topic 12 sustainability_2013

Topic - SustainabilityTopic - Sustainability

IntroductionIntroduction• Legal and ethical issues affect a firm’s so-called

“bottom line” (its net profit or loss).

• Neglecting them is costly when a firm is fined, sued or has higher expenses e.g. insurance.

• Neglecting environmental and social factors can damage a firm’s reputation and increase costs.

• Consequential loss of sales to clients reduces the value of a firm’s asset Goodwill, which, like share prices, is based on its expected future earnings.

RMIT University©2008Information Technology Services 2

ExamplesExamples• Damaging the environment and peoples’ health for

short term profits may be self defeating (Japan’s Fukushima Daiichi nuclear power plant).

• Large scale “factory fishing” has decimated fish stocks e.g. the North Atlantic and Indian Oceans.

• Some countries have lost all their rain forest, and the bare ground that’s left can’t grow anything.

• Some large dam and cash crop projects have created more problems than they solved.


• Exxon Valdez oil spill off Alaska, BP’s Gulf of Mexico oil spill

• What was the social cost of these “accidents”?• Who paid for the destruction, damage to health,

lost resources, productivity and income?• What are the consequences to the companies

that caused the damage?

• What happens to the staff who work for these companies, and their productivity and loyalty?


SustainabilitySustainability• Acting to meet current needs, without reducing our

or others’ ability to meet future needs. • Applying sustainability principles may avoid

losses, monetary and reputational, or meet social obligations that many parties believe firms have.

• Sustainable practices must have minimal negative long term social or environmental effects.

• Meeting future as well as present needs means considering the “three pillars” of sustainability.

• These are: economy, environment and society.


Economy Economy • Covers issues reported in a company’s annual

financial report, i.e. all matters relating to profit.• Includes investments and their financial return• Wages and other running costs• Community development costs (e.g. the cost of

reducing pollution, restoring landscape, resettling the population).


Society Society • Refers to interactions between an organisation

and the community• Includes employee relations, health and safety

of workers and the general public• Impact of community involvement and customer

satisfaction.• Two of the banks give staff up to two weeks paid

leave to work with indigenous communities.


Environment Environment • The amount of energy consumed• Whether it is renewable energy• Resource and material usage• Emissions, effluent and waste management• Land use and management of flora and fauna

habitats


Triple bottom line Triple bottom line accountingaccounting

• Incorporating sustainability means broadening the traditional way of measuring a firm’s success (i.e. profit) to a wider measure of income and costs.

• In 1998 John Elkington coined the “Term Triple Bottom Line”, TBL or 3BL, standing for:

• People• Planet• Profit


People People • The stakeholders: the interests of all people

directly or indirectly affected by an organisation:• Employees• Customers• Suppliers• Shareholders• The local community


PeoplePeopleExamples may be planning and expenditure on: •Staff health and welfare programs•Environmentally friendly officesBenefits: Healthier and happier staff, higher staff morale resulting in:•Lower staff absences through illness or stress•Lower levels of staff turnover•Greater levels of performance.


Comparing costs and benefitsComparing costs and benefits• Changes are usually made after comparing the

costs versus the benefits.

• These are based on evidence, or “KPIs”

• KPIs (Key Performance Indicators) are Quantitative or Qualitative issues

• Quantitative issues are easily measured, e.g. days lost due to staff absences, effect on profit.


Qualitative issuesQualitative issues• Are harder to measure, very subjective, open to

interpretation e.g. “staff morale”.

• Often based on case studies, anecdotes, deep questioning, context.

• Qualitative measure: one surgeon may have a higher death rate than the average surgeon.

• However this surgeon operates on higher risk patients, e.g. older or sicker patients that other surgeons won’t touch. This is a qualitative issue.


KPIsKPIs• There would be target KPIs set before

implementation (e.g. “improving current output, or decreasing emissions by 5% within 12 months.”)

• Results after implementation would be used to determine whether the change was justified.

• This would be validated (confirmed) by independent (outside) auditors without any vested interest in the outcome.


PlanetPlanet• A firm’s direct and indirect environmental effects,

often referred to as its environmental “footprint”.

• Includes waste disposal, land use, impact on plants and animals, resource usage, recycling, the amount of energy used, carbon emissions.

• A TBL business seeks to minimise its environmental footprint.


Profit Profit • This includes commercial viability with the

principles of People and Planet.

• It goes further than the concept of profit being revenue minus expenses.

• It also considers how a firm’s contribution to the overall economic welfare.

• Examples include aiding Third World countries, improving parental leave for staff.


Overall Overall • The aim of using all 3 principles in decision making

is to improve the longevity (length of life) and sustainability of a business.

• Such firms may develop niche sales that help them as well as the community.

• Egs: cheap wind-up radios and computers, portable toilets, solar power

• The Body Shop prices are higher than Priceline’s, but it is now a global business due to its reputation for producing natural and ethical cosmetics.


OverallOverall• Firms adopting environmentally friendly methods

may reduce their operating costs, making them more competitive than other companies.

• Examples include firms that recycled, or reduced their use of resources such as paper and water.

Farmers’ Market prices are higher than fruiterers’:• organically and locally grown fresh seasonal food,• Small scale production increases costs, but there

are lower refrigeration, transportation costs and carbon emissions than for imported foods.


““Greenwashing”Greenwashing”• Misleading use of “green” marketing (falsely

claiming products or policies are environmentally friendly).

• The term is used when a firm spends more money or time advertising “green” credentials than actually being environmentally friendly.


SustainabilitySustainability• Taking into account environmental and social

costs of business decisions

• A wider range of vested interests are considered than the “bottom line”.

• Some locals in Indonesia are paid to look after the forests rather than chop and burn them down.

• They may ultimately benefit from increased tourism.


Strategies for Strategies for sustainabilitysustainability

Depend on the type of business and industry, may include:•Carbon trading: carbon offsets or credits (e.g. paying an airline ticket surcharge to offset CO2 emissions of flying.)•Lowering the ecological footprint: changing work practices e.g. recycle, reduce, use energy efficient technology…•Lifecycle analysis (energy use or carbon emissions over the whole lifetime)


Strategies continuedStrategies continued• Supply chain management• Green office programs: using recycled paper,

cartridges, double-sided photocopying, resetting or turning off power on unused equipment…


topic 12 sustainability_2013

Documents