The Business of Sustainability

Professor Wayne HayesV. 0.4, Build #6

4/8/2014

Purpose

The Business of Sustainability augments the Economics of Sustainability, but drills down to the potential of the firm to promote sustainability, the search for alchemy.

Implicit in this speculation is the premise that capitalism possesses a fluid and adaptive capacity that complements the price mechanism.

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Recall the mission of The Economics of Sustainability.

How can the economy be harnessed to serve world sustainability? What makes this question so ironic is that the growth in the physical scale of the economy and its rapacious character under economic globalization has depleted resources, destroyed ecosystems, overwhelmed natural waste disposal sinks, waged war on subsistence cultures, and produced shocking maldistribution of wealth and income. How, then, can the economy be turned around to reinforce sustainable development rather than to destroy ecosystems, resource endowments, and indigenous cultures? This alchemy must be resolved to promote sustainability.

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How?

We seek to reconcile around common ground:

Long-term stakeholder value creation. This is the alchemy.

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Where is the compatibility?

Long-term value creation.Create, don’t destroy, wealth.

Do so ethically andsustainably.

This is the challenge.

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Consider TBL:the Triple Bottom Line.

Source: The Triple Bottom Line and sustainability? GRIID, March 30, 2010. Accessed 3/21/2013

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This points in the TBL direction:

From Ceres:

“When considering sustainability, it is important to focus on the entire spectrum of interrelated factors. True sustainabilitymeans judging solutions on a life-cycle basis and consideringthe complete set of inputs, costs and externalities. Sustainability challenges are increasingly interconnected: the climate crisis and poverty, pandemics and demographics, water scarcity and migration/urbanization. Sustainability challenges can not be considered in isolation.”

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TBL contradicts the premise of the neoclassical model:

The neoclassical model presumes that our individual “welfare functions” are completely independent.

Triple Bottom Line recognizes that interdependence reigns and that systems rule. The world is more complicated.

This facilitates a grasp of globalization and prizes systems thinking. This presents a complex world, which actually favors sustainability.

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The alchemy of Brown to Gold

This alchemy must be resolved to promote sustainability:The Triple Bottom Line,The new Gold Standard.

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There is work to be done:

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Look at the human footprint.

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How to proceed?

We need to explore what might propel

profit-driven companies, large and small, toward sustainability consistent

with the Triple Bottom Line.

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Consider this distinction:

Divide organizations into three broad groups:1.Green organizations will embrace sustainability.2.Neutral organizations do not consider issues like sustainability.3.Brown organizations contradict sustainability and the Triple Bottom Line.

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Ask some questions about the next twenty years:

1. Will there be more or fewer in each of these categories: Green, Neutral, Brown.

2. Which face the biggest risks?3. Which are better situated for attracting

investors?4. Which do you want to work for?5. Which will learn and adapt? Or fade away?

Do you have any other questions?

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How can you addlong-term stakeholder value?

You will participate in many organizations. How will you contribute to

long-term stakeholder value. That frames a critical sustainability question

that gives you agency, a role.

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A burgeoning literature exists. . .

. . . and examples abound. But will the transition occur in

real-time rapidly enough,

given adverse trends?

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Read Ceres on corporate sustainability:

“The interests of shareholders, over time, will be best served bycompanies that maximize their financial performance by strategicallymanaging their economic, social, environmental and ethicalperformance. Central to this thesis is the explicit recognition thatsustainability factors directly affect long-term business profitability.In fact, the financial crisis has reinforced our view that sustainablesolutions will be the primary driver of industrial and economicdevelopment in the coming decades.”

Ceres: The 21st Century Corporation: The Ceres Roadmap for Sustainability

Do these statements appear compatible?

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The Compression Institute givesa brief overview.

View the short film on an overview

from the Compression Institute.

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I suggest Making Sustainability Work by Marc J. Epstein.

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Consider his summary principles:

• Sustainability must be integral to the corporate strategic plan, mission, culture.

• Leadership must be fully committed and build capacity in the organization.

• Management control, metrics, and incentives must be implemented.

• Sustainability not only avoids risks and costs (energy, water, waste) but provides innovation, products, and competitive advantage. (p. 32)

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Business principles for sustainability:

• Examine goals, mission, and values to assure that current operations support your organization’s basic principles --- and examine those principles.

• Strategic advantage comes from long-term, comprehensive re-thinking. Inertia increases adversity. Always innovate, adapt, anticipate, invent.

• Hedge risks by scanning the horizon. Look out for Black Swans, low-probability but high-impact events.

• Think everything through to its conclusion. Don’t rely on half-measures and old habits.

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Business principles for sustainability II:

• Nurture and conserve all your operating resources. Monitor and, when possible, avoid acquisition: You pay for them, probably monthly. Use resources wisely and sparingly.

• Watch out for these operating costs: energy, water, insurance, regulation, and waste disposal. Such costs are often out of sight but will increase, so track them carefully.

• Your capital stock should be maintained to cover depreciation and to assess long-term operating costs, often hidden.

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Business principles for sustainability III:

• Provide leadership in promoting a learning organization that can incorporate sustainability themes.

• Identify and assess industry-wide Best Practices

• Nurture your brand, both organizational and personal. Do well by doing good.

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The Gold Standard might be . . .

The World Business Council on Sustainable Development.

Look at its Executive Summary of Vision 2050 for a powerful vision of

The Business of Sustainability.

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The Climate Action Partnership:

The stated mission of the Climate Action Partnership is this:“We are committed to a pathway that will slow, stop, and reverse the growth of U.S. emissions while expanding the U.S. economy.” Their members include Dow Chemical, Alcoa, Chrysler, Duke Power, GE, Exelon, Rio Tinto, Shell, Pepsi, and J&J, and more.

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Look at my favorite.

The Intel Corporation has made a commitment to sustainability.

Check out the Intel 2011 CSR Report and use this as a model

for doing The Business of Sustainability right.

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Look at my less favored companies.

Triple Pundit: People, Planet, Profit recently covered

controversy around the sustainability claim of the Monsanto Corporation.

Let’s dig into that a little.

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Bloomberg Sustainability site:

The mission of Bloomberg Sustainability is:

“At Bloomberg, being sustainable means managing our business better by integrating environmental, social and economic considerations into our operations, as well as our products and services. Sustainability combines corporate citizenship, risk management and strategic opportunity – driving our operating costs down, our revenues up, and influencing wider adoption of sustainable practices across the business community.”

View their catchy video and notice in their report “The Business Case for Sustainability.” Then view the Bloomberg Sustainability News site.

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A firm or company isan organization.

And civil society organizations are also businesses. So is government. The principles of sustainability extend to all complex organizations.

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Expect turbulence and build resilience.

Our age accelerates change, globally. Black swans seem to arise more frequently: unexpected, improbable, high-impact events are now the new norm. Watch out!

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I learned a few things in the Boy Scouts.

1. “Be prepared.”2. “Leave the place better than you found it.”----------------------------------------------------------------

These common-sense maxims are true today and

are still basic.

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But sustainability means . . .

thinking big and thinking bold, but

above all,THINKING!

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Sustainability means a smarter learning organization.

Make a strong connection among these hallmarks of sustainability:1.A smart, innovative organization;2.A long-term planning and operating horizon;3.Adherence to Best Practices;4.Closing the throughput loop.5.A brand reputation for integrity, transparency, and service.

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A commitment to sustainability drives down long-term costs.

• Energy, perhaps 15% of total operating costs and going up;

• Water will vary by industry and location but tends to be hidden from view, to grow, and may soon be a critical concern.

• Regulation compliance is basic to sustainability, often its birthplace in the organization.

• Risks and finance costs will be lower.• Insurance may vary in significance but will go up.

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A commitment to sustainability indicates a stronger company.

Business studies indicate that the equity prices of publicly traded corporations committed to sustainability enjoy superior price performance.

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Going green is good for the employees.

This essential stakeholder group benefits from higher morale and better working conditions.A study by Terrapin Group assembled a strong argument for green buildings.

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Change the paradigm.

The shift to sustainability requires a paradigm change that projects

a long-term strategic vision.This strategic insight

must add tangible value to the organization.

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Provide leadership.

Perhaps the scarcest resource in building sustainability

is leadership. Leadership

always seems in short supply.

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Leaders offer vision.

Vision is also in short supply

but can build cooperation, teamwork, and morale.

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Embed sustainability intothe strategic plan.

Make sure that sustainability reinforces the mission of the organization and the overall strategic plan.

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Add to the stock of usable, accessible knowledge

Sustainability supports a knowledge-based economy of

smart, forward-directed, transparent organizations.

Provide tangibleleadership.

Instill learning.

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Some good news:

Most organizations will benefit from fresh re-thinking at a long-term global level. Many assumptions will no longer hold and may never have been valid.

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Start with the obvious and the overlooked.

Without showboating and loaded with digested data, aim at the low hanging fruit to •test for resistance from old ways of doing things. •discover flexibility limits and supporter of sustainability on the team.Be mission-driven.

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And I have a secret plan

that is too diabolical to put here,

but I will whisper it to you if you ask.

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