Peter A. Soyka
In my view, sustainability is a value set, philosophy, and approach rooted in the belief that organizations (business, government, and otherwise) can and must materially contribute to the betterment of society, and that successful organizations must balance their needs, aspirations, and limitations against the larger interests of the societies in which they operate. Only organizations that provide goods and/or services that are of value to people, and are dedicated to excellence, interested in the full development of human potential, and committed to fairness are likely to be durable (sustainable) over the long term. Fundamentally, sustainable organizations are purpose-driven, with the purpose being an overarching objective larger and less tangible than earnings or return on invested capital.
This view places the current emphasis on the “three legs of the stool” (economic prosperity, environmental protection, and social equity) within a larger, more integrative context, while recognizing that each is a key dimension of any coherent concept of sustainable organizations, whether past or present.
While each of these other more limited concepts has considerable merit, none are either new or sufficient to address the needs and interests of the broad set of stakeholders to which most organizations, at least large ones, are accountable.
When properly viewed from a broad perspective, sustainability extends beyond the currently fashionable focus on “greening,” which has come back into vogue during the past two to three years following a multi-year hiatus. As an interested party who has watched several incarnations of a growing public/business interest in improving the environmental performance of organizations (and individuals), it is both heartening and, in some ways, disturbing to observe the eagerness with which many are now embracing everything green. Unfortunately, I have seen this movie before, and I know how it ends. Greening sounds and feels admirable, and in the past, many noteworthy achievements have been made when people and organizations were inspired to examine and improve their environmental practices. Historically, however, when economic conditions deteriorate (now the most pressing issue world-wide), greening programs have tended to be jettisoned or scaled back to accommodate more pressing or “core” priorities. And so it will be with greening (again!), unless the renewed focus on environmental performance improvement is coupled with considerations of social equity and both are underlain by rigorous economic analysis. Accordingly, sustainability provides the only theoretical and practical environmental improvement framework that can be fully justified and maintained during both good and challenging economic times, and therefore is sustainable for the long haul.
My concerns with the terms CSR and Social Responsibility are somewhat different. While in most formulations they include the three “legs of the stool,” they really are about delineating and acting upon the obligations of the modern corporation to society at large. In contrast, I believe that it is most useful to think of sustainability as an imperative that applies to all organizations and political entities (countries, states, municipalities), each of which is challenged to understand and address the broad conditions under which it operates, its relationships with other entities and the natural world, and to chart a course on which it can thrive without undermining its asset base or unfairly precluding or limiting the sustainable success of others. In that context, CSR can be thought of as one element of a corporate strategy to address the sustainability imperative. Such an element can, for example, identify the concerns of external stakeholders, and define and execute processes to ensure that these external interests are respected as the firm pursues its broader business goals. In other words, CSR and its analogs can be an important part of, but in any case are a subset of, an organization’s approach to sustainability. In particular, CSR can, and often does, comprise an organization’s efforts to respond to the imperative to promote sustainable development.
Sustainable Development, as discussed further below, was the original concept giving rise to the term “sustainability.” It is important to realize, however, that sustainable development is fundamentally about helping the world’s poor, and their host societies, lift themselves out of poverty in a way that ensures that the benefits of doing so are not overly concentrated within existing (or new) societal elites, and that economic development does not come at the cost of severe environmental degradation, as it often has in the past. Sustainable development remains a worthy and important goal, but should be distinguished from the environmental, social, and economic challenges and opportunities directly facing most U.S. businesses and other organizations.
These distinctions are not trivial. Indeed, understanding and resolving them has proved difficult for many organizations and practitioners. Regardless of what words one chooses to employ, the key point is that pursuing sustainability at the level of a large company or agency is more complex, more important, and more difficult than simply greening the organization to some arbitrary but comfortable level, or becoming more attentive to particular stakeholders (e.g., activist groups) and their views. Accompanying this greater level of difficulty, however, can be substantial rewards. This topic is explored further below.
Sustainability, and its close counterpart, sustainable development, are terms of art that have been in the public domain since their original formulation in the mid-1980s. “Sustainable development” was the original concept, but in recent time increasingly has been supplanted by “sustainability.” These concepts emerged from the environmental movement, and reflect the recognition that major environmental issues are inter-related with economic and social justice issues. It is generally recognized that the term “sustainable development” first appeared in the 1987 report of the Brundtland Commission, entitled Our Common Future. This document presents the following, widely cited and used definition:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
The breadth of this definition has spawned many distinct interpretations of how society can (or must) adapt its behaviors and practices to enable continued growth and prosperity. There is, however, general agreement that sustainable development or sustainability reflects three inter-related dimensions: environmental quality, social equity, and economic prosperity. While the impetus behind the sustainability movement has largely been provided by environmental (and to some degree, population growth) concerns, there is a clear recognition within all sides of the movement that a reasonable balance among the three dimensions is a prerequisite to a sustainable organization, community, economy, or nation.
The term “sustainability” is in more common use within corporate organizations, probably because it is simpler, and is not directly connected to either material consumption or development, which are major concerns to some. Sustainability also seems more directly germane to the scale of a single organization, and so is more useful as an organizing principle for internal business improvement initiatives.
More generally, however, the distinction between sustainable development and sustainability is not a matter of semantics, for the following reason. Sustainable development is about helping the world’s poor. The Brundtland Commission recognized the dire circumstances in which a sizeable fraction of humanity lived (and still does), as well as the legitimacy of their aspirations for a better life and higher standard of living. For the billions living in poverty around the world to achieve this goal with current technology, infrastructure, and relative consumption patterns would unleash an environmental catastrophe. In response, the sustainable development concept postulates that the developing world and its people must receive assistance so that they can build their economies in a way that does not undermine their own natural resource base, threaten the health of their people, or unjustly enrich a small percentage of the population at the expense of everyone else.
Capitalism, in particular the entrepreneurial American brand of capitalism, emerged from the 20th century as the dominant global economic philosophy, as the demise of the Soviet Union and sweeping economic liberalization took hold in formerly closed or tightly controlled economies from Eastern Europe to South Asia. Growing international trade has made the world economy ever more inter-connected. Yet, as we now confront the failure of multilateral efforts to further reduce international trade barriers, rising economic inequality within and across societies around the world, the hazards posed by global environmental challenges such as climate change and access to water, and, most recently, the failure of unregulated financial markets and ensuing economic meltdown, many are questioning whether corporations are behaving in the appropriate ways, contributing more to solutions than problems, and in some cases, are larger and more powerful than is appropriate for the good of society.
Concerns about the appropriate role of corporations and their behavior are hardly a new phenomenon. Yet the tenor of the debate is changing, and many more people are now openly questioning the classical position of free-market advocates that, in essence, the primary or even sole responsibility of corporations is to make money for their shareholders. It is now increasingly accepted that how corporations make money also is vitally important, for several reasons. One is the backlash against free trade that has occurred globally (even here in the U.S.), as it has become clear that while some countries, companies, and individuals have reaped enormous financial benefits, many others have been left behind or put at a severe disadvantage. Another is the perception of outsized and inappropriate influence exerted by major multinational corporations on national and even international public policy; many major companies have financial resources that exceed those of national governments in many developing countries. Skeptics of corporate beneficence are not comforted by the fact that corporate leaders are not elected by the people of the countries in which they operate. The speed and severity with which the current economic contagion has spread across virtually all international markets also illustrates the pervasive influence of corporate voices in promoting the idea that less regulation promotes innovation, reduces overall risk, and creates and helps distribute new wealth in ways that are equitable. It can fairly be said that recent events have called each of these assertions into question.
Finally, rightly or wrongly, corporations are blamed for many of the environmental problems that increasingly are receiving public attention. Ironically, many major corporations have been leaders in developing and deploying more environmentally friendly technology over the past three decades, and often are far more eco-efficient than smaller organizations operating in similar businesses. In many cases, companies have invested considerable time and resources attempting to green their operations, and even develop new eco-friendly products and services. While some such efforts have been successful (both in execution and in generating a positive public perception), in other cases they have been denounced by environmental advocacy groups as “greenwashing.”
Accordingly, the business climate today is challenging in ways that require new perspectives. The public in the U.S. and many other countries expects that companies will operate in compliance with the law and in ways that are environmentally sound, treat their own people and those in surrounding communities fairly, and engage with their stakeholders on issues of common interest. At the same time, the expectations of the capital markets have not changed. Publicly traded companies must grow revenues and earnings, consistently generate cash, and effectively manage risk. Balancing these sometimes conflicting imperatives requires a framework that, when applied to a specific organization, is both flexible and yields an internally consistent set of values, normative behaviors, business goals, methods, and performance metrics.
Sustainability offers this framework.
There are several reasons why becoming a more sustainable organization might make good business sense for an organization of virtually any size, complexity, or natural resource intensity. I emphasize here that the following benefits are among those that might be expected to accrue to an organization assuming that it already has in place effective approaches for managing its environmental and health and safety responsibilities. In other words, I focus here on the benefits of sustainability that are incremental to a well-developed environmental management approach or formal environmental management system (EMS).
It helps demonstrate appropriate and effective corporate governance. Many stakeholders want assurance that the people at the top of the organization have thought through its important environmental and social issues, and that they have developed and deployed effective programs, systems, and practices to address them. Sustainability provides an integrating structure that can both guide and explain how corporate leaders meet these expectations and do so in a way that is far more streamlined, sophisticated, and ultimately, less time-consuming than would be possible otherwise.
It serves as a reference point for the organization’s values. Illegal, and increasingly, unethical behavior is not well tolerated by regulators, customers, and suppliers and other business partners. Such behavior can have severe financial consequences, both immediately and in the longer term. Understanding what is legal requires competence and vigilance on the part of one’s General or outside Counsel, but understanding what is ethical requires a set of organizational values and business norms. It is now widely understood that well-run companies have a core “DNA” or identity that embodies shared values and aspirations and is independent of any individual; this attribute enables the organization to remain strong and vibrant over an extended period even as people enter and depart from it. Moreover, this type of organizational identity provides many advantages under normal circumstances but is especially critical during crisis situations, when people need to know how to act as well as what to do. Sustainability can serve as a common, unifying principle to guide the thinking and behaviors of all members of the organization, which is important when different members are called upon to execute their unique functions, some of which may be in conflict. Moreover, sustainability provides the needed flexibility to address the following realities: 1) environmental, social, and economic considerations must be balanced, 2) the way in which they are balanced will differ according to the organization, issue, and circumstance in question; and 3) this balance will likely change over time.
It helps bring clarity to intrinsically complex issues. The complexities of and inter-relationships among environmental, social, and governance (ESG) issues require a management approach that combines and considers all of these disciplines in a way that addresses all significant needs and requirements (particularly compliance), surfaces and resolves conflicts among them, provides consistency and predictability, and is both effective and efficient. In other words, some sort of overarching concept and management structure is required, and sustainability provides the “umbrella” under which many organizations are now organizing their previously disparate internal functions. I am unaware of any competing or alternative concept that has been shown to be workable while providing similar benefits.
Properly construed, it provides the “theory” underlying a value creation orientation. In my view, the best way in which to pursue sustainability is to consider the three primary determinants of value for any business enterprise: 1) the revenue stream and the customer base that generates it; 2) earnings, or in the case of public sector organizations, effective control of costs and management of capital; and 3) adequate understanding and management of risk. A sensible sustainability strategy embodies careful consideration of how new initiatives or changes to existing programs might affect all three of these determinants of value. History has shown that absent this orientation, environmental and social improvement initiatives are continually underutilized because they are not seen as contributing to core business drivers or creating financial value in any tangible way. By the same token, a properly specified sustainability approach imposes a new measure of financial discipline on both internal and external proponents of new “greening” ideas and prospective investments in projects or activities having primarily a social orientation.
It facilitates “mainstreaming” of environmental, health and safety, and social equity issues into core business processes. The management of environmental, health, and safety (EHS) issues has in many cases been managed tactically in U.S. corporations and public sector agencies. Historically, EHS functions were often housed within and directed by the organization’s legal department because the focus then was on understanding legal requirements and ensuring compliance. More recently, EHS people have reported through various administrative functions (e.g., human resources), facility maintenance, or manufacturing management. In short, with very few exceptions, EHS has been managed primarily as a facility-based, tactical function rather than as a strategic issue or source of potential broad-spectrum financial value creation. Adopting a sustainability framework can help to disrupt, and may even compel, the breaking of the resulting organizational “silos” that exist in many companies and agencies, creating the conditions needed for people across the organization to reach out to one another, identify and manage environmental and social issues in ways that limit risk, build brand and market value, and generate new cash flows. In an organization actively pursuing sustainability, achieving better environmental performance or more equitable dealings with stakeholders is not a task to be delegated to someone else, it is an integral part of everyone’s job (if only in a small way), from the board room to the shop floor.
To begin, I recommend that any organization embarking on this journey define very clearly what sustainability means to the organization, and develop a vision of what, in sustainable form, the organization represents to its senior management, employees, major customers and suppliers, and the general public. As a point of departure, I suggest the principle that the path toward a sustainable organization yields durable value creation opportunities for all major stakeholders. That is, any sustainability program that might be expected to generate real improvements must address the views and interests of these parties, meaning that their representatives must be actively engaged in the process, ideally from the beginning. Accordingly, to be effective, a sustainability program must cut across the organization, and be directed by individuals with the perspective and authority to ensure that the appropriate talents and resources are brought to bear. Hence, a corporate sustainability program will likely not be a small, compartmentalized, or short-duration initiative. Rather, it will represent a substantial organizational commitment and investment.
It also is worth emphasizing that any sustainability initiative that an organization might consider must include and embody meaningful components addressing all three of the sustainability “legs of the stool.” Otherwise, the initiative will not be viewed as credible, which could result in unfortunate and negative impacts to important existing relationships with major customers, government regulators, and the general public. Indeed, organizations claiming to be sustainability (or even environmental) leaders draw intensive scrutiny from public interest groups, and those that are found to be unable to fully support their claims have often been denounced as “greenwashers” and subjected to intensive negative publicity.
With the vision and broad outlines of a sustainability program or initiative in place, the next question is how to go about translating vision into reality. Based upon my experience in working with a substantial number of large and small organizations, I believe that there are a small number of important attributes that characterize entities that successfully implement sustainability and other initiatives involving organizational change.
The first is that to be effective, indeed, to get out of the starting gate, the program must be led by and have the strong support of senior management. This support must be genuine, visible, clear, and continuous. While many of the tasks and activities that would be required to plan and execute a sustainability program can be delegated to senior managers and working groups, the formation of the initial high-level team (described immediately below), eventual rollout of the program to the organization, and a number of activities in between and following need to be led by “C-level” executives, if at all possible. Visible support from the very top is often needed to overcome initial skepticism, resistance to new ideas and ways of doing things, and the frustrations that arise when there are inevitable conflicts among important business priorities. Many well-intentioned organizational improvement programs have foundered due to a lack of ongoing senior management support and involvement, most frequently after the initial excitement fades and the real work must be performed.
In further examining the sustainability issue or launching a program, among the most productive first steps that can be taken by a company’s senior management is to form and maintain a high-level, cross-functional sustainability planning and implementation Team or Steering Committee. For sustainability as a value-oriented concept to take root and reach full flower, it is essential that the organization resist the common impulse to place the responsibility for and ownership of the sustainability issue within a single organizational unit (most commonly, the environmental or EH&S department). Doing so practically ensures that the sustainability initiative will break little, if any, new ground. Instead, I recommend that the initial business case analysis of, planning for, and execution of any corporate sustainability program be directed by a Team comprised of director/executive level managers representing, if possible, the following disciplines: environmental management/compliance; health and safety; energy; marketing; operations; finance and/or risk management; public relations; facilities; supply chain management/ purchasing; strategic planning; and human resources. Recognizing that the effectiveness of teams often declines in direct proportion to their size, a smaller group of senior managers might be warranted. It is, however, important to represent all of the functions identified here in some way on the Team.
I suggest that the early work of the Sustainability Team focus on two parallel sets of activities, one externally focused and the other internally focused. Using his/her specific expertise, each Team member should be expected to lead or participate in a small subgroup focused on one or more facets of the following: 1) a more complete understanding of stakeholder needs, expectations, constraints, and preferences; and 2) organizational risks and opportunities, particularly those related to environment, employee well-being and development, infrastructure, and management structure and practices. For example, senior marketing representatives would presumably lead efforts to more fully understand the perspective of major customers relative to the sustainability issue, while a sub-group comprised of the representatives of operations and/or facilities, energy, and environment would lead the collection and analysis of data regarding environmental and energy efficiency improvement opportunities and risks. The information and insights gained thereby should be of great value not only for informing the nature and emphasis of a possible sustainability program, but also more immediately for identifying and capturing short-term opportunities to create new business value.
In carrying out its work, it is essential that the Sustainability Team or Steering Committee ensure that it and its members model the behaviors that are required of a truly sustainable organization. While I would not presume to tell a client organization or its senior managers how best to behave, I would observe that becoming a sustainable organization will almost certainly require new ideas, approaches, and ways of doing business. I submit that embodying the following principles in their dealings with one another and with the larger organization would greatly enhance the likelihood that the Team would accomplish some real breakthroughs and create the conditions required for sustainable business success: