1 What is Sustainability?
There are so many definitions of sustainability being used today but early original and commonly used definition comes from the Bruntland Report or also known as Our Common Future, which was produced by World Commission on Environment and Development (WCED) a UN program. They define Sustainability as:
“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Environment magazine believes this definition from WCED allows broad use for governments and business:
“This malleability allows programs of environment or development; places from local to global;
and institutions of government, civil society, business, and industry to each project their interests, hopes, and aspirations onto the banner of sustainable development. (Kates 2009) The Bruntland report from the WCED has a few key concepts; firstly, that needs of the worlds poor have overriding importance and second, the idea of limitation of technology and society on the earth’s environment for which we all depend is crucial for continued survival. Inaction by business or government results in unwanted consequences. In order to achieve sustainable growth we need to find new innovative ways to change how business and government operate.
The international institute for Sustainable Development provides a definition more focused towards business.
“For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future.”
(Sustainable Development Journey 2013)
For sustainability to work you need to focus on balancing social needs like human rights and justice as well as environmental protection for air, land and water. A focus on economic growth
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and better education demand attention. Government and societal attitudes also need to take on a larger role in order to keep the goals achievable for future generations.
1.1. What Sustainability is for Business?
For many companies there is a wide range of factors that increase business success centered on sustainability. Most people think of sustainability as a way to reduce costs. From a CEO perspective that’s probably the most important reason to undertake sustainability in a company.
Other less obvious reasons include preservation of resources, regulation compliance, enhance reputation, differentiation, attract quality employees, satisfy customer needs, meet stakeholder expectations, attract capital investment and capitalize on new opportunities. Although all are important, below are some in detail.
Reducing costs is the most obvious and easily accessible for companies keen to increase their margin between sales and costs. Achievable by using less resources, raw materials and energy thus making processes more efficient. These are considered some of the first steps a company can take to create impact on cost. PepsiCo whose brands include Pepsi, Lays potato chips, and Gatorade is obviously a major consumer of water since 2006 they have reduced their water use by 20% in 2015 and acknowledge water as a precious natural resource. PepsiCo saved 14 billion liters of water in direct operations in 2012, which, in turn, enabled the company to save more than $15 million in water costs. (PepsiCo takes Comprehensive Approach 2014)
Another really strong way Sustainability can benefit a company is through differentiation.
Ideally customers appreciate this and improve loyalty to your brand and products. This will also help to increase your market share. Offering more sustainable products and services can help you attract new customers and even venture into new markets. IBM illustrates that sustainability should be everyone’s business in order to increase success. The pie chart below from IBM illustrates that eco-efficiency provides over 59% competitive differentiation.
(Sustainability Smarter Planet 2010)
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Figure 1. Benefits of Sustainability
Source: (IBM.COM 2010)
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In business there is a famous saying that what gets measured gets managed… and what gets managed gets done. The challenge for business in regard to sustainability is that the departments charged with measuring and tracking companies assets, costs and finances is that it usually focuses on economic profit as the important factor. The problem is that this ignores other pillars of sustainability such as people and planet. Triple P’s people, planet and profit also referred as the three E’s. Economic, Environment and Social Equity. Recently there has been an increase in large corporations publishing sustainability or corporate social responsibility reports. A recent 2013 report by KPMG did an international survey finding that over 70% of Global 250 companies published some kind of sustainability report. KPMG also stated that Asia Pacific has seen dramatic increase in reporting almost 3 quarters increase or 71% publishing Corporate Responsibility reports. (KPMG Corporate Responsibility 2013)
The challenge for companies today relating to accounting methods is that there are no accepted standards or regulations for how companies should value natural assets. Often natural capital is undervalued or missing from the ledger. (Hitchcock and Willard 2009) wrote about fishing industry. A fishing fleet counts the cost of the vessel, the fuel, people, rigging and transportation but treats fish, the primary raw material as free. This leads to a “tragedy of the commons” as fish become scarce; they become more valuable, which encourages overfishing.
2.1. Costing Methods
There are measures providing basic costing methods that accountants can use to increase their sustainability. They are Activity Based Costing ABC, Life Cycle Costing LCC and Life Cycle Assessment LCA. ABC costing assigns costs that are hidden in overhead or other departments to products or relative units. LCC considers the longevity and useful expected life of certain products and financial decisions. Finally LCA assesses impact decisions along the entire life cycle from resource extraction, transportation and manufacture to use and end of life disposal.
The Sustainability guide lists specific metrics that are based on triple bottom line. One strategy could involve an internal and external view. Internally for environment you might reduce energy and waste while externally cutting CO2 emissions. For social you internally work on