| Something
is going on out there. First, we are getting past the “shock
and denial” and “anger and blaming” phases
of the sustainability change curve. Originally, some economists
and corporate executives viewed corporate social responsibility
(CSR) as ominously anti-corporation, anti-capitalism and anti-business.
On the other side, skeptical activists dismissed early CSR
efforts as a placebo for the enemies of globalization, a public
relations smokescreen and capitalism’s last-ditch attempt
to save itself by co-opting its opposition. Companies were
viewed as greedy institutions throwing a few philanthropic
crumbs to the masses and expecting to be loved for it. And
so on. |
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Fortunately, few are still stuck in those early rancorous phases
of change, and we can get on with more productive partnerships
between non-governmental organizations and corporations as both
sides move past the “acceptance of change” phase. CSR
is morphing from optional, marginalized philanthropy to mainstream
strategic corporate practice; from a feel-good factor into a fundamental
risk-management factor; from charity to enlightened self-interest;
and from being fashionable to being a strategic business imperative. “Sustainability” is
becoming synonymous with “high performance.”
Many of us are encouraged by sustainability momentum. Perhaps it
is the cumulative effect of a number of related levers, a confluence
of forces rather than a single cataclysmic event. A couple of experts
feel we have already passed the “tipping point,” the
point at which the sustainability idea becomes contagious and spreads
like an epidemic through the business community.
I do not believe we are there yet, but we are close — probably
within two to five years. There are encouraging signals that the
tectonic plates of corporate mindsets and practices are starting
to shift.
I am often asked why I am optimistic that sustainability is gaining
currency as a strategic business lens. Sometimes I jokingly say
that things have to get bad before they get better, and they are
getting really bad now. More optimistically, I refer to five signs
of hope that are especially encouraging because they indicate corporate
mindsets are changing and starting to think of sustainability as
a legitimate business issue.
1. Financial Markets Are Poking with Sharper Sticks
An awakened investor community is a powerful driver of corporate
CSR attention. Entities in the financial sector get involved in
sustainability as investors of capital, as developers of financial
products that encourage sustainable development and as stakeholders
who are leery of businesses exposure to environmental risk. Fed
by a steady diet of corporate scandal, the world’s major
institutional investors are starting to ask questions about governance,
ethics and broader corporate citizenship issues. Dots that matter
are being connected.
The Carbon Disclosure Project ties market valuation to climate
change. When 95 investment institutions representing $10 trillion
of assets ask the 500 largest companies in the world how they see
climate change affecting their market value and what they are doing
about it, all companies sit up and take notice. Throw carbon trading
possibilities into the mix, and suddenly corporate environmental
sustainability becomes a mainstream business issue.
A 2001 Conference Board of Canada report, which analyzed the performance
of seven prominent funds and indices, and also looked at 18 research
studies, found compelling evidence that investment portfolios consisting
of companies committed to sustainable development have matched
or outperformed their benchmarks. Given this positive correlation,
investment analysts are starting to request company environmental
and social reports as information sources about holistic company
health and competitiveness. At a minimum, sustainability scores
are a good proxy for superior management of intangible assets and
critical organizational capabilities such as business efficiency,
management competency, human capital, strategy execution, stakeholder
relations and reputation management.
A 2004 study showed 86 percent of institutional investors across
Europe believe that social and environmental risk management will
have a significant long-term impact on companies’ market
value. A 2003 poll conducted by GlobeScan showed 51 percent of
Canadian shareholders had punished a socially irresponsible company
in the previous year. And a survey reported in The Wirthlin Report
in April 2004 indicated that 74 percent of adult Americans say
their view of a company’s ethical behavior and practices
has a direct influence on their willingness
to purchase the firm’s
stocks.
Retail and institutional investors are waking up. Stand back!
2. Sustainability Reporting Is Becoming Business as Usual
Following the 1992 Earth Summit in Rio de Janeiro, the concept
of sustainable development gained common currency. Existing environment,
health and safety reports began to include wider community issues,
and “sustainability reports” started appearing. According
to Corporate Register.com statistics, the percentage of reports
focusing exclusively on the environment fell from 63 percent of
non-financial reports in 2000 to 42 percent in 2002, while sustainability
reports rose from 5 percent to 15 percent over the same period,
suggesting some environmental reports morphed into sustainability
reports. Sustainability reporting has moved from the fringe to
mainstream accounting practice, and “sustainability” is
increasingly the term used to label all non-financial reports.
There was concern that the Kasky case would inhibit CSR reporting.
In 1998, California activist Marc Kasky sued Nike for violating
California’s truth-in-advertising law. After losing business
in the mid-1990s to charges of funding sweatshop conditions overseas,
Nike issued press releases denying there were major problems, and
claimed it enforced a code of conduct that prohibited overseas
factories from abusing workers. Kasky’s lawsuit claimed Nike
knowingly lied about working conditions to improve sales, which
amounted to advertising, and therefore the denials were commercial
communications, subject to the truth-in-advertising law, rather
than free speech protected under the First Amendment. The case
was settled out of court, but the signal that public statements
may be considered information for investors could make companies
leery of describing their CSR intent in official reports.
One of the most enduring business clichés is, “what
gets measured gets managed.” Reporting and disclosure lead
to awareness and tracking, tracking leads to improvement strategies,
and improvement strategies lead to new actions that enhance corporate
performance and image. Almost by osmosis, it becomes evident that
paying attention to CSR metrics is good for business, and as a
result, sustainability considerations are integrated into key decision-making
processes throughout the firm.
As sustainability reporting becomes as commonplace as financial
reporting, stand back!
3. Business Schools Are Legitimizing Sustainability Strategies
Business schools shape the thinking of current and future business leaders. In
the United States, more than 100,000 master’s degrees in business are conferred
each year. “Beyond Grey Pinstripes” highlights the MBA programs and
faculty at the forefront of incorporating issues of social and environmental
stewardship into their curriculum. The worldwide report is prepared every two
years by the Aspen Institute and the World Resources Institute.
According to the 2003 report, sustainability issues are becoming part of the
business vernacular and are addressed in many MBA programs through elective courses
and extracurricular activity. The six top schools in the 2003 survey were (in
alphabetical order): George Washington, Michigan, North Carolina (Kenan-Flagler),
Stanford, Yale and York (Schulich). Integration of sustainability into core courses — including
accounting, finance, marketing, operations and organizational behavior — that
most powerfully shape the MBA experience is still a work in progress. Three MBA
programs have deliberately been designed from the ground up to integrate sustainability
seamlessly into all courses: Bainbridge Island Graduate Institute off the coast
of Seattle, Presidio World College in San Francisco and the Green MBA at New
College in Santa Rosa, California.
“
Beyond Grey Pinstripes” is to MBA schools what the Carbon Disclosure Project
is to large companies. Just asking what schools are doing to integrate sustainability
into the core MBA curriculum — and publicly ranking them — gets their
attention.
What is even more encouraging is the Net Impact MBA student group. Its 90-chapter,
10,000-strong membership is working with MBA schools and future employers to
legitimize sustainability interests. Net Impact’s professional membership
option allows alumni and other business professionals to stay connected with
a network of like-minded peers after graduation. Net Impact members are a beneficial
virus of sustainability champions infecting mainstream business communities.
A 2004 survey of MBA students found that 97 percent said they were willing to
forgo 14 percent of their expected income to work for an organization with a
better reputation for corporate social responsibility and ethics.
MBA schools shape the mindsets of corporate leaders. Stand back!
4. ISO Is Developing a New Standard for Social Responsibility
ISO 9000 standards gave a big boost to quality. ISO 14000 standards gave a big
boost to environmental management systems. In June 2004, after 18 months of rigorous
study of CSR trends and initiatives by various stakeholders, the International
Organization for Standardization (ISO) decided to develop a new international
standard for social responsibility. Perhaps it will give a big boost to sustainability.
ISO openly acknowledges that the sustainability topic involves issues that are
qualitatively different from issues it has traditionally dealt with. The standard
is intended to add value to, not replace, existing agreements such as the UN
Universal Declaration of Human Rights and Global Compact.
Wisely, the ISO task force plans to make its efforts open to anyone
interested
and to make it as easy as possible for experts from stakeholders in developing
countries, NGOs, international and broadly based regional organizations, business,
government, labor organizations and consumer associations to participate. The
challenge will be to develop practical guidelines that provide easy-to-use guidance
to this wide range of stakeholders.
This will be a different kind of standard. It is not intended for certification,
so it will be interesting to see if, without that rigor, it draws attention to
CSR. Perhaps the focus on process rather than results will make the new standard
more attractive to companies. The idea of extending existing corporate strategies
to embrace sustainability could be a clever move. Some companies that achieved
ISO 9000 certification for their quality management system viewed ISO 14000 certification
for their environmental management system as a natural extension. When an ISO
standard for corporate social responsibility is established, companies with ISO
14000 certification may view applying for the new standard as an extension of
their environmental management system base.
If an ISO CSR standard awakens the supply chain anything close to the way ISO
9000 did, stand back!
5. Lifestyles Are Changing
According to Paul Ray and Sherry Ruth Anderson, who wrote The Cultural Creatives,
in the United States there are 50 million “cultural creatives” who
are involved in, or care about, three to six social movements: environmentalism,
planet ecology, civil rights, peace, social justice, new spiritualities, organic
food and/or holistic health. They account for a high proportion of people seeking
lifestyles of health and sustainability (LOHAS). In 2000 the LOHAS market in
the United States was worth $226.8 billion, made up of five core segments: sustainable
economy ($76.5B), healthy lifestyles ($27.8B), personal development ($10.6B),
alternative health care ($30.7B) and ecological lifestyles ($80.2B). The worldwide
LOHAS market was estimated to be $546 billion. Sounds like a marketing opportunity.
Consumer issues used to start in the United States and sweep over to Europe.
Now consumer issues in the European Union trigger reactions in the United States.
For example, some EU members are raising the bar and using market signals to
engage citizens in programs to curb greenhouse gases. Some of these are revenue-neutral,
carrot-and-stick green tax schemes that tax environmentally bad things and use
the money to give rebates to environmentally good things. In 2004, France proposed
a radical green road tax scheme that would tax large, gas-guzzling vehicles up
to 3,500 Euros and give rebates of up to 700 Euros for smaller, cleaner vehicles.
Because the amount collected from the new taxes would balance the rebates, it
would not cost taxpayers anything, but would make motorists think twice about
the kind of car they need. Why is France doing this? More than 30,000 people
in France die each year from atmospheric pollution, and between 7 percent and
20 percent of all cancers have an environmental origin. The French government
is helping consumers connect the dots from health to pollution to fossil fuel
emissions to their vehicle choices. Bulky four-by-fours are the most environmentally
harmful vehicles on the market, emitting up to four times as much CO2 as a normal
car, yet only doing about 12 mpg in urban traffic conditions. In 2004, Paris
town council tabled a plan to ban them from the streets of the capital, and the
mayor of London described them as “bad for London — completely unnecessary,” and
their owners as “complete idiots.” Strong action and inflammatory
rhetoric raise the profile of the issue in the minds of consumers everywhere.
Consumers are waking up. Stand back!
Bob Willard is a leading expert on the business value of corporate sustainability
strategies. Following a 34-year career with IBM, he authored The Sustainability
Advantage: Seven Business Case Benefits of a Triple Bottom Line (New Society
Publishers, 2002), and gives frequent keynote presentations to corporations,
consultants, academics and non-governmental organizations. “Five Signs
that Sustainability’s Tipping Point Is Close” is adapted from Willard’s
latest book, The Next Sustainability Wave: Building Boardroom Buy-in (New Society
Publishers, 2005) on why some companies are committed to sustainability, why
others are not and how to overcome senior executive resistance to making that
commitment. |
