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Defining Sustainability

July 26, 2010

Photo credit: kevinzhengli via Creative Commons License through Flickr. The photographer does not necessarily endorse the views expressed in this article.

For more definitions and other helpful resources, see our website here.

With the help of a recent Harvard Business Review study, we now have hard data to support the claim that sustainability is one of the key drivers of innovation in business that yields financial rewards without being a burden to the bottom line. The study found that, “in the future, only companies that make sustainability a goal will achieve a competitive edge,” and that, “by treating sustainability as a goal today, early movers will develop competencies that rivals will be hard-pressed to match.”1

While these studies demonstrate the need for sustainability in business, more fundamentally, what does sustainability itself mean? As I noted in earlier posts, since our field regularly intermingles terminology, how is sustainability different than CSR or other similar terms?

Sustainability (interchangeable with corporate sustainability):

As a term, sustainability has come into widespread use as a result of increased environmental awareness. However, sustainability is broader than just this one issue.

Within business practices, sustainability is closely related to corporate social responsibility. In the future, the two terms might become completely synonymous and some might argue that they already are the same. But as of now, there are a few key differences, which I highlight below.

Definition: Sustainability is a business strategy that drives long-term corporate growth and profitability by mandating the inclusion of environmental and social issues in the business model. Unlike corporate social responsibility, which retroactively addresses issues, sustainability implies a forward trajectory. In other words, CSR looks to the past actions of a company while sustainability looks forward by changing the nature of the company.

Purpose: to generate a maximum increase in company, consumer, and employee value by embracing opportunities and managing risks derived from environmental and social developments.2

Attributes:

According to a recent study in the Ivey Business Journal, a business model must combine and continually maintain four elements to achieve sustainability3:

  1. Sustainable development: this concept balances the corporate need for economic growth with environmental activism/protection and societal progress. With regards to sustainability, sustainable development sets the boundaries of the societal and environmental issues and defines the company’s goal(s).
  2. Corporate social responsibility: for a definition, see my previous entry. Corporations use CSR as tool to address societal and environmental issues. Sustainability incorporates societal and environmental issues as building blocks within a business model. Therefore, a sustainable business will use some CSR practices.
  3. Stakeholders: while CSR primarily focuses on shareholders, sustainability focuses on stakeholders (don’t worry! I will define these two terms later).
  4. Corporate Accountability: This contributes to a sustainable business practice in that corporate accountability provides a legal and ethical basis for a company to report on its impact on society and the environment, in addition to their financial performance.
    1. A company’s societal and environmental impact as well as its financial returns is known as a company’s Triple Bottom Line

Examples:

SAP AG – A software company, one that our field often cites as a leader in sustainability.

Sustainability strategy:

  • Operational risk management lowers the cost and risk of compliance.  Additionally, it enables greater access to markets by enabling an enterprise to comply with customer requirements.
  • Resource productivity reduces costs through process efficiency, including supply chain optimization.  It is critical in a world with increasingly volatile commodity pricing.
  • Sustainable workforce both ensures access to the right talent in the right market in the face of demographic shifts and provides foresight to meet the changing requirements of a new generation of workers.
  • Sustainable consumption enables companies to generate brand value and customer loyalty through more sustainable operations and to grow revenues by entering new markets – including those focused on green solutions and increased energy efficiency.

Results:

Environment:

  • Carbon footprint (kTons): 425 (down from 500 in 2008)
  • Total Energy consumed (TJoules): 2,978 (down from 2,900 in 2008)
  • Renewable energy: 33%
  • Kilowatt hour per employee: 3,212 (down from 3,190 in 2008)

Social:

  • Employee turnover: 11.5% (up from 11.4% in 2008) *good in recession
  • Women in management: 11% (up from 8.7% in 2008)
  • Employee Health: 62% (down from 61% in 2008)
  • Employee Engagement: 69% (down from 84% in 2008) *noted as top priority to
  • correct in the coming year

Economic:

  • Revenue-SSRS (in € millions): 8,198 (down from 8,466 in 2008)
  • Operating margin: 24.3% (up from 23.3% in 2008)
  • Customer Satisfaction (TRI Index): 91 (down from 93 in 2008) *first time in 4 yrs

Source: http://www.sapsustainabilityreport.com/

Patagonia: a leader in sustainability, Patagonia has new system of showing how each product impacts the environment (http://www.patagonia.com/web/us/footprint/index.jsp)

Sustainability strategy: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.

Results: Amongst numerous environmental initiates, Patagonia has placed itself in the unique position to be aware of the environmental impact for every product the company produces.

Example: Rain Shadow Jacket

  • Energy Consumption in production/shipping: 43 kWH. Equal to burning 18W CFL light bulb for 99 days
  • Carbon produced: 35lbs. Equal to 43 times the weight of the jacket.
  • Waste generated: 5.4 oz. Equal to weight of jacket.
  • Water consumed: 223 Liters. Equal to drinking water for 74 people for one day

1(http://green.blogs.nytimes.com/2009/09/02/the-bottom-line-on-corporate-sustainability/).

2 http://www.sustainability-index.com/07_htmle/sustainability/corpsustainability.html

3http://www.iveybusinessjournal.com/view_article.asp?intArticle_ID=405 (This is a valuable resource if you are interested in sustainability).

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