The Corporate Challenges of Sustainable Development

1. The Corporate Challenges ofSustainable Development PratinaBansal

2. What is Sustainable Development? • It is development that meets the need of the present without compromising the ability of future generations to meet their own needs (World Commission on Economic Development, 1987) Quality of life is dependent on natural resources and therefore must be sustained.

3. Sustainable development relies on: • All are inerconnected

4. Environmental Principle • Ecosystems have limited regenerative capacity • Population growth, excessive consumption, pollution, and depletion of natural resources pushes the earth’s carrying capacity • For future generations to have a standard of living equal to our own, they must have access to resources • If resources are depleted, quality of life will be compromised

5. Social Equity Principle • If people are not treated equitably, they will exploit natural resource, • i.e. indigenous people • i.e. developing countries are chosen as manufacturing sites, profits go back to the home countries

6. Economic Principle • When people reach an acceptable standard of living, they are able to easily protect their natural environment because they are not so critically tied to it • People who do not have sufficient economic resources, destroy million

7. Societal Actors • Who defines the Sustainable Development Agenda? • Government Environment Protection Agencies (USEPA, DENR, EMB etc) • Non-profit Agencies UN (Montreal Protocol, Kyoto Protocol) International Organization for Standardization (ISO) American Chemical Council , etc • Public “Organizations conform to the implicit expectations of their communities. “ ie dog poop

8. Societal Actors • Who implements the Sustainable Development Agenda? -FIRMS example: Xerox’s Design for the Environment program Bristol-Myers Squibb’s life-cycle reviews of all of its products

9. Sustainable Development Perspectives • Society -intersection of the economic, social-equity, and environmental principles • Firms • defined primarily by the economic principle • sustainable competitive advantage, market share etc (company growth)

10. Sustainable Development Perspectives

11. Sustainable Development Perspectives • Why do firms have such perspective? -a firm's time horizon is considerably shorter than society's -societal sustainable development is moot if the company does not survive • What can be done? -re-engineer many of their current activities so that the environmental and e quityprinciples are also upheld -management control systems

12. ISO 14001 (an example) • Developed by the International Organization for Standardization in September 1996 to encourage sustainable development • in response to the 1992 United Nations Conference on Environment and Development • requires firms to develop and implement management system that continually reduces the firm's environmental impacts • translates the societal notion of sustainable development to the firm level and legitimizes the environmental aspects of the firm's operations.

13. ISO 14001 Limited Reach • U.S. managers were reluctant to adopt ISO 14001 • by October 1998, 197 different facilities had been certified in the U.S. but most are owned by the same firms (Lockheed Martin 20, Sony >20) • most firms that took certification already have good reputations in sustainable development

14. Reasons for Not Certifying for ISO 14001 • COST of certification and carrying out environmentally responsible upgrades; budget constraints -costs of certification run between $24,000 and $128,000 per facility, depending. Plus $5,000 to $10,000 annually to maintain the Standard -Larger firms were more likely to have more slack resources, both financial and human, to enable them to certify to the standard. -NCR Corporation

15. Reasons for Not Certifying for ISO 14001 • in-house environmental management systems were adequate -about 20 to 25 firms implementing ISO 14001 that were not certified according to the EnvironmentalDataServices (ENDS) report in October 1997 -industry-specific standards are often stricter than ISO 1400; stardards by American Chemical Council and American Forestry and Paper Associacion require EXTERNAL REPORTING

16. Society loses because few firms certify for a standard that could systemize environmental management and help advance the sustainable-development agenda. • Environmentaland human resources are not assigned financial values, and as a result, their intrinsic values are not fully accounted for

17. The Need for Institutionalization • Firma act not only because of economic rationalities, but also because of institutional pressures. • Formal institutions-governments, stakeholders • Informal institutions-norms and mindset • Example: ISO 9000, the international standard for quality management systems. Certification is perceived as just one of the costs of doing business.

18. Why has it not been institutionalized? • Regulative burden While regulations may successfully coerce firms to respond to an issue, it is difficult to ensure that they are applied equitably. • Several interviewees criticized the EPA for having too many costly and inefficient regulations that address minimal risks. Over-regulation causes catching-up behavior

19. Why has it not been institutionalized? • Significant resources are required just to ensure that the firm is in compliance, leaving little opportunity to be proactive. • good record keeping could actually increase firm risk as it could expose the firm to more damaging legal actions if regulations were violated.

20. Why has it not been institutionalized? • a firm's certification should allow it greater latitude with regulators (?) • Pennsylvania Environmental Protection Agency issued P.H. Glatfelter (paper and pulp mill) a notice of violation under the Clean Air Act on the same day its facility was certified for ISO 14001.

21. Weak norms • Norms must be well defined • Ambiguous definition of sustainable development • firms that may be committed to sustainable development may still be open to scrutiny and criticism. Example: Starbucks • developers of ISO 14001 deflected the question of sustainable firm practices by making ISO 14001 a process-based management system rather than a performance-based standard.

22. economic mindset • One of the largest barriers to sustainable development is its failure to be institutionalized in the minds of key stakeholders. • place economic value in the nation's environmental and social assets. (?) • Although Americans care about the environment and social equity, they are often unwilling to pay more to finance firm activities related to sustainable development. Naturally firms…

23. Institutionlizing Sustainable Development • operationalize through three sub-principles: -environmental protection- manage inputs and wastes responsibly through waste- and energy-management systems -eco-efficiency -fewer inputs to produce the same output. -product stewardship -minimize the environmental impacts of their products over their entire life cycle.

24. Institutionlizing Sustainable Development • operationalize social-equity principle -identify their stakeholders and offer economically viable solutions to ensure that their quality of life is not compromised. Example: MacMillan Bloedelcut back its forestry activities in Canada after activists employed military tactics in an effort to protect the community's environmental resources and the rights of the indigenous peoples. Resorted to variable-retention Cutting. Did not incur a financial loss because they were able to extract greater value from the same forests and secured access to timber

25. Institutionlizing Sustainable Development • Value creation and capture -natural and human resources have not been fully valued -firms should adjust their orientation from profit maximization to profit optimization under the constraints imposed by the environmental and equity principles. -how much economic expense -integrate the 3 principles (people, planet, profit)

26. Measuring sustainable development • ISO 14001 have probably been constrained, in part, because the firm is not required to disclose its environmental performance. • The Toxics Release Inventory, published by the U.S. EPA, is one of the oldest attempts to measure environmental performance -The names of the ten heaviest polluters are published annually. -Their environmental performance has improved more quickly than that of most other manufacturing facilities, suggesting that the bad publicity associated with being deemed a heavy polluter can be sufficient to lead to improved environmental performance.

27. Empowering and engaging employees • Organizational employees are also members of society. • but often have little opportunity to express their concern. • Organizations that accommodate personal preferences and empower employees are more likely to engender employee loyalty and commitment. • When organizations permit their members to express their interests in societal sustainability within the organization, it can cause a bandwagon effect, changing the mindsets of other more economically minded people.

28. Empowering and engaging employees • Example: Xerox is an active promoter of Earth Day activities and has a committee that organizes firm-related fun events annually on Earth Day • As a result, people through out the organization are more likely to turn off lights and computers when they leave the office, recycle their coffee cups, and consider environmental impacts in product design and marketing. • Empowering and encouraging employees to wear their community hats helps to create a sustainable-development mindset throughout the organization.

29. The Future for Sustainable Development • Sustainable development is a critical issue that our society must resolve. • The U.S. Rocky Mountain Institute estimates • that U.S. firms must reduce use of resources by 90% for the same output in order to achieve environmental sustainability. • Only when sustainable development is valued and accepted as the norm by organizational stakeholders will organizations subscribe to its principles.

30. The Future for Sustainable Development • Organizations should facilitate this dialogue by actively embracing the issue, rather than passively waiting until the pressures are so overwhelming that they will be granted little flexibility in how they can best balance their economic concerns with environmental and social-equity concerns.