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The pursuit of sustainable development and the requirement to make our societies, economies, and systems of consumption and production more environmentally, socially, and economically sustainable will be the dominant challenge for management throughout the 21st century. Concern about the social and environmental impacts of business activity can be traced back throughout history. The use of regulation to limit the social and environmental impacts of business and to punish transgressors can be traced back more than 3,000 years to ancient Mesopotamia. More recently, a key business theme during the 20th century was the growing expectation that businesses should go beyond regulatory compliance in conducting their affairs to demonstrate corporate social responsibility.
During the 20th century, economic expansion was underpinned by two key elements. Philosophically, it was guided by a mind-set strongly rooted in neoclassical economics, which
- tended to assume that the physical resources of the planet were unlimited and would not constrain growth;
- did not recognize that there may be limits to the planet’s ability to absorb waste and pollution;
- equated an expansion in economic activity, usually measured as the total quantity of goods and services consumed in terms of gross domestic product (GDP), with concepts such as progress and development; and
- treated many social and environmental costs as externalities, which meant that the costs of repairing environmental or social damage associated with producing or consuming particular products were not reflected in the cost structures of producers or the prices that consumers ultimately paid. In theory, such externalities should be covered through the taxes raised from consumers and producers (among others) by governments. In practice, however, the voting preferences of consumers and the lobbying power of businesses have usually deterred governments from raising sufficient taxes to fully cover the unmet costs of economic activity.
From a practical perspective, the economic expansion of the 20th century was founded on the consumption of cheap and plentiful oil, but by the end of the century, two factors were becoming clear and widely (if not universally) accepted: (a) peak oil output will be reached within a matter of decades, and even if this were extended through new discoveries and technologies to exploit unconventional resources, the growing demand for oil from the large and rapidly industrializing economies of India and China will rapidly absorb new supplies; and (b) even if there were no oil supply problem, there is a need to address the “inconvenient truth” that consumption of fossil fuels and the resultant releases of carbon dioxide (CO2) is leading to global warming and to climate change, which threatens the stability, prosperity, and security of societies throughout the world. Therefore, the “hardware” and economics of our production and consumption systems will need to evolve rapidly during the next century to cope with constrictions in oil supplies, higher energy prices, and the need to constrain emissions of CO2 and other greenhouse gases (GHGs).
The conventional management mind-set that had dominated throughout the 20th century will also have to change during the 21st century. Much of the last century was typified by Milton Friedman’s epithet that “the business of business is business,” by an unquestioned primacy being accorded to the interests of stockholders, and by growth being the primary aim of most strategic managers (although profit maximization is often assumed to be the primary aim of management, studies suggest that the prestige, security, and financial rewards that accompany growth make it more attractive than profit maximization which benefits shareholders directly more than managers and can attract attention from predatory and acquisitive companies). With the benefits of growth that is not sustainable being called into question, and with demands for businesses to address the needs of a wider group of stakeholders and to adopt a broader range of social responsibilities, managers are having to change to respond to shifts in the priorities and expectations of society (Aburdene, 2007; Sharma & Starik, 2005).
During the latter part of the 20th century, there was a significant shift in attitudes toward conventional economic growth and the acceptability of its social and environmental impacts. During the 1960s, Rachel Carson’s classic and best-selling book Silent Spring alerted the world to the hazards posed by the chemicals industry (particularly the uncontrolled use of pesticides) and gave impetus to the emerging “environmentalist” movement. In 1972, the Club of Rome published Limits to Growth, an analysis of economic trends and environmental resources that predicted the exhaustion of key resources within the lifetime of many of those who would read the book together with the overwhelming of the planet’s capacity to absorb waste and pollution. Although some of these predictions proved to be overly pessimistic, this analysis created widespread acceptance that we lived within a physical planet with finite limits and not within an economic hyperspace of unlimited opportunities. The oil shocks of the 1970s also drove home the dependence of industrialized economies upon cheap oil.
The 1980s were marked by a number of serious environmental and social incidents involving businesses including the Exxon-Valdez oil spillage in Alaska’s Prince William Sound, the lethal explosion at the Union Carbide chemical plant in Bhopal, the pollution of the Rhine following a fire at a Sandoz chemical plant, and nuclear disasters at Three Mile Island and Chernobyl. Scientific discoveries also demonstrated the impacts of industrialization through the discovery of the hole in the ozone layer caused by chlorofluorocarbons (CFCs), the increasing levels of pesticides found within food and water supplies, and the growing evidence of global warming caused by GHGs. These factors combined to create widespread public, media, and political concern about the safety of the products and production technologies that companies employed and the responsibility of the managers behind them. The last decade of the 20th century, therefore, was marked by growing concerns about the social and environmental impacts and responsibilities of businesses. This was reflected in a number of initiatives including the International Chamber of Commerce’s “Charter for Sustainable Development,” the development of new certified social and environmental management schemes, and a growing use of sustainability indicators and social and environmental reporting by organizations.
The Principle Of Sustainable Development
The concept of sustainable development (or sustainability) was articulated in the 1980 World Conservation Strategy in relation to the use of resources for development that provides real improvements in terms of the quality of human life, while also protecting the Earth’s vitality and diversity. In 1987, this concept was further developed and widely disseminated through a report by the World Commission on Environment and Development (WCED, often referred to as the “Brundtland Commission,” as it was chaired by Norwegian Prime Minister Gro Harlem Brundtland). This report provided the simple and memorable encapsulation of sustainable development as meeting “the needs of the present without compromising the ability of future generations to meet their needs” (WCED, 1987, p. 24). The report recognized the interdependencies between the physical environment, human social welfare, and economic activity and the need to ensure a balance between these three elements. Its vision of sustainable development was one that companies and politicians, as well as pressure groups, could endorse, and it provided a more constructive platform for debate than the arguments for and against “zero growth” that had preceded it.
The key components of the sustainability concept are the following:
- Equity ensures a fairer distribution of the costs and benefits of economic development among different countries, regions, races, and age groups and between the sexes. Conventional economic development during the 20th century failed to reduce the challenge of global poverty and to close the gap between the richest and poorest nations. According to United Nations Development Program figures, by the turn of the century, the richest 20% of the global population within the industrialized nations were consuming 86% of global resources, while the poorest 20% of the global population shared a mere 1.4% of the planet’s resources.
- Futurity ensures that the needs of future generations of consumers, investors, workers, and citizens are protected and balanced against the needs of the current generation.
- Need, particularly the needs of the global poor, is a key component. The World Bank estimates that around three billion people worldwide exist on less than $2 per day.
- Environmental limits means recognizing that there are limits to the planet’s ability to provide our production and consumption systems with resources and to its ability to
absorb waste and pollution without impairing the quality of the environment and the services that it provides. Fishing provides an obvious example of an industry that has exceeded its environmental limits. An authoritative international study published during 2006 in the journal Science demonstrated that one third of existing global fisheries had “collapsed” and that the impact of current fishing practices on marine ecosystems would destroy the others by 2050.
- Global environmentalism means recognizing that the environment is a holistic, dynamic, and vulnerable physical system. Over half of the global poor rely directly on “ecosystem services” for their survival, and the majority of their consumption and production activity exists outside the framework of the monetary economy and is therefore largely “invisible” from the perspective of conventional economic theory.
These aspects of the sustainability concept demonstrate what a different and challenging approach to development, economics, business, and management it represents. Conventional management thinking reflects principles of consumer sovereignty with little regard for the impacts of consumption on nonconsumers and the equity of the distribution of costs and benefits from economic activity. Although management disciplines such as strategic management encouraged a long-term perspective, this was in terms of years or perhaps decades rather than the multiple generations perspective of sustainability. The focus on needs and the global poor was also very different to the conventional business mind-set that generally aimed to satisfy the wants of those with the most disposable income (or who could afford to invest). Global environmentalism was also a different way of perceiving the planet as part of the business environment. Instead of considering the world in terms of geopolitical boundaries, sales territories, and the distances between producers and consumers, it means also considering the planet as a complex and dynamic set of interlocking physical systems with considerable potential to impact upon and disrupt business strategies (Staib & Staib, 2005).
The Brundtland definition of sustainability is deceptively simple, and in the 20 years since the report was published there have been a number of criticisms leveled at it, many alternative definitions proposed, and much debate about how any of them can be translated into a practical, political, and economic reality (see Gladwin, Kennelly, & Krause, 1995). One particular divide was between those promoting “hard” sustainability, which emphasized the need to sustain the environmental system by restraining economic activity, and those promoting “soft” sustainability, which involved responding to and managing environmental limits in order to sustain economic growth. A helpful perspective comes from systems theory, which encourages us to view the global environment, human society, and the economy within it as three interconnected systems. For any system, its ultimate sustainability depends upon the system maintaining a stable state (or staying within a range of states) in which the inputs and outputs of the system are balanced out over time.
A simple but often overlooked truism relating to sustain-ability is that if a system is not sustainable, then it cannot be sustained. Unsustainable systems that fail to evolve or transform themselves toward a more sustainable state will be vulnerable to collapse or sudden dislocation, and typically the longer that change is resisted, the more severe the dislocation will be. In the 20 years post-Brundtland, the existing dominant social paradigm and the trajectory of social, economic, and technological development have proved remarkably resistant to significant changes. Although there have been certain improvements such as a reduction in global CFC emissions, there are a number of sources of concern, particularly the following:
- CO2 emissions—Although fears about climate change have become a key policy topic in recent years, emissions continue to grow. According to the U.S. Department of Energy’s Oak Ridge National Laboratory, 2003 global CO2 emissions linked to fossil fuel use reached an all-time high of an estimated 7,303 million metric tons of carbon, a 4.5% increase from 2002.
- Ecological footprints—This technique had been developed as a measure of the Earth’s productive capacity in terms of its availability (as a concept of “Earth Share”) and how it is being exploited (see Hart, 1997). The “eco-footprint” of humanity as a whole and of many individual countries is unsustainable and still rising. At the turn of the century, mankind’s eco-footprint exceeded the Earth’s sustainable productive capacity by some 20%.
- Growth of consumption within poorer countries—According to figures from the Goldman Sachs Group, per capita GDP in China is forecast to rise from US$1,324 in 2005 to US$4,965 in 2020, and in India from US$559 to US$1,622 in 2020 (increases of 375% and 290% respectively in per capita consumption growth within countries that are also experiencing rapid population expansion). The aspirations of these populations are typically to follow the development pattern and lifestyles of the Western industrialized economies. If their needs are met using the products and production technologies that have characterized the Western industrialized consumer lifestyle of recent decades, the social and environmental consequences will be profound.
The United Nation’s “Millennium Ecosystem Assessment,” conducted during the first 5 years of this century, provided a comprehensive audit of scientific evidence on ecosystem health. It showed that the unparalleled economic growth of the previous 50 years had
‘resulted in a substantial and largely irreversible loss in the diversity of life on Earth’ and that ‘gains in human well-being and economic development . . . have been achieved at growing costs in the form of the degradation of many ecosystem services . . . and the exacerbation of poverty for some groups of people. These problems, unless addressed, will substantially diminish the benefits that future generations obtain from ecosystems’. (pp. 2, 5)
Strategic Management And Sustainable Development
Before the 1980s, environmental issues were important for a relatively small selection of companies in industries like oil, chemicals, and automotive and were generally treated as operational matters concerning compliance and regulations within most companies. Similarly, the social responsibilities of a company were rarely discussed beyond generating wealth and respecting laws regarding contracts, employment, and health and safety. By the end of the 1980s, environmental and social issues had become part of the strategic agenda of a wide range of companies for a number of reasons:
- Incidents such as oil spills and chemical leaks demonstrated that poor environmental performance created risks that could endanger a company’s existence.
- Shareholders and insurers began to take an interest in the environmental performance of companies in sensitive industries because of the risks involved. Expert handling of environmental and social issues and risks also became increasingly used as a proxy measure for a professional approach to management.
- Public concern about environmental issues was generating new environmentally and socially oriented market opportunities through demand for products such as organic foods, natural cleaning products, and fairly traded coffees. This demand was reflected in, and often stimulated by, the development of many new niche firms and brands such as Body Shop, Patagonia, and Ben & Jerry’s. At the beginning of the new millennium, the total market for “LOHAS” (lifestyles of health and sustainability) involved 68 million consumers and was worth $230 billion in the United States alone, according to the Center for Fair and Alternative Trade Studies at Colorado State University.
- Research demonstrated that workers were increasingly concerned about the environmental and social performance of their employers, and new graduates and many high-value employees were increasingly taking these factors into account in their career development decisions.
For the discipline of strategic management, there was an obvious synergy with sustainability. Strategic management aims to promote business survival by ensuring companies are well matched to their environment by making them more outward looking and future oriented and more systematic in responding to current and future external threats and opportunities. Sustainability principles also aim to ensure that businesses stay matched to their external environment in a way that does not deplete it and that will allow them to remain in business indefinitely.
The response among corporate strategists to the environmental concern of the late 1980s and early 1990s tended to be relatively defensive and reactive, with an emphasis on the cost burden associated with responding to increasingly stringent environmental regulations. In 1995, an influential paper by Porter and van der Linde titled “Green and Competitive,” published in Harvard Business Review, made a compelling case for a more proactive strategic approach to environmental issues. This paper used evidence from a number of industries (particularly the chemical industry) and companies to demonstrate that
- tougher environmental regulations could produce new market opportunities for companies in markets providing or supporting pollution abatement technologies or cleaner energy;
- environmental performance could create a source of differentiation for companies;
- the elimination of pollution and waste could be cost beneficial to companies since they represented a form of inefficiency within production systems; and
- the requirement to meet tough new environmental regulations frequently inspired companies to develop innovative new solutions and technologies that could create new opportunities or cost savings.
Porter and van der Linde’s (1995) analysis provided authoritative support for the concept of “win-win” solutions that generated competitive advantage for businesses willing to address environmental issues proactively. This logic was further extended to the concept of the “triple bottom line” or “win-win-win” strategies that combined the delivery of profit with social and environmental improvements (Elkington, 2001). Connecting sustainability to enlightened self-interest in this way formed an attractive and palatable argument for businesses and policymakers alike, and became a cornerstone of the evolving debate about CSR.
Other forms of business opportunity were identified within the sustainability agenda. In social terms, the un-served needs of the 3 billion people living in relative poverty became recognized as a potential business opportunity as well as a social tragedy. The concept of innovative “bottom of the pyramid” business models promoted by C. K. Prahalad and others has emerged to deliver goods and services to poorer potential consumers. These can involve simplified versions of products, smaller and more affordable unit sizes, payment systems to improve affordability, and developing new channel structures to reach consumers living in poor areas.
The feasibility of win-win solutions was challenged by other writers who pointed to problems that early “green leaders” often faced in maintaining competitive advantage on the basis of environmental excellence. A number of arguments were put forward about the limitations of the logic of win-win solutions, including the following:
- In some markets, the short-term cost of substantive improvements in long-term environmental performance would be prohibitive in the face of shareholder pressure for sustained profit performance.
- The win-win argument involved the generation of competitive advantage for individual companies, but in practice, many environmental challenges confronted entire industries and were likely to be solved only through collaborative actions. The first collaborative venture between all three U.S. auto giants of Ford, General Motors, and Chrysler came from a desire to develop low-emission vehicle technologies for the future.
- The argument that superior environmental performance can provide differentiation and competitive advantage relies on only certain companies seeking to lead on environmental excellence. A situation in which the most environmentally excellent companies design and market products only for the most environmentally concerned consumers is unlikely to deliver substantive progress toward sustainability. This will require the greening of mass markets and environmental excellence to become part of a firm’s “license to operate” rather than an optional path to competitive advantage.
- The potential for unintended consequences from apparently win-win developments in the market could work against the overall aims of sustainability. For example, during 2006, in response to the growing demand for alternative fuels, many American farmers began selling their corn crop for ethanol production. This was exactly the sort of opportunity predicted by Porter and van der Linde (1995). However, it led to a shortage on the international corn market, which pushed up the prices of tortillas, the staple food for the poor within Mexico, by over 400%, dramatically impacting their quality of life and sparking widespread social protests. Similarly, bottom of the pyramid businesses, which aim to improve the quality of life for billions of the world’s poor, could be counterproductive if they simply increase global consumption and contribute further to problems of waste and climate change. Such initiatives will ultimately only benefit poorer consumers if they are offset by reductions in material consumption among richer countries.
A study published by Arthur D. Little (Shelton, 1994) examined the long-term progress among early green market leaders and concluded that many of them had failed to sustain their advantage in the marketplace. The cause of such failures was typically rooted in a lack of compatibility between environmental strategies being championed within companies and other dimensions of the organizations. Once the easy “low-hanging fruit” that presented simple win-win benefits (e.g. through cost savings linked to energy efficiency improvements or reductions in packaging) environmental initiatives requiring substantive investment, radical innovations, or organizational changes tended to run into conflict with existing organizational cultures, priorities, power balances, and vested interests. It was those companies whose environmental strategy was well integrated with the conventional strategic management process, framed in business terms that other managers could relate to and accommodated within (rather than grafted onto) the organization’s structure that tended to succeed.
Organizational Dimensions Of Sustainability
Creating more sustainable businesses (and other forms of organization) during the 21st century will require changes that go beyond technological innovations and new strategies to respond to the opportunities and threats created by pressing social and environmental issues (Laszlo, 2005). Scientific evidence demonstrates clearly that our current patterns of production and consumption are not sustainable, and there is little reason to assume that the technologies, institutions, values, and business models that generated so much unsustainable economic development during the 20th century should now be capable of delivering progress toward sustainability without radical change. From an organizational perspective, Shrivastava (1994) produced a groundbreaking critique of organizational theory from a sustainability perspective.
Most writers propose a set of evolutionary phases toward sustainability that corporations pass through (although not necessarily progressively since both “leapfrogging” and recidivism can occur and different parts of an organization can be at different stages at any point in time). For example, Dunphy, Griffiths, and Benn (2003), proposed the following stages:
- Rejection—in which the maximization of profit or growth are seen as justification for the exploitation of human and natural resources, and attempts to constrain its activities for environmental or social reasons are opposed
- Nonresponsiveness—a passive noninvolvement with (rather than active rejection of) social and environmental issues within organizational decision making
- Compliance—a reaction to the risks of failing to meet minimum legal standards as a producer or employer
- Efficiency—a proactive approach that recognizes the cost and efficiency benefits that can be accrued by instituting sustainability oriented policies and practices for human resources and the environment
- Strategic proactivity—in which sustainability becomes an important part of a company’s corporate strategy as it seeks to generate competitive advantage through advanced human resource strategies, an emphasis on “corporate citizenship” to build stakeholder support, and innovative and environmentally oriented products and/or production technologies
- The sustainable corporation—in which the culture and leadership of the organization has internalized the idea of working toward a more sustainable world and is actively seeking
to balance traditional business objectives with values of ecological sustainability and wider human welfare In practice, the transition between particular stages is often linked to changes such as the appointment of a new CEO, legislative changes, crisis-driven external stakeholder pressure, disruptive market changes, or the loss of internal champions or the failure of particular sustainability initiatives. Progress toward becoming a sustainable corporation will depend upon effective organizational change management processes and appropriate leadership (Dunphy et al., 2003).
A consistent factor throughout the research concerning the effectiveness of social and environmental strategies within companies is the importance of supportive and effective leadership. Many of the most notable success stories in integrating sustainability principles into the culture and operations of both large and small businesses have been associated with strong and inspirational leaders.
An organization that has both reflected and shaped the response of business leadership to the sustainability challenge is the World Business Council for Sustainable Development (WBCSD). It emerged as part of the business response to the Rio Earth Summit of 1992, led by Swiss industrialist Stephan Schmidheiny, which initially involved a team of enlightened CEOs from some 50 companies. It evolved through merger with the World Industry Council for the Environment (WICE) in 1995 and established a permanent base in Geneva. The WBCSD promotes a vision of businesses that are committed to working with employees, their families, the local community, and society to improve the quality of life. The council tends to see market-based solutions rather than regulation as the answer to sustainability challenges and seeks progress through better information for consumers about the social and environmental effects of their choices and initiatives for poverty reduction
The development of more genuinely sustainable organizations for the 21st century will require a different form of leadership to that which typified success during the last century. Conventional theory on leadership and strategic management has been heavily influence by the discipline of military science and the analogy between “the art of the general” (the original root of the word strategy) and the role of business leadership. For more sustainable organizations, other sources of inspiration for models of leadership may be required, and there have been suggestions based on orchestral conductors, top restaurant chefs, or tribal chieftains. A leader for the 21st century will need to have the ability to integrate and balance the needs of a wide variety of stakeholders; to work with competitors, nongovernmental organizations (NGOs), policymakers, and communities to find solutions to sustainability challenges; and to actively promote standards of governance, accountability, and corporate social responsibility that go beyond anything companies were required to demonstrate during the last century. Leadership for the 21st century is likely to require more of the skills of the diplomat rather than those of the general.
Although external stakeholder pressure or regulation can prompt organizations to address sustainability issues, success in developing and implementing more sustainable strategies is highly dependent on the culture of the organization. Welford (2000) suggested six “shifts” that must occur in the nature of corporate cultures to make them more able to support sustainability, namely shifts in focus
- from objects to relationships;
- from parts to the whole;
- from domination to partnership;
- from structures to processes;
- from individualism to integration; and
- from growth to sustainability.
In the “Making Sustainability Mainstream in Business” study conducted by the Cambridge Programme for Industry, organizations including major businesses like Unilever, BT, B&Q, Electrolux, and HP Canada, major government departments and major NGOs including World Wildlife Fund (WWF) and the David Suzuki Foundation were studied to better understand how sustainability principles could be mainstreamed within organizations. The study identified 12 guiding principles for success:
- Leadership—a champion of sustainability at the top of an organization is crucial for success
- Commitment—gain commitment from every level of an organization
- Communication—open and transparent communication to both internal and external audiences—celebrate success, admit mistakes and learn from them both
- Stakeholder engagement—engage effectively and openly with all stakeholders
- Support network/partnerships—make maximum use of supporting networks who can provide direction and assistance
- Development of business practices—develop and build a business culture based around sustainability
- Reporting and measuring—set specific targets, measure progress and report these results
- Provide resources—commit resources for the best chance of success
- Rewards and recognition—recognize and reward effective behavior to keep up the momentum
- Change the emphasis—if something does not work or loses its impact, change the perspective
- Engage the whole organization—have an integrated approach on how you engage the whole organization
- Impact analysis—appreciate your impacts, understand the costs and benefits of solutions, and identify further opportunities
Operational Dimensions Of Sustainability
Managers regularly consider their organizations as financial, technical, and social systems, but sustainability requires consideration from a physical systems perspective as well. Organizations require inputs of energy and material, and produce material outputs in the form of products (along with by-products, waste, and pollution). Sustainability requires managers to consider these inputs and outputs, and the material efficiency of the organization’s processes from a physical as well as an economic perspective.
The initial response among business organizations to growing evidence of unsustainable environmental (and social) impacts within our production and consumption systems, has been to make evolutionary changes to ameliorate the problems. Catalytic converters to reduce automobile emissions, the use of recycled packaging, or the reduced use of products like lead or harmful solvents in industrial processes are simple examples. Such changes do not alter the basic nature of our production and consumption systems, which remain very linear (crudely involving the extraction of “stuff” from the ground and its processing into useful products, which are later buried back in the ground as waste). Human production systems are also very inefficient in their use of energy and materials compared to natural systems, which are generally cyclical and have evolved so that the output of any process becomes the input of another (Lovins, Lovins, & Hawken, 1999). The need to make our industrial systems more like nature in their material efficiency led to the development of the concept of industrial ecology (or “industrial metabolism”), which views our industrial system as a complex web of interconnected production units that are linked by flows of energy and material. To make the system more sustainable, the challenge is to reduce the losses of energy and material (as waste) by creating closed material and energy loops.
A number of key concepts have emerged from an industrial ecology perspective on business. One is that of “Factor X” improvements in the material efficiency of our production and consumption systems, in which the benefits of those systems remain constant while reducing the material and energy inputs into the system by a particular factor (represented by the “X”). A number of authors and organizations have promoted production approaches involving “Factor 4” or “Factor 10” improvements in material efficiency to achieve greater sustainability. Another key concept is that of “industrial symbiosis,” in which businesses are colocated (through industrial eco-parks) or otherwise connected so that the outputs of one set of production processes become the inputs of another. The blueprint for this type of initiative was established at Kalundborg in Denmark in which an oil refinery, a power station, a gypsum board manufacturer, and a pharmaceutical company together with the city itself combined to share water, electricity, steam, and residues. Within the Kalundborg eco-park waste residues were transformed into valuable by-products accounting for 2.9 million tons of material per year, water consumption was reduced by a quarter, and 5,000 homes received heating.
Sustainable Supply Chain Management
Many of the environmental and social impacts linked to an organization will effectively be embedded because of the activities of a range of suppliers along a business’s supply chain. At the beginning of the new millennium, companies such as Gap and Nike became the target of high-profile campaigns about the working conditions, not of their own employees, but of the workers of their suppliers in Southeast Asia and South America. This prompted many companies throughout the apparel and sportswear industry to examine their own supply chains to ensure that the standards applied within them met the expectations of stakeholders, rather than relying on compliance with local regulations.
The purchasing function provides important opportunities for companies to demonstrate their own commitment to sustainability by choosing suppliers with strong social and environmental credentials (Cannon, 2006). It also allows public sector organizations to put their own considerable purchasing power behind strategies to encourage the development of sustainable technologies, companies, and markets. In many countries, public procurement services are taking a lead in developing new technical specifications and standards.
Successful sustainable purchasing strategies depend on full and accurate information about the environmental and social impacts of particular materials, processes, and components. In many cases, such information is lacking, but with the increasing application of Environmental Management Schemes, eco-labeling schemes, and socioenvironmental accounting it is becoming easier for companies to assess and validate their suppliers’ performance.
Sustainable Operations Management
Historically, the emphasis in business has been to maximize the production outputs of business and to control and capture resultant waste and pollution through “end-of-pipe” technologies, to be buried or released to air or water within legal constraints. The famous “Pollution Prevention Pays” (3P) program implemented by 3M pioneered an alternative approach that sought to design out pollution at source and thereby eliminate the costs associated with pollution control measures. The scheme was introduced to achieve “a better environment, conserved resources, improved technologies and reduced costs” and celebrated its 30th anniversary in 2005. By this time, it had resulted in more than 6,000 employee-driven projects, which prevented the generation of more than 2.5 billion pounds (weight) of pollution and produced savings (based on first year savings alone) of over $1 billion. More recently, programs introduced by Dupont and BP to reduce GHG emissions created 65% and 16% reductions respectively, with cost savings of $2 billion and $650 million.
The types of operational improvements that can generate benefits in costs and eco-efficiency improvements, and that are championed by organizations such as WBCSD, involve several distinct strategies including the following:
- Dematerialization—reductions in the material intensity of goods and services, and seeking to substitute knowledge flows for material flows
- Production loop closure—working continuously toward closed-loop production systems and zero-waste factories wherein every output is returned to natural systems as a nutrient or becomes an input in the manufacture of another product; this involves reductions of toxic emissions, enhancements of material recyclability, and the more sustainable use of renewable products
- Service extension—offering products that have extended durability or products that can be leased rather than purchased
- Functional extension—design and manufacture of products with new and enhanced functionalities and services, particularly to increase the service intensity of products
Such initiatives are often being promoted by adopting a product stewardship focus that seeks to minimize environmental impacts associated with the entire life cycle of a product or service, including design and disposal (Hart, 1997).
Sustainable Logistics and Distribution Management
In a globalized economy, the distances traveled by both raw materials and finished products account for a considerable proportion of their environmental impact. In addition to the carbon emissions linked to the movement of goods, the transit packaging used for distribution, the operation of distribution facilities such as warehouses, and any damage or wastage that occurs during distribution all contribute to the environmental impacts of products.
Environmental concerns have made end-of-life (or in the cases of simply unfashionable technologies, end-of-use) products a major issue in industries such as electronics, automotive, batteries, and packaging. In many countries, extended producer responsibility regulations are requiring manufacturers to either undertake or fund the reclamation and reuse or responsible disposal of old products (e.g., the European Union’s directives on end-of-life vehicles and waste electronics and electrical equipment). The requirement to reverse the flow of products within supply chains to create supply loops poses considerable challenges to companies in terms of supply chain structures, product design decisions, altered product costs and pricing, and the need for appropriate strategies and facilities to handle product recovery, recycling, or remanufacture. Such systems require a very different perspective from companies in which old products become a source of potential value and in which previous customers become potential suppliers of old products.
Management Dimensions Of Sustainability
Management and Information Systems
Managing the social and environmental impacts of companies more effectively requires a great deal of additional information to be gathered and used and has led to a growth in environmental and social auditing within organizations. Environmental Management Systems (EMS) are administrative tools that assess the environmental impact of an organization’s operations and provide a framework for managing environmental responsibilities. EMS systems aim to ensure regulatory compliance, generate continuous improvement in the management of environmental performance, and improve operational efficiency. The principles are closely aligned with total quality management (TQM), which has prompted many companies to tackle environmental performance by integrating it into existing quality processes to create total quality environmental management (TQEM). The two most widely recognized EMS schemes are the International Organization for Standardization’s (ISO) 14000 series, and the predominantly European Eco-Management and Audit Scheme (EMAS).
The ISO 14000 series family of standards for environmental management was established by the ISO between 1996 and 2001. They cover a wide range of aspects of environmental management including the implementation of environmental management systems, conducting environmental audits, evaluating environmental performance, conducting life cycle assessments, and environmental labeling and declarations. By the end of 2001, some 37,000 organizations across 112 countries were using management systems that complied with the ISO 14001 EMS requirements.
Five main elements are common to all EMS:
- Identifying company impacts on the environment
- Understanding current and future legal obligations
- Developing plans for improvement
- Assigning responsibility for implementation of plans
- Periodic monitoring of performance
Sustainable Human Resources Management
Business sustainability is often associated with external environmentally oriented impacts of business. However, an important dimension of corporate sustainability is in terms of the management and development of a business’s human resources (or preferably human capital since the term resources has overtones of exploitation). There are several important dimensions to the management of people from a sustainability perspective:
- Providing human support for environmentally oriented strategies and systems—successful implementation of initiatives such as EMS or ISO 14001 are highly dependent on factors such as top management support, environmental training, employee empowerment, teamwork, and rewards systems.
- Recruitment and retention—the market for skilled and qualified people is increasingly competitive, and there is a growing body of evidence that graduates and other skilled employees are increasingly influenced by the social and environmental performance of prospective employers.
- Motivation and productivity—research evidence demonstrates that motivation and productivity tend to be higher among employees who view their employers as socially and environmentally responsible. Involving employees in social and environmental initiatives through volunteering schemes has also been shown to have a positive impact on morale as well as allowing firms to make direct social and environmental contributions.
- Work-life balance—an emerging trend within industrialized economies is pressure on employers to allow employees to achieve a better balance between their working lives and their roles within families or communities. This can be achieved through policies such as flexible working hours, home working, maternity/paternity leave, and corporate child care provision.
- Global supply chains—in the global economy, it is increasingly common for production and other functions to be outsourced to companies in less industrialized nations that may have a weaker regulatory framework for the protection of workers’ human rights and welfare. This can pose both ethical challenges (since workers in poor countries may prefer a job that fails to respect their rights and welfare properly to no job at all) and practical problems of auditing working conditions down supply chains.
Sustainable Accounting and Reporting
Sustainability has provided a range of challenges to the accounting function within organizations, and the accounting professions are involved in integrating sustainability principles into a number of areas of their work including (Institute of Chartered Accountants in England and Wales, 2004)
- the evaluation and management of potential social and environmental risks and the inclusion of social and environmental criteria into a company’s reporting procedures to ensure that stockholders (or other stakeholders) are aware of relevant risks and efforts to address them;
- the development and implementation of codes within businesses on issues such as corporate governance, environmental compliance, and supply chain purchasing policies—the application of such codes usually requires the establishment of assurance and reporting systems and integration with existing corporate information systems;
- understanding the financial implications of government measures to promote corporate sustainability such as taxes, subsidies, and schemes such as permit trading; and
- the provision of information to respond to benchmarking initiatives.
As interest in the socioenvironmental performance of businesses has grown, so has the demand from stakeholders for social, ethical, and environmental disclosure (SEED). By 2001, one half of the global top 100 companies were publishing a global environmental and/or social report, although third-party verification of SEED was still comparatively rare. Many of these reports used one of a number of internationally recognized standards, systems, and guidelines being produced to assist companies in reporting for sustainability issues such as the Global Reporting Initiative (GRI) or the AA1000 Assurance Standards for CSR.
Marketing is central to the sustainability debate within business for a number of reasons:
- Marketing represents the interface between businesses and their customers and is responsible for monitoring customer wants and needs and for developing market offerings and strategies. The requirement to develop more closed-loop systems of production and consumption has also prompted the formation of new types of relationship with customers in order to be able to reclaim post-use product from them.
- In responding to customer demand for greener products, marketing managers play a key role in developing and specifying new products. Developing more eco-efficient products requires new design-for-environment principles such as reuse, recycling, material reduction, responsible materials choice, and sourcing and design for remanufacture to be integrated into new product development processes.
- For fast-moving consumer goods such as food, many of the key environmental impacts are accounted for by packaging and distribution, which are key marketing variables.
- Price is another key component of the marketing mix and in the quest to deliver more sustainable products, many costs that were previously marginalized as externalities will need to be bought within company costing and pricing structures. Alternative pricing methods based around use rather than purchase or on total cost of ownership may be required to improve material efficiency in many markets.
- In the light of measurable skepticism among consumers about the motivations and environmental credentials of companies seeking to market products as relatively sustainable, there is a considerable marketing communications challenge.
Although well placed to aid in the development of more sustainable companies, the mainstream marketing profession has often been relatively resistant to becoming more involved with the sustainability agenda. Partly this reflects conservatism and an unwillingness to make product changes that might endanger customer satisfaction and relationships, which is also linked to skepticism about whether explicit consumer concern about environmental and social issues will translate into actual changes in consumption behavior. Partly it also reflects wariness after a number of early green products failed due to technical shortcomings, a tendency to “overhype” their green credentials or through asking consumers to make too great a compromise in terms of cost or convenience (Ottman, Stafford, & Hartman, 2006).
Conclusions: Progress Toward Sustainable Business
The 20th anniversary of the Brundtland Report falls during 2007, making it an appropriate moment to assess the progress made toward more sustainable organizations for the 21st century. In terms of attitudes, there has been considerable progress toward addressing sustainability concerns in the way that businesses are managed. At the 2002 Earth Summit at Johannesburg, one of the most significant developments was the extent to which partnerships between business and governments and NGOs were viewed as the solution to a wide range of social and environmental challenges. In terms of practice, the evolutionary changes to improve the ecological efficiency and social responsibility or organizations are laudable, but they fall well short of substantive progress toward sustainability (in the same way that there is a difference between a business reducing its losses and making a profit). The radical reengineering of production and consumption systems and the organizations within them, envisaged by those promoting business sustainability, has yet to become widespread in most industries.
Ultimately, sustainability is not an issue that needs to be integrated into management thinking and practice, sustain-ability represents a “paradigm shift” that will change the entire worldview of managers and the perspective from which they view their organizations (Gladwin et al., 1995; Laszlo, 2005). This research paper has been written primarily from the perspective of business organizations, but the principles, if not all the processes, will be similar in public sector organizations. However, it is in business organizations that the challenge of adapting to the sustainability paradigm will be most important and most profound. As Elkington (2001) expressed it,
As we move into the third millennium, we are embarking on a global cultural revolution. Business, much more then governments or NGOs will be in the driving seat. This will be partly because of the widely recognized retreat of governments and partly because business will increasingly find itself with no option but to help co-evolve global governance systems appropriate to the 21st century. Paradoxically, this will not make the transition any easier for business people. Some will take to this new business environment like the proverbial ducks to water. But for many others, the transition will prove grueling, if not impossible. For others, performing against the “triple bottom line” will come to seem like second nature.
The concept of a “sustainable organization” is in many ways misleading because an organization of itself cannot generally be sustainable. Organizations form part of broader social and economic systems, which need to become oriented toward sustainability to create the opportunities for organizations to change and to make progress. This will require supportive changes in terms of the behavior of consumers, investors, and the media and to the nature of global trade and to the laws, political systems, and educational systems that shape the organizational environment.
One of Barry Commoner’s five rules of ecology is that “there is no such thing as a free lunch.” During the 21st century the bills for the unbridled economic growth humankind experienced during the last 100 years will arrive in the form of disruption caused by climate change and political tensions over resources including water, oil, and food. Organizations including businesses, governments, and NGOs will need to work in partnership to achieve the paradigm shift to place sustainability at the heart of organizational goals, values, cultures, leadership, and practices. Succeeding in this will affect every other dimension of contemporary management described in this research paper profoundly.
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