Corporate sustainability - SUM: Sustainability Management Wiki

Authors: Marleen Christ, Nick Fischer, Lisa Gerdes-Röben, Joern Hoppmann, Ann-Kathrin Sieberns,
Last updated: December 22, 2022

1 Definition and relevance

Corporate sustainability (CS) can be defined as an organizational approach to creating a long-term stakeholder value in social, environmental, and economic spheres. While CS recognizes that corporate growth and profitability are important, it also requires the corporation to pursue environmental protection, economic development, social justice and equity, and societal goals.¹ In contrast to Corporate Citizenship and Corporate Philanthropy, in the case of CS environmental and social activities are not add-on activities, but are integrated into the core of a company’s strategy. In this sense, CS is similar to Corproate Social Responsibility. However, while CSR is rooted in ethical and philosophical discussions about the responsibility of business (with a stronger focus on social issues), CS has its origins in studies that have investigated the limits of economic growth due to the limited carrying capacity of ecological systems in the 1970s and 1980s. In early years, CS research thus used a more descriptive approach to ask what influence industrial activity has on natural ecosystems. In more recent years, however, one can observe an increasing convergence between CS and CSR as CS increasingly considers social aspects, while CSR considers ecological ones, and research in both fields includes normative and descriptive approaches.

The specific approach companies use to implement CS is contingent on different parameters (e.g. technology, regime, and visibility) that varies across industries, plants, and countries.² Over the past few years, companies are increasingly forced to invest in CS, due to the shortage of skilled workers, climate and economical changes, and growing competition. In 2022, the Corporate Sustainability Reporting Directive (CSRD) published a new guideline concerning the reporting of the business’s CS. The CSRD aims to put sustainability on par with financial reporting. This means measuring the CS of an organization so it can be managed. It amends the NFRD, which is currently regulating the reporting and expands sustainability reporting obligations for European businesses.³ This new guideline will cause CS to become increasingly important within the business world because the measurement of CS makes firms comparable.

2 Background

The concept of CS originates from the concept of “sustainable development” and Elkington´s “triple bottom line” from 1997 and it sustains elements from four more established concepts, which are: sustainable development, corporate social responsibility, stakeholder theory, and corporate accountability theory.⁴

The first element of CS is sustainable development.⁵ The book Our Common Future, published by the World Commission for Environment and Development (WCED), first popularized the term in 1987. Sustainable development contributes in two different ways to CS. First, it helps define the areas in that organizations should prioritize social, environmental, and economic performance. Second, it purveys a shared societal goal for companies, administrations, and civil society: economic, social, and ecological sustainability. The required arguments for why organizations should care about these topics are provided by corporate social responsibility and stakeholder theory.⁶

Corporate social responsibility is the second element and it deals with the role of business in society.⁷ In 1953, Howard R. Bowen, published a book called Social Responsibilities of the Businessman. This book is considered “the foundation for the study of corporate social responsibility” and started the modern area of corporate social responsibility. Today, companies must be responsive to an increasingly diverse audience.⁸ The general understanding of corporate social responsibility is that it is the “way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-Approach”), while at the same time addressing the expectations of shareholders and stakeholders.⁹ By providing ethical arguments as to why corporate managers should work towards sustainable development, corporate social responsibility contributes to CS.¹⁰

The third element of CS is the stakeholder theory. The stakeholder theory of a firm was first popularized by R. Edward Freeman and is a relatively modern concept. Unlike corporate social responsibility, the stakeholder theory is mainly a strategic management concept, instead of a philosophical concept. The basic element of the theory is, that it is easier to meet the corporate business objectives if the relationship with external stakeholders is respectful, trustworthy, and cooperative. The theory’s goal is to gain a competitive advantage by helping to strengthen the relationship between the corporation and stakeholders.¹¹ The contribution of stakeholder theory to CS is “the addition of business arguments as to why companies should work toward sustainable development”.¹²

The last element of CS is the corporate accountability theory. This theory includes the relationship between shareholders and corporate management. Corporate accountability holds leaders and businesses accountable for their employees, community members, and the general public, as well as their financial stakeholders.¹³ This last element of CS contributes by helping to “define the nature of the relationship between corporate managers and the rest of society. It also sets out arguments as to why companies should report on their environmental, social, economic, and not just their financial performance”.¹⁴

An increasing number of firms make public commitments to environmental protection, social justice and equity, and economic development. However, the number of participants needs to increase even more to provide CS for everyone. For this to happen, new regulations need to encourage more corporations to invest in CS, so that the shared societal goal can be achieved. The new CSRD guideline can be this step in the right direction.

3 Practical implementation

CS is implemented to accomplish objectives of benefit to society or to reduce their environmental footprint. It has become an important topic for big and small companies, which led them to name sustainability as a key priority. Sustainability is most often defined as “meeting the needs of the present without compromising the ability of future generations to meet theirs. Broadly speaking, a company implements sustainable practices by reducing its consumption of limited resources or finding alternative resources with lower environmental consequences”.¹⁵ CS can only be successfully implemented if the three pillars of sustainability are considered: Social (people), Environmental (planet), and Economic (profit).

The social pillar “consists of practices that benefit the company’s employees, consumers and the wider community”. A socially corporate sustainable organization should be supported and approved by its “employees, stakeholders and community that it operates in”.¹⁶ To assure the support and approval of the people, the following processes can be implemented. Transparency can foster the employee’s support. This can be achieved by communicating important decision-making to the employees, so they have an insight and feel like they are being involved. Another process that can be implemented to ensure transparency is to publish the business report. This allows employees, stakeholders, and the community to get insights into the important information and changes of the company. Sending out a survey regularly, that questions employees about their struggles and desires related to their workplace is another process that can be implemented to ensure the employee’s satisfaction. This gives them the feeling of being important and can improve their motivation and psychological well-being.

The environmental pillar is the pillar that gets most of the attention. Companies can invest into environmental CS by reducing wasteful practices and the carbon footprint. This does not only have a positive financial impact, but it also benefits the planet.¹⁷ An example of investing in the environmental pillar is the American multinational retail company Walmart They just released a zero-waste initiative, which includes the reduction of plastic within their value chain and using more recycled packaging materials.¹⁸ This can be achieved by partnering with more environmentally conscious firms or using more environmentally friendly materials. To use more recycled packaging materials, a system can be implemented that collects empty packages and repurposes them. A best practice example is bottle recycling in Germany. Empty bottles are collected through a deposit system and people put their empty bottles into a reverse vending machine and get back a certain amount of money per bottle.¹⁹

The economic pillar consists of “maintaining the honest and transparent accounting practices and regulatory compliance”.²⁰ A business can only be successful if it is profitable. But this is not the only aspect that the economic pillar is about. Corporate governance, compliance, and risk management are also very important when it comes to economic CS. Being transparent regarding accounting methods and not engaging in illegal practices can foster economic sustainability within a firm. A process that manages risk can also foster economic sustainability. Risk management needs to first identify the risk. Then the process has to assess and treat the risk, before monitoring and reporting on the risk.²¹ This process can be observed in many companies, for example in the financial world. Risk management is used by investors or fund managers to analyze and attempt to quantify the potential for losses in investment before deciding whether to invest or not.²²

After reviewing the three pillars of sustainability, it can be said that balancing all three pillars is the main goal. But it is difficult to achieve this goal at all times because investing in one pillar can be a disadvantage for one of the others. For example, if one tries to invest in ecological CS, by reducing, reusing, or recycling waist, it always comes with a cost. In this case, the economic CS suffers from it, because part of the profit has to be reinvested into recycling. The advantage that this investment has, is that the social pillar may be fostered. Employees may feel good about doing something that benefits the environment, which can lead to an improvement in social CS. Concluded it can be said that all of the decisions that can have a potential impact on CS need to be considered well because the potential impact can be long-term.

References

1
Ashrafi, M., Acciaro, M., Walker, T. R., Magnan, G. M., & Adams, M. Corporate sustainability in Canadian and US maritime ports. Journal of Cleaner Production. 386-397 (2019).
2
Salzmann, O., Ionescu-Somers, A., & Steger, U.. The Business Case for Corporate Sustainability:: Literature Review and Research Options. European Management Review 23(1):27-36 (2005).
3
Wollmert, P. (2022). Sustainability reporting: what to know about the new EU rules? Ernst & Young. https://www.ey.com/en_no/assurance/how-the-eu-s-new-sustainability-directive-will-be-a-game-changer (2022).
4
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
5
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
6
World Commission on Environment and Development: Our Common Future. (1987).
7
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
8
Caulkins, D. President Howard Bowen & Corporate Social Responsibility. Grinnell College https://www.grinnell.edu/news/president-howard-bowen-corporate-social-responsibility#:~:text=By%20social%20responsibility%20of%20businessmen,and%20values%20of%20our%20society.%E2%80%9D (2013).
9
N.N. What is CSR? United Nations Industrial Development Organization https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr#:~:text=Corporate%20Social%20Responsibility%20is%20a,and%20interaction (2022).
10
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
11
Freeman, E. R. Strategic Management. A Stakeholder Approach. (Cambridge University Press, 1984).
12
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
13
Chen, J. Corporate Accountability. Investopedia https://www.investopedia.com/terms/c/corporate-accountability.asp(2022).
14
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
15
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
16
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
17
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
18
N.N. Waste. Walmart.comhttps://corporate.walmart.com/purpose/sustainability/planet/waste (2022).
19
Bouliane, N. Das Pfand-System: So geben Sie Flaschen in Deutschland zurück. Alles über Berlin https://allaboutberlin.com/guides/pfand-
20
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
21
N.N. The Risk Management Process: 4 Essential Steps. migso-pcubed https://www.migso-pcubed.com/blog/pmo-project-delivery/four-step-risk-management-process/ (2021).
22
Kenton, W. Risk Management in Finance. Investopedia. https://www.investopedia.com/terms/r/riskmanagement.asp (2021).

1
Ashrafi, M., Acciaro, M., Walker, T. R., Magnan, G. M., & Adams, M. Corporate sustainability in Canadian and US maritime ports. Journal of Cleaner Production. 386-397 (2019).
2
Salzmann, O., Ionescu-Somers, A., & Steger, U.. The Business Case for Corporate Sustainability:: Literature Review and Research Options. European Management Review 23(1):27-36 (2005).
3
Wollmert, P. (2022). Sustainability reporting: what to know about the new EU rules? Ernst & Young. https://www.ey.com/en_no/assurance/how-the-eu-s-new-sustainability-directive-will-be-a-game-changer (2022).
4
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
5
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
6
World Commission on Environment and Development: Our Common Future. (1987).
7
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
8
Caulkins, D. President Howard Bowen & Corporate Social Responsibility. Grinnell College https://www.grinnell.edu/news/president-howard-bowen-corporate-social-responsibility#:~:text=By%20social%20responsibility%20of%20businessmen,and%20values%20of%20our%20society.%E2%80%9D (2013).
9
N.N. What is CSR? United Nations Industrial Development Organization https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr#:~:text=Corporate%20Social%20Responsibility%20is%20a,and%20interaction (2022).
10
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
11
Freeman, E. R. Strategic Management. A Stakeholder Approach. (Cambridge University Press, 1984).
12
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
13
Chen, J. Corporate Accountability. Investopedia https://www.investopedia.com/terms/c/corporate-accountability.asp(2022).
14
Wilson, M. CORPORATE SUSTAINABILITY: WHAT IS IT AND WHERE DOES IT COME FROM? Ivey business journal https://iveybusinessjournal.com/publication/corporate-sustainability-what-is-it-and-where-does-it-come-from/(2003).
15
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
16
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
17
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
18
N.N. Waste. Walmart.comhttps://corporate.walmart.com/purpose/sustainability/planet/waste (2022).
19
Bouliane, N. Das Pfand-System: So geben Sie Flaschen in Deutschland zurück. Alles über Berlin https://allaboutberlin.com/guides/pfand-
20
Beattie, A. The 3 Pillars of Corporate Sustainability. Investopedia https://www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp (2021).
21
N.N. The Risk Management Process: 4 Essential Steps. migso-pcubed https://www.migso-pcubed.com/blog/pmo-project-delivery/four-step-risk-management-process/ (2021).
22
Kenton, W. Risk Management in Finance. Investopedia. https://www.investopedia.com/terms/r/riskmanagement.asp (2021).

1 Definition and relevance

2 Background

3 Practical implementation

References

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