Sustainability Chapter 1 MC PDF

What is Sustainability? What’s your definition of Sustainability? Take a moment to write down off the top of your head what it means to you: While there are countless definitions of the term “Sustainability”, the most succinct and encompassing one was coined in the 1987 United Nations Brundtland C...

What is Sustainability? What’s your definition of Sustainability? Take a moment to write down off the top of your head what it means to you: While there are countless definitions of the term “Sustainability”, the most succinct and encompassing one was coined in the 1987 United Nations Brundtland Commission Report titled “Our Common Future”, as: “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” Corporate Citizenship Corporations are people. They have more rights than an individual human being and less responsibilities. As they have grown in power and influence, the public’s perception has shifted towards them that they are doing more harm than good for the world and society as a whole. Unlike a real person, corporations don’t have feelings, but they are aware of these sentiments and wish to present a rosier, softer-edged version of themselves that they are doing good for the world. Thus the term Corporate Citizenship was coined: “how a company exercises its rights, obligations, privileges and overall corporate responsibility within our local and global environments.”  Why Does Sustainability Matter? “Sustainability”, “Going Green”, being “Eco-Conscious”, all sound like lofty, far-removed concerns that will happen later, while shareholders are expecting a report about profit and growth now. Even worse, the terms have connotations of PR pandering, that may sound nice, but have no real teeth. You’ve probably read about the state of the environment, and that things aren’t looking good. Let’s take a moment to remind ourselves why sustainability matters. The answer can be broken down into three imperatives: The Three Imperatives 1) Existential 2) Regulatory 3) Business  Sustainability as an Existential Imperative The dystopian subgenre of films and books grew in popularity first with the threat of nuclear war in the ‘80s. They offer tales of a ruined world bereft of most life, coastal cities submerged beneath oceans, where clean water is scarce, wildfires have consumed forests and towns, famine and lawlessness reign, while a small enclave of elites selfishly indulge in whatever spoils are left. We enjoy these stories not only for the escapism they offer, but also for their message that lingers at the back of all our minds: This doesn’t sound too far off. This could be real, this could be us! While it may sound a bit haughty to say “because our species’ survival depends on it,” it isn’t wrong. Indeed, sustainable practices are necessary if we want our grandchildren to have a livable world to inhabit.  Threats of the Anthropocene Age ( 1 / 6 ) In the year 1950, planet Earth transitioned from the Holocene to our current one, the Anthropocene, or “The Era of Man.” Humans are now the main factor in shaping the environment. With the dawn of this new age, these main environmental challenges threats have arisen: Plastic Pollution ~380 million tons is produced every year; Amount of plastic produced increases every year; 95% of plastic is single use, and then discarded. Fills our rivers and oceans; Never fully degrades, instead turns into microplastics; Microplastics are now being found in our water, food, blood, and unborn babies; Threats of the Anthropocene Age( 2 / 6 ) Clothing Waste The fashion industry contributes to up to 10% of the world’s Co2 emissions; Production requires toxic chemicals that are dumped into waterways; Every second, a garbage truck’s worth of disused clothing is sent to landfill; In the last decade, consumers have doubled their purchases of clothing, while wearing less and discarding more;  Threats of the Anthropocene Age( 3 / 6 ) Food Shortage & Waste Accounts for up to 10% of the world’s Co2 emissions; Nearly a billion tons of food waste is generated each year; Despite all this waste, over 800 million people go hungry each year; Phosphate and nitrogen have increased to dangerous levels due to industrial fertilizers, killing fish life and toxifying drinking water; Industrial food production is responsible for 90% of global deforestation; The drive for higher yields and shelf life via GMOs has caused a 38% overall reduction in nutrient content; Threats of the Anthropocene Age( 4 / 6 ) Transport Emissions & Air Pollution Constitutes 21% of global carbon emissions; One flight from New York to London generates more carbon emissions than the average person’s entire annual carbon footprint in 56 countries; 4.2 million people die annually due to outdoor air pollution mostly caused by fossil fuel combustion; 99% of the global population live in areas that don’t meet the WHO’s minimum air quality standards; Air pollution is linked to a variety of mental health diseases and disorders, which are on the rise;  Threats of the Anthropocene Age( 5 / 6 ) Loss of Biodiversity Bees and butterflies, crucial for crop pollination, have fallen in population by ~2% each consecutive year, resulting in ~500k early deaths due to reduced supply of healthy foods; 68% of wildlife populations in the past 50 years have gone extinct. That’s 150 species a day; 60% of today’s emerging deadly diseases (such as COVID-19) are zoonotic in nature, originating from animals being squeezed into cramped conditions; We consume twice as much fish and other seafood as we did in 1950. Global fish stocks are declining at an exponential rate. A third of the fish species we eat are harvested beyond sustainable limits; Threats of the Anthropocene Age ( 6 / 6 ) Water 2.1 billion people do not access to clean drinking water, resulting in 1.2 million deaths per year; Droughts, floods, and extreme weather patterns have become more prominent in recent years, affecting water quality and availability; As human populations urbanize and live in more densely concentrated areas, more demand is placed on increasingly scarce water supplies; 80% of wastewater is discharged into waterways, with some developing countries the figure is high as 92%; EU Regulatory Directives for Sustainability The EU is at the forefront of enacting business incentives to promote organizations’ adoption of sustainable practices. There are a mix of mandatory laws and voluntary incentives, providing certifications and seals of approval if standards are met. Compliance with these directives for both B2Cs and B2Bs is crucial to stay competitive in both European markets and abroad.  The European Green Deal An adopted set of proposals by the European Commission states following aims for all EU member states: No net emissions of greenhouse gases by 2050; Policies fit for reducing net greenhouse gas emissions by at least 55% by 2030; Economic growth decoupled from resource use; No person and no place left behind; In this section, we’ll cover a few of the sub-directives which fall under the European Green Deal.  Regulatory Compliance for Sustainability Industrial Emissions Directive (IED) The “main EU instrument regulating pollutant emissions from industrial installations.” The IED aims to reduce waste, water and airborne emissions, as well as prevent accidents. This has drawn some criticism from some industry pundits as rendering certain businesses unable to compete due to these restrictions. The IED uses a “polluter pays” model, where a factory or similar facility is required to update to the “Best Available Technology” in order to insiders as it will force certain plants to close in that the cost outweighs the benefit gained. Another criticism of the directive is it contains a loophole allowing 10 years for plants to update their facilities to be more environmentally friendly.  Regulatory Compliance for Sustainability Water Framework Dir ective Focused on “[protecting] and [restoring] aquatic ecosystems as a basis for ensuring the long term sustainable use of water for people, business and nature.” The Water Framework Directive (WFD) has been in effect since the year 2000, and remains the “main law for water protection in Europe.” Key objectives include “good status” for all bodies of water at six-year intervals, the next assessment occurring in 2027. Corporate Sustainability Reporting Directive Instated in 2023, the CSRD compels large companies to publish information related to environmental matters, social matters and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity of company boards.  Regulatory Compliance for Sustainability EU Taxonomy for Sustainable Acti vities The UN’s answer to “What is green?’” An “important market transparency tool,” the directive helps “direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives.” Sustainable Finance Disclosure Regulation (SFDR) Introduced alongside and related to the Taxonomy Regulation, the SFDR “principal mechanism” is “to address ‘greenwashing’ (more on this term later) as it sets out criteria for determining if an activity is environmentally sustainable…” International Frameworks and Standards Beyond the scope of EU-centric directives, are International Standards. These are unenforceable, voluntary directives imposed by such international bodies as the UN to garner common goals and initiatives among cooperating countries on both sides of the pond. Serving as benchmarks for ethical and sustainable practices, organizations that fly the banner of these directives enjoy a more favorable consumer perception than those who don’t. International Frameworks and Standards Enacted in 2015, the UN Sustainable Development Goals (SDG) are a collection of 17 interconnected objectives, such as ending poverty, social welfare, economic development and environmental protection by the year 2030. The SDGs goals are as follows: 13. Climate Action 1. No Poverty 5. Gender 9. Industry 14. Life Below 2. Zero Hunger Equality Innovation Water 3. Good Health 6. Clean Water 10. Reduced 15. Life on Land 4. Quality 7. Clean Energy Inequality 16. Peace & Education 8. Economic 11. Sustainable Justice Growth Cities 17. Cooperation 12. Less  Sustainable Development Goals: Progress So Far While the SDGs mission is admirable and necessary, it’s been rough going so far: In the near- decade since their inception, only 15% of the goals are “on track,” and more than three- quarters of them are stagnating or regressing. The 2023 SDG report opens with “Halfway to the deadline for the 2030 Agenda… shows we are leaving more than half the world behind. Progress on more than 50 per cent of targets of the SDGs is weak and insufficient; on 30 percent, it has stalled or gone into reverse.” Despite these shortcomings, more and more business leaders are working sustainable practices into their long-term strategies.  The Paris Climate Accord Instated in 2015 in parallel to the UN’s SDGs, The Paris Climate Accords (Also known as the Paris Agreement) between 196 nations an agreement between [number] nations with the ultimate goal of reducing emissions global average temperature to rise more than 2C. Why 2C? Because reaching this threshold in average global temperature marks a ‘point of no return,’ beyond which recovery becomes impossible. Some beloved national landmarks, such as the Swiss Alps or the US Glacier National parks are in danger of losing their snow and ice in the coming decades.  International Frameworks and Standards The Global Reporting Initiative (GRI) An “independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.” The Initiative’s goal is to help with sustainability reporting and to standardize the practice across borders. UN Global Compact (UNGC) Predating the SDGs, UNGC is “the world’s largest corporate sustainability initiative” is aimed specifically at companies for taking on sustainable business practices and advancing the SDGs through its Ten Principles.  International Organization for Standardization ISO certifications are “a formula that describes the best way of doing something.” They range from Quality and Environmental management to health, food and safety standards, including Sustainability. Businesses that receive a certification from ISO for certain aspects of enjoy a range of benefits including better customer satisfaction, lower costs and more. Here we’ll cover some of the more prominent sustainability focused ISO certifications.  International Organization for Standardization ISO 14001 or Environmental Management Systems (EMS). The standard is intended for corporations large and small. To receive the certification, the organization will need a “gap analysis, implementation of the EMS as per the standard, internal audits, management reviews, and finally, a certification audit by an external body.” An organization will typically be audited every 5 – 10 years to maintain its certification. ISO 26000 is Guidance on Social Responsibility. The standard is “intended to assist organizations in contributing to sustainable development.” Covering a wide range of topics, such as human rights, labor fairness, and community involvement, companies that earn this seal build further trust with potential sustainable shareholders.  Austrian Law Austria ranks 28th in the Global Sustainability Index. Despite its growing GDP, it has managed to keep its greenhouse gas emissions stable. This achievement is due in part to several of its strict national directives such as: Federal Environmental Liability Act (Umwelthaftungsgesetz) – “With a view to preventing and remedying environmental damage, the present Act lays down “polluter pays” principle. The Act applies to damage inflicted on water and on land. Industrial Emissions Act (IEG) (Industrieanlagenverordnung) - Waste Management Act (Abfallwirtschaftsgesetz) – “ The main piece of legislation for waste management in Austria. The act requires that waste be transferred to a processor or collection site for disposal at least once every 12 months.”  What Businesses Can Do Business leaders and stakeholders must prioritize reducing emissions not only for the survival of our species and government regulations, but for their profit margins as well. According to the Harvard Business Review, businesses prioritizing long-term sustainability over short-term profits outcompete pee rs, attract top talent, and generate higher overall revenue. In this section: Business Imperatives for Sustainable Practices: 1) Reputation & Brand Image 2) Access to Markets & Investors 3) Attract Eco-Conscious Top Talent 4) Receiving Government Subsidies 5) Financial Efficiency  Business Imperatives: Cultural Shift Historical records show that environmental concerns date back thousands of years. The more recent cultural zeitgeist has produced such documentaries as “An Inconvenient Truth” (2006), which arguably started a new wave of environmentalism. Champions of environmentalism such as Greta Thunberg , and controversial groups such as Just Stop Oil are frequent hot topics of conversation that cut through the chaff of an increasingly fragmented social media landscape and draw large amounts of attention. Savvy marketers have taken notice, and are working to pivot their brand’s image to follow suit. Those who are unable to adapt to the shifting cultural winds risk falling behind.  Business Imperative: Cultural Shift Baby boomers, millennials, and generation Z all have concerns with the state of the environment. Historical records show humans have been concerned with how we treat the environment for thousands of years. However, over the past two decades, there has been a sea change (no pun intended) with environmental concerns carrying greater weight in the public’s consciousness. Interest in ‘Sustainability’ has increased several-fold over the past few decades. Source: Google Trends  Business Imperatives: Brand Reputation and Image The 2021 Global Sustainability Study cites that 85% of consumers prefer products that are produced with sustainable methods, and are willing to pay on average 12% more for them. Around half of today’s working age demographics in today’s marketplaces value sustainability as one of the top 4 criteria they consider when purchasing a product or service. Patagonia, Inc., the outdoor apparel company, is an example of a company that has reaped the benefits of consistent sustainable practices and branding, enjoying a loyal consumer base. Nike is a good example of a large, publicly traded company that has turned around its image as using sweatshop labor to having half of its apparel made from recycled materials, enjoying considerable stock growth over the past few years. Business Reasons: Environmental, Social, Governance Standards Many savvy shareholders look to a framework known as ESG: Environmental, Social, Governance Standards, non-financial performance indicators, as a transparent means for measuring a companies commitment to sustainable practices. ESG stems from the term Corporate Social Responsibility (CSR), which has more to do with corporate strategy than transparency or reporting, (and has been scrutinized for being subject to greenwashing). Business Reasons: Environmental, Social, Governance Standards Environmental Social Governance Increase Energy Fair pay; Financial Efficiency Diversity, equity & transparency; Reduce Carbon inclusion Ethical business Footprint; Community relations; practices; Fight Deforestation; Supports human Anti-corruption; Mitigate Pollution; rights; Board composition; Business Incentives: Transparency to Investors Sustainable Investors are potential shareholders looking to maintain a portfolio of stocks under corporations that commit to sustainable business practices. One key word investors are looking for is transparency. A growing number of organizations include an annual sustainability report, usually lead by a CSO or Chief Sustainability Officer. Many EU nations are implementing laws requiring organizations to regularly report on issues to their investors, for example: France’s “Loi De Vigilance” Law (passed in 2017) – requires larger companies (with employees numbering in the thousands) to assess human rights risks across all links in its supply chains and subsidiaries, and any environmental threats thereof. It requires companies to disclose their sustainability (different word here?) plan with their investors and regularly publish reports on its efficacy. The Dutch 2019 law – labor due diligence act (Wet Zorgplicht Kinderarbeid) requires companies to ascertain how to eliminate any sources of child labor in their production lines or supply chains.  Business Reasons: Access to Employees Team leaders want access to the best possible pool of candidates available to them, and one of the best ways to do that is to align your organization’s values towards what top-talent is seeking. While a high salary certainly goes a long way, it doesn’t tend to retain team members who are passionate about what they do and therefore deliver the best results. Studies show that highly sought-after team members are more likely to seek out organizations who not only are seeking profit, but for the betterment of people and the planet as well, otherwise known as The Triple Bottom Lines. Companies such as IBM are embracing the “Triple Bottom Lines” paradigm: according to their 2022 “Balancing Sustainability and Profitability” report, out of a sample size of 16,000, two-thirds of employees expressed a desire to transition to a new organization that showed effort towards meeting the Three Bottom Lines.  Business Reasons: Access to Government Subsidies Organizations hailing from the EU have access to a plethora of government-backed programs with such benefits as tax deductions, subsidies, or grants for companies that invest in sustainable development research projects, undertake projects with an aim of reducing climate impact or environmental conservation, or engage with and give back to local communities. Such Horizon Europe EU-backed programs include: A major European sustainable development research and funding program that provides grants and for R&D for projects involving clean energy, sustainable agriculture, and circular economy. development. LIFE Program Another funding program for pilot projects, demonstration projects and encourages corporate transparency on initiatives that promote environmental projection. European Aimed Regional at reducing Development economic disparities Fund (E across EU member states, the ERDF provides RDF) support for organizations investing in infrastructure and social-wellness programs financial in less-developed regions.  Cost Savings & Profit While talking about the “Three Bottom Lines” we may gloss over Profit in lieu of the other two, but research has shown that companies that invest in sustainable business practices on a long- term basis generate more revenue than those who focus only on one “bottom line.” Some quick facts about sustainable business practices saving costs: 1. Lower Costs overall – lower material use, increased efficiency in supply lines; 2. Customers are increasingly more likely to choose a “green” business over a traditional one, and pay more for their products and services; 3. Markets are trending that way – developing partnerships with other businesses is easier when your company makes the pledge to the Three Bottom Lines; The Different Levels of A Sustainable Business Professor Thomas Dyllick of the University of St. Gallen writes in his report titled Clarifying the Meaning of Sustainable Business: Introducing a Typology From Business-as- Usual to True Business Sustainability about a framework for integrating “Business Sustainability” (BST), “Sustainable Development” (SD), and the “Triple Bottom Line” into a cohesive framework that measures where organizations lie on a spectrum of sustainability from “Business-as- Usual,” to a “Truly Sustainable Business.”  BST Level 0: “Business as Usual” “The business of business is business.” -Milton Friedman This level is based on the 1950s way of viewing how to conduct business: on a purely economic one. The business itself and its corporate objectives are the nucleus of every decision made. The business assumes that access to resources will remain cheap, overhead for processes will remain low, and that they must eternally vie for growth and increased profit and shareholder value. Beyond revenue and profits, external costs, such as environmental or social impact, are left unconsidered.  BST Level 1.0: “Refined Shareholder Value Management” This is the first level of a business implementing a strategy that aims for challenges beyond simply generating revenue. A BST 1.0 organization is aware of the risks and opportunities brought about by environmental and social challenges outside of its own quarterly profits. The main corporate objectives for a BST 1.0 org. are still centered around increasing shareholder value, with the dawning realization of potential gains to be had in non-financial areas that could prove to be beneficial in the long-term. For example, a company in the food industry that would quality as BST 1.0 would aim to increase energy and water efficiency, reduce greenhouse gases, and search for more sustainable sourcing, and aim to increase the nutritional value of their products, such as by reducing additives, salt, sugar or saturated fats. BST Level 2.0: “Managing for the Triple Bottom Line” BST Level 2.0 is a company going beyond implementing sustainable measures and attempting to expand the horizons of their stakeholder’s perspectives by introducing them to the “Triple Bottom Line” approach of including social and environmental goals along with their profit-driven goals. For our food industry example, our company would be bringing such directives as including transparent repoting about how it is achieving its new social and environmental goals, and possibly bringing in a 3 rd party auditor for accountability in these methods. Furthermore, the goal of reducing the footprint brought about by its products would not be relegated to the mere production, but also along with the entire chain of consumption and disposal by the customer as well. A BST 2.0-level company wishes to “invent, produce, and report on measurable results with well-defined SD areas while doing this in an economically sound and profitable manner.”  BST Level 3.0: “Truly Sustainable Business” “Every single social and global issue of our day is a business opportunity in disguise.” -Peter Drucker (2008) For an organization to reach BST 3.0, it must adopt a complete organizational-level paradigm shift from “inside-out” (focused only on itself, shareholders, immediate society and communities it serves) to an “outside-in” approach: making its mission on how only to reduce its negative impact, but how to take on the most challenging and daunting environmental and social issues. A truly sustainable business’s main purpose is for the betterment of the common good. Putting social and environmental needs of not only those in its immediate vicinity, but truly on a global scale. Realizing that the overall impact a business can achieve on an individual level is limited, a BST 3.0 business has an interconnected approach, aiming for relationships and partnerships with other organizations with the same goals.