This article was originally published by the Network for Business Sustainability. It was written by Tima Bansal and Devika Agarwal.
Most people still find the concept of corporate sustainability unclear. We explain what it means and why it’s important.
In the last two years, there has been a tidal wave of companies committing to “sustainability.” They might set net zero carbon goals, diversify their workforce, or move into new, cleaner lines of business. And, this is just the front edge of the wave. The interest in sustainability is likely to grow even more over the next decade, as businesses feel pressure from social movements and environmental challenges.
But corporate sustainability is still confusing to many people. People often ask me: “So, what do you mean by sustainability?” I’m a researcher who has studied this topic for over 20 years and I work closely with companies. Here, I describe what corporate (or business) sustainability means, why it matters, and how to make it part of your business.
What are the principles of sustainability?
Corporate sustainability comes from the concept of “sustainable development.” The World Commission on Environment and Development, a United Nations initiative, defined that concept in 1987. Sustainable development means actions that “meet the needs of present generations without compromising the needs of future generations.”
To contribute to sustainable development, businesses should create wealth to reduce poverty, but do so without harming the natural environment. In this way, businesses help our world today and ensure that future generations can also thrive.
In practice, this means that business must consider three key things in their operations:
Human rights and social justice. Sustainability requires businesses to recognize their impact on the people they employ and the communities around them. This recognition means committing to fair wages, just and ethical treatment, and a clean and safe environment.
For example: The clothing retail industry racked up billions in unpaid bills during COVID-19 because of plummeting prices and unsold garments, leaving millions of garment workers in desperate conditions. Yet, some brands continued to pay suppliers, even though their own incomes had declined steeply.
Natural resource extraction and waste. Businesses often rely on natural resources such as land, water and energy. While many natural resources can renew or “regenerate,” this takes time. Businesses need to respect these cycles, by using natural resources at the speed at which they regenerate.
For example: Companies can reduce their resource extraction by using recycled or repurposed products and make their operations more efficient by reducing waste. In doing so, they contribute to the ‘circular economy.’ Gains can be quick: A vegetable processing plant saved $300,000 by simply capturing beans falling off a processing line.
Short- and long-term thinking. Businesses face intense pressure for immediate profits, but sustainability requires investing in technologies and people for the future, even though financial benefits show up much later. Companies are used to longer-term thinking for capital investments, but a sustainability orientation applies this logic to investments in people and society.
For example: Some fossil fuel companies have reimagined themselves as energy companies, even though major investments in renewable energies are less profitable in the short run than their oil, gas or coal operations. They recognize that climate change requires them to build new capabilities and sources of energy.
How does corporate sustainability differ from corporate social responsibility?
Many terms exist to describe companies’ social and environmental initiatives. Corporate social responsibility (CSR) is the most common; others include environmental, social, and governance (ESG), shared value, the triple bottom line, and managing environmental impacts.
I see ‘sustainability’ as the most complete and powerful of these related concepts. That’s because sustainability asks managers to take a “systems view.” A systems outlook recognizes that companies are part of a larger social and environmental system, that systems change, and that today’s actions must consider the future.
CSR emphasizes a company’s ethical responsibilities. However, what is ethical for one person or company may not be seen ethical by another. For example, some people see a minimum wage as being responsible, whereas others see a higher “living wage” as the ethical choice. Corporate sustainability emphasizes science-based principles for corporate action. A corporate sustainability lens would set a wage in which people could meet their basic needs, which will vary from place to place.
Additionally, CSR generally does not speak to fairness across generations; it focuses more on the present.
But don’t get too lost in the definitions. Ultimately, all of these terms ask businesses to think about the broader world in which they operate, and not just on short-term self-interest.
Why is corporate sustainability important?
Business is a powerful actor in society, with some businesses being larger than some governments. For example, Amazon’s revenues in 2019 were $US281bn: larger than Pakistan’s GDP. Businesses now have so much power that executives can choose to create a better life for all or just a few.
Society is also pushing companies to invest in sustainability. Many governments, citizens, and other stakeholders want to see companies showing concern for their communities. Failing to do so can mean losing the social license to operate, which is society’s trust in a company.
Additionally, companies can benefit in the long term from being green and good. Evidence shows that financial benefits come in many forms. For example:
Reducing waste, e.g. through energy efficiency investments, often produces savings.
Investors increasingly look for companies that have higher “ESG” (environmental, social and governance) ratings, as a way of managing risks.
Creative and committed individuals seek out employers committed to sustainability and are even willing to take a lower salary if such a commitment is sincere.
But, let’s be honest. Sustainability is not just about making money. It is also a vision of what executives running powerful businesses want to see in the world they create. They imagine a world in which everyone can flourish, living on a planet that is resilient and rich with biodiversity. They don’t want to inhabit a world in which only a few live well, whereas others live with disease and waste.
How do you build a corporate sustainability strategy?
Companies can move step by step toward sustainability, gradually increasing and expanding their actions. Often companies begin by putting their own houses in order, looking internally at decision-making, operations, culture, and other areas. They may move on to partnering with suppliers, vendors and other companies can help organizations learn and share best practices. Eventually, companies need to engage with society, from community stakeholders to NGOs.
Ultimately, no single company can create sustainable development: it must be a collective effort. That’s because many sustainability issues, such as climate change and poverty, are so huge that they require action by many citizens and organizations. And for any single company to create zero emissions, it needs suppliers to innovate cleaner products and regulators and customers willing to support their efforts. Sustainability requires new forms of collaboration and new thinking about the economy.
Corporate sustainability may not be simple, but it is necessary. Those companies that embrace the full complexity of sustainability ideas sooner than later will contribute to a better world and experience higher long-term profits. Why wouldn’t we all want to work towards that vision?
About the Series
The Network for Business Sustainability “Basics” series provides essential knowledge about core business sustainability topics for business leaders thinking ahead. “The Basics” provides essential knowledge about core business sustainability topics. The Network for Business Sustainability builds these articles for business leaders thinking ahead.
About the Authors
Dr. Tima Bansal is the Founder of the Network for Business Sustainability (www.nbs.net), a growing network of over 35,000 followers from management research and practice committed to advancing sustainable business. She is also a Professor of Strategy and Sustainability at the Ivey Business School (Canada).
Devika Agarwal is an MBA/MS student at the University of Michigan Erb Institute for Global Sustainable Enterprise. Devika hails from strategic sourcing in the retail industry and now works to influence sustainability and innovation in the Global Supply Chain.
 Based on corporate revenues ranked against national GDP. Amazon’s total would rank it 41st in the list of world economies based on GDP, just above Pakistan.
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