CSM - Center for Corporate Sustainability Management – IMD

1. CSM - Center for Corporate Sustainability Management – IMD Strategies to integrate sustainability into core business: An update on progress

2. CSM’s new mission as a research and learning platform: Contribute to and propel the successful mainstreaming of social and environmental issues on the corporate strategic agenda through Relevant and practical research Cross-fertilization of corporate learning ... thus helping companies to “get things done” in developing and rolling out viable sustainability strategies IMD’s Center for Corporate Sustainability Management (CSM)

3. The CSM platform is open to: Companies that wish to build a business advantage by building social and environmental issues into their business strategy Companies that either are or wish to become sustainability leaders IMD’s Center for Corporate Sustainability Management (CSM)

4. Companies/organizations we’ve worked with….. Philip Morris Tetra Pak Lombard OdierDarier Hentsch

5. Firms have big issues to address relating to their social and environmental impacts and sustainable development; Firms need to tackle these issues on both a strategic leadership and implementation level; CSM is a leader in the area of sustainability innovation/strategy and leadership in corporations CSM aims to be an increasingly trusted advisor in the area of corporate sustainability strategy design and implementation CSM contributes to IMD vision, values and brand

6. Helping companies to overcome barriers and roll out sustainability strategies internally Ensuring that CSM research is integrated in programs across IMD business school Liaising with external institutions and acting as a facilitator/radar allowing companies to access knowledge in this field (helping with “early awareness” stakeholder consultation) Where can CSM add more value?

7. Numerous books and articles: in peer review journals Research Projects recently completed or ongoing: The business case for sustainability – a cross-industry approach Quantification of sustainability benefits Inside the mind of stakeholders – based on stakeholder perceptions The effectiveness of corporate sustainability partnerships Books published with Palgrave Macmillan: Corporate sustainability partnerships (2008) Business logic for sustainability; A food and beverage industry perspective (2008) Inside the mind of the stakeholder (2006) The business of sustainability (2004) What research?Research Output

8. CSM books Books Inside the Mind of the StakeholderUlrich Steger (2006) Palgrave www.palgrave.com Business Logic for SustainabilityA Food & Beverage Industry PerspectiveAileen Ionescu-Somers &Ulrich Steger (2008) Palgrave MacMillan The Business of SustainabilityBuilding industry cases for corporate sustainabilityUlrich Steger (2004) Palgrave MacMillan Sustainability Partnerships: The Manager’s HandbookUlrich Steger, Aileen Ionescu-Somers, Oliver Salzmann & Stephanie Mansourian (2008) Palgrave MacMillan

9. The challenge of sustainability for business strategy

10. The market economy, left to function on its own, fails to allocate resources to satisfy the needs and wants of the individual and society. Increasing environmental degradation and unsustainable resource depletion is a market failure Non delivery of the social goal of sustained economic growth is a market failure The crux of the matter: Market failures

11. Externalities are present when A) The activities of an economic agent like a firm has external consequences for other agents other than by affecting prices B) These external effects are not compensated for Examples: Traffic congestion, Dumping of toxic wastes, Emission of greenhouse gases, Pesticides in food chains, Acid rain, Ozone depletion Theory of Externalities

12. ADJUST PRICES: The problem is due to incorrect prices so adjust them by using taxes or subsidies CREATE A MARKET: The problem is due to missing markets so, for example, create a market for pollution by use of tradable permits ASSIGN PROPERTY RIGHTS: The problem arises from imperfect property rights which need to be amended Companies INTEGRATE EXTERNALITIES TO THEIR STRATEGIES when economically relevant How externalities are dealt with

13. What’s the problem companies internalizing externalities?

14. Living in a world of multiple crises in a multi-technical communications world Reactions numbed by numbers of headlines that reach our radar screens. It takes big crises to draw our attention to sustainability issues: Some examples that created waves in the public discussion in the ’80s and ’90s: Union Carbide Bhopal Disaster (1984) Chernobyl (1986) Sandoz River Rhine Spill (1986) Exxon Valdez accident (1989) Brent Spar debacle (1995) And now…..more generic: Climate change (provoked by world weather events, The Inconvenient Truth, the Stern Review on Climate Change, the Copenhagen Conference and so on……) What’s the problem?

15. Some examples that created waves in the public discussion in the ’80s and ’90s: Union Carbide Bhopal Disaster (1984) Chernobyl (1986) Sandoz River Rhine Spill (1986) Exxon Valdez accident (1989) Brent Spar debacle (1995) And now…..also more generic: Climate change (provoked by unprecedented world weather events, The Inconvenient Truth, the Stern Review on Climate Change, the Copenhagen Conference and so on……) Issues creating waves

16. Demography: since the ’50s, well over double the population from 2.5 to 5.9 billion 20 per cent of the world population consumes 80 per cent of its resources Higher standards of living in developing countries: Gross national product of the world has increased by a factor of ten since the ’50s Increasing consumption worldwide In a world of some 10 billion by 2050 – will this be socially and politically sustainable? Increased resource use: Since the ’50s: Quadrupling in use of energy worldwide – from 2.5 billion tons of coal-equivalent to 11 billion tons – causing emissions of CO2 to drastically increase The changing state of the world

17. Even at today’s levels of agricultural and industrial production, there are unprecedented social and environmental problems: Ozone depletion Climate change Deforestation Dramatic species loss Collapse of major fisheries Growing poverty and health problems related to unsustainable development Human rights abuses The changing state of the world

18. If a company sees stress signals in its business context, should it do nothing? Companies have an obligation to be compliant with regulation But there is intense debate around the social and environmental responsibilities of companies beyond compliance and within industry Is there a “business case”? The corporate sustainability strategic conundrum

19. So how has the debate been evolving?

20. firms regarded the environment as either a source of free inputs to the economy or a free repository for waste This perspective led to abuse of commonly shared global resources. Firms were effectively “free riders” “THE TRAGEDY OF THE COMMONS” (Hardin, 1968) First half of 20th century:

21. Mounting social pressure A number of factors influenced this: Increase in use and abuse of natural resources Intensity of use of human capital Foundation of intergovernmental organizations Increasing prevalence of NGOs (non-governmental organizations representing civil society during this period After the 2nd World War:

22. 1950s: Scholars launched the modern debate on corporate social responsibility (CSR) argues that if business adopted more comprehensive social goals in its decision-making processes, more social and economic benefits would accrue to society 1960s/70s: Questining of relation between “industrial” man and the environment (Carson’s Silent Spring – 1962, and Club of Rome “Limits to Growth” – 1971) 1987: “Sustainable development is any development which meets the needs of the present without compromising the ability of future generations to meet their needs” (Brundtland Report 1987) Fifties and onwards

23. National governments have become weaker and institutions previously underpinning society (church) have lost influence The public increasingly pressures companies to: take over some of the previous responsibilities of church and state institutions in the broader social context, exercise CSR, or “corporate citizenship” accept accountability for societal welfare Underlying assumption: Companies are more than their “brands” and shareholder value (their traditional focus) So companies are increasingly being held to standards that have moth moral and financial dimensions The power of corporations and the conundrum

24. We’ve moved from a Tri-polar World……… Government Industry Society

25. To a view of the company as part of society……….. Customers Regulators Suppliers NGOs The Public The Company Employees Shareholders Contractors

26. “International companies like ours need to be careful that they don’t pretend to be, or aspire to be, more than they are. We’re in the business of understanding consumers and providing consumers with the products they need, the quality they want, at the price they’re prepared to pay, and doing it in a responsible way. That’s our job. If we begin to have aspirations to somehow or other become supranational, powerful good outside the realm of our own business, we begin to set ourselves up in a way for which we don’t have a brief, - nor a legitimacy.” CEO at the beginning of the Millennium Power of corporations: The conundrum

27. Undercurrent: There must be an economic rationale, or BUSINESS LOGIC, for integrating sustainability To make “sustainability” sustainable, businesses need to go beyond normative arguments, philanthropy and even eco-efficiency (reducing resources to save money) Companies will actively look for the BUSINESS CASE for integrating social and environmental considerations into business strategy. Power of corporations: The conundrum

28. The ‘Smart Zone’ Economic value generated Activity y Company creates economic value by improving environmental andsocial performance beyondcompliance Activity x Further improvements are associated with an economic loss Further improvements of environmental and social performance lead to decreases in economic performance The Smart Zone: Economic gain is high Level of environmentaland social performance Compliance levelof activity under consideration

29. Factors Sceptical management with a “what’s in it for us?” approach Demand for as quantified a business case as possible, with Proof that sustainability management positively impacts the bottom line “The business case is (…………) something that must be carefully honed to the specific circumstances of individual companies operating in a unique position within distinct industries. Successes in whole industries and at other companies are useful examples, but the case still has to be applied to one company at a time.” (Reed, 2001) Power of corporations: The conundrum

30. is a strategic and profit-driven response to social and environmental issues a company is facing has several contingencies, such as: industry and country of operation has several internal and external determinants (drivers/barriers), such as organizational culture tools and processes managers’ mindset Interest/disinterest from key stakeholders (capital markets, customers, regulators, etc.) CSM project conceptual framework: Finding and rolling out the business case for sustainability Corporate sustainability management

31. Research objectives: IMD’s business case research • To examine • The economic reasoning for corporate sustainability • Mismatch of perceptions, attitudes and behavior between sustainability officers and their counterparts • Country- and industry-specific differences in values and restrictions • Pressures undergone by companies to respond to internal and external demands

32. Methodology 1. Review of existing research 2. Pilot survey in reference companies 3. Extensive survey on 9 different industries in 8 different countries (US, Japan and Europe) through • More than 400 face-to-face interviews and • 1068 returned mail/fax/online questionnaires (945 general managers, 123 sustainability officers)

33. “A BUSINESS CASE IS NOT FOUND - IT HAS TO BE BUILT” What is the bottom line? Member of CSM Advisory Council Corporate sustainability is not the next "big thing" - but there to stay

34. 1. “The business of business is business. So companies should comply with the law, but going beyond the law would only sacrifice profits." Attitudes towards corporate sustainability 2. “Profit always comes first for companies. There are win-win situations in which companies can achieve financial, environmental and social goals at the same time. In these situations, it makes sense for companies to go beyond what the law requires.” 3. “Companies should consider social and environmental issues/expectations, and try to actively integrate them into their strategies because, by doing so, they gain long-term competitive advantage.” 4. “As part of their role in the “global society,” companies should engage in social and environmental initiatives, even if long-term competitive advantage cannot be proven.” N = 945 GM

35. Sustainability issues • are multiple, extremely fragmented, often controversial and uncertain • what is regarded as an issue also differs widely (different languages used) • add to the complexity of an already complex business environment

36. Stakeholders: "Transmission Belts“ vary • Regulators still more important than NGOs that nevertheless provide an important "early awareness" function • Customers and capital markets are the “deterrers”

37. Value drivers N = 123 SO

39. Business functions Promoting role Deterrent role N = 2068 N = 1128 GM

40. Barriers to corporate sustainability strategic roll out N = 945 GM

41. THE BARRIERS: Results of our stakeholder review Responses from 22 global organizations participating in CSM workshop in April 2009

42. CSM/IMD is working with the SAI-Sustainable Agriculture Initiative (a partnership of 22 major food & beverage companies) to promote sharing of knowledge/guidelines/standards about managing the food and beverage industry’s single biggest sustainability issue: Protection of the industry’s raw material bases long-term. SAI’s greatest challenge? : Breaking down mindsets of managers and filling knowledge gaps about the significant industry threats and business risks of unsustainable agriculture and need to integrate sustainability in supply chains and marketing and sales strategies 2. CSM Research and Learning Initiatives: SAI Platform

43. 2. CSM Research and Learning initiatives: SAI Platform companies • Active Members: • Unilever • Danone • Nestlé • Coca-Cola • Kelloggs • General Mills • Kraft • MacDonalds • Sara Lee • Tchibo • Pepsico • Novus • Affiliate Members: • CIAA - EISA - Global Dairy Platform • Lamb Weston • McCain • Kemin • Farm frites • Fonterra • Friesland Campina • CIO • Agrarfrost • Agroterra • Mayuga

44. WWF Climate Savers http://cleaneconomy.panda.org/csvideo/index.html

45. 2. CSM Research and Learning initiatives: WWF Climate Savers Business Alliance • Active Members: • Johnson & Johnson • Nike • Lafarge • The Collins Companies • Xanterra • Catalyst • Novo Nordisk • Tetra Pak • Sony • Nokia • Hewlett Packard • Nokia Siemens Networks • Johnson Diversey • Nike • Lafarge • The Coca-Cola Company • Sofidel • Fairmont Hotels and Resorts • Elopak • National Geographic

46. Competitive landscape of Climate Savers Source: IMD Research.

47. 2008 Ran workshop on Climate Savers strategic challenges and identified strategic options 2008 Created a learning tool (integrative case) as a result, running it at OWP in 2009 and currently developing it into a day-long session for the EMBA in 2010 2009 Created Climate Change Strategy Tool for companies 2. CSM Research and Learning initiatives: WWF Climate Savers business alliance

48. 2. CSM Research and Learning initiatives • 2009 CSM wrote a series of 13 case studies on climate change innovation by the Climate Savers: Johnson & Johnson, Tetra Pak, Novo Nordisk, Xanterra Parks & Resorts, Fairmount Hotels, Elopak, Nokia Siemens Networks, Sony, Hewlett Packard, Sagawa Transportation • All cases were loaded on the WWF Climate Savers website in the lead up to Copenhagen Climate conference in Dec. 2009 www.letthecleaneconomybegin.organd published in brochure (with IMD logo) distributed to thousands of executives in Copenhagen

49. IMD-2-0146: WHAT DOES IT TAKE TO GET PROJECTS OFF THE GROUND? JOHNSON & JOHNSON’S CAPITAL RELIEF FUNDING FOR CO2 REDUCTION PROJECTS Johnson & Johnson’s capital relief funding for CO2 reduction projects have attracted the interest of managers in many companies in different industries, eager to learn how the corporation have eliminated budgeting barriers and allowed 61 climate friendly energy projects to take off in less than 4 years. IMD-2-0147: BREAKING DOWN ALIGNMENT BARRIERS: TETRA PAK PULLS TOGETHER ALLIES TO REACH CLIMATE GOALS Tetra Pak efforts to align market companies, manufacturing sites and suppliers with its climate goals required significant organizational change. By empowering shop floor teams to initiate and explore new approaches to energy efficiency along the supply chain, the company created a structure that allows organic innovation to take place. CSM’s case series on WWF Climate Savers Innovations

50. IMD-2-0148: DEVELOPING AN INNOVATIVE BUSINESS MODEL:NOVO NORDISK AND DONG ENERGY DRIVING THE MARKET FOR RENEWABLE ENERGY IN DENMARK Novo Nordisk’s search for cost-effective solutions to reduce CO2 emissions drove the development of a new business model which expanded the commercial basis of renewable energy in Denmark. IMD-2-0149: REMOVING BARRIERS TO INNOVATION: XANTERRA PARKS AND RESORTS GAINING SCALE IN ON-SITE SOLAR POWER GENERATION Xanterra Parks & Resorts’ focused strategy of bringing on-site renewable energy generation to the next level required not only significant dedicated resources, but also singular efforts to break down skeptical mindsets and risk-related barriers to innovation. By active learning from an almost terminated project, the company was able to build one of the largest privately-owned solar photovoltaic systems in the US. CSM’s case series on WWF Climate Savers Innovations