What is Sustainable Business?
Consumers and the public are more environmentally aware than ever before, and businesses are quickly learning that they need to take account of their impact on the world around them “Whole Systems Thinking” – customers expect no less. But what is sustainable business, and is it anything more than just hot air?
Sustainable business is defined as the practice of conducting business along ethical and environmentally aware lines – promoting use of renewable resources and cleaner, greener technologies alongside policies that help preserve the environment, rather than damaging it. Increasingly, this is not just an optional extra, but an integral part of many companies’ business strategy. Several market leaders are pioneering sustainable business programs that demonstrate that these policies don’t need to come at the expense of profits, but can march hand in hand with them.
“Sustainable business” can also be used to refer to other kinds of ethically aware corporate policies, such as concern for human rights and working conditions in the third world, or animal welfare concerns. While these may not fall under the mainstream definition of “sustainable business”, it is worth considering such activities alongside the more obvious types of sustainable business practices when looking at this area.
Scientists are now in almost unanimous agreement about the effect man is having on this planet – and the news isn’t good. As living standards have risen around the world, so too has the impact that growing use of resources and energy has on the environment around us. There are any number of negative consequences to increases in population, pollution and industrial production, but three of the most pressing are global warming (also known as climate change), depletion of natural resources, and the living conditions of workers in the developing world.
Many scientists believe that the effects of climate change are already being seen around us. Even if they’re not always right about the cause and effect of natural phenomena like Hurricane Katrina, or the disruption to harvests in the developing world caused by unusual weather patterns, there seems little doubt that man is having an impact on the temperature of the planet. This could have potentially catastrophic effects on people around the world – particularly, but not exclusively, in the developing world.
Concern over climate change has moved center stage in the business and political arena over the last two or three years, and is now the number one issue facing many countries in the world. No company can afford to ignore the contribution it is making to global warming; from energy efficiency to the ‘carbon footprint’, consumers are demanding action to improve the environmental policies of businesses – and, increasingly, governments are beginning to tailor their policies towards a green agenda. As such, there is immense pressure on business to invest in environmentally sound practices such as carbon offsetting and getting energy from renewable sources.
Another major issue is the increasing rate at which we consume natural resources. This has always been at the forefront of thinking in industries like the oil and natural gas sectors, where everyone is well aware that fossil fuel deposits are limited. However, it is increasingly obvious that other types of resources are being depleted as well – water, agricultural land, fishing grounds, rainforests, and mineral resources are all under threat in different parts of the world. As the developing world strives to reach western standards of living, consumption will only increase. Walmart because of its size, clearly understands this threat especially since they retail what is estimated to be 10% of the global fish supply and they are witnessing on their excel spreadsheets the global decline in fisheries. It is one of their main drivers towards not just a greener company but a more sustainable business model.
Sustainable business practices seek, therefore, to conserve these resources as far as is possible by making use of recycling facilities and recycled materials offsetting consumption through tree-planting programs or where companies make major use of natural resources, sustainable business practice means greener production processes, getting energy from cleaner and more environmentally sound sources, reducing waste, and managing the negative effects of their business on the local environment. More generally, it means being aware of the environmental impact of company decisions; cutting down on the amount of paper used in your offices, for example, or sourcing materials from companies who share the same green approach to business.
Third, and just as important, is the growing awareness of living standards and working conditions for people in the developing world. Over the last 15 years or so, businesses in Western countries have become increasingly sensitive to charges that they exploit cheap labor in the third world, paying workers a couple of dollars a day to sew clothes in huge, sweltering factories with little concern for their well-being. Consumers have made it clear that they are concerned by these reports and there have been instances of customer boycotts and campaigns from lobby groups doing significant harm to the business of corporations that are seen to be exploiting ‘slave’ labor in the developing world. Nike learned this lesson the hard way and now they are a leader in ensuring vendors and suppliers meet certain global standards.
As ever in these cases, the truth is often a little more complex; people working for subsidiaries of western multinationals are much better off than they would otherwise be, working as they do in some of the poorest countries in the world. The choice in a rapidly urbanizing society such as Malaysia or India is often not between working for one sportswear company or another, but between working at all and not. All the evidence shows that globalization has the net effect of driving living standards up over time.
Nonetheless, there is no doubt that consumer power has played a major role in getting businesses to face up to their ethical responsibilities in this field, and no discussion of sustainable business practices is therefore complete without an acknowledgment that companies need to put something back in to the communities where they operate – not just in pure financial terms but also in terms of health and education programs where possible. On the other end of the spectrum, witness the success of “Red”. These companies clearly understand the value of ethically responsible business practices in selling to consumers.
There are literally thousands of examples of companies that have gone down the route of sustainable business practice and seen benefits, but two will have to suffice here.
A Swiss textile company making a traditional upholstery material for a US-based furniture manufacturer was spending a lot of money annually shipping waste products to landfill sites in Spain, and also sending effluent into a nearby river causing significant pollution.
The new fabric was specially designed to use fewer chemicals, and the results were spectacular. Not only is the fabric itself actually stronger and aesthetically superior, but the polluting effect of the Swiss plant is now almost negligible. Production costs and pollution filtering expenses have been slashed, and profits are up significantly. This has been a win-win situation for Designtex.
Another example is the global carmaker Toyota, which is expected to overtake General Motors as the world’s largest auto manufacturer within the next year or two. A large factor in Toyota’s expansion has been its environmental agenda; supporting green projects around the world, including the UN’s World Environment Day; and pioneering use of green technologies in hybrid vehicles such as the Prius. When Toyota began developing its hybrid range, some analysts thought they were mad; the market for such cars was tiny, and far outweighed by the huge R&D costs. And yet Toyota has recently been expanding in North America at the rate of a new factory per year. They were ahead of the game; realizing that customers want to invest in products that have been developed through sustainable business practices and which help to preserve the environment.
OK, you may say, but my business isn’t a multinational operating in seventy countries with an annual turnover of billions of dollars. Surely we can leave the environmental stuff to these global brands, because my small business shipping shower curtain rings isn’t harming the planet any – and anyway, “my customers aren’t really too bothered one way or the other!” Well, up to a point. But bear two things in mind. First, we all have an impact on the environment around us, big or small. As trite as it may sound, if we are to leave the planet to our children in the same state that it was handed to us by our parents, inaction is simply not an option. At the rate we are going, our planet is going to be a very different place to live in by 2050 – and, for billions of its inhabitants, a much worse place. If we’re going to change that, it’s going to take all of us working together to achieve that change – not just a few big polluters cleaning up their act.
If that sermon hasn’t inspired you, here’s a second consideration. Where businesses fail to get their environmental house in order, you can be sure that governments will eventually step in. This trend is most advanced in Europe, where governments and the EU alike are committed to significant cuts in carbon emissions, and new regulations, taxes and levies come into force every year which are forcing companies to adapt to the new realities of sustainable business practices. Even in the US, where the federal government has taken a more cautious and skeptical view about the progress of climate change, there is a growing consensus that business needs to ‘shape up’ and commit itself to stringent environmental targets. So it’s not just desirable for companies to adopt a sustainable business model; it’s good forward thinking, because soon it will be a legal requirement. In this regard, environmentally aware policies are just like any other area of corporate strategy; it pays to be ahead of the curve.
Friday, June 29, 2007
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