Critical Thinking (Impact of Regulatory Requirements on Sustainability Initiatives )

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chapter 10

The benefits of sustainability for corporations and society

Global companies are increasingly faced with difficult dilemmas. There is significant pressure to reduce costs in the supply chain, yet switching to lower-cost suppliers may increase social, environmental, and economic impacts, and reactions from various stakeholders, including employees, customers, regulators, and community activists, may have a detrimental effect on financial performance. Senior management often faces complex decisions about facility location that in simpler times could be made by examining differentials in labor, shipping, and raw material costs. Now social, environ- mental, economic, and political risk must become part of the calculus.

Business unit managers are regularly told by the CEO about the importance of sus- tainability, yet they receive daily pressure to increase short-term profitability. And their bonuses are typically based entirely on profits. Making the decisions (and these are often trade-offs) about achieving excellence in both sustainability and financial per- formance is a big challenge.

Though much has been written and discussed in both the academic and the business press about the motivations for sustainability and how to formulate a sustainability strategy, much less has been said about how to implement sustainability. Managers have often been frustrated by the challenges of execution in complex business organi- zations. Even the most socially concerned senior corporate and business unit managers find it difficult to simultaneously meet social, environmental, economic, and financial goals. In addition, senior environmental, community affairs, and sustainability execu- tives are often frustrated by their inability to obtain the resources they need to execute programs that they are convinced create societal and organizational value.

This book has focused on how to implement sustainability in complex organizations. The question facing most senior general managers and most sustainability, commu- nity affairs, and EH&S managers is not whether to improve sustainability performance but how to do it in their global corporation given the strategies, structures, systems, culture, people, and pressures that already exist. Based on extensive research from

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10. the benefits of sustainability for corporations and society 261

field studies of companies, surveys, examples of company best practices, and other academic and company research and analysis, this book has offered guidance for suc- cessful implementation of sustainability to simultaneously improve corporate social, environmental, economic, and financial performance.

Make sustainability work The Corporate Sustainability Model (Fig. 1.4, page 29) describes the antecedents (driv- ers of success) and consequences (payoffs and measures of success) of investments in sustainability, and a way to analyze the social, environmental, and economic impacts of corporate products, services, processes, and other activities. This model is used to improve decision-making related to both targeted sustainability expenditures and other more general capital and operational investment decisions. It describes the critical role of management control and performance measurement in improving social, environ- mental, economic, and financial performance. It recognizes the importance of both the formal processes of strategy, structure, systems, performance measures, and rewards and the more informal systems of leadership, organizational culture, and people.

The model shows the cause-and-effect relationship between managerial actions and improvements in sustainability and financial performance. The three major sets of impacts, indicated by the numbered arrows, relate to: (1) the direct and specific financial costs and benefits of corporate actions; (2) the social, environmental, and economic (or sustainability) impacts of these corporate actions; and (3) the financial impacts that are a consequence of the sustainability performance and the related stakeholder reactions.

In spite of numerous inputs that act as constraints, managers have significant capa- bility to affect corporate sustainability performance through leadership and the for- mulation and implementation of a sustainability strategy, structure, and systems. The output of these processes is the sustainability performance—that is, the effect of corpo- rate activity on the social, environmental, and economic fabric of society. In addition to having an effect on society, these activities often affect corporate financial performance. Stakeholders (such as customers, employees, regulators, and consumer activists) can have various positive and negative reactions such as additional purchases, consumer protests, employee loyalty or resistance, and government regulations. These stake- holder reactions affect corporate profits and are a part of the business case that has been widely discussed in both academic and managerial circles.1 They also often create valuable feedback on existing sustainability strategies and implementation. Remember that sustainability performance can be both an intermediate output and an ultimate outcome. So social, environmental, and economic impacts are important as companies attempt to minimize the impacts and at the same time to identify opportunities to simultaneously improve sustainability and financial performance.

A better understanding of the implications of decisions and specific actions can improve both sustainability and long-term financial performance. Some companies have already recognized the significant value that can be added by the identification and measurement of social, environmental, and economic impacts into business decisions,

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particularly for environmental expenditures. Though sustainability initiatives are admit- tedly often driven by regulatory requirements, an increasing number of companies are noticing that they frequently result in decreased operating costs and increased revenues. Recent research has shown a strong and positive link between successful sustainability strategy and corporate value. Sustainability can enhance businesses in several ways.2 These are some of the documented payoffs of improved sustainability performance:

Financial payoffs

l Reduced operating costs (including lower litigation costs)

l Increased revenues

l Lower administrative costs

l Lower capital costs

l Stock market premiums

Customer-related payoffs

l Increased customer satisfaction

l Product innovation

l Market share increases

l Improved reputation

l New market opportunities

Operational payoffs

l Process innovation

l Productivity gains

l Reduced cycle times

l Improved resource yields

l Waste minimization

Organizational payoffs

l Employee satisfaction

l Improved stakeholder relationships

l Reduced regulatory intervention

l Reduced risk

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10. the benefits of sustainability for corporations and society 263

Although executives increasingly recognize the importance of sustainability for ful- filling responsibilities to communities, increasing shareholder value, and improving social, environmental, economic, and financial performance, they have often not been able to implement it successfully. Many managers decide that they cannot develop the systems to effectively implement sustainability in their organizations. Implementing sustainability is particularly difficult because:

l The goal is to simultaneously achieve excellence in social, environmental, economic, and financial performance

l It is often unclear how to make trade-offs

l It is often unclear how stakeholders will respond

l Corporate and societal priorities often change

l The costs of implementing sustainability constantly change

Whereas in most other organizational changes the sole objective is to improve financial performance, sustainability has broadened the focus to simultaneously improve social, environmental, economic, and financial performance. Managers can find it hard to evaluate the trade-offs between sustainability and financial performance when excel- lence in both is expected. The social, environmental, and economic impacts of corpo- rate activities also have effects that are often long-term and more difficult to measure than most of the impacts managers typically confront. However, through a mix of lead- ership, strategy, and “hard” and “soft” systems, sustainability can be implemented and measured successfully.

To integrate sustainability into day-to-day decision-making, companies need to make sustainability a central tenet of their strategy and exercise leadership to reinforce these objectives throughout the organization. However, for improved sustainability perform- ance, strategy and leadership are only minimum enablers. Best-practice companies will have a strategy that includes sustainability and leaders who will show their commit- ment to sustainability by articulating trade-offs to managers and aligning the organiza- tion’s strategy, structure, systems, people, and culture.

Companies also have a choice of hard or soft implementation systems. Hard sys- tems are the formal systems that include structure, performance measurement and evaluation, and incentive systems used to motivate employee behavior. Performance measurement systems and rewards that include a broader set of performance met- rics than financial performance alone encourage employees to include sustainability in their day-to-day decision-making. Soft systems are the informal systems such as organizational culture and people and they too can motivate behavior. A strong mis- sion statement emphasizing the need for sustainability can convey to employees the importance of sustainability as a core corporate value. Some companies may prefer soft systems to hard systems in order to implement it; others may choose a mix of the two.

This book has presented many examples of company sustainability strategies, struc- tures, and systems. General Electric’s Ecomagination program or Nike’s Considered Index® focus on innovative products to decrease social, environmental, and economic impact but is primarily focused on profit. Timberland’s collaboration with City Year involves employees in sustainability. Novartis and Procter & Gamble use leadership commitment, people, and culture to drive sustainability throughout the organization.

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Canon uses life-cycle analysis to improve sustainability performance. Though why and how they implement it may vary significantly, most company leaders recognize the critical importance of stakeholder engagement and improved identification, measure- ment, and management of corporate sustainability performance.

Many of the companies presented throughout the book have faced scrutiny for their past environmental, economic, and social impacts, but most are making sincere efforts to improve their sustainability performance. The discussion around sustainability is no longer primarily focused on Patagonia, Ben & Jerry’s, or The Body Shop. It now includes companies with huge social and environmental footprints such as General Electric, Walmart, and The Home Depot which are trying to face the significant challenges of simultaneously achieving excellence in financial and sustainability performance.

We have centered this book on how companies can integrate social, environmental, and economic impacts into management decisions and implement a corporate sustain- ability strategy. In Chapters 1–9, we discussed the components of corporate sustain- ability integration. They provided guidance on the best corporate practices and ways to implement a sustainability strategy. Here is a summary of the four steps that will help managers to get started or to progress if they have already embarked on the process.

Steps to sustainability strategy implementation 1. Make sustainability a central component of strategy

2. Be committed to sustainability and build additional organizational capacity. Actions are more difficult to specify so distributed leadership is more critical

3. Support with formal processes such as management control, performance measurement, and reward systems as appropriate. Support with informal processes such as mission, organizational culture, and people as appropriate

4. Use sustainability processes and systems to learn how to make the trade-offs and make the challenging managerial decisions. Integrate sustainability into all strategic decisions and then introduce additional systems and rewards to formalize and support

Leadership and strategy are key components in improving sustainability and finan- cial performance. The CEO communicates the importance of sustainability to the organization and establishes a culture for integrating sustainability into day-to-day decision-making. This communication usually begins with a strong mission statement that conveys the company’s commitment to sustainability and encourages employees to consider sustainability as an important part of their responsibilities. Commitment to social, environmental, and economic concerns must be consistently communicated both in words and actions. In developing sustainability strategies, corporate executives will also have to consider the role of various voluntary and industry standards, govern- ment regulations, and social investors.

Organizational design affects the success of sustainability and financial performance and should consider the merits of centralized or decentralized sustainability units, out- sourced activities, and collaborations with NGOs. Sustainability managers should have direct access to senior corporate officers. Sustainability departments should be charged

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10. the benefits of sustainability for corporations and society 265

with the development and implementation of corporate sustainability strategies and improved management of resources rather than only legal compliance. Integrating sus- tainability throughout the organization can also lead to a change in organizational culture where everyone views sustainability as important to long-term financial performance.

Management systems are critical to any successful implementation. This includes costing, capital investment, and risk management systems. To improve decision- making, companies should integrate accounting and financial analysis techniques including risk assessment into sustainability decisions. Current and future social, envi- ronmental, and economic impacts (costs and benefits) should be included in all corpo- rate decisions including product costing, product design, and capital investments. This integration will permit improved analysis of choices among product improvements, process improvements, and capital improvements and greater understanding of uncer- tainties related to changing regulations and technology.

All employees must view sustainability performance as critical to the long-term financial success of the corporation. Incentives based totally on profits provide a sig- nal that social, environmental, and economic performance is unimportant. Corpora- tions should consider sustainability performance as a variable in the evaluation of total corporate performance and provide incentives for employees to suggest social, environmental, and economic improvements. These suggestions will ultimately lead to corporate profit improvements.

Measuring the payoffs of sustainability actions is difficult but critical. Measures are usually imprecise and data difficult and expensive to collect. However, the business case for sustainability can be made only by measuring sustainability performance. Measur- ing the processes and the results is key to evaluating effectiveness. Managers need to think broadly and consider both current and future impacts, as well as impacts on both the company and society. Various techniques, including revealed preference and stated preference methods, can aid companies in measuring their sustainability impacts. Additionally, companies can select from the metrics we have described in this book to measure the inputs, processes, outputs, and outcomes of sustainability investments.

A feedback system helps identify areas where products, processes, and performance can be improved. Measurement systems should provide information that manage- ment can act on to improve sustainability and financial performance. This information should be reported internally, not only to management but also to all employees so that adjustments can be made to improve performance. Internal reporting is also a means of conveying to employees that sustainability performance is important to the organization.

Don’t forget external stakeholders. External reporting is an opportunity for compa- nies to share information about its sustainability performance to stakeholders. And verification of sustainability reports will increase stakeholder confidence in the quality of the reporting.

Success at Henkel

Henkel, a German-based manufacturer of laundry and homecare products, cosmetics, toiletries, and adhesives, began integrating sustainability into its corporate strategy in the early 1990s. At that time, sustainability was a corporate priority, but the structure and systems to implement sustainability had not

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been developed. Henkel has now created a structure and system to incorporate sustainability into day-to-day decision-making.

The Henkel management board bears overall responsibility for sustainability strategy and compliance. Chaired by a management board member, and reflecting all areas of the company, the Sustainability Council steers global sustainability activities as a central decision-making body. Its members represent the business sectors and all corporate functions responsible for putting sustainability strategy into operational action.

To further integrate sustainability into the organization, Henkel uses a mix of soft (informal) and hard (formal) systems. First, it established a Code of Conduct with the most important corporate principles and behavioral rules. This is supplemented by guidelines for dealing with potential conflicts of interest. Further corporate standards address specific topics such as: compliance with competition and antitrust laws; safety, health, environment, and social standards; and public affairs. Hard systems at Henkel include integrated management systems and regular audits that are performed at facilities to measure progress toward achievement of sustainability goals. Facilities also conduct self-assessments on safety, environmental protection, and occupational health and safety. By using a combination of soft and hard systems, Henkel has created a culture that motivates employees to take sustainability seriously.

The company is ranked as a sustainability leader on several global and European sustainability assessments. From 2008 alone, it has decreased energy consumption by 30%, CO2 emissions by 29%, and water consumption by 35%, while production volumes have been rising since 2010. Henkel believes that its focus on creating a culture of sustainability, manufacturing innovative products, and developing efficient processes has contributed to its overall growth and financial performance.4

Use the Corporate Sustainability Model to improve performance To move toward a more advanced stage of sustainability integration and improve the decision-making process, the drivers of sustainability performance and the linkages between them must be measured. A clear understanding of the broad set of impacts that are caused by corporate activities and an understanding of these impacts on stake- holders will also aid managerial decisions.5

Furthermore, translating strategy into action requires appropriate systems, struc- tures and measures that provide managers with both information about their current and past performance, and insight into their ability to improve their competitive posi- tion in the future. Only with such systems and measures can managers make day-to-day

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10. the benefits of sustainability for corporations and society 267

and long-term decisions while being aware of risks and opportunities. This will also help to define the strategy, communicate a clear agenda for expected sustainability per- formance, accelerate feedback and learning, and inspire loyalty among stakeholders. Indeed, it will provide managers with relevant information to quantify their efforts and evaluate their impacts on stakeholders and ultimate financial performance.6

Improved sustainability performance will be produced by focusing on the following areas of management and leadership attention:

Understand the cause–effect relationship A model for sustainability performance should accurately capture the range of corpo- rate activities, the relevant effects of those activities, and define the cause–effect links that are crucial to the corporation’s success. The first imperative is to learn more about how those relationships are currently functioning. The links are based in part on man- agers’ experience and intuition. Employees, customers, and other stakeholders are a helpful source of hypotheses about links involving their own behavior and impacts. These links cannot be managed if they cannot be observed and measured (in com- mensurable units—preferably denominated in money—if at all possible), so managers should develop relevant indicators for each link from inputs to processes to outputs to outcomes, with measures at each end of each link. A well-designed, comprehensive, and accurate model defines the (presumed) links that must be observed—carefully and in detail—in order to facilitate improved performance.

Analyze and measure links With accurate observational data replacing untested beliefs and assumptions, manag- ers are in a position to conduct performance-enhancing analyses of their programs, projects, and activities. Precise measurement is challenging, but approximations are very useful. Since ignoring those impacts that are difficult to measure implicitly assigns a value of “zero,” managers must be willing to accept approximations and pre- dictions that point in the right direction. Using their explicit hypotheses about the effects of various actions, establishing measurable indicators of the actions and the effects, and analyzing the results, managers can systematically optimize their methods, approaches, and actions, and can find more efficient and effective allocations of time, effort, and funding across different activities.

Evaluate and learn from performance By articulating explicit hypotheses about cause and effect and establishing measurable indicators at each end of the cause–effect links, managers have established conditions in which not only optimization but also systematic ongoing learning is possible (and even likely). Internal and external changes can lead to a change in the causal links and among the metrics. By forming comparisons—with prior performance, to a com- petitor’s performance, or to performance in a different business unit—managers can determine those techniques, approaches, and actions that seem to produce the best results.

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Use the links to produce alignment and drive action Senior managers must consistently support the process of identifying and measuring causal relationships. Managers should communicate these relationships throughout the organizations to actively encourage their consideration in day-to-day decision-making.

Building and operating systems that communicate management objectives and the results of learning efforts to guide and align actions throughout the organization with the best current understanding of which activities create the most value is an essential step for enacting what has been discovered and learned. Effective systems of this kind both collect and promulgate organizational knowledge and ensure that it is effectively implemented.

Create opportunities for innovation As discussed throughout the book, organizations are facing increased risks, from more sources with greater impact. Some current issues include:

l Poor working conditions and child labor

l Environmental emissions/climate change

l Joint-venture partner risk

l Unstable or corrupt governments

l Potentially dangerous products

l Nutrition and obesity

l Interrupted supply

l Unsafe supply

But these increased risks also create new opportunities for innovation to improve both sustainability and financial performance. So what can business leaders do to better integrate sustainability into operational and capital investment decisions? How can business leaders focus on both risk and opportunity in using innovation to increase both corporate profitability and sustainability?

The answers to these critical questions require: (1) more innovation and entrepre- neurship from leaders in sustainability; and (2) more sensitivity to sustainability issues by innovation and R&D, business unit, and functional leaders. It requires companies to think not only about corporate social responsibility (CSR) but also corporate social opportunity (CSO).

Companies can become leaders in corporate sustainability by creating proactive strategies that create opportunities and increased profits rather than using reactive strategies that only respond to government regulations, industry standards, or con- sumer protests. The opportunity to gain competitive advantage through proactive sus- tainability strategies can be seen in companies such as General Electric and Toyota.

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Leadership companies view social, environmental, and economic responsiveness as an asset, producing increased revenues rather than a liability with the associated costs. They recognize that an investment in structures and systems to ensure strong social, environmental, and economic performance often pays dividends in terms of improved process and production quality, improved production efficiency and yields, lower risk, improved reputation, and increased profitability.7

Unfortunately, many companies forgo opportunities that might appear initially to be too risky but have not been formally analyzed. Risks can also present opportunities and provide significant possibilities for organizational innovation and new competitive advantage that can lead to improved sustainability and financial performance. Some companies may have superior organizational knowledge and capabilities which permit them to accept risk and respond to it effectively, while their competitors avoid potential opportunities because of their organization’s assessment of these risks. Some organi- zations may be able to identify voids in the marketplace that provide opportunities for innovation that others may not see. Often it is the ability to identify and manage risks that others cannot that leads to innovation and market success. A company’s ability to use tools to simultaneously perceive and assess risk and opportunity can enable it to manage offensively as an opportunity rather than defensively as a hazard.8 The chal- lenge for companies, then, is to develop strategies that anticipate the changing busi- ness landscape and use social, environmental, and economic pressures as a source for innovation.

Capturing opportunity: Toyota and the hybrid car

Aggressively seeking out opportunities for social, environmental, and economic improvements, with the explicit goal of investing in innovation, can produce significant advantage that the competition will not be able to easily or quickly match. Toyota is an example of how an organization can respond to social, environmental, and economic pressures through innovation while improving its financial performance.

Trying to envision what might transform its industry and threaten its market share in the future, Toyota’s leaders convened a team to create the first great car of the 21st century in 1993, nearly a decade before that century arrived. Toyota’s leadership pushed the team beyond the technological limits that it had previously worked within, and created a new equal-access system of communication and information-sharing to replace the traditional hierarchical model. It also brought engineers normally based at production plants to the planning floor to work out glitches at the blueprint stage, before the new car was being produced on the assembly line.

The Toyota Prius, an electric/gas hybrid, was introduced in Japan in 1997 and in the US market in 2001. The Prius has an average fuel efficiency of 28.9 miles per gallon. Realizing that the US market differs from others, the Prius was altered to appeal to American car buyers. The US version had more horsepower and cargo space than the Japanese model.9 Toyota has sold more than 4 million hybrid cars worldwide since introducing them in 1997. Over the intervening years, Toyota has expanded its range of cars fitted with hybrid engines to include minivans, sedans, SUVs, and wagons, broadening the scope of hybrids. Co

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In addition, responding to the increasing environmental awareness of customers in recent years and the demand for fuel-efficient cars, Toyota has developed the compact and affordably-priced car, Aqua. The concept behind Aqua is to present a revolutionary hybrid compact car designed for 2020. It is a lighter and more compact, fun, and easy-to-drive car, boasting the best fuel efficiency at an affordable price. It has the same hybrid system as the Prius—the Toyota Hybrid System II (THS II)—but most parts, such as the smaller motor, have been redesigned to make them lighter and more compact.

As a result of a series of technological breakthroughs, manufacturing innovations, and careful marketing, Toyota’s sales of hybrid cars account for about a half of all the hybrid car sales in North America. It has a strong reputation in producing environmentally-friendly vehicles.10

Stakeholder engagement plays an important role in seizing opportunities for innova- tion. It is important to evaluate stakeholder impacts and the level of trust or distrust from the perspective of external stakeholders (including activists, consumers, and sup- pliers), internal stakeholders (including employees and managers), and the senior and top management team. This evaluation will often highlight the differences between the real and perceived risk of company impacts and should reduce the likelihood of significant crises or surprises. Companies can respond by more effectively managing perception, reality, or both. Engaging with stakeholders can also help to identify issues that may become critical management concerns in the future. This is all part of an important process that is essential for both improved sustainability and financial per- formance. Effective stakeholder engagement not only improves trust and reputation but also presents opportunities for response to stakeholder concerns through innova- tive products.

Corporate executives need to recognize the opportunities for both technological inno- vation (products) and business model innovation (processes). A change to a product or service that a company offers in the marketplace, or the introduction of an entirely new product or service, is the most easily recognized type of innovation because consumers see the changes first-hand. In today’s fast-changing market, consumers have come to expect significant and recurring technological innovation.

The bottom of the pyramid (BOP), discussed in Chapter 8, provides an excellent opportunity for innovation. For example, Procter & Gamble is providing sachets of ingredients used in large water treatment facilities to individual homes in developing countries to improve the quality of their stored water.11 Investing in the BOP benefits companies because:

l It is a very large and ignored underserved market

l It causes companies to be innovative to sell at affordable prices

l The innovation can be transferred from developing countries to developed economies for increased profits

Alternatively, changes in product manufacturing and service delivery can result in prod- ucts and services that are more socially, environmentally, and economically friendly. These business model changes are usually invisible to the consumer but often vital for

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reducing social, environmental, and economic impacts.12 In Chapter 8, we presented many examples of how companies have used technological innovation and business model innovation to improve sustainability and financial performance.

And, for many leaders, this is where the opportunities lie. For example:

Bill Joy, co-founder Sun MicroSystems: “The Next Big Thing—and the great- est creation of wealth today—is in the green area: not just in the US but also in the developing world—new fuels (ethanol, fuel cells, using biotech to make fuels), new green technologies. This will create the Googles and Micro- softs of the new era.”13

Ellen Kullman, Chair of the Board and CEO, DuPont: “We are focused on addressing the key challenges of the future related to global population growth and looking for opportunities to innovate sustainable solutions. We have identified three specific global areas that come with a growing popula- tion: feeding the world, reducing dependence on fossil fuels and protecting people and the environment.”14

Muhtar Kent, CEO of Coca-Cola: “At The Coca-Cola Company, we believe the most profound and impactful innovations over the next decade and beyond will emerge at the intersection of sustainability and our vast global value chain—the suppliers, retailers, technologies, people, and infrastructure that bring our beverages to market every day around the world. For this reason, we’re working to embed sustainability-minded innovations into every aspect of our business, from sourcing ingredients to increasing beverage options to aspiring to be water neutral and recovering packages for recycling.”15

The objective is to think beyond the current business model. Companies that want to compete will need to explore new ideas, acquire competencies that focus on new markets for the organization or emerging industries or markets, and generate a new business model. Best-practice companies of the future will:

l Develop a strategy, in general and for sustainability, that relies on innovation

l Drive transformation in the organization, creating market-changing ideas and products

l Invest in technological and business model innovation

Leading companies have the power to influence how the rest of their industry will be judged and can benefit from advanced technological and business process innovation. Nike, for example, entered into a strategic partnership with DyeCoo Textile Systems, a Netherlands-based company that has developed and built the first commercially availa- ble waterless textile dyeing machines. By using recycled CO2, the new technology elimi- nates the use of water in the textile dyeing process. Nike believes this technology has the potential to revolutionize textile manufacturing. It will have a particularly positive impact in Asia, where much of the world’s textile dyeing occurs. The removal of water from the textile dyeing process also eliminates the risk of effluent discharge, a known environmental hazard.16 Stakeholders, particularly customers through increased pur- chases, may reward these companies for their responsiveness. And the innovations to increase sustainability performance often increase innovation throughout the com- pany, thereby providing benefits to both corporations and society.

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A last word The results of corporate decisions and strategies are being scrutinized more closely than ever before. Some companies have been ineffective in the development and imple- mentation of a strategy for addressing environmental, social, and economic concerns or integrating these issues in day-to-day management decisions. It is a challenge.

To implement strategies generally, and sustainability strategies particularly, manag- ers need to better understand the implications of their decisions and the actions they can take to produce improved performance. This requires a careful analysis of the key drivers of performance and a measurement of both the drivers and the causal linkages between them. It also requires a clear understanding of the broad set of impacts that are caused by corporate activities and to understand these impacts on a broad set of stakeholders.

The Corporate Sustainability Model provides a comprehensive approach for exam- ining, measuring, and managing the drivers of corporate sustainability. It has been extensively tested and revised in both academic and managerial studies and imple- mentations. Its use by managers can provide a clearer understanding of the impacts of the various past, pending, and future corporate decisions on both the corporation and society. It can aid managers in operationalizing a sustainability strategy and tying it to the specific actions that will improve both sustainability performance and financial performance. Through a careful identification and measurement of key performance drivers, the strategy implementation process is improved.

Though many think that sustainability is too difficult to measure, companies have found that, unless the impacts are measured, they are commonly ignored in the resource allocation process. Thus, sustainability managers do not receive the neces- sary resources for effective implementation, and senior managers do not make the improvements necessary to improve both financial and sustainability performance. The consequences are huge. So what do leading companies do to facilitate integration into day-to-day decision-making? Through a combination of a well-articulated and well- communicated sustainability strategy, senior-management commitment to a broad set of objectives, and use of a variety of management structures and systems, leading com- panies have been able to improve their sustainability performance.

To develop processes more effectively senior managers need to:

l Identify, measure, manage, monitor, and report corporate social, environ- mental, and economic impacts

l Integrate into operational, strategic, and resource allocation decisions

l Assist colleagues in managing the paradox of simultaneously improving social, environmental, economic, and financial performance

l Recognize that strategy, leadership, and implementation tools are all essential components

Without appropriate management systems, corporations may not reap the benefits associated with sustainability performance. The alignment of leadership, strategy, structure, management systems, and performance measures is essential for com- panies to both coordinate activities and motivate employees toward implementing a

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10. the benefits of sustainability for corporations and society 273

sustainability strategy. This must be viewed over a long time horizon so that both the leading and lagging indicators of performance can be examined.

By integrating the evaluation of sustainability performance into the corporate deci- sion-making process, managers can make better operational and investment decisions. To do this, they need to measure inputs, processes, outputs, and outcomes and identify the causal relationships and the specific actions they can take. When this is done, com- panies find that they are more prepared for understating the long-term impacts and have better information for better managerial decisions. With this information, senior sustainability managers and senior corporate and business unit managers can help improve both society and their companies.

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Endnotes

Introduction 1 Greenhouse (2013) “Major Retailers Join Bangladesh Safety Plan.” 2 Brundtland (1985) Our Common Future; Elkington (2006) “The Triple Bottom Line.” In their

recent book, Ehrenfeld and Hoffman (2013) develop the definition of sustainability as “the possibility that humans and other life will flourish on the Earth forever.”

3 Many terms have been used to describe this concept of sustainability. Both academic and corporate use of the words and the concepts vary widely. In some companies or countries, it may be more common to use corporate social responsibility, corporate citizenship, sustain- ability, sustainable development, corporate accountability, stakeholder management, or a variety of other terms. In this book, we will at times use many of these terms to describe the focus of improving the social, environmental, and economic impacts of corporate products, services, processes, and activities.

4 Hoffman and Woody (2008) Climate Change: What’s Your Business Strategy? 5 Cescau (2007) “Beyond Corporate Responsibility.” 6 Coca-Cola (2012) 2011/2012 Sustainability Report. 7 Casey (2007) “Eminence Green.” 8 Harvey (2005) “GE Looks Out for a Cleaner Profit;” General Electric (2013) Our Global

Impact. 9 Mackey et al. (2007) “Corporate Social Responsibility and Firm Performance: Investor Pref-

erences and Corporate Strategies;” Smith and Tushman (2005) “Managing Strategic Contra- dictions: A Top Management Model for Managing Innovation Streams.”

10 Margolis and Walsh (2003) “Misery Loves Company: Rethinking Social Initiatives by Business.”

11 Aram (1989) “The Paradox of Interdependent Relations in the Field of Social Issues in Management.”

12 Epstein et al. (2013) “Managing Social, Environmental and Financial Performance Simultaneously.”

13 Epstein et al. (2009) Managing Social, Environmental, and Financial Performance Simultaneously. 14 Epstein et al. (2009) Managing Social, Environmental, and Financial Performance Simultane-

ously; Epstein et al. (2013) “Managing Social, Environmental, and Financial Performance Simultaneously.”

15 Schnietz and Epstein (2005) “Exploring the Financial Value of a Reputation.” 16 CEMEX (2012) Building the Cities of the Future: 2012 Sustainable Development Report. 17 Batelle Memorial Institute (2002) Toward a Sustainable Cement Industry. 18 Radin (2003) “Chiquita Brands International, Inc.” 19 Entine (2007) “Chiquita Counts the Costs of Honesty.”

-K oe hl er P ub li sh er s. A ll r ig ht s

re se rv ed . Ma y no t be r ep ro du ce d in a ny f or m wi th ou t pe rm is si on f ro m th e pu bl is he r, e xc ep t fa ir u se s pe rm it te d

un de r U. S. o r ap pl ic ab le c

op yr ig ht l aw .