associate it with loss, rather than weighing up the

downsides against the upsides.’ It is crucial for companies to under-

stand the risks posed by sustainability issues and decisions facing

an organization, where they are coming from, and how to mitigate

them. It is also important that companies go beyond just identifying

risks to also exploring the opportunity presented by taking risks,

for example in terms of new products and services.

Running the Risk, Risk and Sustainable Development: A busi-

ness perspective, World Business Council for Sustainable

Development (www.wbcsd.org). A Guide to Risk Assessment

and Risk Management for Environmental Protection ( www

.defra.gov.uk ). Environmental Risk Assessment – Approaches,

Experiences and Information Sources (www.eea.europa.eu).

CSFI and PwC ‘Banking Banana Skins ’ reports on the top 30

risks fi nancial institutions face (www.pwc.com).

http://www.eea.europa.eu

http://www.clintonglobalinitiative.org

http://www.defra.gov.uk

Strategy 335

company chooses to do business and is at the core of their busi-

ness model from the start. Ben and Jerry ’s ice cream company

is focused on making business decisions based on their values,

as well as the power of their business to change the world for

the better. They have been making all-natural ice cream since

1978 and are focused on what they call ‘Values-Led Sourcing,’

supporting suppliers who are also trying to make the world a

better place with, for example, fair trade chocolate, cage-free

eggs, and strawberries from leading-edge sustainable agricul-

tural practices.

• Companies who have reinvented themselves through sus-

tainability . Other companies such as Interface, a carpet manu-

facturer, did not start out being focused on sustainability. The

founder became committed to industrial ecology after read-

ing Paul Hawken ’s The Ecology of Commerce in 1994. Their

vision today: To be the fi rst company that, by its deeds, shows

the entire industrial world what sustainability is in all its

dimensions – people, process, product, place, and profi ts – by

2020, and in doing so to become restorative through the power

of infl uence. They aim to do this through a whole-company

approach, integrating sustainability into everything they do.

Based on their experiences over the past 14 years in this area,

the company now provides a peer-to-peer advisory service for

business.

• Staying ahead of the pack . While some companies start with a

focus on values and doing the right thing, others quickly iden-

tify the incredible range of business opportunities sustainability

can present. The CEO of GE recognized this and launched ‘eco-

magination’ in 2005, a business initiative to help meet customers ’

demand for more energy-effi cient products and to drive reli-

able growth for GE. ‘While we had investigated other corporate

socio-environmental programs, we knew they didn ’t make cul-

tural sense for GE. Metrics and accountability are major reasons

why GE continues to fl ourish after 130 years, and the build-

ing blocks for the initiative could be no different . . . Simply

336 The Sustainable MBA

put: ecomagination had to make money for our investors.’ In 2011

ecomagination reached US$105 billion in revenue. Ecomagination

products have increased by 34 new products, bringing its

total number to 142, and the revenues from these products

have continued to grow at twice the rate of total company

revenues.

• Companies testing out the success of sustainability brands .

These are companies that do not necessarily have a sustainabil-

ity strategy, but are experimenting with sustainability through

acquisitions or new product lines. This is often done to try

new things out before committing the whole organization, and

to learn lessons that could be applied to the organization as

a whole. Clorox, a company known for its cleaning products,

moved into the area of sustainability with the acquisition of nat-

ural personal care company Burt ’s Bees. Burt ’s Bees, a leader

in the fi eld of business and sustainability, chose Clorox because

they found a partner with a shared vision who allowed them to

continue to work independently. For Clorax, Burt ’s Bees pro-

vides a business model for them to learn from.

• Companies adopting different shades of sustainability .

Many leaders in this area have not changed what they do; they

are now using sustainability as a tool to do it better. Sustainability

becomes an extension of what the company already does.

Companies such as IKEA and Marks and Spencer haven ’t neces-

sarily changed their products, but they have changed how those

products are sourced, the ingredients, their packaging, etc.

• Companies expanding their focus . Some companies are

adopting sustainability practices by expanding the range of

products and services they provide as a response to increasing

and changing consumer demands. Several traditional oil and gas

companies such as BP and Shell have expanded the focus of

their operations to include new forms of renewable energy such

as wind, solar, and biofuels.

Strategy 337

Goals and targets

Companies that are taking sustainability seriously are setting goals

and objectives to guide their actions. Having a clear set of goals

focuses the organization in a common direction. More importantly

perhaps, having clear and inspiring goals will motivate employees.

Goals should:

• Be clear . Goals should be clearly understood. Have objectives

framed so that all members of the team know whether or not

they have been achieved. There should not be so many that they

are diffi cult to follow.

• Be credible . Goals should be realistic and believable. They

should be put in place for the short, medium, and long term

and you should show the steps needed to reach those goals. In

addition, don ’t have too many. Be absolutely certain that your

organization can and will live up to the standards you set.

• Be consistent . Goals should be visibly supported by manage-

ment and be incorporated into the way employees are rewarded.

They should be used in making business decisions and should

not contradict with goals that teams already have.

• Be challenging . Have elevating objectives that are personally

challenging, inspiring, and important. Sometimes more progres-

sive goals are easier to reach than smaller ones. Clothing manu-

facturer Patagonia is working to meet its goal of recycling 100%

of its products through its ‘Common Threads ’ garment recycling

There are a growing number of companies around the world

that have a sustainability story to tell. Pick the companies you

buy from and look at their websites and annual reports to see

what they are doing.

338 The Sustainable MBA

program, where customers can return used clothing which is

then turned into new products.

• Be communicated . Systems should be in place to collect, com-

pile, and report on these goals. Progress toward goals should be

reported on frequently, internally and, where relevant, externally.

• Be celebrated . Build enthusiasm for goals and celebrate reach-

ing those goals.

• Be continuously evolving . Goals should be revaluated on a

regular basis. P&G provides information on their sustainability

goals yearly, along with the progress that has been made. In

early 2009 they announced signifi cantly increased targets for

2012 refl ecting the company ’s continued commitment and pro-

gress in sustainability.

• Be catchy . Package your goals in a story that is easy to remem-

ber and which inspires employees and stakeholders. Herman

Miller ’s ‘Perfect Vision’ initiative is a strategy to achieve a wide

range of corporate sustainability targets including zero waste to

landfi lls, zero hazardous waste generation, and a carbon-neutral

operational footprint by the year 2020.

Companies aren ’t just creating goals, in many cases they are

choosing to make these public and once they go public there is

no turning back. The Clinton Global Initiative, for example, is an

initiative focused on turning ideas into action. Through its

‘Commitments to Action’ initiative, members translate practical

goals into meaningful and measurable results aimed at addressing

global challenges.

The Clinton Global Initiative (www.clintonglobalinitiative.org).

Who is going carbon neutral report (www.bsr.org). See Chapter

6 for more on indicators. To see different companies ’ goals, look

at their sustainability reports or annual reports and websites.

http://thepartneringinitiative.org

Strategy 339

Working with others

In the area of sustainability, no company is expected to fi gure it all

out alone. Businesses are coming together in networks at the local,

national, and international level to share best practices and lessons

learnt, to create minimum standards, and to push the agenda forward.

In fact, a lot of the progress being made is because of the

increase in strong and meaningful collaborations. They play a key

role in bringing like-minded companies together, providing a space

for them to share lessons learnt and raise awareness of the case for

sustainable business. These networks also provide a range of tools

and advice on how to put sustainability into practice in their busi-

nesses, give organizations access to different sets of expertise,

competencies, and perspectives of partner organizations, and allow

them to share/reduce the amount of risk and costs sometimes asso-

ciated with moving forward. There is also evidence that compa-

nies that derive profi ts from their sustainability efforts are far more

likely to be taking a collaborative approach.

But they go beyond this, collaborations also provide a space for

the business sector and often other partners such as NGOs and

governments to create visions of what the future of business may

look like and help to organize and drive more systemic change. The

National Business Initiative, a group of leading companies in South

Africa, for example, has infl uenced government policy in areas

ranging from education and housing to skill development, tertiary

education, and energy effi ciency.

This book presents a wide range of different coalitions which

generally fi t into the following areas:

• Companies that work with each other . This can be several com-

panies collaborating on one issue or project (e.g., Refrigerants

Naturally) or on several issues (e.g., company network Business

for Social Responsibility). It can also be two companies, even

competitors, working together – such as Ford and Toyota (see

Trends in this chapter for more).

340 The Sustainable MBA

• Companies collaborating with NGOs or government . NGOs

have credibility among stakeholders and a distinct set of compe-

tencies and strengths. This can be a company working with an

NGO (e.g., Nudie Jeans working with the Fair Wear Foundation)

or several (e.g., WWF ’s sustainable business network).

• Single-industry collaborations . This is when companies,

NGOs, and governments come together around a very specifi c

industry (e.g., Sustainable Apparel Coalition) or issue (e.g.,

Roundtable on Sustainable Palm Oil).

• Multi-industry collaborations . Companies, NGOs, and gov-

ernments are increasingly coming together across industries to

work on several issues in this space (e.g., UN Global Compact)

or one specifi c issue (e.g., FSC).

With so many options, how can an organization choose which

groups to work with? Here are some things to look at:

• What themes or issues do they cover? Networks will either pick

a few issues and focus exclusively on those or, in some cases,

operate at a much broader level and explore the issues that

are important to their members. The Rainforest Alliance works

to conserve biodiversity and ensure sustainable livelihoods by

transforming land-use practices, business practices, and con-

sumer behavior.

• Who coordinates them? Networks can be coordinated by any

number of groups, including governments, NGOs, the UN, or

businesses themselves. Most organizations are already part of a

professional or local network of some sort, many of which have

started to work on sustainability and provide resources for their

members (e.g., national and international professional account-

ing bodies such as the IFAC and ACCA).

• Where do they operate? There are networks operating at local,

national, regional, and international levels. Some groups oper-

ate at a national or local level but are themselves part of a

larger, sometimes international network. The WBCSD is a global

Strategy 341

network of companies committed to improving the long-term

sustainability of their own operations. The network brings

together over 200 international companies from more than 35

countries and 20 major industrial sectors with a shared com-

mitment to sustainable development. The Council also benefi ts

from a global network of more than 55 national and regional

business councils and partners.

• Who are they aimed at? Is the network aimed at organiza-

tions working in a particular sector or is it aimed at businesses

at a broader level? Is it mainly for large companies or for small

ones or both? Who are the other members? Is this a group of

organizations you are interested in working with? ICLEI – Local

Governments for Sustainability is a network for local govern-

ments around the world working on sustainability issues. Cities

and towns of all sizes from over 84 countries are members.

• How do they work in practice? Being part of a network takes

time and resources from a company, therefore the decision to

join should be taken seriously. Different networks will require

different commitments from members; signing on to a code of

conduct and upholding certain minimum standards – some have

mandatory sustainability reporting requirements. The Sustainable

Business Network in New Zealand has a membership fee

structure based on the turnover of the company so that small

companies pay less in membership fees.

• What are the benefi ts for joining? Joining a coalition means that

you will be an active participant, so think about whether it makes

sense for you. Does the network have infl uence? Will it help you

stay ahead of the game? Does it focus on issues that are material to

your business and your stakeholders? For example, the Sustainable

Apparel Coalition is an industry-wide alliance of apparel and foot-

wear brands, retailers, and suppliers working to develop an index

that measures the environmental performance of apparel prod-

ucts. As one member of the Sustainable Apparel Coalition stated,

‘we need a common language before we can be competitive.’

342 The Sustainable MBA

IKEA recognizes that by cooperating with companies, trade

unions, and organizations, they are able to learn, share experi-

ences, and accomplish more than they could have done by working

on their own. Cotton is one of the most important raw materials for

the company; however, conventional cotton growing and process-

ing consumes large amounts of water and chemicals. In order to

help guide their strategy, they have chosen to work with different

networks:

• Work with WWF focuses on better management practices in

India and Pakistan, environmental practices that enable farmers

to reduce environmental impact, improve e-effi ciency, maintain

crop yields, and increase their gross margins.

• Work with the Better Cotton Initiative aims to promote measur-

able improvements in the key environmental and social impacts

of cotton cultivation worldwide to make it more sustainable.

• Work with UNICEF aims to prevent young girls from working on

cotton seed farms in southern India and instead make sure these

children gain access to quality education.

IKEA also provides, as do many other companies, a list of the

organizations they work with in their annual reports.

The Partnership Initiative has several resources, including a

Communication Manual for partnership practitioners and

a Partnering Toolbook ( thepartneringinitiative.org ). The UN Global

Compact website has a whole section on partnerships (www

.unglobalcompact.org/Issues/partnerships), including a Partner-

ship Assessment Tool. See the Guide to Successful Corporate–

NGO Partnerships by GEMI and the Environmental Defense

Fund (www.gemi.org) for many examples of best practice.

http://www.gemi.org

http://www.unglobalcompact.org/Issues/partnerships

Strategy 343

In� uencing change

One of the most important roles that a company can have in soci-

ety is infl uencing and driving change at the highest level. Much of

the emphasis when it comes to sustainability has been focused on

a company ’s own direct impacts, things like tonnes of emissions

or amount of raw materials used. However, increasingly there is a

much wider recognition of the infl uence companies have and could

have on other parts of the business environment, the way they and

their peers will do business in the future. Although traditionally

companies have pushed for less regulation, there are a growing

number that are pushing for tougher regulation. Companies are

recognizing that if they invest the time and resources in becom-

ing more sustainable and being beyond compliant, then they can

benefi t from this and also stay ahead of their competition when the

standards are raised. There are countless ways that companies can

infl uence larger changes:

• Create an even playing fi eld . According to personal care com-

pany Burt ’s Bees in the USA, ‘78% of people think that natural

personal care products are regulated – 97% of people think they

should be . . . the fact is, they ’re not.’ The company pushed for

a clearer defi nition of what ‘natural’ is, and is not, in the US

market. The result was the Natural Standard for Personal Care

Products launched on May 1, 2008, which required products

labeled or branded as ‘natural’ to be made of at least 95% all-

natural ingredients and to contain only those synthetic ingredi-

ents allowed under the standard. Prior to this, companies could

label a product as ‘natural’ when they had as little as 1% natural

ingredients. This helps Burt ’s Bees as over half of their products

are 100% natural and they are working on the rest.

• Companies infl uencing other companies . Companies are not

only using their infl uence to bring about change at a policy level,

but also in other companies. In 2007 the Aspen Ski Company

removed Kimberly-Clark products from all its facilities. It even

344 The Sustainable MBA

renamed one of its ski runs, which for over 40 years had been

called ‘Kleenex Corner.’ According to Matthew Hamilton, the

manager of Community and Environmental Responsibility at

the resort, ‘We will not consider using any Kimberly-Clark prod-

ucts until the company has committed to not source from endan-

gered forests, dramatically increase its use of recycled fi bre, and

source from certifi ed sustainable logging operations.’ As a result,

they have been able to enter into an environmental dialogue

with a company 160 times their size.

• Companies infl uencing decisions made by government by

lobbying . The Mary Kay cosmetic company, which has always

focused on giving women the chance to succeed, took their

founder ’s passion one step further to try and stem violence

against women. The company actively lobbied the US govern-

ment to reauthorize the Violence Against Women Act, and the

saleswomen from the company spoke to legislators about the

importance of renewing it. In 2006 they succeeded, as the act

was reauthorized into law. Levi relies on Guatemala for materi-

als, so when the US government in 2001 was looking at whether

Guatemala should continue to enjoy duty-free exporting to the

USA, they found that they did not have adequately enforced

labor laws. So instead of lobbying the US government, Levi

went to Guatemala to lobby the Guatemalan government to

strengthen labor laws. More recently, 70 large companies such

as BT, IKEA, Google, and Unilever signed a joint declaration

urging the European Union to set tougher climate change goals.

Views on lobbying relating to government are mixed. Some say

companies need to take an active role in pushing sustainability,

while others argue that because of their power, they can push for

changes that may not be in the best interests of society as a whole.

But it can also work the other way around. Because there is a rela-

tive lack of transparency about a company ’s lobbying efforts, it is

very diffi cult to know what they are actually lobbying for. Some

countries require companies to disclose certain information about

Strategy 345

lobbying; however, this rarely includes the positions they are lobby-

ing about, but rather just the amount of money being put into lob-

bying, and these regulations are often poorly regulated. Corporate

lobbying is sometimes not aligned with sustainability policies, and

in some cases can even be against those policies and positions.

Although some companies do the lobbying themselves, others are

taking part in lobbying through other means, such as by funding

other groups who do the lobbying for them (in some cases NGOs) or

by being members of groups who are lobbying on different issues.

However, there are increasing initiatives happening on the vol-

untary front to increase transparency around lobbying. The Global

Reporting Initiative has two reporting indicators on lobbying

that reporting organizations are asked to report on: public pol-

icy positions and participation in public policy development and

lobbying; and total value of fi nancial and in-kind contributions

to political parties, politicians, and related institutions by coun-

try. GlaxoSmithKline, for example, in their annual report lists all

the trade associations they are part of, what other groups they are

working with, and what their positions are.

‘Infl uencing Power: Reviewing the conduct and content of corpo-

rate lobbying’ by SustainAbility and the WWF reviews how 100 of

the world ’s largest companies report on their lobbying practices

in order to assess corporate transparency (www.sustainability

.com). The Worst EU Lobbying Awards are organized by several

EU NGOs with the aim of discouraging controversial lobbying

practices by exposing them to the public (www.worstlobby.eu).

The Alliance for Lobbying Transparency and Ethics Regulations in

the EU is a group of 160 civil society groups concerned with the

increasing infl uence exerted by corporate lobbyists (www.alter-

eu.org). The OECD Principles for Transparency and Integrity in

Lobbying (www.oecd.org) and the Center for Responsive Politics

(www.opensecrets.org) are other interesting sites on this topic.

http://www.worstlobby.eu

http://www.altereu.org

http://www.opensecrets.org

346 The Sustainable MBA

Challenges?

• Bringing it all together. Many companies work on lots of ini-

tiatives independently across the company, but will increasingly

need to bring these together into a more coordinated effort in

order to maximize the benefi ts.

• Taking it beyond the specialists. Sustainability is not just the

job of people with the word in their job title. A sustainability

strategy is not much use if employees themselves who want to

get engaged have no role to play in it.

• Having a clear message. More often than not, employees seem

unaware of the strategic directions and priorities that their com-

pany has put in place. The goal is not only to communicate

the strategy clearly, but also to get people involved and excited

about carrying it out.

• Understanding the risks. Pursuing sustainability strategies can

also bring with it certain risks. If sustainability isn ’t taken seri-

ously within the organization it can be viewed as greenwashing.

It can also raise unrealistic expectations by stakeholders.

• No one size fi ts all. Many organizations are looking for a stand-

ard that specifi cally outlines what a green company looks like in

the same way that the LEED certifi cation outlines what a green

building looks like. Companies need to determine the strategy

that works best for them, as no one strategy will work for all.

• Silo thinking. For some businesses the challenge is not to focus

too much on one issue without putting in the time to properly

explore other issues, which could potentially be more material

to the business.

• Boundaries of responsibility. Where do one organization ’s

responsibilities end and another ’s begin? How can we consider

an organization ’s individual responsibility when it is participat-

ing in a socio-economic system which only rewards certain sorts

of behavior?

Strategy 347

Trends and new ideas

– Reinventing the business model

– Zero and 100%

– Getting your customers involved

– Instant information

– Strategic philanthropy

– Transformation of partners

Zero and 100%

It is one thing to aim to reduce energy use by 20%. Even 50% seems

impressive. But when companies make goals to reduce energy use

or waste by 100% one stops to listen. And this is exactly what many

organizations are doing. We are also increasingly seeing zero and

100% as targets when it comes to products being made with 100%

natural ingredients, 100% organic, zero chemicals, zero emissions,

etc. Some have been at this level for years, such as Xerox who set

up a waste-free factory in the mid-1990s. Coca Cola has set a goal to

recycle or reuse all of the plastic bottles they use in the US market

so that zero bottles go to landfi lls. Over 30 companies have commit-

ted to carbon-neutral status, including HSBC, Nike, and Interface.

IKEA is looking to be 100% fully powered by renewable energy.

It does make one wonder why it hasn ’t all been done before, and

makes you realize what is possible.

Getting your customers involved

Companies are increasingly turning to their customers and the

general public to help them come up with new designs, new

products, and even new strategies. These kinds of initiatives are

not just strengthening companies but providing an alternative to

traditional marketing, increasing transparency in the company,

348 The Sustainable MBA

and even providing a new vehicle for recruiting. My Starbucks

Idea is an online platform where the public can propose ideas on

how to make the company and its products better. P&G created

Connect + Develop with the goal of having at least 50% of its new

products derived from ideas generated by non-employee experts.

Unilever has realized that there are a lot of challenges in sustain-

ability that they do not yet have the answers for to enable them

to move forward. To help, they have created an online platform

which engages civil society, companies, and business to come

up with creative solutions to help the company hit their sustain-

ability goals. Innocentive is an online platform that aims to get

the public involved in fi nding solutions collectively for global

challenges.

Instant information

The dashboard in a car gives the driver accurate, up-to-date infor-

mation that the driver needs to make decisions and to know what

the car is doing. This is most noticeable in the new generation

of hybrid cars, which provide feedback to the driver on how effi -

ciently they are driving. Many managers are frustrated by the lack

of this sort of information, which would enable them to make

wise decisions on a day-to-day basis. By taking advantage of

the power of modern information technology, various organiza-

tions, such as IISD, have developed what they call Dashboards of

Sustainability, which illustrate in real time the complex relation-

ships among different issues by combining evaluation of social,

economic, and environmental performance within countries or

regions. Other dashboards can be posted in a common area

where building users can see and track their ability to reduce

energy consumption, such as water and electricity. Dashboard

projects have been implemented in several college dormitories,

where students hold contests to see which dorm can cut energy

consumption the most.

Strategy 349

Strategic philanthropy

Philanthropy, when companies donate resources – whether that be

money, time, or goods – to charitable causes, is changing. Companies

are increasingly applying rigorous procedures and are looking to

fi nance genuine solutions with clear impact targets, and also ensure

that every dollar spent is spent furthering community and business

objectives. They are looking to donate resources to causes that are in

line with their own material issues and many are trying to reach very

concrete goals, such as building knowledge about potential new mar-

kets and informing areas of innovation through their giving. Companies

such as Cisco (through its Network Academies) have learned how to

create foundation strategies that complement both community needs

for high-tech training and company interests in supporting the crea-

tion of a highly technically skilled and more valuable workforce.

Transformation of partners

As companies are looking to explore more of the sustainability

tools and options covered throughout this book, they are looking

for NGOs and partnerships with other organizations that will help

them. Therefore, NGOs can play a role not just in infl uencing busi-

ness to change, but also in being part of that change. According to

The IISD Dashboard of Sustainability, which illustrates the com-

plex relationships among the different issues (www.iisd.org).

The Environmental Sustainability Index, which aims to shift envi-

ronmental decision-making to fi rmer analytic foundations using

environmental indicators and statistics (www.yale.edu/esi/). For

a whole range of different dashboards, including one on the

MDGs, visit the European Joint Research Centre (http://esl.jrc

.ec.europa.eu/envind/dashbrds.htm).

http://www.iisd.org

http://www.yale.edu/esi/

http://esl.jrc.ec.europa.eu/envind/dashbrds.htm

350 The Sustainable MBA

Gib Bulloch from Accenture, ‘international NGOs will have to go

through a fairly transformative change process if they are to operate

effectively with, infl uence and engage the private sector in a new

breed of development coalitions. And it ’s imperative that they fulfi ll

this important role. We believe the required transformation is already

underway, but the impact and nature of the change varies quite sig-

nifi cantly across different organizations.’ 48 Furthermore, as business

relies increasingly on partnerships with NGOs to do work on the

ground, there will be a need to ensure the transparency and account-

ability of the NGOs themselves to ensure that companies are actually

doing what they say they are doing and that the NGOs are too.

Want more?

Business for Social Responsibility works with its global network

of more than 250 member companies to develop sustainable

business strategies and solutions through consulting, research,

and cross-sector collaboration (www.bsr.org).

Read: There are many books on sustainability and strategy.

A few include Green to Gold by Daniel C. Esty and Andrew S.

Winston (2006) and Getting Green Done by Auden Schendler

(2009). Also take a look at Michael Porter and Mark R. Kramer ’s

article ‘Strategy and Society: The link between competitive

advantage and corporate social responsibility.’

Why do initiatives fail?

1. Organizations don ’t clearly understand what sustainability

means. They interpret it as being philanthropy, giving money to

community groups and generally giving money rather than sav-

ing or making it.

http://www.accountability.org

Strategy 351

2. They don ’t set clear priorities. It is one thing to have a mission

statement saying you are sustainable, but unless you have clear

priorities and goals, and ways to reach these, you aren ’t really

moving forward. Make sure these are realistic.

3. Information overload. Some organizations try to do everything

at once and get overwhelmed by the amount of work required

and all the roadblocks and challenges they encounter. Take

things at a pace your organization can handle.

4. Doing it alone. Great things are almost never done alone. You

can still be competitive and share information with your peers to

help you all move forward.

5. No leadership. If senior management, the CEO, or managers in

general are not supporting the initiative actively, they will never

have the pull they could.

6. Making assumptions. Don ’t create a more expensive green

product and assume that someone will buy it just because it is

better for society. Use sound business judgment.

7. Incentives. You could have a fantastic vision, plans in place, tar-

gets, and a great management structure, but unless employee and

company incentives match up with what you are trying to do you

will encounter problems.

8. Burnout. Employees care and want to get involved in support-

ing a company ’s sustainability strategies; however, a company

needs to allow involvement without burning employees out by

overwhelming them with too much work. Channel employee

enthusiasm with clear project goals and assign roles and

responsibilities.

9. Auditing. Nothing in business is a one-off thing. Sustainability is

not just a box you can check once you put up a website and send

out a press release. Be clear on where you stand when you start

and continuously check to see how you are doing and what you

could do better.

10. Lack of resources. Make sure sustainability projects have

resources attached to them, whether that be people, time, or

money. Without these, they won ’t be able to explore their full

potential.

(continued )

352 The Sustainable MBA

Stakeholder engagement

‘The old, adversarial model of business–NGO relations is

being eroded; companies that learn to build constructive

cross-sector partnerships gain competitive advantage in new

markets, as well as make an active contribution to develop-

ment. For their part, many development actors recognize that

partnering with the private sector can bring benefi ts, such

as innovative technology, scale, and a sustainable model to

fi nance their efforts.’

WBCSD

The environment in which organizations operate is becoming

increasingly complex due to everything from regulatory and volun-

tary requirements, environmental and social issues, to the increased

expectations of stakeholders for transparency and accountability.

Organizations are fi nding that engaging with stakeholders is pro-

viding them with opportunities to better understand the challenges

they face, to understand and mitigate the risks, and also to explore

new opportunities including innovations to products, processes, and

strategy. Engaging with stakeholders is nothing new, but the level of

engagement is becoming more sophisticated, as diverse groups con-

tinue to learn how to leverage and maximize the outcomes of these

relationships. Although in the past engagement started in response

to a negative issue, companies are increasingly being proactive in

this area.

Stakeholders are those groups who impact and/or are impacted

by the company and its activities. This can include but is not

limited to:

• employees and their families;

• customers;

• shareholders/investors;

• communities;

• indigenous peoples;

• suppliers/business partners;

• academic NGOs/international organizations;

• environmental NGOs;

• government/regulators;

Strategy 353

• trade unions;

• media;

• advocacy groups.

Why is stakeholder engagement important?

• Better informed decision-making. Stakeholder engagement

gives an organization a clearer picture of external and internal

threats and opportunities. Management can get better informa-

tion and therefore can make better decisions.

• Spot problems before they occur. Engagement can help organi-

zations spot trends and issues that may impact their activities as

well as possible solutions. It also allows them to assess and man-

age risks by identifying problems before they occur. The mining

industry uses stakeholder engagement tools to engage communi-

ties and their representatives prior to breaking ground.

• Legal and voluntary obligations. At a basic level, organizations

are required to engage stakeholders in their activities and disclose

information through different legal requirements (e.g., US Sarbanes–

Oxley Act, Japanese law of promotion of environmentally conscious

business activations), as well as voluntary obligations (e.g., GRI, the

Global Compact, SA8000, and the Equator Principles).

• Increased transparency and credibility. Companies such as

Nike have multi-stakeholder review committees which work with

them on the development of their CSR report. As a result of

stakeholder dialogue and subsequent feedback, Nike has been

disclosing an unprecedented amount of information about its

operations.

• Access to resources. Companies benefi t from a wealth of experi-

ence, expertise, and resource sharing by engaging stake holders.

Resources can be technical, human, knowledge, physical, and

fi nancial, and can include better access to information and net-

works, greater reach, improved operational effi ciency, more

appropriate and effective products and services, etc.

• Identify opportunities. Engagement allows organizations to

better understand their customers and their needs in order

to develop new products, processes, and services, as well as enter

(continued )

354 The Sustainable MBA

new markets. Working with different partners allows a company

to see issues through a different lens and come up with creative

and innovative solutions. FedEx partnered with the Alliance for

Environmental Innovation to reduce the environmental impact

of their vehicle fl eet, hoping that the new hybrid electric vehi-

cles will replace the company ’s 30 000 fl eet, leading to signifi cant

reductions in environmental emissions.

• Making an impact. According to the IBLF, ‘working separately

different sectors have developed activities in isolation – some-

times competing with each other and/or duplicating efforts

and wasting valuable resources.’ Because partners have similar

goals, the idea is that they can accomplish more by working

together.

• Provide a ‘License to Operate.’ When company performance

departs from stakeholder expectations, outrage results which can

put in jeopardy not only a company ’s social license to operate but

also potentially its regulatory license. High levels of outrage are

disastrous for corporate/industry reputation.

• Free prior informed consent. The consent of groups impacted

by a company ’s operations must be given freely, without coer-

cion, manipulation, or undue infl uence of pressure. These groups

or individuals should be provided with all relevant information

in relation to the proposed activity before the activity starts and

they must agree to the activity. Increasingly, regulations require

companies to get this.

How to engage with stakeholders

Determine who the stakeholders are and what issues are signifi -

cant to them. Engagement goes beyond identifying those groups

that could have an adverse effect on a company ’s activities to actively

engaging with those that could also be helpful. Engagement may

focus on one group of stakeholders or several and may involve a

different group of stakeholders depending on the issue or project.

Stakeholders can be determined:

• By responsibility. People for whom you have legal, fi nancial, or

operational responsibility.

Strategy 355

• By infl uence. People who are able to infl uence the ability of

your organization to meet its goals and infl uence others.

• By proximity. People that your organization interacts with most.

• By dependency. People who are dependent on your organization

such as employees, their families, and customers.

• By representation. People such as heads of local communities,

trade union representatives, councilors, etc. 49

The more information you gather about who your stakeholders

are and what issues are signifi cant to them, the better able you will

be to engage effectively.

A company must also consider a stakeholder ’s capacity for and

willingness to engage:

• Power and reach of the representative. Not all NGOs are the

same. There is a huge variety of global and local NGOs: broad

versus narrow scope, some work alone and others work as part

of networks, some are campaign-focused while others are more

collaborative.

• Knowledge of the issue. Be clear about the representative ’s

knowledge of the issue, they may know as much, more, or much

less than you do. Different stakeholders will use different vocab-

ulary to express ideas of sustainability. Spend the time to make

sure that everyone is on the same page before discussions begin.

• Experience working with business. While business may have

little or a lot of experience working with different stakehold-

ers, the stakeholders themselves will also have different levels of

experience. Some, such as the World Wildlife Federation and the

World Conservation Union, have specifi c divisions that focus on

working with business. Others, in particular small-scale NGOs,

may not have experience and may not have suffi cient capacity

to engage. This does not mean that engagement should not be

attempted, but capacity issues should be accounted for.

• Strengths and Weaknesses. Consider the strengths and weak-

nesses of your own organization as well to engage with stakeholders.

What level of engagement? Low levels are adequate for solv-

ing or addressing minor challenges, but engaging more deeply has

(continued )

356 The Sustainable MBA

the potential to enable more sustained changes and transformation.

At earlier levels of engagement, you are able to engage more stake-

holders while higher levels (e.g., partnership) require more resources.

The level of engagement will depend on your strategic engagement

objectives and may be different for different stakeholders.

• Ignore or monitor. An organization chooses not to engage or

communicate with stakeholders and hears their concerns through

letters, protests, and websites.

• Communicate. An organization puts together messages targeted

to particular stakeholder groups such as brochures, reports and

websites, speeches, conferences, and so on, and gets involved in

transactional relationships, for example, grant making.

• Consult. An organization collects information from stakeholder

groups directly through surveys, focus groups, workplace assess-

ments, one-to-one meetings, etc.

• Dialogue. An organization works with the stakeholder to gather

information and advice but goes a step further by exploring dif-

ferent perspectives, needs, and alternatives.

• Collaborate. An organization gets involved in two-way dialogues

such as advisory panels, forums, participatory decision-making

processes, joint projects, voluntary two-party or multi-stakeholder

initiatives, driven by both the company and the stakeholder (e.g.,

global stakeholders on Dow Chemical ’s Sustainability External

Advisory Council have been meeting since 1992).

• Partnerships. Both organizations share the risks and benefi ts

of engagement. They look for synergies between competencies

and resources; these can be between companies, companies and

NGOs, joint ventures, alliances (e.g., Lafarge worked with CARE

to develop its health policy in Africa).

How to engage? A company seeking to engage with stakeholders

should consider:

1. Why does it want to engage? Engagement should not be an

add-on or one-off activity. A company needs to strategically think

about why they want to engage.

2. What should it be engaged in? Engagement can be focused on

a particular issue, a process, a product, or a decision. It could

Strategy 357

be related to new policy, where to build a new site, or help in

entering a new market. Sometimes there is no specifi c subject

for engagement and the engagement is focused on developing

a dialogue between groups. Be clear about how this is going to

benefi t the business and what changes you are willing to make

based on the engagement process.

3. What are the strategic engagement objectives? Think strategi-

cally about what you want to get out of the engagement. This can

be anything from developing a new approach or managing risks

to just gathering more information. Agree on the rules of engage-

ment. The most important indicator of success is clearly tying the

stakeholder engagement to a strong business need. This means

that there is a clear link to core strategy, resources to support the

engagement, and genuine business interest in the outcome.

4. Spend time getting to know each other. The success of engage-

ment is often based on the degree of respect in the relationship

that has been built over time. Spend time building the relation-

ship, understanding the strengths and weaknesses of both organ-

izations. Minimize uncertainty by agreeing on clear goals and

policies and providing the information to act on them.

5. Build internal capacity. Assess your organization ’s inter-

nal capacity for engagement and understanding of the issue.

Engagement is part art and part science, and different skill sets

are needed, as well as new forms of leadership.

6. Embed it into the organization. Engagement should be man-

aged like a business function; it should have a clear strategy,

objectives, timetable, budget, and allocation of responsibilities.

Engagement should be part of performance evaluations for lead-

ership. It should also focus on strengthening the company ’s abil-

ity to respond to the issues and opportunities brought up by the

engagement process.

7. How can success be measured? Ensure that goals and mile-

stones are established and that mechanisms exist for monitor-

ing performance and tracking achievements. Continually revise

engagement performance and make needed adjustments. Ensure

that there are mechanisms in place to take the learnings and put

them into improving your business. Share learning and follow up.

(continued )

358 The Sustainable MBA

8. Establish grievance mechanisms. Stakeholders – in particu-

lar individuals, workers, and communities whose human rights

are negatively impacted by a corporate operation – increasingly

have access to grievance mechanisms through a growing range

of organizations such as the International Council on Mining and

Metals for mining-related grievances and the Compliance/Advisor

Ombudsman of the World Bank Group for projects funded by the

International Finance Corporation.

Tips

• Manage expectations. Some stakeholders want to open a dia-

logue while others will expect specifi c operational changes or

adherence to certain performance standards. Be clear about what

your and their expectations are.

• Understand the potential obstacles to participation. Consider

the specifi c cultural circumstances of the engagement such as lan-

guage, customs regarding social interaction, and gender issues,

scale at which the representative operates – global or local,

understand that stakeholders often have limited fi nancial means

and staffi ng capabilities.

• Be transparent. Provide the stakeholders with enough informa-

tion so that they can contribute to the process. Be open and honest

during the process. Have clearly defi ned lines of communication.

• Get in early. Relationship building takes time. Stakeholder dia-

logue should not be hurried: start early, invest in planning and

preparation, and allow people time to learn from and with each

other. Allow for suffi cient resources to support the engagement.

• Don ’t wait until there is a problem to engage. Often, inter-

acting with stakeholders is viewed as low priority but when a

confl ict or crisis does arise the absence of an established relation-

ship can challenge communications. Stakeholders are less likely

to give a company they don ’t know the benefi t of the doubt, and

making contact with stakeholders in a reactive mode can create

lasting negative perceptions as well as questions over whether a

company is being genuine.

• You don ’t have to be perfect. Stakeholder dialogue can often

be messy, disjointed, and even chaotic at times. Remember to be

transparent, open to new ideas, empathetic, listen and refl ect.

Focus on quality, not quantity. Take it seriously.

Strategy 359

Want more?

• The AA1000 Stakeholder Engagement Standard is a generally

applicable framework for improving the quality of design,

implementation, assessment, communication, and assurance

of stakeholder engagement (www.accountability.org). The

UN Offi ce for Partnerships (www.un.org/partnerships). The

London Benchmarking Group has an input/output model for

measuring community engagement (www.lbg-online.net).

• Several organizations have publications on stakeholder engage-

ment , including: IFC ’s Stakeholder Engagement: A good practice

handbook for companies doing business in emerging markets

(www.ifc.org). Stakeholder dialogue from the WBSCD ( www

.wbcsd.org ), ‘The 21 st Century NGO’ by SustainAbility, and

‘Practices and Principles for Successful Stakeholder Engagement’

(www.sustainability.com). From Words to Action: The Stakeholder

Engagement Manual volume 1 and 2, UNEP (www.unep.fr).

• For resources on community engagement , see: Participation

works! 21 Techniques of Community Participation for the 21 st

Century, New Economics Foundation (www.neweconomics

.org); Participation, Learning and Action series, IIED (www

.iied.org); World Bank on Participation and Civic Engagement

( www.worldbank.org ).

‘The reason why we have two ears and only one mouth is

that we may listen the more and talk the less.’ ZENO OF CITIUM

• Understand what the risks are. What are the risks associated with

engaging? What about with not engaging or with engaging poorly?

• Be patient. Partnerships take time.

‘The vehemence of a stakeholder group does not necessarily

signify the importance of an issue – either to the company or

to the world.’

MICHAEL PORTER

http://www.un.org/partnerships

http://www.lbg-online.net

http://www.ifc.org

http://www.neweconomics.org

http://www.unep.fr

http://www.iied.org

Tools for monitoring, managing, and improving performance

Tools for greening offices and buildings

PART 3

TOOLS

15 Tools for Monitoring, Managing, and Improving Performance

‘There are no shortcuts to any place worth going.’

BEVERLY SILLS, OPERA SINGER

364 The Sustainable MBA

Many tools have been developed to assist businesses, both big and

small, in managing, monitoring, and improving their sustainability

performance at all stages of the decision-making process. A large

number of these tools are brought up in the various sections of this

book, but some are used by all. These include (but are not limited to):

• Gather sustainability

information to assist in

decision-making

→ Assessments

• Benchmark and monitor how

an organization is doing

→ Audits

• Create a system to man-

age your environmental

performance

→ Environmental and

social management

systems

• Use sustainability standards as

a tool to guide your efforts

→ Standards

Assessments

An environmental or social assessment is a means of gathering

information to ensure that environmental and social implications of

decisions are taken into account before those decisions are made.

Assessments are usually taken before moving forward with a pro-

posal or an individual project. An assessment is an important tool to:

• Identify the signifi cant social and environmental impacts of a project.

• Incorporate environmental factors into decision-making.

• Identify the potential benefi ts and disadvantages of the project.

• Identify critical problems which require further studies and/or

monitoring.

• Minimize or avoid adverse environmental and social effects before

they occur.

• Examine and select from possible alternatives.

Tools for Monitoring, Managing, and Improving 365

There are many different kinds of assessments, including:

• Lifecycle assessment, which looks at understanding the full

lifecycle of a product. ISO 14040 describes the principles and

framework for lifecycle assessment and ISO 14044 sets out the

requirements and guidelines (www.iso.org).

• Technology assessment, which is carried out in order to deter-

mine which technology to use. It looks at the proposed technol-

ogy, any alternatives, the requirements of the technology, and

the pressures the technology places on the environment.

• Opportunity assessment, which looks at recognizing potential

opportunities that could lead to gain (e.g., reduction of energy

and resource consumption and therefore cost of production).

• Risk assessments, which explore the likelihood of an event

occurring and the resulting severity of loss if that event occurred.

Where there is a high risk involved in a project, the risk assess-

ment will defi ne how to mitigate or prevent it through proper

controls to make the risk acceptable.

• Environmental and social impact assessments (EIA, SIA), were

introduced because of concerns regarding the effects that major

development projects were having on society and the environ-

ment. The benefi ts were quickly recognized and it has now become

established as an internationally recognized decision-making tool.

Assessments should be conducted as early as possible in the plan-

ning and proposal stages. Many of the major decisions about the

location of a project, the scale, layout, or design, for example, are

made at the very beginning and many of these can have a signifi -

cant impact on the environment and society. Identifying these issues

right from the start can allow an organization to prevent many prob-

lems before they occur. The commonly accepted steps include:

1. Screening. To decide whether or not a proposal needs an EIA

and if it does at what level of detail.

2. Scoping. To identify the key issues and impacts that are likely

to require further investigation.

http://ec.europa.eu/environment/eia

366 The Sustainable MBA

3. Impact analysis. To identify and predict the likely environmental

and social effects of the proposal and evaluate their signifi cance.

4. Mitigation and impact management. To develop measures

to avoid, reduce, or compensate for impacts, making good any

environmental damage.

5. Reporting. To describe the results to decision-makers and other

interested parties.

6. Implementation and monitoring. To put in place the plans

agreed upon and continue to monitor them through audits.

When doing assessments keep in mind:

• Many assessments fail because inadequate attention is given to

identifying the effects that are most likely to be signifi cant.

• Stakeholder involvement in the early stages will not only help

throughout the assessment process but also in gaining acceptance

during the implementation phase after the assessment is completed.

Example: Conducting an environmental or social risk assessment

Identifying risks. Identify which risks a company is facing and

where they are coming from. Risk can be explored from the follow-

ing angles:

• Sector- and company-specifi c risks . Start by considering the most

obvious risks that are relevant to the organization. Look at the issues

that organizations more advanced in sustainability are exploring.

• Operational opportunities and risks . Look at how the organiza-

tion impacts on stakeholder groups and broader society through

its operations. Look at risks and opportunities throughout the full

lifecycle of the product.

• Stakeholder-related opportunities and risks . Consider who your

stakeholders are, and what their risks are; look at the boundaries

of responsibility the organization has for products and services.

Tools for Monitoring, Managing, and Improving 367

Assessing and prioritizing risks. For each risk identifi ed, con-

sider what might happen, how it might happen, and how large the

consequences will be. When an organization is faced with a number

of potential sustainability-related risks, a matrix can be created to

help prioritize the risks and establish their relative importance; the

potential impact of the risks (high or low) and the likelihood of that

impact (high or low).

Managing risks. Once identifi ed and prioritized, companies need

to proactively seek to reduce and manage these risks. Many risks

cannot be eliminated but they can be minimized. Managing risks

involves asking what can be done to manage any signifi cant adverse

occurrence, and who should be involved.

• See if you can tolerate the risk and work with it, through improved

environmental management techniques.

• Work to reduce the risk through new technology, procedures,

investments, and stakeholder engagement.

• Eliminate the risk, for example, banning a particular chemical.

• Transfer the risk when it is felt that the business has no control

over it (i.e., through insurance companies).

Risk analysis should not be overly complex, so don ’t ignore it

because of inadequate understanding. Remember that many risks and

opportunities are inter-related. Recognize the need to engage with

stakeholders, and to share information and responsibility for any risk.

Your performance and the performance of your customers and sup-

pliers are intrinsically linked and sharing risks is therefore benefi cial.

There are many resources on environmental impact assessments,

including UNEP EIA (www.unep.fr), the EU website on EIA (ec

.europa.eu/environment/eia), and the International Association

of Impact Assessment (www.iaia.org). The Environmental Impact

Assessment Open Educational Resource has learning modules

and resources on the topic (eia.unu.edu). The WBCSD also has

some guidelines on environmental and social impact assessment

http://www.unep.fr

http://www.iaia.org

http://eia.unu.edu

368 The Sustainable MBA

(www.wbcsd.com). The Convention on Environmental Impact

Assessment in a Transboundary Context (www.unece.org/env/

eia) sets out obligations for parties to assess the environmental

impact at the early stages of planning and notify and consult each

other on major projects under consideration that are likely to

have a signifi cant adverse environmental impact across borders.

Audits

A business may have internal requirements, policies, standards, pro-

cedures or even external rules, regulations, or third-party require-

ments that they are required to follow. An audit is a check of how

well they are doing at meeting these internal or external require-

ments. Audits are used as a tool to help a business measure and

improve the performance of a project, a site, a particular product,

or service. An audit can be a useful tool to:

• Monitor the sustainability practices of suppliers and contractors.

• Monitor the level of compliance with relevant regulatory and

internal or group/corporate policy requirements.

• Monitor the amount of resources used or generated, such as

water, energy, waste, and pollutants.

• Identify improvement opportunities.

• Establish a performance baseline.

The following steps show one approach to setting up an audit:

1. Determine who will conduct the audit. Will it be performed

internally, or by a third-party auditor, for example, one that

belongs to a commercial auditing fi rm?

2. Determine the scope. Will it be at a small level, such as an audit

of recycling practices or waste at one location? Will it be of a

http://www.wbcsd.com

http://www.unece.org/env/eia

Tools for Monitoring, Managing, and Improving 369

particular product or service (design, performance, disposal),

or of a process (manufacturing, management, design, procure-

ment)? Will it be done by geographic location or organizational

unit (company, division)?

3. Determine what you are auditing. An organization can audit

just about anything. It might sound obvious, but make sure it is

clear what is being audited.

4. Select objectives. Whether the audit is to check for compliance,

management assurance, stakeholder assurance, or to provide

information for decision-making, make sure the objectives

are set and clear to all involved.

5. Choose indicators. Put in place indicators against which per-

formance will be measured. This often includes legislative or

regulatory and compliance requirements.

6. Conduct the audit. Conduct a quick self-audit in order to

understand where you stand, in particular if a third party is con-

ducting the audit; this typically involves interviews with manag-

ers and personnel, detailed site inspections, etc.

7. Develop and implement an Action Plan. This should address

shortcomings identifi ed by the audit, by outlining specifi c

actions required to meet the audit objectives, with appropriate

budget allocation, program implementation, and monitoring.

8. Report. Write in non-technical language so that the information

and questions are accessible to all, and the messages are clear

and useful for those who need to use the information.

9. Focus on continuous improvement. Conduct the audits on

a regular basis, and review and update the audit questions as

progress is made in order to keep them focused and relevant.

Audits usually focus on compliance; however, compliance does

not necessarily indicate operational effectiveness. Audits should go

beyond reporting on compliance to covering effectiveness and pro-

viding managers with strategic information about how they com-

pare to current best practice. They also need to look at behavior and

so-called ‘soft’ issues, such as motivation, culture, and teamwork in

370 The Sustainable MBA

Environmental and social management systems

Organizations are adopting programs to help manage their envi-

ronmental impacts on a day-to-day basis. An environmental man-

agement system (EMS) is a set of policies and procedures that

defi nes how a company evaluates, manages, and tracks its overall

environmental impacts. It is a voluntary management standard that

helps managers to identify and prioritize their key environmental

‘Environmental Audit, a simple guide’ produced by the Environ-

mental Protection Department of the Government of Hong Kong

(www.epd.gov.hk/epd/english/how_help/tools_ea/audit_1.html).

order to assess behaviors that provide evidence of how such factors

affect the performance of a product.

Example: Waste audit

Audits can also be used to identify, for example, how much waste is

being generated and how to manage it.

1. Identify all points at which waste is generated.

2. Identify the origin of each type of waste.

3. Measure the quantity of each type of waste and its environmental

impact.

4. Establish a method for the continued monitoring of waste levels.

5. Identify the current costs of dealing with waste.

6. Look at opportunities to reduce, recycle, or reuse the waste.

7. Set waste minimization targets.

8. Communicate the results to the company and get people involved

in achieving the targets.

http://www.epd.gov.hk/epd/english/how_help/tools_ea/audit_1.html

Tools for Monitoring, Managing, and Improving 371

impacts. It also provides a framework for setting clear objectives

and targets for managing those impacts.

An EMS is important as a tool to ensure a company is compliant

with regulatory and company requirements and knows the impacts

it has on society. It helps focus an organization on priorities for

actions and serves as a framework for putting ideas into practice.

All EMS standards follow the same cycle:

• Plan. Understand where the company currently stands (typically

through an audit or assessment) in terms of legislative and regu-

latory requirements, existing environmental management prac-

tices, etc. This involves getting top management and employee

support, setting objectives and targets, prioritizing actions, and

creating an action plan.

• Do. Ensure that there are established roles and responsibilities

that are clearly communicated; and that members of staff are

aware and trained to carry our responsibilities. Make sure they

have the support they need to carry out their roles.

• Check. Formulate a measurement system, establish and defi ne

benchmarks, perform regular audits. Check to ensure that what

you planned to do actually happened.

• Act. An EMS is most effective when used to review progress

toward the targets and objectives set by a company to protect

the environment. The procedures set in place to meet these

objectives should be constantly examined to see if they can be

improved or if more effective systems can be introduced.

The key elements of an EMS include:

• Creating a policy. An environmental policy is a declaration

of the organization ’s overall aims and principles. It includes

compliance with environmental, legal, and other requirements.

The policy should recognize the impacts the organization has on

the environment. It should be supported by senior management

and the CEO. Such a policy should be reviewed regularly (for

many this is annually).

372 The Sustainable MBA

• Identifying and evaluating your environmental impacts.

Evaluate the impacts of your activities, products, and services.

This allows the EMS to be focused on those environmen-

tal issues that are most signifi cant so that resources and time

are concentrated on these. Signifi cance is often determined by

considering the size, nature, frequency, likelihood, and duration

of the environmental impact, the importance to stakeholders,

and the sensitivity of the receiving environment.

• Operational control, targets, and objectives. This informa-

tion can then be used to identify control measures and to set

objectives and targets for environmental improvements. An envi-

ronmental program is put in place to turn objectives and targets

into practical actions. People are assigned the responsibility for

completing the tasks.

• Monitoring, evaluation, and review. The EMS process is

documented and procedures are established to ensure that eve-

ryone knows how the system operates and what is required.

Progress is tracked through regular monitoring and audits.

Effective communication internally is vital to keep people up

to date. An EMS is a cyclical process of identifying, improving,

and checking. Reviews are done periodically by management to

ensure that the EMS is achieving the desired outcomes and that

polices are being implemented.

This is a voluntary activity; however, increasingly companies are

choosing to get certifi cation for their EMS systems. These types of

standards are becoming increasingly important, as many multina-

tionals are requiring suppliers to have the standard. A company can

seek offi cial accreditation for its EMS under one of several schemes

at the national level (i.e., BSI in the UK), regional level (EMAS in

Europe), or international level (ISO 14001). Others have developed

their own specifi c national or international standards. Currently,

China leads the world in the number of ISO 14001 certifi ed compa-

nies; followed by Japan, Spain, and Italy.

Tools for Monitoring, Managing, and Improving 373

Standards

Many international standards and networks started as attempts to

help guide organizations on how to improve the consistency of

their products (such as ISO 9001), reduce their impact on the envi-

ronment (ISO 14001), or generally improve their environmental

and social management. These programs are voluntary and involve

a range of activities, from a simple commitment to investigate sus-

tainability issues to the adherence to strict protocols for environ-

mental and social standards.

‘Corporate responsibility standards, norms, princi-

ples and guidelines aim to provide generally accepted

reference points for improving aspects of social and

environmental performance. Although mostly volun-

tary, some are emerging as de facto industry stand-

ards that provide the desired legitimacy, consistency

and comparability required by business and its

stakeholders.’ ACCOUNTABILITY 50

There is plenty of guidance on how to put in place EMS. EMAS Toolkit

for Small Organizations provides step-by-step guidance and tools for

implementing an environmental management system (according to

ISO 14001) (www.epa.gov). Several self-assessment checklists are

available, for example from the Global Environmental Management

Initiative (GEMI) (www.gemi.org). Another interesting resource is

the Environmental Management Tools for SMEs, a handbook pro-

duced by the European Environment Agency and Environmental

Management Systems Toolkit for Small Organizations produced by

the EU and INEM (www.eea.europa.eu).

http://www.gemi.org

http://www.eea.europa.eu

374 The Sustainable MBA

ISO 14001 is a series of voluntary, auditable standards designed to

provide customers with a reasonable assurance that the performance

claims of a company are accurate. ISO reviews all of its standards at

least every 5 years in order to decide whether the standard should be

confi rmed, revised, or withdrawn (www.iso.org). Individual stand-

ards include:

• Environmental management systems: 14001, 14002, 14004.

• Environmental auditing: 14010, 14011, 14012.

• Evaluation of environmental performance: 14031.

• Environmental labeling: 14020, 14021, 14022, 14023, 14024, 14025.

• Lifecycle assessment: 14040, 14041, 14042, 14043.

• Greenhouse gas accounting and verifi cation: 14064.

• Social responsibility: 26000.

• Event sustainability management systems 20121:2012.

The ISO 19011:2002 standard was introduced with the aim of

applying a common and consistent approach to the auditing of both

the ISO 9001 quality and ISO 14001 environmental management sys-

tems standards. The benefi ts of integrated management systems are

now widely recognized, where a combined approach is helpful in

minimizing the resource demands of operating a certifi cated man-

agement system.

Standards are also being developed by NGOs at an international

level. Two examples include:

• AA1000. Developed by AccountAbility, AA1000 is a set of stand-

ards based on principles for social and ethical accounting, audit-

ing, and reporting (www.accountability.org.uk/aa1000).

AA1000 Purpose and Principles

AA1000 Framework for Integration

AA1000 Assurance Standard

AA1000 Stakeholder Engagement Standard

• SA8000. Social Accountability International is a non-profi t

human rights organization dedicated to the ethical treatment of

http://www.accountability.org.uk/aa1000

Tools for Monitoring, Managing, and Improving 375

workers around the world. SAI ’s social standard, called SA8000,

is an auditable certifi cation standard based on international

workplace norms of International Labour Organization conven-

tions, the Universal Declaration of Human Rights, and the UN

Convention on the Rights of the Child. In order to qualify, a com-

pany must follow standards relating to child labor, forced labor,

health and safety, freedom of association and right to collective

bargaining, discrimination, discipline, working hours, compen-

sation, and management systems (www.sa-intl.org).

Industry- and issue-specifi c standards can be found within the

different chapters and in the resources by industry section at

the end of this book. ISEAL Code of Good Practice for Setting

Social and Environmental Standards (www.isealalliance.org),

ISO standardization documentation (www.iso.org). See WBCSD

Accountability Codes (www.wbcsd.org). There are also several

national-level standards, such as SD21000 in France, AS8003 in

Australia, and SI0000 in Israel.

http://www.sa-intl.org

http://www.isealalliance.org

16 Tools for Greening Offices and Buildings

‘Start where you are. Use what you have. Do what

you can.’

ARTHUR ASHE, TENNIS PLAYER

378 The Sustainable MBA

One of the most important ways to introduce sustainable practices

into a company, and where most organizations start, is by ‘greening’

the offi ce, whether that be a small room, or a whole building. This

can include changing the way that you buy products and services

(procurement), the way that you build your operational headquar-

ters, or simply the way that you use and operate the offi ce space

on a daily basis. Several offi ces, proud of their efforts in this area,

offer tours of their facilities to educate employees, business part-

ners, and customers about their initiatives. There are many benefi ts

to offi ce greening programs:

• Engaging employees. Many initiatives to green the offi ce show

results fast, giving employees successes to build on and motiva-

tion for their work.

• Raising awareness. Putting in place offi ce greening programs

is an opportunity to educate employees about the impact sus-

tainability can have on an operation and to show them how

effortless sustainability actions can be.

• Reduced costs. By increasing effi ciency and minimizing waste,

organizations are fi nding many opportunities to reduce costs in

energy, water, maintenance, and materials.

• Increased employee retention and productivity. Studies have

shown that green building features can increase worker produc-

tivity and overall health and reduce absenteeism. Research has

found it increased productivity by 3% to 16%. 51

• Enhanced corporate reputation. Sustainability building and

procurement shows a commitment by a company to the environ-

ment, society, and its workers.

• Tax and regulatory incentives. There are an increasing num-

ber of incentives for building green or for redeveloping brown-

fi eld properties, for example.

Tools for Greening Offices and Buildings 379

Steps for setting up office greening programs

The following steps can be used when designing and implementing

any offi ce greening program:

1. Find out where you stand now. Audit your organization to

see what you are currently using, where you are getting it from,

and how much you are paying for it. This is useful in gath-

ering information and establishing a baseline. Then, monitor

how much energy, waste, recycling, and water you use and how

much it is costing you so you can keep track of improvements.

2. Think about the business case. Understand the different direct

and indirect benefi ts that can occur through offi ce greening pro-

jects within your company.

3. Get everyone involved. No offi ce greening program can be a

success without employees getting involved. Offi ce greening is

all about employees changing the way they work in the offi ce.

Seek employee suggestions on where more could be done and

tell people what you are doing or want to do.

4. Set goals and targets and develop a plan to achieve these

and publish or share them with your team. Set goals and tar-

gets of what you would like to achieve. If in doubt, run a pilot

project to see how it works.

5. Monitor and review your plan. Regularly look at your plan to

take into account new products, technologies, or opportunities

that may arise. Quantifying savings and benefi ts will also come

in handy when looking at expanding offi ce greening programs.

6. Communicate your successes and progress. Keep the whole

organization informed and continue to renew their enthusiasm

and involvement in the program. Let your employees know

what is changing and how they can get involved.

380 The Sustainable MBA

There are countless books and online resources on greening

offi ces. National environmental protection agencies often have

information on offi ce greening, such as the US EPA (www.epa

.gov). The Sustainable Offi ce Toolkit has resources on how to

set up an offi ce greening program (www.gasustainability.org).

Harvard Green Offi ce is also worth a look ( green.harvard.edu/

green-offi ce/energy ).

Buildings

Whether your company is building a whole new building, doing

major renovations, or even minor changes, green buildings have

moved from being the exception to becoming the norm. An extra

incentive is that the price premium for green buildings is shrink-

ing. Furthermore, even if there is an additional upfront cost, green

buildings are typically less expensive to operate and maintain, pro-

vide work environments that boost productivity, decrease the envi-

ronmental impacts of construction and operations, reduce worker

health and safety liabilities, and improve corporate image. All of

these have potentially high fi nancial and reputational benefi ts

associated with them, especially if you consider that a 1% increase

in productivity can easily result in savings that exceed the entire

energy bill for many companies. For example, the ING Bank head-

quarters, which uses one-tenth the energy of its predecessor, has

also lowered absenteeism by 15%.

Design

❑ Select your site carefully (e.g., avoid contributing to sprawl, focus

on redevelopment of sites).

❑ Work with the surrounding environment (e.g., the sun and wind

direction).

http://www.gasustainability.org

http://green.harvard.edu/green-of%EF%AC%81ce/energy

Tools for Greening Offices and Buildings 381

❑ Incorporate health and safety concerns, including indoor air

quality.

❑ Optimize energy and water effi ciency.

❑ Redesign the interior work spaces including furniture selection.

❑ Design spaces that use daylight.

❑ Insulate properly.

❑ Integrate solar hot water heating into the design to minimize hot

water heating bills.

❑ Think about the building ’s end of life.

Materials

❑ Minimize the use of materials in the construction of the building.

❑ Where possible, use recycled, certifi ed, and locally produced mate-

rials and eliminate waste by reclaiming construction materials.

❑ Choose building products that are sustainable, for example

paints, certifi ed wood products, etc.

Gardens

❑ Landscape using local species that need little maintenance and

water.

❑ Use compost and other organic techniques in maintaining gardens

(International Federation of Organic Agricultural Movements,

www.ifoam.org).

❑ Put in a green roof, which can signifi cantly reduce indoor temper-

atures. This can either be by using materials that absorb less heat

or by putting plants and grass on the roof (www.greenroofs.com).

There are several different standards in place for green build-

ing. The Leadership in Energy and Environmental Design

(LEED) Green Building Rating System is a benchmark for the

design, construction, and operation of high-performance green

http://www.ifoam.org

http://www.greenroofs.com

382 The Sustainable MBA

buildings (www.usgbc.org/leed). The Hannover Principles

aim to provide a platform upon which designers can consider

how to adapt their work toward sustainable ends (www

.mcdonough.com/principles.pdf). Also look at Greener

Buildings (www.greenerbuildings.com) and UNEP ’s Sustainable

Building and Construction Initiative (www.unep.org/sbci/).

For examples of green buildings, check out the Editt Tower in

Singapore, BedZed in the UK, the Reichstag in Germany, and

the Bank of America Tower in the USA.

Energy

Energy bills are an easily reduced cost for most businesses, yet

many ignore this opportunity for an easy win. An assessment of

‘electric productivity’ in the USA indicated that improvements in

energy effi ciency could not only cut consumption by 30%, but also

eliminate the need for more than 60% of coal-fi red generation. 52

❑ Start by checking that your building performance, operations,

and systems are operating optimally.

❑ Install energy-effi cient light bulbs, which can use up to 80% less

energy than regular incandescent ones.

❑ Use dimmers, automatic timers, and motion detection sensors to

ensure optimal lighting throughout the building.

❑ Consider retrofi tting your offi ce lighting – a well-designed light-

ing system using more energy-effi cient lights can result not only

in a reduction in your energy bill, but also in productivity gains.

❑ Regulate heating and air conditioning to be more energy effi -

cient. If the air conditioning has ever left you feeling cold in

summer, then it ’s wasting energy. Simply increase its setting by a

few degrees to save signifi cant amounts of energy.

http://www.usgbc.org/leed

http://www.greenerbuildings.com

http://www.unep.org/sbci/

http://www.mcdonough.com/principles.pdf

Tools for Greening Offices and Buildings 383

❑ Change your electricity supplier to one that sells energy from

renewable sources.

❑ Look at generating your own power by installing, for example,

solar panels. Increasingly, governments are offering subsidies or

other incentives to encourage this.

❑ Buy energy-effi cient appliances; look for labels for recognized

programs that provide a guarantee about lower energy use, such

as the EU Energy Label.

❑ Turn down your heating, don ’t heat empty spaces, and look at

alternative heating systems such as solar heating. Put in place

proper insulation and double-glazed windows.

❑ Turn off appliances rather than putting them on standby. Up to

8% of domestic electricity is consumed by appliances such as

TVs, DVDs, stereos, and computers left on standby.

❑ Where available, use smart meters which allow customers to see

energy use in real time.

Different countries have ratings to help consumers identify

energy-effi cient products, such as Blue Angel in Germany ( www

.blauer-engel.de ), Nordic Swan in the Nordic countries ( www

.nordic.ecolabel.org ), and Australia ’s Energy Rating (www.ener-

gyrating.gov.au). The Green Power Market Development seeks

to defi ne the business case for the corporate purchase of green

energy products (www.thegreenpowergroup.org).

Water

Water is not only vital for society but to business as well. Less than

3% of all water on Earth is fresh water, and many countries are fac-

ing shortages of fresh water. All organizations, directly or indirectly,

http://www.energyrating.gov.au

http://www.thegreenpowergroup.org

http://www.blauer-engel.de

http://www.nordic.ecolabel.org

384 The Sustainable MBA

need and use water for their operations. Water has many hidden

costs, including treatment, pumping, maintenance of pipe work,

effl uent treatment, and discharge. Using water wisely can not only

save you money, but a strategic approach to water management can

also enhance the reputation of your company.

❑ Reduce water consumption to save money and reduce the envi-

ronmental impact of your operation.

❑ Install water-effi cient fi xtures, low-fl ow appliances, and devices

to minimize wasting water.

❑ Check your systems for leaks and repair dripping taps.

❑ Collect rain water from the roof of your building to water the

garden instead of using tap water.

❑ Reuse water in manufacturing and rinsing procedures, reuse

waste water.

❑ Don ’t dump pollutants into the drains – dispose of them

appropriately.

❑ Use biodegradable detergents.

❑ Water plants in the evening to avoid wasting water through

evaporation.

The UN Global Compact CEO water mandate is an initiative

designed to assist companies in the development, implementa-

tion, and disclosure of water sustainability policies and practices

(www.unglobalcompact.org). GEMI Water Sustainability Tool

( gemi.org/water ), the Water Footprint Network (www.water

footprint.org), and Water Use it Wisely ’s list of 100 ways to

conserve water in a business (www.wateruseitwisely.com) are

also helpful resources. 2005–2015 is the UN Decade for Water

for Life (www.un.org/waterforlifedecade; www.wateryear

2003.org).

http://www.waterfootprint.org

http://www.wateruseitwisely.com

http://www.un.org/waterforlifedecade

http://www.wateryear2003.org

http://gemi.org/water

http://www.wateryear2003.org

Tools for Greening Offices and Buildings 385

Waste and recycling

Gone are the days when your responsibility for the waste gener-

ated by a business ends when the waste contractor removes it from

site. Today, a business must ensure they are disposing of waste in

a responsible and legal manner. Companies are fi nding that they

can save money and reduce liabilities by reducing the amount of

waste they generate in the fi rst place. They are fi nding that they

sometimes pay twice for products, for example paying to buy the

product, and then paying to dispose of the product.

Reduce the amount of materials bought and used

❑ Buy durable products, rather than disposable ones. Examine in-

house repair schedules, maintenance agreements, and extended

warranties as ways to extend product life.

❑ Stop multiple subscriptions of magazines, for example, when

one copy can be shared.

❑ Coordinate product purchases and plan ahead to buy products

in bulk to save time, money, and transportation and packaging

costs.

❑ Purchase products with less packaging.

❑ SC Johnson removed waste baskets from offi ces and placed them

down the hall to reinforce the act of throwing items in the garbage.

Reuse

❑ Purchase products in reusable, refi llable, or returnable containers.

❑ Set up a reuse system, or use an existing system, that makes

unwanted items from one department available to other depart-

ments, sometimes called Freecycle.

❑ Borrow items needed from friends or at work from other depart-

ments, for example through networks such as yerdle ( www

.yerdle.com ).

http://www.yerdle.com

386 The Sustainable MBA

Recycle

❑ Donate used materials to schools, NGOs, or other businesses that

could use them. Some charities collect used materials and make

money from recycling them.

❑ Set up recycling bins next to waste baskets and inform employ-

ees what is recyclable.

❑ Look at options to compost.

Recycle Now has lots of information on how different items are

recycled (www.recyclenow.com). A growing number of sites,

such as Recycle Match (www.recyclematch.com/marketplace),

provide opportunities for businesses and individuals to buy,

sell, and give away waste and recyclables.

Paper

Offi ces use, and inevitably waste, a lot of paper in their regular

operations. In fact, around 70% of offi ce waste is paper. This ends

up costing the company money and puts unnecessary pressure on

forests. Consider that the energy used in the manufacture of fi ve

sheets of paper is equivalent to the energy needed to run an 80

watt light bulb for one hour. Given that the USA alone uses about

4 million tonnes of copy paper annually, that ’s a lot of energy which

goes into the manufacturing of paper!

❑ Use both sides of the paper where possible to minimize paper

usage. Set photocopiers to print both sides as standard.

❑ Use print preview before you print so that you can see what you

are about to print and whether it can be fi tted onto fewer pages.

❑ Increase the margins and font size to fi t more on fewer pages.

❑ Minimize the amount of ink you use by setting the printer on draft.

http://www.recyclenow.com

http://www.recyclematch.com/marketplace

Tools for Greening Offices and Buildings 387

❑ Reuse paper printed on one side for drafts, fax cover sheets, or

notepads.

❑ Buy paper that is post-consumer recycled content, unbleached

and uncolored, and from certifi ed sustainable sources such as FSC.

❑ Post information on bulletin boards or use e-mail rather than

distributing paper memos.

❑ Buy erasable boards as an alternative to paper fl ip charts.

❑ Have reports easily available on a website so they can be viewed

on screen.

❑ Don ’t send out catalogues and brochures to people who don ’t

want them.

Century Gothic is the least ink-intensive font. The WWF has

produced a Guide to Buying Eco Friendly Paper, a global data-

base of eco-rated paper products as well as a Paper Company

Environmental Index (www.panda.org). The Paper Calculator

measures the environmental impacts of your paper usage

( c.environmentalpaper.org ). Xerox is developing erasable paper,

where the words disappear over 16–24 hours.

Electronics

Modern offi ces are full of electronic equipment – it would be hard to

imagine one without any. However, the electronics we rely on each

day waste a lot of energy and generate a lot of waste – both e-waste

at the end of their life and waste as a result of using them (e.g.,

printer cartridges). Many electronic products use between 1 and 20

watts just on standby, and are often in this mode for much of the day.

According to the Energy Cost Saving Council, the average building

owner can cut energy costs by up to 60% by replacing outdated, inef-

fi cient electrical equipment. Greenpeace has estimated that demand

for new technology creates 4000 tonnes of e-waste per hour.

http://www.panda.org

http://c.environmentalpaper.org

388 The Sustainable MBA

❑ Choose electronic equipment which minimizes the use of haz-

ardous substances.

❑ Purchase computers that are easy to upgrade to maximize their

usable life.

❑ Recycle computers properly by bringing them back to the manu-

facturer or retailer (where facilities exist) or donate them. Many

manufacturers – such as IBM, Apple, Dell, and HP – have systems

in place to recover these.

❑ Turn off computers when not in use, including monitors. Monitors

account for around 50% of a computer ’s energy use.

❑ Choose green data centers.

❑ Look at refi lling inkjet cartridges instead of throwing them away

for new ones. Recycle them after use.

❑ Buy solar-powered calculators and other devices to eliminate the

need for batteries.

❑ Use rechargeable batteries.

❑ Rent, lease, or contract for services, instead of buying infre-

quently used equipment.

The Global e-Sustainability Initiative works to further sustainabil-

ity in the ICT sector (www.gesi.org). Also look at the Electronic

Industry Code of Conduct (www.eicc.info). The Greenpeace

Guide to Greener Electronics is a scorecard that highlights elec-

tronic products and companies (www.greenpeace.org). EPEAT

is an online tool that helps select and compare environmentally

safe electronic products (www.epeat.net). The European Union ’s

WEEE Directive allows customers to return their used equipment

to manufacturers free of charge and also requires the substitution

of various heavy metals and chemicals in new electronic equip-

ment ( Europa.eu ). For the latest news, visit Greener Computing

(www.greenercomputing.com) and the Massachusetts Green

High Performance Computing Center (www.mghpcc.org).

http://www.gesi.org

http://www.eicc.info

http://www.greenpeace.org

http://www.epeat.net

http://www.greenercomputing.com

http://www.mghpcc.org

Tools for Greening Offices and Buildings 389

All those other little things

Sustainable procurement of supplies and services is the primary

way to introduce green concepts in offi ces and facilities. According

to UNEP, the best procurement processes address the following:

• Maximum value for money (price, quality, availability, functionality).

• Environmental aspects of goods over their entire lifecycle.

• Social aspects (issues such as poverty eradication, labor condi-

tions, human rights).

Below are some tips that can help

❑ Use cleaning products that are biodegradable and environmen-

tally friendly. Hire cleaning service companies that use environ-

mentally friendly products.

❑ Buy recycled, reusable, recyclable, biodegradable, energy- effi cient,

water-conserving, non-toxic, locally available products (paper,

glass, etc.).

❑ Buy reusable cafeteria dishware. Reusable dishes are often cost-

effective over the long term compared with disposables.

❑ Buy organic, fair trade, free range, local products for the kitchen

such as coffee, tea, sugar, etc.

❑ Don ’t use bottled water; where possible drink tap water instead.

UNEP Sustainable Procurement Program (www.unep.fr/scp/pro

curement) , Forum for the Future ’s Sustainable Public Procure-

ment (www.forumforthefuture.org), the Chartered Institute

of Purchasing & Supply (www.cips.org), and BSR ’s Center for

Sustainable Procurement (www.bsr.org). To see the growing range

of options available for sustainable offi ce products, look at suppli-

ers such as the Green Offi ce (www. thegreenoffi ce.com).

http://www.unep.fr/scp/procurement

http://www.forumforthefuture.org

http://www.cips.org

http://www.thegreenoffice.com

390 The Sustainable MBA

Commuting to work

As cities around the world grow larger and traffi c congestion gets

worse, the daily commute can take hours out of each day for many

employees. Have you ever noticed how many cars during the morn-

ing rush hour have just one person in them? Promote the use of car

pooling, public transportation, or other more sustainable forms of

travel as much as possible. Consider commuting by motorbike or

scooter – they cost less to purchase and run, take up less space, and

are easier to park. GlaxoSmithKline in the UK has a bike scheme

where employees who bike to work get a voucher which can be

used at bike stores. A bike mechanic paid by the company comes

in every two weeks to repair bikes. There are facilities for cyclists

to change, shower, and iron their clothes. Each cyclist costs the

company approximately £400 per year, while a car space costs

over £2000. Registered cyclists now make up more than 10% of

the site ’s employees. The company has also hosted one-day confer-

ences designed to illustrate how cycling can fi t into various types

of travel planning.

By public transport

❑ Prepare a public transport information pack with prices and

times of routes to work.

❑ Make a policy to use public transport for business purposes

where practical.

❑ Arrange a taxi for staff using the bus for times when they may

work late.

❑ Provide salary advances to pay for season tickets or provide

them for free.

❑ Where possible, explore alternatives to traveling by plane – such

as trains and buses – especially for fl ights of less than 2 hours.

❑ Explore telecommuting options for employees to work from

home.

Tools for Greening Offices and Buildings 391

By bike

❑ Give a free cycle helmet . . . or bike to your employees.

❑ Put up a cycling notice board for routes, bike repairers, and

organizations.

❑ Provide incentive schemes such as salary advances to buy bikes

on installment.

❑ Buy an offi ce bike and link up with a local bike store for regular

maintenance.

❑ Install shower and changing facilities for employees who choose

to walk, run, or bike to work.

❑ Provide a secure place at work to store bikes.

❑ Use cycle couriers for delivering small items within the town or city.

❑ Provide a roadside assistance program for bikes that have

mechanical failure (e.g., see the Royal Automobile Club of

Tasmania ’s Bike Assist program).

❑ Promote the health benefi ts of cycling to work.

❑ Provide bicycle commuter benefi ts including, in some coun-

tries, taking advantage of tax-free reimbursements for bicycle

expenses.

By foot

❑ Promote the benefi ts of walking to work for those who travel

short distances by car.

❑ Organize a walking club at work as well as activities to keep

employees active during the lunch hour.

By car

❑ Promote good driving techniques. Simple techniques can reduce

fuel consumption by as much as 25%.

❑ Ensure regular maintenance to maintain fuel effi ciency and vehi-

cle longevity.

❑ If you buy new, buy small, fuel-effi cient models.

❑ Consider car pooling or joining a local car club.

392 The Sustainable MBA

❑ Consider off-peak commuting to help reduce traffi c congestion

and save time traveling.

❑ If you need to use a taxi look at green options, for example

London ’s Go Green Car has a fl eet of hybrid cars.

❑ If you are moving from one offi ce to another look for moving

companies that provide reusable plastic containers as opposed

to cardboard boxes.

Some countries have car-pooling websites, such as New Zealand

(www.jayride.co.nz), Australia (www.carpoolworld.com), and

the USA ( zimride.com ). Commuter Choice is an initiative in the

USA that encourages employers to offer a range of commuting

options to their employees (www.commuterchoice.com). The

UK has a tax-free scheme to provide a cost-effective way to

purchase bikes to ride to work (www.cyclescheme.co.uk). There

are a growing number of car-sharing services, such as Zipcar

(www.zipcar.com), RelayRides (relayrides.com), and Whipcar

( whipcar.com ) as well as bike-sharing programs, including in

Montreal (www.thehubway.com), Rio (Bikerio), and Paris ( en

.Velib.paris.fr ).

Organizing green events and meetings

Most organizations host events, meetings, seminars, annual general

meetings, and other conferences on a regular basis. Regardless of

whether these are big or small events, they all consume resources,

cost money, and produce waste. Planning green events is about

incorporating sustainability elements into traditional meeting

planning. Hosting a green event can help conserve energy and

reduce waste, which saves money and provides an opportunity to

raise awareness of issues. One event organizer replaced bottled

http://www.jayride.co.nz

http://www.carpoolworld.com

http://www.commuterchoice.com

http://www.cyclescheme.co.uk

http://www.zipcar.com

http://www.thehubway.com

http://zimride.com

http://relayrides.com

http://whipcar.com

Tools for Greening Offices and Buildings 393

water with reusable containers and bulk water dispensers, saving

US$15 000 with this simple step. The IUCN, an international conser-

vation NGO, produced a guide to help the 8000 delegates at its 2008

congress make environmentally smart decisions at different stages of

their trip to, and stay in, Barcelona. It was part of the IUCN ’s effort

to practice what it preached at the event on sustainability and con-

servation. For those who didn ’t want to print the whole manual, they

could just print out the one-page summary included at the back.

❑ Meeting or no meeting. Explore alternatives to meeting in per-

son, such as teleconferencing, videoconferencing, and webinars.

❑ Make your meeting meaningful. It seems obvious, but make

sure your meeting is as useful as possible for the participants to

justify them attending.

❑ Make your intentions clear. Set priorities and make sure all

involved in the organization are aware and included.

❑ Look at visible and non-visible. Look at visible issues (recy-

cled program material) and non-visible ones (energy and waste

management plans).

❑ Facilities. Choose a location that is easily accessible (e.g., direct

fl ights, public transportation, etc.). Check for locations that have

their own environmental and social priorities and run/operate

green buildings.

❑ Food and beverages. Serve food that is sourced locally, fair

trade, organic. Also think about how the food and drinks are

served, for example by using mugs instead of disposable cups

and bottles.

❑ Accommodation. Support hotels that are part of green accredi-

tation programs, such as GreenKey and the GreenTourism label

in the UK, or that have their own environmental policies.

❑ Transportation. Inform participants of public transportation

and walking routes. Organize shuttles instead of taxis (these can

provide good networking opportunities for participants).

❑ Procurement. Choose suppliers with sustainability policies and

products. Look at options such as renting rather than purchasing.

394 The Sustainable MBA

Putting together a green team

Employees are often very interested in sustainability issues and

want to become engaged in moving their company forward in

❑ Get people involved. Seek sponsors to help provide sustainable

products. Consider getting the community involved. Tell attend-

ees what your sustainability plans are during the conference and

tell them what they can do to get involved (e.g., recycle, give

back name tags, turn off lights).

❑ During the event. Limit the distribution of paper during events

by having USB ports for people to download handouts or use

e-mail. Provide a reusable registration package. Look for ‘sustain-

able’ promotional products (or have none). Conduct registration

and confi rmation online. Measure your progress (i.e., how much

paper is used, waste generated).

❑ Post-meeting. Publish proceedings online and report on lessons

learned. Have an on-site drop-off for attendees returning mate-

rial that can be reused for other events or donated to local com-

munity groups and schools.

❑ Sustainable tourism. If participants are coming from abroad,

give advice on sustainable tourism options in the area. Provide

opportunities during the event to introduce participants to local

food, culture, music, etc.

For more on green meetings check out US EPA ’s ‘A Guide to

Planning and Conducting Environmentally Aware Meetings ’

(www.epa.gov/oppt/greenmeetings) and Environment Canada ’s

‘Green Meeting Guide’ (www.ec.gc.ca). There are also a growing

number of certifi cation schemes for green events, both internally

organized such as at Yale University ( sustainability.yale.edu/green-

event-certifi cation ) or externally assured such as by the Council

for Responsible Sport (www.councilforresponsiblesport.org).

http://www.epa.gov/oppt/greenmeetings

http://www.ec.gc.ca

http://www.councilforresponsiblesport.org

http://sustainability.yale.edu/green-event-certi%EF%AC%81cation

Tools for Greening Offices and Buildings 395

this area. The response to this has been the creation of ‘green

teams.’

Other than getting employees engaged, green teams can provide

an important avenue for companies to identify opportunities on

how to become more sustainable and implement these ideas. They

can also prove a driving force in pushing the company ’s overall

sustainability objectives forward.

❑ Put together your team. Green teams can be either formal

groups or informal groups. Start by networking and speaking to

other employees to see who might be interested in joining.

❑ Survey members of staff. Talk to employees to fi nd out what

issues they are most interested in to determine the focus of the

team. You can also organize brainstorming sessions to gather a

wide range of ideas to start with.

❑ Get support. Actively recruit employees into the team who have

the power to make real changes happen. For example, if you

want to work on greening the building make sure you have

someone from facilities on the team.

❑ Focus on action. Green teams often take a double role of rais-

ing awareness and putting in place real goals and programs.

Look at ways to create value for the company by reducing costs

and creating new business opportunities.

❑ Get executive support. Make sure you have the right people on

your side, for example management, so that decisions can be

made quickly.

❑ Set specifi c goals for a certain time period so everyone is work-

ing collaboratively on a few priorities.

❑ Communicate with the group. There are many tools out there

to help communicate with the rest of the team and other employ-

ees, including newsletters, e-mail lists, wikis, posting blogs, or

starting an online group (e.g., through Google, Ning, or Yahoo!).

❑ Organize lunchtime meetings. Organize meetings (with lunch

included) focused on raising awareness or coordinating action.

Invite guest speakers. Keep these meetings light and fun but rel-

evant to people ’s jobs.

396 The Sustainable MBA

❑ Have fun with it. Green teams at eBay started a ‘funky mug’

contest, where employees brought mugs from home to replace

disposable cups in the offi ce.

❑ Share best practice and challenges. Put in place mechanisms

for employees to share success stories in implementing sus-

tainability and get help with challenges they are facing. This is

especially interesting in large companies that operate in several

offi ces or across several countries.

❑ Present case studies. Present examples from across the com-

pany and your industry of projects that have worked which could

be done in your offi ce.

❑ Keep track of your successes. Keep track of how you do and

celebrate your successes with the rest of the offi ce.

❑ Keep it relevant. If people aren ’t attending meetings, or it is the

same people showing up over and over again, change the focus

of the meetings to make sure they are more relevant and interest-

ing to others in the offi ce.

❑ Recognize those involved. It is important to recognize those

individuals who are putting in the most effort. Have senior staff

recognize them or have HR make the green offi ce program part

of the job description. Green offi ce programs can be a great pro-

fessional leadership opportunity for staff.

❑ Provide more strategic guidance as well. Green teams are not

just about putting in place recycling bins. Increasingly they are

involved in the sustainability strategy of the company.

❑ Create programs for the whole offi ce to get engaged in.

Deloitte ’s ‘Greening the Dot’ initiative involved offi ces choosing

from among 37 different greening projects. A ‘Greening Toolkit’

that included implementation instructions and communication

tools was given to each offi ce. The result was that over 29 000

employees got engaged in implementing over a thousand green-

ing projects across nearly a hundred offi ces in just the fi rst six

months.

Tools for Greening Offices and Buildings 397

Performance contracting

One of the main reasons organizations give for not getting involved

in sustainability programs is cost. At the same time, increasing evi-

dence clearly shows that many programs may cost more in the short

run, but will actually save money in the long run. So, in response

to these cost concerns, many innovative pricing strategies are being

developed to help pay for business sustainable activities. One such

strategy is performance contracting. According to the International

Institute for Sustainable Development, ‘Performance contracting is

a means of raising money for investments in energy effi ciency that

is based on future savings. It enables money that will be saved as

a result of the introduction of a new energy-effi cient technology to

be used to offset the cost of fi nancing, installing and operating that

technology.’ This means reduced risk to the lending organization as

the contractor takes on the risk of not achieving savings. There are

several ways to structure a performance contract:

• First out or guaranteed savings . All the contractor ’s costs are

repaid annually out of the savings as they accrue. The length of

the contract (typically 4–8 years) is usually determined to ensure

that all costs are paid out by the end of the contract period.

• Shared savings . The business and the contractor agree to share

the savings over the contract period. The actual cost of the meas-

ures is not included in the contract, and the business has no obli-

gation to pay off those costs. Shared savings contract terms are

usually longer – up to 10 years.

• Chauffage . A performance contractor effectively takes over the

operation of a customer ’s utility or production facilities, makes

upgrades to them, and often pays the customer ’s utility bills. In

return, the customer pays the contractor a regular fee equal to

the utility bills before the project, or some other negotiated fee.

Other innovative fi nancing strategies include green building tax credits and leasing services instead of purchasing equipment. Some programs are being developed that base repayment on ‘green’ sav- ings, such as the Green Loan Initiative of the City of Toronto and the Billion Dollar Green Challenge ( greenbillion.org ). The builders repay the loan through funds that would otherwise be spent on heat- ing, cooling, and electricity.

http://greenbillion.org

PART 4

WRAPPING IT ALL UP

What can I do?

What will the future bring?

17 What Can I Do?

‘Never doubt that a small band of caring and com-

mitted people can change the world. Indeed it is the

only thing that ever has.’ MARGARET MEAD

402 The Sustainable MBA

This book has introduced sustainability and a wide range of tools

being used to implement it in organizations around the world. It

has presented various tips and ideas on how employees and busi-

nesses can get more active and engaged in sustainability, and how

sustainability can be explored to positively infl uence a business in

terms of both reducing costs and potentially increasing revenue,

while also having a positive impact on the environment, and soci-

ety as a whole.

However, individuals are not only playing a role in bringing

sustainability forward through their jobs. People create both the

supply and the demand for products and services, create the inno-

vations and push for change. Individuals make decisions on a daily

basis as employees, as consumers, and as citizens that have a direct

impact on sustainability. Many believe that one person cannot make

a difference, yet all of the things that people do on a daily basis

collectively add up to make a difference. If employees start explor-

ing these ideas in their jobs, if consumers start asking companies

to provide them with sustainable choices, and if citizens actively

engage in strengthening their communities, that is when things will

really start happening.

As an employee – leading by example

As seen throughout this book, employees interested in sustainabil-

ity have several choices when it comes to career paths and getting

engaged in such issues, including working:

• In any company. The main way for employees to get involved

is by driving social and environmental change from within any

company and at any level. Regardless of whether your company

is fully engaged in the sustainability debate, these are tools that

can be used to strengthen the business.

• In a ‘green’ job. With increased greening among all indus-

tries is coming a wave of new careers, most of which are an

What Can I Do? 403

environmental or social twist on old professions. Engineers are

doing research on renewable energies, people in fi nance are

getting involved in trading carbon credits or microfi nance within

mainstream institutions, while architects are designing green

buildings. In fact most, if not all, of the topics introduced in this

book have careers attached to them.

• In a ‘green’ company or other organization. A company does

not need to advertise ‘green’ jobs in order to attract diverse tal-

ent. Increasingly, as companies embed sustainability into their

operations, sustainability is becoming part of a growing number

of jobs, in particular if you choose companies that are active

in this area and even though it might not be advertised as a

sustainability-related job.

• As an entrepreneur. Whatever kind of business you decide to

start, whether it has a social or environmental mission or not,

there are many ways you can run your business that support the

principles of sustainability from responsible sourcing, to green-

ing your products, offi ces, and services.

Regardless of the job, you can:

• Make suggestions. Identify areas where you think improve-

ments could be made to make your job, your products lines

more sustainable.

• Have a job review session. Spend time with your team and

your boss to evaluate how sustainability could be incorporated

into your current job description.

• Get rid of unsustainable rules. Keep a look out for rules in

your organization that limit you and others from exploring and

putting in place more sustainable options.

• Get involved in activities organized by your company. Many

companies have events organized to get employees involved in

sustainability, either within the company or in the community.

Get involved in these activities. If there are none that interest

you, organize one.

404 The Sustainable MBA

Take a look at the introduction for ways to sell these tools to

your team. Also take a look at different professional networks

aimed at managers, for example Net Impact (www.netimpact

.org) and the Institute for Environmental Management and

Assessment in the UK (www.iema.net). Green Drinks is a social

networking group with opportunities to meet other individu-

als interested in sustainability in over 40 countries and 463 cit-

ies (www.greendrinks.org). Many sites advertise ‘green’ jobs,

including MonsterTRAK GreenCareers, Greenbiz ( jobs.green

biz.com ), BSR (www.bsr.org/resources/jobs), and DevNetJobs

(www.devnetjobs.org).

How to turn any job into a green job

1. Look at your company’s position on sustainability. Does your company have a sustainability strategy? Does it produce a sustainability report? If it does, take a look at it and see how this relates to your work. If it doesn ’t have a strategy, again, why not work to create one?

2. Get involved in offi ce greening programs. Get involved in activities that are already happening in your offi ce, such as recy- cling and employee engagement programs. If these don ’t exist, start them. Green teams are increasingly involved in more than just putting recycling bins in offi ces. Many are involved in creat- ing and carrying out company sustainability strategies as well.

3. Create a coalition. Speak to people in the company to connect with others who are interested or are already working in sustain- ability. Talk to people outside the company to learn about how they are working on sustainability within their own companies.

4. Take a look at your job. Explore ways to incorporate sustain- ability into what is already in your job description and the goals of your team. Are there places you could cut waste? Engage your suppliers? Change the way something is designed? You know your job best, so you are ideally placed to see how and where changes can be made.

http://www.netimpact.org

http://www.iema.net

http://www.greendrinks.org

http://www.bsr.org/resources/jobs

http://www.devnetjobs.org

http://jobs.greenbiz.com

What Can I Do? 405

As a consumer – putting your money where your mouth is

The most important sector of them all, and the one that every-

one is a part of, is the rapidly growing consumer sector. There are

7 billion of us on the planet, each making decisions on a daily basis

that affect businesses and society. As a consumer, you can look at:

• What you buy. Companies provide products because they

believe there will be, or there is, a demand for them. As a con-

sumer, choosing to support the products that you believe are

good sends a strong message to companies. Where you choose

5. Stay informed. Look at professional or other organizations to which you already belong to see what they are doing in this area. Sign up for daily updates to keep informed. Take a course or attend an event, a conference, or speaker series to learn more.

6. Volunteer your time or expertise. Volunteer your time and expertise on sustainability initiatives happening in the company and outside in the community.

7. Give feedback. The people who do the jobs are in the best place to provide insights on how to do things better. If you see some- thing that could be done better, in a more sustainable and effi - cient way, in the workplace speak up about it.

8. Support others in their activities. Be supportive of the work that your employees or colleagues are doing in this area. Give employees and members of your team time to explore sustain- ability in the workplace or in the community.

9. Share your experiences . Write articles, speak at events and to others to share your experience in working on sustainability issues in the workplace, the challenges you have faced, and how you overcame these. Speak up on the areas you think need more work.

10. Be positive, but constructively critical . Rather than saying something won ’t work, look at contributing to the discussion and working through ideas to see if and how they could work.

406 The Sustainable MBA

to buy those products from – such as retail stores that support

the same sustainability values as you do – is also important.

• What you choose not to buy. Just as important as what you buy

is what you choose not to buy. Choosing not to buy brands that

have unsustainable practices and letting them know will send a

clear message to those companies that they need to change in

order to gain loyal customers.

• By giving feedback. If you want to know what the companies

you buy from are doing in this area, or want them to provide

more information or safer products, contact them and give them

feedback. Companies such as Dell have created social networks

where customers can provide direct feedback through two-way

channels ( http://www.dellideastorm.com ). The goal is for you,

the customer, to tell Dell what new products or services you ’d

like to see them develop.

Several sites give information about how sustainable different

products are, including http://environment.nationalgeographic

.com and www.goodguide.com. Several companies have created

guides so that consumers can understand what is in their prod-

ucts, including P&G (www.scienceinthebox.com) and Clorox

(www.thecloroxcompany.com), as well as several examples in

Chapter 11. Consumers International (www.consumersinterna-

tional.org) and UNEP Sustainable Consumption Branch (www.

unep.org) have a range of guides on the topic. Also take a look

at movements such as Carrotmob, which support businesses

who want to become more sustainable ( carrotmob.org ).

Read: There are countless excellent books on the topic,

often with country-specifi c information, such as Ecoholic by

Adria Vasil (Canada). Also, The Consumer’s Guide to Effective

Environmental Choices by Michael Brower and Warren Leon.

http://www.dellideastorm.com

http://environment.nationalgeographic.com

http://www.goodguide.com

http://www.scienceinthebox.com

http://www.thecloroxcompany.com

http://www.consumersinternational.org

http://environment.nationalgeographic.com

http://carrotmob.org

What Can I Do? 407

As a citizen – be active in your community

All individuals, apart from being consumers and employees, are

also citizens and members of a community. As part of their com-

munity they can have a signifi cant infl uence on sustainable and

unsustainable practices in this realm as well.

• Lifestyle choice. How one chooses to live one ’s life has a signifi -

cant impact. Whether you choose to participate in community

activities, bike to work, or have a second car all has an impact.

• Increasing effi ciency. Many of the same tools and frameworks

used to apply sustainability to the business can be applied at

home. This includes reducing water and energy usage, recycling,

and disposing of waste appropriately.

PLEASE think before you buy: A simple guide to making choices as a consumer

When faced with a choice of products, think about:

P: Packaging → Look at the packaging. Is it over-packaged? Is it under-packaged? Can I reuse the packaging? Is it recyclable?

L: Location → Look at where the product is from. Is it produced locally or far away? Look at the store you are buying it from. Are you buying from a small independent store, a cooperative, a large store? What do you know about the sustainability policies of that store?

E: Essential → Do you really need the item? Can you live without it? A: Alternative → Are there alternatives that are more sustainable?

Can you buy the product in bulk or in refi llable containers? S: Story → What is the story of the product? What company pro-

duced it? What information is on the label about that company and what do these labels tell you about the product? What are the ingredients?

E: End of Life → Is the product durable? Is it disposable? Is it easy to recycle? Can I bring it back to the manufacturer? Can I donate it to charity when I am done or pass it on to someone else to use?

408 The Sustainable MBA

• Get engaged in discussions. Attend public consultations and

meetings designed to collect citizens ’ views on how to make the

community stronger.

• Support your local community. Communities have a range of

projects that you can engage in, whether this is a festival looking

for volunteers, choosing to buy from local businesses, or taking

part in recycling programs to help minimize waste.

• Be an active shareholder. Companies need to listen to share-

holder concerns. Look at where your money is invested (includ-

ing through pension funds) and get engaged.

• Start a project. See something in the community you would

like to change or that is missing? Start an initiative yourself.

Chances are there are plenty of others in the community who

agree with you and are willing to get engaged.

• Participate. Many individuals around the world have a choice

in who runs their countries and their communities, but do not

make their choice heard. Rather than complaining about how

ineffective something is – whether it is government, regulations,

infrastructure, or education – voice your opinion either through

voting or supporting the causes you believe in.

The UN Decade of Education for Sustainable Development

2005–2015 is dedicated to raising awareness about sustainable

development (www.unesco.org/education/desd). Also look

at the sustainability section of your local government web-

site or to see more about what local governments are doing

around the world, take a look at ICLEI – Local Governments for

Sustainability (www.iclei.org), a network of hundreds of cities

from around the world committed to sustainability.

http://www.unesco.org/education/desd

http://www.iclei.org

18 What Will the Future Bring?

‘This is not the end. It is not even the beginning of

the end. But it is, perhaps, the end of the beginning.’

SIR WINSTON CHURCHILL

410 The Sustainable MBA

This book has aimed to introduce you as employees, as consumers,

as citizens, as students, as managers to what is happening in the

area of sustainability with the hope that some of these things will

be relevant to your business and will inspire action. The encourag-

ing news is that this book isn ’t full of nice-to-have ideas; sustain-

ability is increasingly being embedding into businesses of all sizes,

in all industries, and in all parts of the world. Businesses are seeing

that this isn ’t about throwing money away or even doing the right

thing, it is about good business and this is why sustainability is

increasingly part of mainstream thinking.

No one knows exactly what the future will bring. Here is one take.

Sustainability becomes the norm . This book explores sustaina-

bility as the balancing of social, environmental, and economic issues

in a way that is benefi cial to both business and society. However,

for others, sustainable means the fi nancial sustainability of a com-

pany, the ability of a company to continue to operate over the long

term. The two words will increasingly connect until one day soon,

they will mean the same thing. There will be no sustainable tour-

ism, it will just be tourism . . . no sustainable offi ce furniture, it

will just be furniture. The minimum standard will be products and

services that are sustainable and best practice could be something

altogether different, products that give back, that do more.

From perceived benefi t to actual. It will increasingly be easier

to know how a company is actually doing as opposed to how it is

perceived to be doing. In the same way that you can easily under-

stand how a company is doing fi nancially by looking at the num-

bers, soon there will be ways to know clearly how a company is

doing in terms of sustainability. Sustainability information will be

stronger and it will be incorporated with fi nancial information.

Direct to indirect. Some companies are just starting to get involved

in sustainability. Their activities usually involve either doing the bare

minimum, or many small, separate activities that are unrelated and

happen in relative isolation. Tomorrow will see these small activities

coming together into larger, stronger, and more integrated strategies

What Will the Future Bring? 411

that cover the whole organization and all their activities. Companies

will look beyond the direct impacts they have on the environment

and society – for example, through their energy use and the waste

they create – to indirect impacts such as the footprint of not just their

suppliers but also the suppliers of those suppliers. This will lead to

moving away from quick fi xes on parts of the system, to a greater

appreciation of how to strengthen the system as a whole.

Increased transparency. Today a company that is working in

sustainability can prove it through different certifi cation programs

and eco-labels, while companies that are not sustainable (and even

in some cases those that are doing harm and are not compliant)

have no information on their labels to inform consumers of this.

In the future this may be the other way around. The norm will be

sustainability, and all companies who do not uphold these basic,

sustainable standards will need to provide information as to why

and how on their labels. Labels will clearly show the amount of

waste a product generates throughout the process and ineffi cien-

cies both in production and use.

The elephants will start dancing. There are certain major play-

ers in the world, groups that because of their sheer size have power

and can have an important infl uence in pushing the sustainability

agenda forward. Although slow to change, once these groups start

it brings with it a momentum that changes everything. Look out for

big companies making and implementing ground-breaking commit-

ments to sustainability and asking more and more from their sup-

pliers, their employees, and their customers. Look out to see how

emerging market countries get engaged in these issues. Look toward

the world of the SMEs, who have power in numbers and who, once

they get engaged as well, can have a crucial collective impact. Look

at the poor who, through the emerging world of micro everything,

are starting to not only be served, but play a signifi cant role.

Creating enabling environments. Many sustainability activi-

ties that businesses are encouraged to take part in are not pos-

sible unless they are working in an environment that allows this.

412 The Sustainable MBA

If the city they work in does not recycle, if it does not have bike

lanes or proper public transportation, if it does not have rules and

regulations to create level playing fi elds, if it does not have alterna-

tive energy options, a company and its employees may struggle to

put parts of their sustainability strategy into place. Look for cities

to become smarter in terms of how they generate, distribute, and

use water and energy. Look out for cities that focus on people, on

communities.

Embedding sustainability into education. How do you ensure

change occurs relatively quickly? By educating the new generation

of professionals. If you want accountants, analysts, architects, poli-

ticians, and managers to change the way they work, then incorpo-

rate sustainability into the way that they learn their profession. This

means embedding it into mainstream teaching programs to reach

the whole profession, not just those with a particular interest in it.

Look for schools to embed sustainability in the way they teach at all

levels, from primary school to high school, in professional training

programs and specializations.

Anything goes. Look out for completely new ways of doing busi-

ness. Look out for sustainability innovations to come out regardless

of whether times are good or times are bad. Ultimately, the future

will be whatever we make it.

Twenty-one wise words of advice

1. Sometimes it works, sometimes it doesn’t. Pilot and execute

as a way to move your ideas from theory to action. Have free-

dom to make mistakes, and learn from them. Be willing to take

those chances. As Thomas Edison once said, ‘I haven ’t failed,

I ’ve had 10 000 ideas that didn ’t work.’

2. Be patient. It didn ’t take a week to develop wind farms or solar

panels. Things take time and effort. Companies can be slow to

change, but when they do they bring lots of weight.

What Will the Future Bring? 413

3. Keep an open mind. Question assumptions, ask yourself why

you do things the way you do and if you couldn ’t do things

differently.

4. Answers often lie within. Organizations are made up of an

incredible amount of ideas and wealth that they regularly fail to

tap into: their employees and their customers.

5. Don’t just do it like everyone else. Not all green initiatives are

created equal, don ’t make promises that you can ’t (or won ’t)

deliver on. Be different.

6. Keep it relevant. Make sure it makes sense. Products need to

solve a consumer problem and work. Get involved because it is

something you value, not because it is the thing to do.

7. There are no shortcuts. There are many tools that have been

created to help in your efforts, but none will provide assurance

against failure or success. Use them as guidance and part of a

larger strategy.

8. There is no black or white. Perhaps polluting maximizes share-

holder value by saving money, but the public response does not.

Your actions have unintended consequences, both negative and

positive.

9. Work together. There is an increasingly wide range of experience

within organizations in different industries and different coun-

tries. Customers want to be more involved. Work with others.

10. Be active, not defensive. Sustainability strategies developed in

a defensive manner lead people to miss opportunities.

11. It is all about balance. You don ’t have to do everything, but

what you do decide to do should be done well.

12. Everything is connected. Just because you don ’t see it, it doesn ’t

mean that it isn ’t there. Decisions you make have an effect far

away. Don ’t see the world in silos, everything is connected.

13. Focus on the problem, not the symptoms. It is not about put-

ting a fi lter on polluted water before it is released, it is about

looking at why the water is polluted in the fi rst place.

14. It doesn’t need to be perfect. Be honest and open about your

efforts and what you are trying to do. Be fl exible.

15. Do something different. Get out of your comfort zone.

Read something different to fi nd inspiration, see what

(Continued)

414 The Sustainable MBA

others in completely different industries and fi elds are doing in

sustainability.

16. Don’t just complain; do something. Complaining about some-

thing is fi ne, if it is constructive and helping to move things

forward. Get involved.

17. Unlikely events are common. The fact is that unlikely events

happen more often than one thinks. No one can predict the

future.

18. Not everything that looks green is green. Just because some-

thing looks green, and sounds green, it doesn ’t mean that it is

green. Sustainability is not a PR exercise; it is a way of operating.

19. Do it right the fi rst time. Rather than doing it wrong over and

over again.

20. It doesn’t really matter how it starts, or why it starts. What

matters is how it continues.

21. Enjoy it!

Additional Resources: Who, What, Where, and How

The following section provides additional information and a range of resources to enable you to further understand sustainability.

Who: Different groups involved in sustainability look at some

other actors involved in sustainability including NGOs and interna-

tional organizations.

What: Sustainability issues provides a very brief overview of

some of the main sustainability issues along with the links to the

organizations doing work on those areas.

Where: Sustainability around the world provides a few links,

organized by region and to direct you to more information about

sustainability in particular countries.

How: Keeping up to date provides a range of news feeds to stay

up to date on sustainability issues.

Who: Different groups involved in sustainability

Although much of the information and resources in this book are

aimed at the business sector, they are by far not the only ones that

are active in this area. The business sector is increasingly working

with, and building on, the initiatives already being undertaken by

governments, international organizations, NGOs, and other networks.

All these groups can use the tools in this book in their own oper-

ations, and need to tweak them to fi t their own unique situation in

416 Additional Resources: Who, What, Where, and How

the same way that individual businesses need to. There is no longer

such a big difference between the different groups; NGOs are being

encouraged to incorporate business principles such as effi ciency in

order to be more fi nancially sustainable, while companies are learn-

ing advocacy and different ways of seeing the world from NGOs.

There is also increasingly a blurring between the different actors.

Universities and NGOs are providing consulting services; consult-

ing fi rms are becoming think tanks and providing not-for-profi t

services. There is also an increase in NGOs providing consulting

services, such as the WWF. Finally, the different groups are increas-

ingly working together on projects. This in part means that more

kinds of information and resources at different levels are available.

The following information is meant to introduce the reader to

sustainability as it relates to these other actors and provide some

links to organizations that are working on sustainability.

Educational institutions. Universities are getting involved in

the sustainability debate in several ways. First, through their facili-

ties in energy, water, and waste management plans for new and

existing buildings. Second, through their curriculum and teach-

ing, both in existing programs and new specialty programs. Third,

through the development of new technologies and ideas. The

Principles for Responsible Management Education are endorsed by

a growing number of universities around the world (www.unprme

.org). The Tallories Declaration is a 10-point action plan for incor-

porating sustainability into teaching and research (www.ulsf.org/

programs_talloires.html). The Aspen Institute Center for Business

Education (www.aspencbe.org) has several programs, including an

online database of case studies and syllabi (www.caseplace.org).

Another resource is the World Resource Institute ’s BELL program

(www.wri.org/project/bell), which is also focused on business edu-

cation. Most schools now have one or several student groups working

in this area, some part of larger international networks such as Net

Impact (www.netimpact.org), Oikos (www.oikos-international.org),

http://www.unprme.org

http://www.ulsf.org/programs_talloires.html

http://www.aspencbe.org

http://www.caseplace.org

http://www.wri.org/project/bell

http://www.netimpact.org

http://www.oikos-international.org

Additional Resources: Who, What, Where, and How 417

and AIESEC (www.aiesec.org). Schools from pre-school all the way

up to continuing education are starting to provide training in these

areas. The United Nations Decade for Education for Sustainable

Development runs from 2005–2015 (www.unesco.org).

Government. Governments play a crucial role in sustainability.

These large organizations are the world ’s biggest employers, land-

owners, energy users, and a huge purchaser of goods and services.

Governments also play a crucial role in developing and implement-

ing international agreements, national policies, laws, regulations, and

incentives. They also put in place infrastructure and services (transport,

recycling, etc.) that enable people to have more sustainable lifestyles

and business practices. They provide guidance for business and con-

sumers, monitoring how things are going, and providing enforcement

where necessary. Finally, they play a key role in protecting the com-

mons, society, and the natural environment in their country. ICLEI is an

international association of local, national, and regional governments

that have made a commitment to sustainable development (www.iclei.

org). Some cities to take a look at include Curitiba in Brazil, Vancouver

in Canada (www.vancouver.ca), and Malmo in Sweden (www.malmo.

se), which are focused on sustainability. At the national level sustain-

ability information is often found within the parts of the government

responsible for the environment or for business, for example. Many

governments also have departments which provide development

advice and funds to certain other countries based on national interest

and priorities, including in many cases work on private-sector develop-

ment and promoting responsible business practices. Examples include

the Canadian International Development Agency (www.acdi-cida

.gc.ca), the UK Department for International Development ( www

.dfi d.gov.uk ), and the US Agency for International Development (www.

usaid.gov). At the regional level governments also work together

through organizations such as the OECD, which brings together the

governments of 30 countries committed to democracy and the market

economy (www.oecd.org) and the European Union ( europa.eu/ ).

http://www.aiesec.org

http://www.unesco.org

http://www.iclei.org

http://www.vancouver.ca

http://www.malmo.se

http://www.acdi-cida.gc.ca

http://www.usaid.gov

http://www.dfid.gov.uk

http://europa.eu/

418 Additional Resources: Who, What, Where, and How

International organizations. Many of these were established

just after World War II to promote international cooperation and

stability. They are funded by member governments but are largely

independent and most have budgets of several hundred million

dollars. They tend to be bureaucratic relative to the private sec-

tor because of the consensus required to move forward, but they

provide an important platform for these issues at an international

level. A good example is the UN (www.un.org), which is made

up of 30 affi liated organizations (www.unsystem.org) that work

on everything including food and agriculture (www.fao.org), AIDS

(www.unaids.org), the environment (www.unep.org), and even tel-

ecommunications (www.itu.int). Another group includes the inter-

national fi nancial organizations, including the World Bank (www.

worldbank.org), the International Monetary Fund (www.imf.org),

the African Development Bank (www.afdb.org), and the Asian

Development Bank (www.adb.org). There is a lot of guidance for

businesses on how to work with these international organizations,

in particular with the UN, on the different websites. There are also

links to many UN–business partnerships throughout this book.

(The WBCSD website has a list of information on different develop-

ment actors at www.wbcsd.org/web/devguide.htm.)

NGOs. It is estimated that NGOs represent over US$1 trillion in

assets and employ over 19 million people, making them the world ’s

eighth largest economy. These several million organizations around

the world vary considerably in terms of size, issue, funding, scope,

and affi liate but also by professionalism and how willing they

are to work with business (as opposed to against it). Increasingly,

some large NGOs have business divisions working in partnership with

the business sector. NGOs receive funding from governments, grants,

business, and private donations. International NGOs shape and drive

the CR and sustainability agendas. Their role is likely to grow in

importance, and many of them are now working with business. As

NGOs build major brands and move into the mainstream, they face

http://www.un.org

http://www.unsystem.org

http://www.fao.org

http://www.unaids.org

http://www.itu.int

http://www.wbcsd.org/web/devguide.htm

http://www.imf.org

http://www.afdb.org

http://www.adb.org

Additional Resources: Who, What, Where, and How 419

growing calls for greater transparency and many, such as CERES and

IISD, are now reporting using GRI guidelines. Some examples of

major NGOs also working with business include the WWF (www.wwf

.org), Greenpeace (www.greenpeace.org), the World Conservation

Union (also known as IUCN, www.iucn.org), and Conserva tion In ter-

national (www.conservation.org). An interesting document on the

subject is ‘The Twenty-fi rst Century NGO: In the market for change’

(www.sustainability.com/). For lists of NGOs by country, visit www.

csrwire.com/directory, www.developmentgateway.org.

Think-tanks. These organizations focus on research. Some exam-

ples include the World Resource Institute (www.wri.org), the Aspen

Institute (www.aspeninstitute.org), and the International Institute

for Sustainable Development (www.iisd.org). Many other organiza-

tions are also involved in think-tank-related activities, including a

number of consulting fi rms – for example, SustainAbility (www.sus

tainability.com) and the Rocky Mountain Institute (www.rmi.org).

Also look at the Earth Institute (www.earth.columbia.edu).

What: Sustainability issues

The following pages introduce a range of sustainability issues. This

is by no means a complete list of the issues involved. Many other

issues are introduced in the chapters throughout this book.

Agriculture and fi sh. Keeping pace with population growth and

alleviating poverty over the next decades will require greater food

production with less environmental impact. Problems include soil

erosion, reduced rates of yield gains, less fertile land, contamina-

tion of water, desertifi cation, pesticides, etc. Agriculture uses over

70% of water resources. There are many international organiza-

tions working on sustainable agriculture, including the Food

http://www.wwf.org

http://www.greenpeace.org

http://www.iucn.org

http://www.conservation.org

http://www.csrwire.com/directory

http://www.developmentgateway.org

http://www.aspeninstitute.org

http://www.iisd.org

http://www.earth.columbia.edu

http://www.rmi.org

420 Additional Resources: Who, What, Where, and How

and Agriculture Organization (www.fao.org) and the European

Conservation Agriculture Federation (www.ecaf.org). The Codex

Alimentarius has information about food standards (www.codexa

limentarius.net). The Sustainable Agriculture Initiative aims to fos-

ter more sustainable practices among farmers (www.saiplatform

.org). Organic farming follows certain techniques, including no syn-

thetic chemical use, recycling of organic substances, crop rotation,

and biological control of pests and diseases. There are increasingly

labels to educate consumers about the farming techniques used in

different products, including organic farming (www.fao.org/organ

icag). The Soil Association is one of many organizations work-

ing on certifying organic food and farming (www.soilassociation

.org). The Marine Stewardship Council (MSC), based on the Food

and Agriculture Organization ’s Code of Conduct for Responsible

Fisheries, seeks to harness consumer purchasing power to generate

change and promote environmentally responsible stewardship of

the world ’s fi sheries (www.msc.org).

Biodiversity. Biodiversity, according to the Convention on

Biodiversity, refers to ‘the variability among living organisms from all

sources including terrestrial, marine and other aquatic ecosystems

and the ecological complexes of which they are part. This includes

diversity within species, between species and of ecosystems.’ This

also includes goods such as clean air, fresh water, food, medicines,

and shelter and also provides services and functions such as pollina-

tion, air, water and land purifi cation, climate regulation, drought and

fl ood control, habitats, etc. Threats to biodiversity include loss of for-

ests, wetlands, mangroves, and invasive species to name but a few.

There are many international conventions on biodiversity which are

relevant and affect business, including the Convention on Wetlands

(www.ramsar.org), Convention for the Protection of the Natural

Heritage (www.unesco.org), Convention to Regulate International

Trade in Endangered Species of Wild Flora and Fauna (www.cites

.org), and UN Convention on Biological Diversity ( www.biodiv.org ).

http://www.fao.org

http://www.ecaf.org

http://www.codexalimentarius.net

http://www.saiplatform.org

http://www.fao.org/organicag

http://www.soilassociation.org

http://www.msc.org

http://www.ramsar.org

http://www.unesco.org

http://www.cites.org

http://www.biodiv.org

Additional Resources: Who, What, Where, and How 421

Biodiversity hotspots is a program by Conservation International

which focuses on the richest and most threatened reserves of plant

and animal life on earth (www.biodiversityhotspots.org). The IFC

produced a Guide to Biodiversity for the Private Sector, available at

ifc.org . The WRI has also produced a Business and Ecosystems Issue

Brief, which explores six challenges relating to ecosystems and their

implications for business (www.wri.org).

Climate change. Of all the issues that affect our environment

and society today, climate change is the one that has benefi ted

from unprecedented interest and an increasing business response.

The United Nations Convention on Climate Change entered into

force on March 21, 1994. It is important as it instigated discussions

on what could be done to reduce global warming. Above national

measures, the treaty offers different market-based mechanisms to

achieve these targets. One of the largest outcomes of the Kyoto

Treaty is the development of carbon markets. The carbon emissions

unit provides an economic tool to measure the climate change con-

trol activities of governments, institutions, and individuals. Carbon

emissions trading makes up the largest emissions trading mecha-

nism in the world. The business sector is responding to the climate

change challenge by actively trying to understand the impacts envi-

ronmental issues have across business, and implementing strategies

to address them. In addition to these internal efforts, businesses

have also stepped up to advocate and drive governmental policy

development. Businesses contribute to the solution in many ways.

They create new business models, innovative technologies, and

implement different ways of operating. Business managers can take

a proactive approach to addressing climate change by understand-

ing the potential impacts on business operations and by looking

for opportunities to cut emissions across the supply chain. There

are many resources now on climate change and business. A few

examples include the Pew Centre on Global Climate Change, which

has a series of Climate Change 101 reports outlining what climate

http://www.biodiversityhotspots.org

http://www.pewclimate.org

http://ifc.org

422 Additional Resources: Who, What, Where, and How

change is and what is being done about it (www.pewclimate.org).

Greenhouse Gas Protocol is the most widely used international

accounting tool for government and business to understand, quan-

tify, and manage greenhouse gas emissions (www.ghgprotocol.org).

Also look at the UN Framework Convention on Climate Change and

the Kyoto Protocol (www.unfccc.int), and the Intergovernmental

Panel on Climate Change (www.ipcc.ch). A key resource is the

Carbon Disclosure Project (www.cdproject.net).

Cultural heritage. Cultural heritage refers to tangible forms

such as property and sites, however, it also includes intangible

forms of culture such as cultural knowledge, innovation, and com-

munity practices. Companies should protect cultural and natural

heritage from the adverse impacts of project activities and sup-

port its preservation. This applies to cultural heritage regardless

of whether or not it has been legally protected or previously dis-

turbed. See the Convention Concerning the Protection of the World

Cultural and Natural Heritage 1972 and UNESCO World Heritage

( whc.unesco.org. )

Energy. Energy use is rising worldwide. Fossil fuels dominate the

world ’s energy supply, yet the resulting greenhouse gas emissions

are causing climate change. Currently, about 2 billion people live off

the electrical generation grid – representing huge markets for other

energy systems such as wind, solar, natural gas, etc. The impacts of

energy production and consumption are introducing risks to indus-

tries. In response to this, proactive businesses are conducting invento-

ries of their operations to reduce energy intensity, use, and emissions.

International organizations such as the World Energy Council ( www

.worldenergy.org ) and the International Energy Agency (www.iea

.org) have resources and programs in this area. Some international

initiatives include WBCSD ’s Electricity Utilities Sector Project (www

.wbcsd.org), Global Network on Energy for Sustainable Development

( www.gnesd.org ), and International Renewable Energy Alliance

http://www.ghgprotocol.org

http://www.unfccc.int

http://www.ipcc.ch

http://www.cdproject.net

http://www.iea.org

http://www.gnesd.org

http://www.worldenergy.org

http://www.ren-alliance.org

http://whc.unesco.org

Additional Resources: Who, What, Where, and How 423

( www.ren-alliance.org ). For coal, see the World Coal Institute (www

.worldcoal.org). Also, the International Petroleum Industry Environ-

mental Conservation Association (www.ipieca.org); the Global Gas

Flaring Reduction Initiative (www.worldbank.org/ggfr).

Forest. Forests cover 30% of the world ’s land area and support a

wide variety of critical natural processes, including carbon absorp-

tion, biodiversity, and air fi ltering, in addition to providing us with

raw materials for various goods and services. Issues include the sus-

tainable sourcing of products, the sustainable management of forests,

and social aspects relating to local communities and indigenous peo-

ples whose lives are intertwined with the forest. In terms of ratings

and certifi cation schemes, the Forest Stewardship Council (FSC) is

an international label that allows customers worldwide to recognize

products that promote the responsible management of the world ’s for-

ests (www.fsc.org). The WWF–World Bank Global Forest Alliance has

published a tool for assessing the comprehensiveness of forest certifi -

cation systems (www.worldwildlife.org). See also the Environmental

Paper Assessment Tool ( epat.org ) and the WWF Paper Scorecard and

Tissue Scoring ( panda.org ). There are also many international initia-

tives in this area, including the FAO Sustainable Forests ( fao.org ) and

the UN Forum on Forests ( un.org/esa/forests ). The WBCSD has infor-

mation on the Forest Products Industry Sector ( wbcsd.org ), while

UNEP has resources on cleaner production in pulp and paper mills

( www.uneptie.org ). The World Resource Institute has information

on the Sustainable Procurement of Wood and Paper-Based Products

( sustainableforestprods.org ; credibleforestcertifi cation.org ).

The FSC criteria:

• Prohibit conversion of forests or any other natural habitat.

• Respect of international workers ’ rights.

• Prohibition of use of hazardous chemicals.

• Respect of human rights with particular attention to indigenous

peoples.

http://www.ipieca.org

http://www.worldbank.org/ggfr

http://www.fsc.org

http://www.worldwildlife.org

http://www.uneptie.org

http://www.worldcoal.org

http://epat.org

http://panda.org

http://un.org/esa/forests

http://wbcsd.org

http://sustainableforestprods.org

http://credibleforestcertifi cation.org

http://fao.org

424 Additional Resources: Who, What, Where, and How

• No corruption – follow all applicable laws.

• Identifi cation and appropriate management of areas that need

special protection (e.g., cultural or sacred sites, habitat of endan-

gered animals or plants).

Mining. The mining industry has come under pressure to

improve its social and environmental performance, and transpar-

ency. Issues include the process of extraction, impact on the envi-

ronment and communities, as well as labor issues. The ICMM is

a CEO-led organization representing many of the world ’s leading

mining and metals companies, committed to the responsible pro-

duction of the minerals and metals society needs (www.icmm.org).

The Extractive Industries Transparency Initiative aims to strengthen

governance by improving transparency and accountability in the

extractives sector (www.eitransparency.org). There are also cer-

tain certifi cation systems coming into effect, such as the Kimberley

Process, which impose extensive requirements to enable suppli-

ers to certify shipments of rough diamonds as ‘confl ict free’ ( www

.kimberleyprocess.com ). Good Practice is a joint initiative between

several international organizations which provides access to a

library of good practice guidelines, standards, and case studies

(www.goodpracticemining.com).

Textiles. The types of materials used to make textiles and fab-

ric, how they ’re sourced, as well as how and where they ’re made

all have an impact on many parts of society. Organizations such

as the Ethical Trading Initiative (www.ethicaltrade.org), the Clean

Clothes Campaign (www.cleanclothes.org), and the Business Social

Compliance Initiative (www.bsci-eu.com) are dedicated to proper

working conditions in factories and suppliers. There is also increas-

ing interest in the kinds of materials used, as well as how they are

grown, harvested, and processed. Cotton, for example, although

it seems like the most natural of materials, uses large amounts of

chemical fertilizers and water. The processes used to turn these raw

materials into products also then need greening, for example textile

http://www.icmm.org

http://www.eitransparency.org

http://www.goodpracticemining.com

http://www.ethicaltrade.org

http://www.cleanclothes.org

http://www.bsci-eu.com

http://www.kimberleyprocess.com

Additional Resources: Who, What, Where, and How 425

wet processing and leather tanning (www.uneptie.org). Work is

also being done to explore natural dyes made from plants (www.

pioneerthinking.com/naturaldyes.html).

Tourism. The tourism sector has over 300 different sustainable

tourism standards. In an attempt to provide a unifi ed standard, over

30 organizations from the industry came together in 2008 to cre-

ate the Partnership for Global Sustainability Tourism Criteria which

works to foster increased understanding of sustainable tourism

practices and the adoption of universal sustainable tourism prin-

ciples ( sustainabletourismcriteria.org ). There are several interna-

tional initiatives, such as UNEP ’s Sustainable Tourism Programme

(www.uneptie.fr), the World Tourism Organization (www.unwto

.org), and the World Travel and Tourism Council (www.wttc

.org). For more information see the links section at the Centre for

Sustainable Destinations (www.nationalgeographic.com/travel/sus

tainable). The Tour Operators Initiative works to develop, operate,

and market tourism in a sustainable manner (www.toinitiative.org).

Destinations are also going sustainable; for example, Costa Rica is

building a reputation of being an eco-destination.

Where: Sustainability around the world

Sustainability is happening all over the world, but the ways in which

it is being approached and the kinds of issues that are important

are vastly different. It is also an area that is changing, fast. For this

reason, this section aims to give you links to a few organizations in

different countries where you can start your research if you are inter-

ested in fi nding out what is happening in your country, or another

country. Many of the organizations and NGOs presented in this book

also have offi ces in countries around the world with more informa-

tion (e.g., WWF, IUCN, Ashoka, and different consulting fi rms). Here

are some links just to get you started.

http://www.uneptie.org

http://www.pioneerthinking.com/naturaldyes.html

http://www.uneptie.fr

http://www.unwto.org

http://www.wttc.org

http://www.nationalgeographic.com/travel/sustainable

http://www.toinitiative.org

http://sustainabletourismcriteria.org

426 Additional Resources: Who, What, Where, and How

Africa

African Institute of Corporate Citizenship (www.aiccafrica.com), Green

Business Africa (www.greenbusinessafrica.com), NEPAD Business

Foundation (www.nepadbusinessfoundation.org). Algeria: Association

pour la Promotion de l ’Effi cacité et la Qualité des Entreprises ( www

.apeque.org ). Ethiopia: Cleaner Production Centre (www.ecpc.org

.et). Kenya: National Cleaner Production Centre (www.cpkenya.org).

Morocco: Cleaner Production Centre (www.cmpp.ma). Mozambique:

Forum Empresarial para o Meio Ambiente (www.undp.org.mz).

Namibia: Global Compact Network Namibia (www.globalcompactna

mibia.org). South Africa: National Business Initiative (www.nbi.org

.za), National Cleaner Production Centre (www.ncpc.co.za). Tunisia:

Cleaner Production Centre (www.citet.nat.tn). Uganda: Cleaner

Production Centre (www.ucpc.co.ug). Zimbabwe: Business Council

for Sustainable Development Zimbabwe (www.bcsdz.co.zw), SIRDC

Cleaner Production Center (www.sirdc.ac.zw).

Asia

Asia is Green (www.asiaisgreen.com). China: The Business

Environment Council Hong Kong (www.bed.org.hk), China Business

Council for Sustainable Development (www.cbcsd.org.cn), Ministry

of Environmental Protection (www.zhb.gov.cn), Clean Development

Mechanisms in China ( cdm.ccchina.gov.cn ), Cleaner Production

Centre (www.cncpn.org.cn), China CSR (www.chinacsr.com),

Responsible Supply Chain Association (www.csc9000.org.cn). India:

www.terieurope.org/docs/csr_state.pdf, Confederation of Indian

Industry (www.sustainabledevelopment.in), TERI-BCSD (www.bcsd

.ter.res.in), Cleaner Production Centre (www.npcindia.org). Japan:

Japan Business Federation (www.keidanren.or.jp). Kazakhstan:

Kazakhstan Business Council for Sustainable Development ( www

.kap.kz ). Korea: Business Council for Sustainable Development

Korea (www.kbcsd.or.kr), National Cleaner Production Center

http://www.aiccafrica.com

http://www.greenbusinessafrica.com

http://www.nepadbusinessfoundation.org

http://www.ecpc.org.et

http://www.cpkenya.org

http://www.cmpp.ma

http://www.undp.org.mz

http://www.globalcompactnamibia.org

http://www.nbi.org.za

http://www.ncpc.co.za

http://www.citet.nat.tn

http://www.ucpc.co.ug

http://www.bcsdz.co.zw

http://www.sirdc.ac.zw

http://www.asiaisgreen.com

http://www.bed.org.hk

http://www.cbcsd.org.cn

http://www.zhb.gov.cn

http://www.cncpn.org.cn

http://www.chinacsr.com

http://www.csc9000.org.cn

http://www.terieurope.org/docs/csr_state.pdf

http://www.sustainabledevelopment.in

http://www.bcsd.ter.res.in

http://www.npcindia.org

http://www.keidanren.or.jp

http://www.kbcsd.or.kr

http://www.apeque.org

http://www.kap.kz

http://cdm.ccchina.gov.cn

Additional Resources: Who, What, Where, and How 427

(www.kitech.re.kr). Malaysia: Business Council for Sustainable

Development (www.bcsdm.com.my). Mongolia: Business Council

for Sustainable Development (www.mongolchamber.mn). Pakistan:

Pakistan Council of Renewable Energy Technologies (www.pcret.gov.

pk/). Philippines: Philippine Business for the Environment (www.

pbe.org.ph). Taiwan: Business Council for Sustainable Development

Taiwan (www.bcsd.org.tw). Thailand: Business Council for

Sustainable Development Thailand (www.tei.or.th/tbcsd). Turkey:

Business Council for Sustainable Development Turkey (www.tbcsd.

org). Uzbekistan: National Cleaner Production Centre (www.ncpc.

uz). Vietnam: National Cleaner Production Center (www.vncpc.org).

Europe

European Commission (www.europa.eu), European Environment

Agency (www.eea.europa.eu), CSR Europe (www.csreurope.org).

Austria: Centre for Corporate Citizenship (www.ccc-austria.at), res-

pACT Austrian Business Council for Sustainable Development ( www

.respact.at ). Croatia: Business Council for Sustainable Development

Croatia (www.hrpsor.hr). Czech Republic: Cleaner Production

Centre (www.cenia.cz). Denmark: Danish Council for Sustainable

Business (www.rbenet.dk), Danish Institute for Human Rights ( www

.humanrightsbusiness.org ). France: Entreprises pour L ’Environment

(EpE) (www.epe-asso.org). Germany: Econsense is the Forum for

Sustainable Development of German Business. Econsense provides

information on the sustainable business practices of 23 German

businesses (www.econsense.de). Hungary: Business Council for

Sustainable Development Hungary (www.bcsdh.hu), National Cleaner

Production Centre ( hcpc.uni-corvinus.hu ). Norway: Confederation of

Norwegian Enterprise (www.nho.no/csr), Global Compact Network

Nordic Countries (www.gcnordic.net). Poland: BI-NGO (www.bi-ngo

.pl), Ecolabel EKO (www.pcbc.gov.pl), eFTE (www.efte.org), www

.fob.org.pl. Portugal: Business Council for Sustainable Development

Portugal (www.bcsdportugal.org). Romania: Centre for Sustainable

http://www.kitech.re.kr

http://www.bcsdm.com.my

http://www.mongolchamber.mn

http://www.pcret.gov.pk/

http://www.pbe.org.ph

http://www.bcsd.org.tw

http://www.tei.or.th/tbcsd

http://www.eea.europa.eu

http://www.csreurope.org

http://www.ccc-austria.at

http://www.hrpsor.hr

http://www.cenia.cz

http://www.rbenet.dk

http://www.epe-asso.org

http://www.econsense.de

http://www.bcsdh.hu

http://www.nho.no/csr

http://www.gcnordic.net

http://www.bi-ngo.pl

http://www.pcbc.gov.pl

http://www.efte.org

http://www.bcsdportugal.org

http://www.respact.at

http://www.fob.org.pl

http://www.humanrightsbusiness.org

428 Additional Resources: Who, What, Where, and How

Development ( www.turismdurabil.ro ). Russia: Vernadsky Foundation

(www.vernadsky.ru), National Environmental Management and

Cleaner Production Center (www.ncpc.gubkin.ru; www.nwicpc

.ru). Serbia: Cleaner Production Centre (www.cpc-serbia.org/csr

.html). Slovak Republic: Cleaner Production Centre (www.scpc.sk).

Spain: Fundacion Entorno ( www.fundacionentorno.org ), Fundacio

Forum Ambiental (www.forumambiental.org). Sweden: Stockholm

Environment Institute (www.sei.se). UK: Business Council for

Sustainable Development UK ( www.bcsd-uk.co.uk ).

Middle East

Egypt: Association of Enterprises for Environmental Conservation

(www.aeec.com.eg). Israel: Maala-Business for Social Responsibility,

founded in 1998, is a non-profi t membership organization for business

(www.maala.com.il). Lebanon: Cleaner Production Centre ( www

.lebanese-cpc.net ). United Arab Emirates: Emirates Environmental

Group (www.eeg-uae.org).

North America

United States: US Government and Sustainable Development

(www.usda.gov/sustainable), US Business Council for Sustainable

Development (www.usbcsd.org), Newsweek Green Rankings

(www.newsweek.com/green). Canada: Environment Canada

Economics and Sustainability (www.ec.gc.ca), Network for Business

Sustainability (www.nbs.net), Business Council for Sustainability

(www.conferenceboard.ca).

South America

Argentina: www.ceads.org.ar. Bolivia: www.cedesbolivia.org.

Brazil: CIVES (www.cives.org.br), FBDS (www.fbds.org.br), Akatu

Institute (www.akatu.net). CEBDS is the Brazilian Business Council

http://www.turismdurabil.ro

http://www.vernadsky.ru

http://www.ncpc.gubkin.ru

http://www.nwicpc.ru

http://www.cpc-serbia.org/csr.html

http://www.scpc.sk

http://www.fundacionentorno.org

http://www.forumambiental.org

http://www.sei.se

http://www.bcsd-uk.co.uk

http://www.aeec.com.eg

http://www.maala.com.il

http://www.eeg-uae.org

http://www.usda.gov/sustainable

http://www.usbcsd.org

http://www.newsweek.com/green

http://www.ec.gc.ca

http://www.conferenceboard.ca

http://www.ceads.org.ar

http://www.cedesbolivia.org

http://www.cives.org.br

http://www.fbds.org.br

http://www.akatu.net

http://www.nwicpc.ru

http://www.lebanese-cpc.net

Additional Resources: Who, What, Where, and How 429

for Sustainable Development (www.cebds.org.br). Ethos is an NGO

which works with companies to manage their operations in a socially

responsible manner (www.ethos.org.br). Brazilian Institute of

Corporate Governance (www.ibgc.org.br). Chile: Accion RSE (www.

accionrse.cl). Costa Rica: AED (www.aedcr.com). Columbia: www.

cecodes.org.co. Cuba: Cleaner Production Centre (www.redpml

.cu). Dominican Republic: medioambienterd.org/category/indus-

tria/. Ecuador: www.cemdes.org. El Salvador: www.cedes.org.sv,

Centro Nactional de Produccion mas Limpia (www.cnpml.org.

sv). Guatemala: www.centrarse.org, National Cleaner Production

Centre (www.cgpl.org.gt). Honduras: www.cehdes.org. Nicaragua:

www.unirse.org, Centro de Produccion Mas Limpia (www.cpminic.

org.ni). Mexico: New Ventures Mexico (www.nvm.org.mx), Mexican

Cleaner Production Center/IPN (www.cmpl.com.mx), Ecobanca

(www.ecobanca.org). CONIECO (www.conieco.com.mx) is a league

of environmentally concerned businesses. Certifi cation: www

.cemefi .org – the main CRS certifying entity; www.pactomundialmex

ico.org.mx – the Global Compact in Mexico (www.bioagricoop.

tripod.com.mx www.ceres-cert.com). Panama: IntegraRSE (www

.integrarse.org.pa). Paraguay: Red de Empresa para el Desarrollo

Sostenible (www.redes.org.py). Peru: Peru2021 (www.peru2021

.org). Uruguay: DERES (www.deres.org.uy). Venezuela: CEVEDES

Business Council for Sustainable Development small island devel-

opment network (www.sidsnet.org).

Oceania

Australia: Business Council of Australia (www.bca.com.au),

Department of the Environment, Water, Heritage and the Arts

(www.environment.gov.au). New Zealand: New Zealand Business

Council for Sustainable Development (www.nzcsd.org.nz),

Sustainable Business Network (www.sustainable.org.nz), Zero

Waste New Zealand Trust (www.zerowaste.co.nz), Ministry for the

Environment (www.mfe.govt.nz).

http://www.cebds.org.br

http://www.ethos.org.br

http://www.ibgc.org.br

http://www.accionrse.cl

http://www.aedcr.com

http://www.cecodes.org.co

http://www.redpml.cu

http://www.cemdes.org

http://www.cedes.org.sv

http://www.cnpml.org.sv

http://www.centrarse.org

http://www.cgpl.org.gt

http://www.cehdes.org

http://www.unirse.org

http://www.cpminic.org.ni

http://www.nvm.org.mx

http://www.cmpl.com.mx

http://www.ecobanca.org

http://www.conieco.com.mx

http://www.pactomundialmexico.org.mx

http://www.bioagricoop.tripod.com.mx

http://www.redes.org.py

http://www.peru2021.org

http://www.deres.org.uy

http://www.sidsnet.org

http://www.bca.com.au

http://www.environment.gov.au

http://www.nzcsd.org.nz

http://www.sustainable.org.nz

http://www.zerowaste.co.nz

http://www.mfe.govt.nz

http://www.bioagricoop.tripod.com.mx

http://www.ceres-cert.com

http://medioambienterd.org/category/industria

http://www.ceme%EF%AC%81.org

http://www.pactomundialmexico.org.mx

http://www.integrarse.org.pa

430 Additional Resources: Who, What, Where, and How

How: Keeping up to date

Getting up-to-date information from the web

There are many different online news networks on sustaina-

bility issues. Each has its own fl avor, so take a look at all of

Want more? state of the world reports

Around the same time that companies are busy putting together

their annual reports, the different NGOs and international organiza-

tions around the world are producing their annual state of the world

reports. There are a growing number of these covering every possi-

ble topic imaginable. Here is a selection of popular examples:

• The Living Planet Index published by the WWF is a periodic

update on the state of the world ’s ecosystems (www.panda.org).

• Worldwatch Institute ’s State of the World Report provides yearly

information on issues that are important (www.worldwatch.org).

• The UN produces a wide range of yearly reports covering

every topic imaginable in this area. The UN Commission on

Sustainable Development releases a report every few years with

the latest trends in sustainable development ( sustainabledevel

opment.un.org ). UNEP Global Outlook (www.unep.org/geo) and

UNDP Human Development Report ( hdr.undp.org ) both provide

data on the state of the world. Other specialized agencies pro-

vide annual reports on a range of topics, including the state of

the world ’s children (www.unicef.org), agriculture (www.fao.org),

forests and desertifi cation, to name but a few.

• The World Resource Institute produced Tomorrow ’s Markets:

Global trends and their implication for business, which provides

interesting background on the issues (www.wri.org), and Earth

Trends (www.earthtrends.wri.org) as well as Environmental Stories

to Watch, released every year.

• The Encyclopedia of Earth is an online reference about the

Earth, its natural environments, and their interaction with society

(www.eoearth.org).

http://www.panda.org

http://www.worldwatch.org

http://www.unep.org/geo

http://www.unicef.org

http://www.fao.org

http://www.earthtrends.wri.org

http://www.eoearth.org

http://sustainabledevelopment.un.org

http://hdr.undp.org

Additional Resources: Who, What, Where, and How 431

them and fi nd your favorite. All these have RSS, regular e-mail

newsletters, and cover business and non-business issues. The

boom of social networking sites online has also included many

networks dedicated to social and environmental issues. Some –

such as Facebook, MySpace, LinkedIn, Responsible World

Citizen and Ning – allow you to connect with other people with

the same interests as you or in some cases, create your own

social network.

• Grist ‘believe that news about green issues and sustainability

living doesn ’t have to be predictable, demoralizing or dull.’ They

serve up the latest green news and trends as they say, with extra

butter and salt (www.grist.org).

• Treehugger is dedicated to driving sustainability mainstream

with green news, solutions, and product information (www.tree

hugger.com).

• WorldChanging is a solutions-based online magazine that

brings together the tools, models, and ideas for building a better

future (www.worldchanging.com).

• CSRWire is a newswire for corporate social responsibility ( www

.csrwire.com ).

• Green Biz is an online news and information resource on how

to align environmental responsibility with business success

(www.greenbiz.com).

• PlanetArk provides environmental world news courtesy of the

Reuters news agency (www.planetark.com).

• The Dictionary of Sustainable Management is an open

dictionary for business leaders and students of sustainabil-

ity and business-related terms (www.sustainabilitydictionary

.com).

• Wikia Green is a resource being built online with information

on everything green (green.wikia.com).

• Springwise and Trendwatching are networks of spotters

around the world looking for smart new business ideas ( www

.springwise.com , www.trendwatching.com).

http://www.grist.org

http://www.treehugger.com

http://www.worldchanging.com

http://www.greenbiz.com

http://www.planetark.com

http://www.sustainabilitydictionary.com

http://www.trendwatching.com

http://www.csrwire.com

http://green.wikia.com

http://www.springwise.com

432 Additional Resources: Who, What, Where, and How

• Just means is a distributor of CSR-related news (www.justmeans

.com).

• Google’s green trends allows you to compare the world ’s inter-

est in your favorite topics. Enter up to fi ve topics and see how

often they ’ve been searched on Google over time (www.google

.com/trends).

• Ecorazzi provides the latest in green celebrity gossip ( www

.ecorazzi.com ).

For up-to-date statistics and data

• GlobeScan has several global annual surveys, including the

Corporate Social Responsibility Monitor, Survey of Sustainability

Experts, and Climate Change Monitor (www.globescan.com/

csrm_overview.htm).

• The Cambridge Sustainability Research Digest is a monthly

briefi ng on a selection of the latest global research on leadership

for sustainability (www.cpi.cam.ac.uk).

• Worldometers provides world statistics updated in real time

(www.worldometers.info).

• The Little Green Data Book has a succinct collection of infor-

mation from the World Development Indicators report. Past

yearly editions are available free online (www.worldbank.org).

• International Futures is a computer simulation of global sys-

tems for classroom and research purposes that can be used to

understand demographics, economics, food, energy, the envi-

ronment, and international politics (www.ifsmodel.org).

• GapMinder is a non-profi t venture promoting sustainable global

development through the increased use and understanding of

statistics (www.gapminder.org).

• Show World is a website where maps change their size. Instead

of land mass, the size of each country will represent the data

that you choose – social, environmental, etc. ( show.mapping

worlds.com ).

http://www.justmeans.com

http://www.google.com/trends

http://www.globescan.com/csrm_overview.htm

http://www.cpi.cam.ac.uk

http://www.worldometers.info

http://show.mappingworlds.com

http://www.ifsmodel.org

http://www.gapminder.org

http://www.ecorazzi.com

Additional Resources: Who, What, Where, and How 433

Reading list

Below is a list of books to read to get a better understanding of the

general issues and to be inspired. There are also reading lists at the

end of every chapter in the book.

• Silent Spring by Rachel Carson (1962) looks at the detrimental

effects of pesticides on the environment. The book is often cred-

ited with helping launch the environmental movement.

• The Ecology of Commerce by Paul Hawken (1994) outlines the

environmentally destructive aspects of many current business

practices, but offers a vision of business adopting new practices

to promote environmental restoration.

• Guns, Germs and Steel: The Fates of Human Societies by Diamond

Jared (1997) argues that geographical and environmental factors

shaped the modern world.

• Cannibals with Forks introduced the concept of the triple bot-

tom line (1998) and The Chrysalis Economic: How Citizen CEOS

and Corporations can Fuse Values and Value Creation (2001),

both by John Elkington.

• Natural Capitalism by Paul Hawken and Amory & Hunter Lovins

(2000) explores the lucrative opportunities for business in an era

of approaching environmental limits (available to download free

of charge at www.natcap.org).

• The Sustainability Advantage (2002) and The Next Sustainability

Wave (2005) by Bob Willard explore the business case for

sustainability.

• The Skeptical Environmentalist by Bjorn Lomborg (2001) chal-

lenges widely held beliefs that the global environment is pro-

gressively getting worse using statistical information from

internationally recognized research institutes.

• The World Without Us by Alan Weisman (2007) looks at how our

planet would respond without the relentless pressures of human

presence.

http://www.natcap.org

434 Additional Resources: Who, What, Where, and How

You decide

• Some US hotels are reinventing the mini bar, well at least in cer-

tain luxury hotels. One green mini bar features coconut water,

fermented tea, organic chocolate, and water buffalo milk yoghurt.

Another offers pure Tasmanian rain water, allegedly the purest in

the world, coming all the way from Australia.

• Luxury items cost more to purchase, but are made from the

highest-quality materials, often by hand. They are kept for genera-

tions and generations and do not get thrown out.

• A company has an advertising campaign about how they reduced

their CO 2 emissions by 10% this year. What they don ’t mention is

that this was required by law.

• An electric can opener is labeled as being made of recycled mate-

rial, recyclable, and energy-effi cient. But can something that many

consider to be fundamentally unnecessary (what is wrong with a

hand-held model?) really be called sustainable?

• A company says their product is carbon-neutral, but this is because

the company paid money to a charity rather than doing any work

to reduce their carbon. Can they really say they are carbon- neutral,

and use that as the basis of their advertising campaign?

• How do you choose between society and the environment? A

company may be actively advertising that their product is fair

trade and against animal testing, but is it good for your health?

For the environment? Is it full of chemicals?

1. www.greenbiz.com/podcast/2008/04/14/business-engine-creating- environmental-stewards.

2. On GE ’s website (www.ge.com/fi les/usa/company/news/global_envi- ronmental_challenges.pdf), in a speech to the George Washington School of Business in 2005.

3. Jose Gergio Gabrielli de Azevedo, ‘The Greening of Petrobras,’ Harvard Business Review , March 2009, pp. 43–47.

4. Grow, B., Hamm, S., and Lee, L. (2005) ‘The Debate Over Doing Good,’ Business Week , August 15, 2005, p. 76.

5. Bob Willard, The Next Sustainability Wave , Greenleaf Publishing, p. 21.

6. Michael E. Porter and Mark R. Kramer, ‘Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility,’ Harvard Business Review , December 2006.

7. www.accountancyage.com/accountancyage/features/2193566/ accountinf-sustainability.

8. www.cdproject.net/cdp5-new-york-launch-bill-clinton-video.asp. 9. ‘Industry as a partner for sustainable development,’ Accounting,

Association of Chartered Certifi ed Accountants (ACCA) and the United Nations Environment Program, 2002, available online free of charge, quote taken from p. 7.

10. ‘An Introduction to Environmental Accounting as a Business Management Tool: Key Concepts and Terms,’ US EPA.

11. Molly Finn, Gary M. Rahl, and William Rowe Jr. (Booz Allen Hamilton), ‘Unrecognized Assets,’ strategy5business (www.strategy-business.com/ press/enewsarticle/enews113006), p. 15.

12. ‘Payments for Ecosystem Services: Market Profi les,’ ecosystemmarket- place.com.

13. ‘A rising tide,’ The Economist , September 20, 2008, quote from Dan Flavey.

14. Herman Daly, ‘On a road to disaster,’ New Scientist , October 18, 2008, p. 47.

15. Adapted from Accenture ’s Multi Polar World (www.accenture.com). 16. Adapted from ‘Redefi ning the Future of Growth: The New Sustainability

Champions,’ World Economic Forum 2011.

Endnotes

http://www.greenbiz.com/podcast/2008/04/14/business-engine-creating-environmental-stewards

http://www.ge.com/files/usa/company/news/global_environmental_challenges.pdf

http://www.accountancyage.com/accountancyage/features/2193566/accountinf-sustainability

http://www.cdproject.net/cdp5-new-york-launch-bill-clinton-video.asp

http://www.strategy-business.com/press/enewsarticle/enews113006

http://www.accountancyage.com/accountancyage/features/2193566/accountinf-sustainability

http://ecosystemmarket-place.com

436 Endnotes

17. ‘A special report on globalization,’ The Economist , September 20, 2008. 18. Jason Scorse, ‘What Environmentalists Need to Know About Economics,’

pp. 33ff. 19. www.wbcsd.org/plugins/DocSearch/details.asp?typeDocDet&Object

IdMzI5MDM. 20. ‘How Much is an Ecosystem Worth? Assessing the Economic Value

of Conservation,’ World Bank, IUCN and The Nature Conservancy, International Bank for Reconstruction and Development/World Bank, 2004.

21. Marlies Wierenga, ‘A Brief Introduction to Environmental Ecomomics,’ ELAW, August 2003, p. 2.

22. List adapted from http://corporateecoforum.com/valuingnaturalcapi- tal/offl ine/download.pdf.

23. EntreNews , EFMD ’s Entrepreneurship Innovation and Small Business Network Special Issue 1/2006, www.efmd.org/attachments/tmpl_1_ art_050222usmw_att_060627bxsd.pdf.

24. www.unssc.org Human Rights and Business Learning Tool. 25. Saul W. Gellerman, published in ‘Why “Good” Managers Make Bad

Ethical Choices,’ Harvard Business Review , July–August 1986. 26. www.ethics.org/resources/decision-making-process.asp. 27. ‘Business Against Corruption: A framework for action,’ Transparency

International, the Global Compact, and IBLF. 28. www.unglobalcompact.org/docs/news_events/8.1/clean_business_is_

good_business.pdf. 29. Joseph L. Badaracco Jr and Allen P. Webb, ‘Business Ethics, A view

from the trenches,’ California Management Review , Vol. 37, No. 2, Winter 1995, p. 2.

30. ‘Banking on Sustainability,’ March 2007, International Finance Corporation, http://www1.ifc.org.

31. www.ft.com/cms/s/0/0dbb3a24-e406-11dd-8274-0000779fd2ac. html?nclick_check=1.

32. ‘The Prudent Investor,’ from Generation IM Foundation, p. 6. 33. www.cfapubs.org/doi/pdf/10.2469/ccb.v2008.n2.1. 34. ‘Scientists of the Subprime: Can biologists avert another banking cri-

sis?’ by Ehsan Masood, for guardian.co.uk, February 17, 2011. 35. http://www.f t.com/intl/cms/s/0/293fc3c4-1196-11de-87b1-

0000779fd2ac.html#axzz2Mb0fm2DQ. 36. Anthony Kleanthous and Jules Peck, ‘Let Them Eat Cake,’ WWF 2004.

www.wwf.org.uk/fi lelibrary/pdf/let_them_eat_cake_abridged.pdf. 37. www.greenmarketing.com/index.php/articles/complete/ power-of-green/.

Quote by Jacquelyn Ottman. 38. biggreenpurse.com.

http://www.wbcsd.org/plugins/DocSearch/details.asp?typeDocDet&ObjectIdMzI5MDM

http://corporateecoforum.com/valuingnaturalcapital/of%EF%AC%82ine/download.pdf

http://www.efmd.org/attachments/tmpl_1_art_050222usmw_att_060627bxsd.pdf

http://www.unssc.org

http://www.ethics.org/resources/decision-making-process.asp

http://www.unglobalcompact.org/docs/news_events/8.1/clean_business_is_good_business.pdf

http://www1.ifc.org

http://www.ft.com/cms/s/0/0dbb3a24-e406-11dd-8274-0000779fd2ac.html?nclick_check=1

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Endnotes 437

39. Ken Peattie, ‘Rethinking Marketing: Shifting to a greener paradigm’ in Greener Marketing by Martin Charter, Greenleaf Publishing, p. 62.

40. www.nytimes.com/2009/01/31/science/earth/31compete.html?_r51. 41. Envirowise, ‘Cleaner Product Design: An introduction to cleaner

design,’ p. 6. Other three stats from Envirowise, ‘GG296 Cleaner Product Design: A practical approach,’ both fi rst published in September 2001, p. 8.

42. Based on the ‘12 Principles of Green Chemistry’ from Paul T. Anastas and John C. Warner, Green Chemistry: Theory and Practice . New York: Oxford University Press, 1998 and www.epa.gov/gcc/pubs/principles. html [accessed October 20, 2008].

43. Ed Douglas, ‘There ’s gold in them there landfi lls,’ New Scientist , October 1, 2008. www.newscientist.com/article/mg20026761.500-theres-gold- in-them-there-landfi lls.html.

44. www.unep.fr/shared/publications/pdf/DTIx0585xPA-WhyLife- cycleEN.pdf.

45. Beth Holmes, ‘Good to be green,’ HourGlass , HR Issue 11, September 2008, PwC, p. 27.

46. Seven Languages for Transformation: How the way we talk can change the way we work by Robert Kegan and Lisa Laskow Lahey, 2001.

47. Duncan Angwin, Stephen Cummings, and Chris Smith, The Strategy Pathfi nders , Blackwell Publishing, 2007, p. 7.

48. ‘Development Collaborations: None of Our Business? Non- Governmental Organization Transformation and the Evolution of Cross Sectoral Partnerships in the 21 st century’ by Gib Bulloch, Accenture, 2008.

49. www.uneptie.org/outreach/home/SE_%20Handbook(sm).pdf P1: Map- ping your stakeholders, p. 22, volume 2.

50. The Future of Corporate Responsibility Codes, Standards and Frameworks , by Ernst Ligteringen and Simon Zadek; defi nition taken from p. 1.

51. Business for Social Responsibility. Green Building Design Issue Brief, www.bsr.org.

52. ert.rmi.org/fi les/documents/CGU.RMI.pdf.

http://www.nytimes.com/2009/01/31/science/earth/31compete.html?_r51

http://www.epa.gov/gcc/pubs/principles.html

http://www.newscientist.com/article/mg20026761.500-theres-gold-in-them-there-landfills.html

http://www.unep.fr/shared/publications/pdf/DTIx0585xPA-WhyLife-cycleEN.pdf

http://www.uneptie.org/outreach/home/SE_%20Handbook(sm).pdf