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green@work : Magazine : Back Issues : Mar/Apr 2003 : Corporate Acts

Corporate Acts

Five Signs that Sustainability’s Tipping Point Is Close

There are encouraging signals that the tectonic plates of corporate mind sets and practices are starting to shift.

 

Something is going on out there. First, we are getting past the “shock and denial” and “anger and blaming” phases of the sustainability change curve. Originally, some economists and corporate executives viewed corporate social responsibility (CSR) as ominously anti-corporation, anti-capitalism and anti-business. On the other side, skeptical activists dismissed early CSR efforts as a placebo for the enemies of globalization, a public relations smokescreen and capitalism’s last-ditch attempt to save itself by co-opting its opposition. Companies were viewed as greedy institutions throwing a few philanthropic crumbs to the masses and expecting to be loved for it. And so on.

Fortunately, few are still stuck in those early rancorous phases of change, and we can get on with more productive partnerships between non-governmental organizations and corporations as both sides move past the “acceptance of change” phase. CSR is morphing from optional, marginalized philanthropy to mainstream strategic corporate practice; from a feel-good factor into a fundamental risk-management factor; from charity to enlightened self-interest; and from being fashionable to being a strategic business imperative. “Sustainability” is becoming synonymous with “high performance.”

Many of us are encouraged by sustainability momentum. Perhaps it is the cumulative effect of a number of related levers, a confluence of forces rather than a single cataclysmic event. A couple of experts feel we have already passed the “tipping point,” the point at which the sustainability idea becomes contagious and spreads like an epidemic through the business community.

I do not believe we are there yet, but we are close — probably within two to five years. There are encouraging signals that the tectonic plates of corporate mindsets and practices are starting to shift.

I am often asked why I am optimistic that sustainability is gaining currency as a strategic business lens. Sometimes I jokingly say that things have to get bad before they get better, and they are getting really bad now. More optimistically, I refer to five signs of hope that are especially encouraging because they indicate corporate mindsets are changing and starting to think of sustainability as a legitimate business issue.

1. Financial Markets Are Poking with Sharper Sticks

An awakened investor community is a powerful driver of corporate CSR attention. Entities in the financial sector get involved in sustainability as investors of capital, as developers of financial products that encourage sustainable development and as stakeholders who are leery of businesses exposure to environmental risk. Fed by a steady diet of corporate scandal, the world’s major institutional investors are starting to ask questions about governance, ethics and broader corporate citizenship issues. Dots that matter are being connected.

The Carbon Disclosure Project ties market valuation to climate change. When 95 investment institutions representing $10 trillion of assets ask the 500 largest companies in the world how they see climate change affecting their market value and what they are doing about it, all companies sit up and take notice. Throw carbon trading possibilities into the mix, and suddenly corporate environmental sustainability becomes a mainstream business issue.

A 2001 Conference Board of Canada report, which analyzed the performance of seven prominent funds and indices, and also looked at 18 research studies, found compelling evidence that investment portfolios consisting of companies committed to sustainable development have matched or outperformed their benchmarks. Given this positive correlation, investment analysts are starting to request company environmental and social reports as information sources about holistic company health and competitiveness. At a minimum, sustainability scores are a good proxy for superior management of intangible assets and critical organizational capabilities such as business efficiency, management competency, human capital, strategy execution, stakeholder relations and reputation management.

A 2004 study showed 86 percent of institutional investors across Europe believe that social and environmental risk management will have a significant long-term impact on companies’ market value. A 2003 poll conducted by GlobeScan showed 51 percent of Canadian shareholders had punished a socially irresponsible company in the previous year. And a survey reported in The Wirthlin Report in April 2004 indicated that 74 percent of adult Americans say their view of a company’s ethical behavior and practices has a direct influence on their willingness
to purchase the firm’s stocks.

Retail and institutional investors are waking up. Stand back!

2. Sustainability Reporting Is Becoming Business as Usual

Following the 1992 Earth Summit in Rio de Janeiro, the concept of sustainable development gained common currency. Existing environment, health and safety reports began to include wider community issues, and “sustainability reports” started appearing. According to Corporate Register.com statistics, the percentage of reports focusing exclusively on the environment fell from 63 percent of non-financial reports in 2000 to 42 percent in 2002, while sustainability reports rose from 5 percent to 15 percent over the same period, suggesting some environmental reports morphed into sustainability reports. Sustainability reporting has moved from the fringe to mainstream accounting practice, and “sustainability” is increasingly the term used to label all non-financial reports.

There was concern that the Kasky case would inhibit CSR reporting. In 1998, California activist Marc Kasky sued Nike for violating California’s truth-in-advertising law. After losing business in the mid-1990s to charges of funding sweatshop conditions overseas, Nike issued press releases denying there were major problems, and claimed it enforced a code of conduct that prohibited overseas factories from abusing workers. Kasky’s lawsuit claimed Nike knowingly lied about working conditions to improve sales, which amounted to advertising, and therefore the denials were commercial communications, subject to the truth-in-advertising law, rather than free speech protected under the First Amendment. The case was settled out of court, but the signal that public statements may be considered information for investors could make companies leery of describing their CSR intent in official reports.

One of the most enduring business clichés is, “what gets measured gets managed.” Reporting and disclosure lead to awareness and tracking, tracking leads to improvement strategies, and improvement strategies lead to new actions that enhance corporate performance and image. Almost by osmosis, it becomes evident that paying attention to CSR metrics is good for business, and as a result, sustainability considerations are integrated into key decision-making processes throughout the firm.

As sustainability reporting becomes as commonplace as financial reporting, stand back!

3. Business Schools Are Legitimizing Sustainability Strategies

Business schools shape the thinking of current and future business leaders. In the United States, more than 100,000 master’s degrees in business are conferred each year. “Beyond Grey Pinstripes” highlights the MBA programs and faculty at the forefront of incorporating issues of social and environmental stewardship into their curriculum. The worldwide report is prepared every two years by the Aspen Institute and the World Resources Institute.

According to the 2003 report, sustainability issues are becoming part of the business vernacular and are addressed in many MBA programs through elective courses and extracurricular activity. The six top schools in the 2003 survey were (in alphabetical order): George Washington, Michigan, North Carolina (Kenan-Flagler), Stanford, Yale and York (Schulich). Integration of sustainability into core courses — including accounting, finance, marketing, operations and organizational behavior — that most powerfully shape the MBA experience is still a work in progress. Three MBA programs have deliberately been designed from the ground up to integrate sustainability seamlessly into all courses: Bainbridge Island Graduate Institute off the coast of Seattle, Presidio World College in San Francisco and the Green MBA at New College in Santa Rosa, California.

“ Beyond Grey Pinstripes” is to MBA schools what the Carbon Disclosure Project is to large companies. Just asking what schools are doing to integrate sustainability into the core MBA curriculum — and publicly ranking them — gets their attention.

What is even more encouraging is the Net Impact MBA student group. Its 90-chapter, 10,000-strong membership is working with MBA schools and future employers to legitimize sustainability interests. Net Impact’s professional membership option allows alumni and other business professionals to stay connected with a network of like-minded peers after graduation. Net Impact members are a beneficial virus of sustainability champions infecting mainstream business communities. A 2004 survey of MBA students found that 97 percent said they were willing to forgo 14 percent of their expected income to work for an organization with a better reputation for corporate social responsibility and ethics.

MBA schools shape the mindsets of corporate leaders. Stand back!

4. ISO Is Developing a New Standard for Social Responsibility

ISO 9000 standards gave a big boost to quality. ISO 14000 standards gave a big boost to environmental management systems. In June 2004, after 18 months of rigorous study of CSR trends and initiatives by various stakeholders, the International Organization for Standardization (ISO) decided to develop a new international standard for social responsibility. Perhaps it will give a big boost to sustainability.

ISO openly acknowledges that the sustainability topic involves issues that are qualitatively different from issues it has traditionally dealt with. The standard is intended to add value to, not replace, existing agreements such as the UN Universal Declaration of Human Rights and Global Compact.

Wisely, the ISO task force plans to make its efforts open to anyone
interested and to make it as easy as possible for experts from stakeholders in developing countries, NGOs, international and broadly based regional organizations, business, government, labor organizations and consumer associations to participate. The challenge will be to develop practical guidelines that provide easy-to-use guidance to this wide range of stakeholders.

This will be a different kind of standard. It is not intended for certification, so it will be interesting to see if, without that rigor, it draws attention to CSR. Perhaps the focus on process rather than results will make the new standard more attractive to companies. The idea of extending existing corporate strategies to embrace sustainability could be a clever move. Some companies that achieved ISO 9000 certification for their quality management system viewed ISO 14000 certification for their environmental management system as a natural extension. When an ISO standard for corporate social responsibility is established, companies with ISO 14000 certification may view applying for the new standard as an extension of their environmental management system base.

If an ISO CSR standard awakens the supply chain anything close to the way ISO 9000 did, stand back!

5. Lifestyles Are Changing

According to Paul Ray and Sherry Ruth Anderson, who wrote The Cultural Creatives, in the United States there are 50 million “cultural creatives” who are involved in, or care about, three to six social movements: environmentalism, planet ecology, civil rights, peace, social justice, new spiritualities, organic food and/or holistic health. They account for a high proportion of people seeking lifestyles of health and sustainability (LOHAS). In 2000 the LOHAS market in the United States was worth $226.8 billion, made up of five core segments: sustainable economy ($76.5B), healthy lifestyles ($27.8B), personal development ($10.6B), alternative health care ($30.7B) and ecological lifestyles ($80.2B). The worldwide LOHAS market was estimated to be $546 billion. Sounds like a marketing opportunity.

Consumer issues used to start in the United States and sweep over to Europe. Now consumer issues in the European Union trigger reactions in the United States. For example, some EU members are raising the bar and using market signals to engage citizens in programs to curb greenhouse gases. Some of these are revenue-neutral, carrot-and-stick green tax schemes that tax environmentally bad things and use the money to give rebates to environmentally good things. In 2004, France proposed a radical green road tax scheme that would tax large, gas-guzzling vehicles up to 3,500 Euros and give rebates of up to 700 Euros for smaller, cleaner vehicles. Because the amount collected from the new taxes would balance the rebates, it would not cost taxpayers anything, but would make motorists think twice about the kind of car they need. Why is France doing this? More than 30,000 people in France die each year from atmospheric pollution, and between 7 percent and 20 percent of all cancers have an environmental origin. The French government is helping consumers connect the dots from health to pollution to fossil fuel emissions to their vehicle choices. Bulky four-by-fours are the most environmentally harmful vehicles on the market, emitting up to four times as much CO2 as a normal car, yet only doing about 12 mpg in urban traffic conditions. In 2004, Paris town council tabled a plan to ban them from the streets of the capital, and the mayor of London described them as “bad for London — completely unnecessary,” and their owners as “complete idiots.” Strong action and inflammatory rhetoric raise the profile of the issue in the minds of consumers everywhere.

Consumers are waking up. Stand back!

Bob Willard is a leading expert on the business value of corporate sustainability strategies. Following a 34-year career with IBM, he authored The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line (New Society Publishers, 2002), and gives frequent keynote presentations to corporations, consultants, academics and non-governmental organizations. “Five Signs that Sustainability’s Tipping Point Is Close” is adapted from Willard’s latest book, The Next Sustainability Wave: Building Boardroom Buy-in (New Society Publishers, 2005) on why some companies are committed to sustainability, why others are not and how to overcome senior executive resistance to making that commitment.


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