How Sustainable Is Sustainability in a For-Profit Organization?

Published: February 1, 2008

Author: Jim Heskett

Summing Up

How will sustainability be achieved? To sum up responses to this month's column, the question is not whether global sustainability will be achieved but how.

One school of thought could perhaps be characterized as enlightened self-interest, a realization on the part of managers and investors alike that, as Gaurav Goel put it, "Sustainable businesses have lesser risks associated with their future earnings ... triple bottom line (economic, social, and environmental sustainability) reduces uncertainty." Or as P. Nanjunda Pratap said, "Sustainability defines the life line of any organization." Carol Holding associated brand value with sustainability: "As brand value will soon be included in a company's valuation ... we can more than ever monetize sustainable behavior."

Others see the market working its effects on behavior to lead us to a sustainable future. Gerald Nanninga, for example, commented that "If we deplete resources too quickly, the shortage of supply ... will make conservation issues more financially viable."

Some felt that the free market might need some help. Elizabeth Doty put it this way: The "invisible hand" may not lead us to the greatest common good ... without government action(s).... These might take the form of incentives." Richard Eckel expanded on this idea, saying that "To suggest that for-profits embody any form of moral restraints is to infer an attribute foreign to the concept and history of these entities.... When it is monetized" (whether by competition or government) "the for-profit enterprise will select the lowest price alternative." But Allen Howlett expressed reservations about this approach, saying, "To do nothing will invite social pressure and 'one size fits all' legislation."

All of this will take time. Adrian Gonzalez commented that "There's a limit to what can be accomplished ... because today's products, manufacturing processes, and supply chains were not designed with sustainability in mind." Wole Fayemi added that sustainability is more achievable "if the concept is integrated into the business model at inception." And as Laura Howard put it, "This works best in small companies who can design their entire business and brand around a set of coherent sustainable values .... (They will) "change the conversation in the industry."

There was a less hopeful tone to some comments. Peter Maxson said, "... we don't have a common vision of where we need to go as a global society, and even if we did, we don't have a viable means of getting there."

A former associate and sometime contributor to this column, Stever Robbins, was provoked to send me an email that helps sum up the further questions that these views pose for us. In his words, "One way or another, we will become sustainable. I just hope we do it ourselves ...." (Should we call this the doomsday school of thought?) His questions were: "Here's a deeper puzzle: What would a sustainable economic system look like? For starters, how would you define 'success'?" What do you think?

Original Article

Recent word that Google's leadership has identified sustainability as an important business initiative has given the issue new visibility alongside Al Gore's Nobel Peace Prize. At the same time, it raised some eyebrows among investment analysts who asked what sustainability has to do with Google's core business of making the world's information universally available. Will Google sacrifice focus and profitability in the name of sustainability? It remains to be seen whether this initiative is overblown, representing little more than solar panels on the roof of corporate headquarters.

This topic comes at a time when an interesting paper with the unfortunate title "A Framework of Sustainable Supply Chain Management Moving Toward New Theory" has crossed my desk. I receive these occasionally with a request for my blind (authors unknown to me) review for a juried academic journal with the equally unfortunate title International Journal of Physical Distribution & Logistics Management, which concerns itself with research in supply chain management.

The paper attempts to provide some context for those addressing issues of sustainability. Its intent is to get us beyond questions such as, Is sustainability desirable? or Does it pay to be green? Because supply chain management depends heavily on the sustainability of everything from energy sources to low-cost sources of products and services to security, it is not particularly surprising that for some of the most interesting thinking concerning sustainability we might turn to this field. The paper calls our attention to the fact that "68% of the Global 250 firms generated separate annual sustainability reports in 2004." Whether that represents a "management revolution" remains to be seen, but it's something that puts a number on a trend toward management attention to sustainability.

One oft-quoted definition of sustainability was provided in 1987 by the World Commission on Environment and Development: "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." In their paper, the authors, citing the practical difficulty of implementing such a broad definition, support the idea of sustainability as the integration—and intersection—of social, environmental, and economic responsibilities that are borne by managers. In for-profit organizations these responsibilities converge in what has come to be known as the "triple bottom line." The authors posit (but do not prove) that organizations that satisfy all 3 criteria in their decision-making will realize greater economic success than those that fulfill only 1 or 2 of them. By extension, one could argue that decisions intended to support sustainability that satisfy all 3 management responsibilities are likely to be made first and without outside (governmental) encouragement.

In fact, some researchers claim that these decisions, representing "low hanging fruit," have already been made. This prompts the question of just how decisions will be made in the context of significant trade-offs among these criteria that may lie ahead. Will this prompt a continuation of the proliferation of board committees on sustainability or its first cousin, risk? If so, will this just confuse management entrusted with a single bottom line? Will further progress in this realm require government intervention, even if this proves more costly than proactive efforts on the part of management? Or does government intervention tend to negate the competitive benefits for those who have acted proactively? How sustainable is sustainability in a for-profit organization? What do you think?

Source: Harvard Business School