In businesses large and small, corporate sustainability has become a buzzword. Wal-Mart Stores, Inc. (WMT), McDonald's Corporation (MCD) and several of the real corporate giants have defined sustainability as a core priority for going forward.1 2 Other businesses are also under pressure to explain how they expect to contribute and produce their products and services in a sustainable way. This, of course, begs the question of what all this means exactly.
Corporate investment sustainability can come under the words environmental , social and governance ESG or the acronym SRI, which stands for investment that is socially responsible.
Most frequently, sustainability is described as meeting the needs of the present without sacrificing the capacity of future generations to meet their own needs. It has three main pillars: economic , ecological and social. These three pillars are referred to informally as persons, the earth and income.
The Environmental Pillar
The environmental pillar also receives the most focus. Companies focus on reducing their carbon footprints, waste from packaging, the use of water and their overall environmental effects. Companies also discovered that a positive financial effect may also have a beneficial impact on the world. For example, decreasing the amount of material used in packaging typically decreases the total cost on such products. Via their zero-waste campaign, Walmart kept on packaging, pushing via their supply chain for less packaging and for more of the packaging to be sourced from recycled or reused products.
By benchmarking and reducing, other industries that have an undeniable and evident environmental impact, such as mining or food processing, approach the environmental cornerstone. One of the environmental issues is that the influence of an organization is also not entirely cost-effective, which means that externalities are not recorded. It is not easy to quantify the all-in costs of waste water , carbon dioxide, land recovery and waste in general, because corporations are not always the ones on the hook for the waste they generate. This is where benchmarking attempts to measure such externalities in order to control and evaluate progress in minimizing them in a meaningful way.
The Social Pillar
Another loosely defined definition is related back to the social pillar: social license. A profitable organization should have the confidence and approval of its workers, stakeholders and the society in which it works. There are different approaches to gaining and sustaining this assistance, but it comes down to treating workers equally and being a good neighbor and member of the community, both locally and internationally.
On the employee side, organizations refocus on strategies for retention and engagement, including more sensitive benefits such as improved maternity and paternity benefits, flexible scheduling, and opportunities for learning and growth. Companies have come up with many ways of giving back for community engagement, including fundraising, sponsorship, scholarships and participation in local public initiatives.
The organization needs to be conscious on a global social scale of how the supply chain is being filled. Does child labour go through your final product? Are individuals being charged fairly? Is the world safe for work? Many of the major retailers have struggled with this as public outcry at tragedies such as the collapse of the Bangladesh plant, which have shown previously unaccounted for threats from the lowest-cost supplier in sourcing.
The Economic Pillar
Where most companies believe they are on solid ground is the economic foundation of sustainability. A corporation must be successful to be sustainable. That said, the other two pillars can not be trumped by benefit. Currently, benefit at any price is not what the economic cornerstone is about at all. Compliance, proper governance and risk management are activities which fit under the economic pillar. Although for most North American firms, these are already table stakes, they are not global.
Often, this pillar, referring to good corporate governance, is referred to as the governance pillar. This implies that boards of directors and management align with the needs of shareholders as well as that of the society, value chains, and end-user clients of the company. As far as governance is concerned, investors should want to know that a business uses specific and consistent accounting procedures and that stockholders are given the ability to vote on important issues. They will also want guarantees that businesses with their choice of board members prevent conflicts of interest, do not use political donations to get unduly preferential treatment, and, of course, do not participate with unethical activities.
It is the integration of the economic pillar and benefit that encourages businesses to take sustainability policies on board. The economic cornerstone offers a counterweight to radical steps that businesses are often compelled to take, such as immediately quitting fossil fuels or chemical fertilizers rather than gradually reforming them.
The Impact of Sustainability
Whether or not longevity is a benefit for a corporation is the biggest concern for investors and executives. In practical terms, other business trends such as Kaizen, 6 community involvement, the BHAG (Big Hairy Audacious Goal), talent acquisition and so on have co-opted all sustainability strategies. Sustainability provides businesses with a greater mission and some fresh deliverables to aim for and allows them to renew their commitments to fundamental objectives such as productivity, sustainable growth and shareholder value.
Perhaps more significantly, a publicly communicated sustainability approach will provide benefits that are difficult to measure, such as public goodwill and a stronger reputation. If it helps a business get credit for stuff they already do, then why not? However, for businesses that can not point to an overarching vision to build on these three pillars, there is still no real market impact. Sustainability and a public commitment to essential business practices seem to be the norm, just as enforcement is for publicly traded firms. If this occurs, then businesses who lack a sustainability strategy will see a market penalty instead of proactive businesses getting a market premium.
Even if it's a buzzword, sustainability is here to stay. Sustainability provides an opportunity for some businesses to coordinate disparate activities under one umbrella term and receive public credit for it. For other businesses, sustainability means answering tough questions about how and why their business practices may have a serious, if progressive, effect on their activities.
The Bottom Line
Sustainability requires a company's entire supply chain, requiring responsibility from the primary level, through the manufacturers, all the way to the distributors. This could reconfigure some of the global supply lines that have evolved based solely on low-cost production if manufacturing anything sustainably becomes a competitive advantage for supplying multinational corporations. Of course, the situation depends on how firmly sustainability is adopted by businesses and whether it is a genuine change of direction or just lip service.