A business case for sustainability

Session3

Why should business organizations

be concerned about sustainability
How are they impacted by issues related to
sustainability
How do they impact the issues related to
sustainability

Some key issues for firms

Is there a business case for sustainability?
Is sustainability necessary to be competitive?
Is sustainability permanently on the
management agenda?

Shared value?

Towards a theory of a sustainable firm

Firms allowed to exist in society
Value creation in society
No long term damage

Firms
Differing concerns about sustainability
Perceptions of impact
Actions based on this
E.g Strategies for responding to greenhouse gases
varies with each firm having its own reason for
preparing to respond or ignoring the laws.

Influences on environmental management practice

Secondary
stakeholder layer

Industry layer

Firm layer

Functional layer

Lenders/Creditors

Type of industry

Ownership
characteristics

Positioning strategy

Government
regulation pressure
groups

Industry risk Media

exposure

Firm size,
financial health

Financial strategy,
Brand protection
strategy

Public pressure

Customer/buyer
pressures

Age of assets

Quality strategy

Union pressure,
educators

Supplier pressures,
competitive
practices

Environmental
reputation

Cost control
strategy

Nature of impact
Whether global or local impact- MNCs vs local
companies
Nature of impact- eg. Impact or be impacted
(eg. Dupont vs Olam- opportunities and
threats at both ends)
Different nature of impact on different
stakeholders

 The motives for adopting corporate

sustainability practices are classified into
compliance related, eco-efficiency driven
which provides control over environment and
society, and the option of integration of all
environmental and social aspects into
business decisions.

Possible business benefits

Better brand (One incident can tarnish the image

More desirable products and services
Improved productivity
Higher public trust and lower scrutiny
Reduces risk of supply chain interruptions/cost
Cost of capital (Concerned investors)
Lower risk of legal liabilities

Motives for actions related to

sustainability
Corporate actions on the lines of sustainability
are seen as being driven by reasons of
achieving legitimacy particularly the motives
to improve image and be recognized for moral
leadership. Actions supporting sustainability
are also seen as beneficial for the firms long
term interests and helping to meet
stakeholder expectations

Corporate level focus on sustainability

Decisions that impact sustainability include
those related to
Deciding what will be produced
How it will be produced
By whom will it be produced
And other implications for various stakeholders

Approaches by firms

Understand the significant impacts

Identify key stakeholder issues
Make it relevant (link opportunities and risks)
Back it up (provide examples and data)
Keep it dynamic and updated

Preparation for a scenario of regulation enforcing

environmental regulations in the future may be an
approach for several forward looking firms

 Corporate environmental strategy is seen as a

dynamic process where experimentation through
environmental actions sets in process a virtuous
cycle, through a sequential increase in the firms
environment related capabilities
It has been suggested that firms that adopt higher
order sustainability activities (which involve radical
changes in the products and processes- which may
disrupt existing products and firms) may have higher
payoffs than other firms.

Financial implication of environmental activities

companies which place emphasis on sustainability
practices have higher financial performance
measured by return on assets, profit before taxation,
and cash flow from operations compared to those
without such commitments in some activity sectors.
higher financial performance of sustainable
companies has increased and been sustained over
the periods 20062008, 20062009, and 20062010,
respectively.

 Why is the triple bottom line a desirable

yardstick for a business firm.

It is argued that while the TBL has three

dimensions, the economic dimension has
special significance because it has a direct
linkage with the success of the business in the
long term and in the short term

Critique of TBL
The concept as such is vaguely defined and understood
(and inherently misleading- there is no bottom line)
Not easy to measure social and environmental aspects
The concept assumes that firms reporting social and
environmental performance will have better financial
performance in the long run
Transparency? Why should stakeholders know
everything?
CSR was alive and well before the TBL movement
Comparative performance assessment using TBL is
difficult

 It is suggested that even firms that have

invested in activities supporting sustainability
are not clear whether this stance will result in
increased profitability or not.
In emerging economies, firms are aware of
environmental and social aspects but their
actions on these dimensions are primarily
driven by recycling (cost), regulations, and
keeping up with global competition

Some differences in approaches

Organization for sustainability. This approach is normative and
departs from an ambition to acknowledge environmental and
social concerns. In practice, this approach implies use of
environmentally friendly means of production and products
together with supporting, maintaining and developing social
engagement.
Sustainable organization. This approach is mainly concerned
with traditional business management. Since sustainability is
primarily dealt with as the business or organizational goal the
concept is used to denote an ambition to find means that will
make the organization or business last.
Sustainable businessBusiness directed measures on the other
hand aim to maintain a process approach emphasizing
entrepreneurial activities. Will deal with for instance learning,
intrapreneurship and innovation

Roles in green innovation

Unlockers
Challenge dominant frameworks,
enable experimentation through trial and error
establishment of alternative platforms to brainstorm

Connectors
Connect the environmental mission with mission, vision, strategy,
culture, stakeholders & operations
Provide budgets and outcome measures for meeting sustainability
related goals

Transformers
Shift from short term profit agenda to long term sustainability
Change operational logic from destructive use of materials to
regenerative use

Entrepreneurial opportunities in
market failure
If problems of environment occur due to
market failure, and entrepreneurship
identifies opportunities in market failure,
enterprises have a role to play in solving the
problem (Environmental entrepreneurship)
Need for new types of firms that can capitalize
on these opportunities

 It is suggested that entrepreneurship will

succeed when entrepreneurs would have found
ways of privatizing elements of the public goods.
However entrepreneurial opportunities may also
be associated with solving the environmental
problems. We also suggest that environmental
entrepreneurship can be best understood using
the ethical business lens.

 Entrepreneurs contribution to solution of

environmental problems is also seen with regard to
reduction of uncertainty, innovation, and allocating
diverse resources and preferences
It is also argued that if the solution is sought through
government regulation, it might lead to the
imposition of a common regulation that may not be
suitable in different contexts whereas local
entrepreneurs could come up with different
solutions

Environmental entrepreneurship

Sustainable investing (IFC)

a process that integrates ESG factors into investment
analysis, stock selection, and active ownership
practices, into the belief that these factors can
improve long-term risk management and, therefore,
that they may increase the investments expected
returns (http://www.ifc.org )

 For business firms, it is argued that the right

question to be asked is not whether it pays to
be green but whether there is a business
opportunity in the new context and how and
when the firm can maximize its returns
(Hoffman, 2005).