hether lured by the promise of new
opportunity or pushed by the fear of mounting risks, a
growing number of public companies are starting to think
a little more altruistically—and paying more attention
to their ability to sustain themselves well into the
future.
“Corporate sustainable development” is a new way of
doing business for U.S. companies in particular, where a
short-term emphasis on profitability has long driven
corporate strategy and decision-making. Now, says David
Vidal, research director for global corporate
citizenship at The Conference Board, businesses are
starting to turn a corner.
The Conference Board recently surveyed nearly 200
major companies about their views on corporate
citizenship and sustainability, with two-thirds
reporting that the issues are becoming more important
within the organization.
Vidal |
“It’s
generally accepted and understood that company conduct
in the United States is driven more by a compliance
culture than a norms culture,” Vidal says. “If you start
from that perspective, you can see where a compliance
approach only gets you as far as the latest lagging
indicator. You’re [as] compliant as consensus has agreed
upon. It doesn’t do much to help you with emerging
issues.”
An emphasis on sustainability, however, focuses on
leading-edge thinking and practice rather than the
lagging edge, Vidal says. Companies—and investor
groups—are starting to look more cautiously at the
depletion of natural resources, and the surge in
business enterprise systems around the world, and they
see a need to think differently.
“The core has been to do business, get a return on
that investment, and move on to something else, without
much concern for the consequences of that legitimate
business activity,” he says. “That’s where
sustainability is changing what is understood to be at
the core. The way you run your business has to be
different if there’s a conflict between your success and
society’s success, or vice versa. If you’re depleting
your resource base and it has a consequence for the
resource base of the world, is that a viable, long-term
approach for our survivability?”
Sustainable Development In Action
Various themes of sustainability have sprung up over
the years to focus on environmental concerns or
employment issues, but the sustainable development
movement is meant to take in the full gamut of issues
that might define good corporate citizenship and
responsibility. That might include not only resource
conservation and pollution prevention, but also human
rights and employee relations.
Graff |
Susan
Graff, principal of consulting firm Environmental
Resource Services, says she sees that attitude growing
within the ranks of Fortune 200 companies, where
sustainability isn’t just a philanthropic movement, but
a business approach. “It’s a business approach to
creating value by creating opportunities and managing
risk,” she says. “I can’t think of a company that
doesn’t see this as a way of mitigating risk.”
Graff counsels companies to think of their
surrounding environment—people, natural resources,
consumers, and so forth—as a ledger. “Those are rich
sources of capital,” she says. “If you’re not sensing
changes in your natural resources ledger and responding
with products that mitigate depletion, you’re running a
risk.”
|
|
| Below is an excerpt from a white
paper on sustainability published by the
International Federation of Accountants, titled,
"Professional Accountants in Business - At the
Heart of Sustainability?"
Source
 IFAC Report On Accountants
& Sustainability (August 2006)
| | |
At
Wal-Mart, for example, the company is taking notice of
the difficulty in siting new retail locations, Graff
says. Local communities often dislike the big-box
retailer’s notorious dominance, and increasingly are
resisting efforts to establish new stores. As a result,
Wal-Mart is calling on vendors to compress package sizes
so the company can operate within a smaller footprint,
she says.
3M started its sustainability efforts by building on
a successful pollution prevention campaign that took
root some 30 years ago, says Keith Miller, manager of
environmental initiatives and sustainability at the
company. In targeting pollution, the company found it
also was creating less waste, which flowed through to
the bottom line.
Miller |
“We
showed we could not only reduce pollution but also save
the company money,” he says. “That gave us a business
case for getting involved in sustainability.”
That first effort has mushroomed into a variety of
initiatives, he says, all based on good business sense.
The company has built a positive reputation for good
environmental practices, good for marketing, and has
established operational efficiencies, which saves money.
3M also has focused on market opportunities, creating
environmentally friendly products that appeal to
environmentally conscious customers.
And the sustainability path is a means of managing
risk at 3M, Miller says: As it reduces emissions and
addresses environmental problems, it reduces possible
liability in the future.
All of those efforts can be leveraged to improve the
company’s hiring efforts as well, Miller contends.
“There are a number of studies that show the top
students coming out of college are looking to work for
companies that are ethical, have good environmental
programs and are doing the right things,” he says. “This
helps us attract and retain good employees. People want
to work for a company that has good social programs. It
improves the morale in the company.”
Weites |
For
some companies, it takes a wake-up call to get the
process started, says Sandrijn Weites, senior vice
president of sustainable strategy and reporting for ABN
Amro Bank in Amsterdam. The bank is one identified by
the International Federation of Accountants as a model
of sustainability thinking as the concept takes root in
Europe.
ABN Amro received its wake-up call in 1998, Weites
says; that’s when the bank financed a mining operation
in New Guinea, then became the subject of petitions and
protests over the way the mine was operated.
“We did our homework and two weeks later a senior
executive said you’re right, we’re financing a mine
where human rights issues and environmental pollution
issues are occurring,” says Weites. Sustainability
suddenly had much more appeal.
Ultimately, the bank worked with the mining company
to work out problems and continue the operation, but it
inspired ABN Amro to formulate its corporate values and
business principles and measure future projects against
those standards.
“We exist because our shareholders allow us to
exist,” Weites says. “We need to respect all of our
stakeholder groups in order to be sure we’re allowed as
a company to stay in business.”
Making The CSR Commitment
The decision to follow a path of sustainability may
or may not represent an upfront cost to companies,
depending on their line of business and how they choose
to tackle the issue. For 3M, the pollution- prevention
program reaped a quick cost savings to easily justify
the decision, Miller said.
Silvers |
In
the short term, a move toward sustainability is likely
to hit the bottom line, says Samuel Silvers, a principal
with Deloitte Consulting. “If you view it as a cost and
not an investment in the future, it’s more expensive,”
he says. “In the short-term, on a profit-and-loss basis,
where capital markets view value being driven, right now
the markets are not giving a premium for organizations
following sustainable development.”
The costs of ignoring longer-term issues aren’t
necessarily immediately obvious, but they will make
themselves apparent soon enough, Graff at ERS says,
especially with issues like environmental problems or
employee turnover.
“Ledgers are set up to capture costs, and they don’t
catch all the indirect costs,” she says. “But the future
costs of natural resource consumption are expensive. The
company may win in the short-term [by ignoring
longer-range issues] but eventually someone is going to
pay.”
Silvers says the core financial processes for an
organization that embraces a sustainable development
view may not change. Instead, it is the performance
metrics that will change.
For example, he says, a company might choose to pay
closer attention to the percentage of energy consumed
via various energy sources, or the depletion and
consumption of raw materials. From a personnel
standpoint, a company might shift its attention away
from recruitment costs and instead focus on turnover
costs.
“Measurement drives behavior,” Silvers says. “The
finance function would act as a catalyst toward behavior
change.”
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