Being a good citizen has never been so challenging. Companies have long been under public eye for practices ranging from recruitment, Health and safety and environmental attitude. Climate change has triggered chain of ethical considerations the businesses must now focus on. New term of "corporate responsibility" has been born.
Reports suggest, that companies at the early stages to grasp its understanding at the moment.
According to Economist Intelligence Unit only 53% of firms worldwide claim to have sustainability policy, and halve of them extend this beyond internal operations.
Businesses know that they need to raise their awareness, but the demands are very confusing for most organisations. They are still figuring out what it means for their organisations and how to implement it.
The issue lies with setting realistic targets and aligning them with the financial strategy.
Another factor of challenge is control of the supply chain management. Businesses perform poorly in setting strong supplier standards in terms of sustainability (both environmental and human rights).
Additionally, many firms lack a clear leadership in terms of sustainability. The senior management not often buys-in to the ideas.
For real change to occur senior management involvement is crucial.
Many companies admit to have nobody in charge. Francesca DeBase (VP for Worldwide Supply Chain Management at McDonalds) argues that "sustainability needs a strong seat at the table like sales and finance. It is the way everyone should be thinking."
Other challenges faced by many companies is the reporting. At this time formal reporting is less advanced.
Most executive says that the benefits of sustainable practices overweight the costs, but the expectation to changes in profits are very small. However, it is true that those efforts can reduce costs (energy savings), open new markets and improve company's reputation. However, this involves exploring opportunities within the sustainability. There are also costs of implementation involved.
From the latest reports we find out that companies who rate their sustainability efforts highly experience stronger share price performance. Generally, these high performing companies, have someone in charge on the board level, while the poorly performing firms are likely to have nobody in charge.
It is also noticed, that business executes are now more open for environmental and social regulation. However, this comes with an argument, that government need to be clearer on what they expect from the businesses. This is because, uncertainly around the government policy is making it difficult to plan business strategies.
A good environmental policy needs to know when, and why to say "no" as well as "yes" to stakeholder demands.
Debate and cooperation of firms and government is imperative. If the businesses do not get involve it may hurt their finances as well as the environment and social life around the globe.
Tips for corporate executives
1) Do not limit the sustainability to a simple checklist.
A thorough alignment of social, environmental and financial goals is desirable.
2) Figure out what is the goals and how they fit within the organisation.
One way to achieve this, would be to define corporate values as a start. This is we need to know, when to say "no" to our stakeholders. Businesses are encouraged to know oneself, dig into its practices and develop bespoke goals based on the opportunities rather than running after the social demands.
3) Understand the business impact on sustainability.
A good assessment of which sustainability issues should the business address require accurate idea on how the business practices affect those all around it. This involves environmental, social and financial criteria. If we are able to contribute to more sustainable world, it itself create wealth.
4) Look at the business strengths.
Similarly to the financial side of the business operations, good performance comes from what the organisation does best. Therefore, businesses should focus on what makes the greatest impact.
5) Think what sustainability can do for the company.
Sustainability doesn't have to be a burdensome of meeting the requests from outside. Taking into consideration environmental and social issues can lead to new ideas and innovation. More over, it can prepare the company for new markets with reduced risks of losses associated with the risks.
6) Set board-level leadership.
Somebody must be responsible for sustainability issues. Environmental and social considerations should have support from the board and be prioritised.
7) Control your supply chain.
Supply chains should be integrated to the business policies. Poor performance by suppliers can harm business records and public reputation. Strong supply chains deliver the best performance.
8) Set good reporting measures.
If you promise on your policy you will do something, measure it. Finding information and metrics is not easy, but few companies are even trying.
9) Integrate sustainability efforts into every business process.
Sustainability is not an add-on. Some efforts are never and new procedures are necessary, however current departmental practices should be reviewed. Middle management performance reviews are to include sustainability efforts.
10) Cooperate and engage
Sustainability is about the relationship of the business to environmental and social elements. A proactive and successful company will often cooperate with differ stakeholders. This means engaging in public debate about sustainability.
Improving business outcomes
Companies are approaching sustainability with seriousness. Sustainibility in its definition, however exhibits its preferences.
The "OECD Guidelines for Multinational enterprise" provides useful advise on the best practice in the field of sustainability. It considers Disclosure, Employment Relations, Industrial Relations, Environment, Bribery, Consumer Interest, Science and Technology, Competition and Taxation.
Today, leading companies are looking into aligning business strategy to sustainability goals and working on reducing the negative impact of its operations.
Businesses also expect the policies to improving business outcomes, mainly, the ability to attract and maintain customers, improve shareholder value and finally, increase profits.
Why now?
The immediate interest is closely tied up to the worries over global warming. Particular drive is noticed in the area of energy efficiency, climate change and the growth of megacities. Scientific research advises that climate change is caused by human behaviour and businesses should not be blind to the issues. One of the broader areas of focus is, however, the energy reduction.
The issues are often politically, but also moral ones. Companies try to determine duties they have to the society they operate in. For this reason the policy need to start with a principle and not profit. We need to consider, what we should do as a company, because it really comes down to the business values. Companies need to be more accountable.
In today's world, companies who want to operate globally, they need to meet the new obligations.
The focus is also liked to increased business influence and decline of state power. This is not suggesting, that businesses should take responsibility in all the issues, but there is a need to re-negotiate boundaries.
Globalisation has made it more important, and yet, more difficult to apply high ethical standards to the businesses. This is because, different markets are driven by different obligations and different responsibilities. For example in more wealthy countries the focus would be on environmental factors, rating and paying employees well. These, can be different in poorer countries. Where the capacity of the government to deliver sustainable outcome of poor, more responsibilities are being put on businesses. Companies, may only be he ones capable of solving the problems.
For decades now globalisation and trade liberalisation have changed the relative positions of businesses, governments and other stakeholders in the society. Therefore, today's agenda is to redefine the roles to address the issues challenging society.
What about profits?
"Their produce was sound, their prices fair, their services honest, their word good and their agreements honourable".
That's how James Walvin, concludes the Quakers if we go back to the 17th century. The sustainability questions are not new. Quakers avoided any collaborations that seemed immortal. This included slaves trade and arms industry. They treated their employees very well, both because it was the right thing to do and it increased the productivity.
Did this behaviour have impact on the financial bottom line? It certainly did not hurt. The business could of performed financial transactions with cheaper banks and make purchases cheaper, but they grew reach.
They weren't ethical because they wanted to make money. They were ethical because it was the right thing to do.
As a result, even more wealth made its way to helping society. Therefore, honesty, integrity and loyalty are no obstacles to financial success.
What is acceptable and what is not?
Morality and values, however, are treated verily by businesses. Often, these are the values of family member who started the business. For businesses today, acting sustainably is not easy. There are variety of stakeholders, often around different cultures telling them number of different things to do. These agendas are often also contradictory. It is easy, therefore to enter into conflict.
Unless you stand behind, what you really believe. It is important also to listen to all sides though. Even if it is difficult to satisfy all the demands, we need to feel that we are doing the right thing. Societies are also changing values and what is acceptable and isn't acceptable may change. But we should do what is right, no matter how uncomfortable.
What are the priorities?
Companies are practical and overall businesses are looking at implementing sustainability across the board.
The main drivers in modern organisations include prioritising:
1) improving environmental footprint of products
2) energy savings
3) innovating products to tackle social and environmental problems
4) improving the impact of business operations on environment and society
The implications of these issues will, however, vary by the company. Different risks and opportunities will lead businesses to different approaches. Governmental policies will also play an active role in the priorities. Bigger businesses also have more responsibilities in regards to sustainability matter and greater obligations.
Different companies also care differently about their social image. Some businesses want to get ahead of the regulatory obligations and others take more pragmatic view on the changes affecting their business.
For example European markets are more sensitive to the subject of sustainability. This is mainly because the European public drives the sustainability concerns.
Bibliography:
The Economist, 2008, "Doing good, Business and the Sustainability Challenge", The Economist Intelligence Unit, 4-17.
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