Learning Module 4: Challenges of Sustainability in Business PDF

lOMoARcPSD|11364796 Learning Module 4: Challenges of sustainability in business CSR: - Economic responsibility Do what capitalism requires - Legal responsibility Do what is required by global stakeholders - Ethical responsibility Do what is expected by gl...

lOMoARcPSD|11364796 Learning Module 4: Challenges of sustainability in business CSR: - Economic responsibility Do what capitalism requires - Legal responsibility Do what is required by global stakeholders - Ethical responsibility Do what is expected by global stakeholder - Philanthropic what is desired by global stakeholders Reading: the pipeline – responsible financing Why would firm go beyond their legal or market obligations to engage in sustainability? For that is is important to look at the stakes companies have: Social Evaluation Reputation is a significant asset (e.g. brand value) Legitimacy is a perquisite for operation (shareholders would not buy shares, employees would not invest capital, suppliers would not suppl) There are different pressures on firms There is rising social pressure on companies to taking responsibility for their supply chains and products. The pressure does not only derive from activists but also from mass mobilizations. Sustainability issues are 19 / www.temagroningen.nl / [email protected] Gedownload door Bart S ([email protected])  lOMoARcPSD|11364796 increasingly important to shareholders and those holding equity of an organization. Rising sustainability concerns can also be seen from investors: major investment funds have announced to completely divest from fossil fuel, which puts lots of pressure on other companies. This comes together with an increasing demand for transparency and sustainability reports of large corporations. Generally, the closer the firm is to the end customer the more pressured they are to be sustainable and transparent. Further, companies that are “good” in terms of sustainability are often targeted and criticized by social media. This led to firms strategically deciding not to publish sustainability certification to avoid reputational risk. Moreover, industry peer`s wrongdoing have spillover effects to other peers. E.g., BP announced to be clean energy company were quickly classified as greenwashing which severely hurt its reputation and legitimacy as a global player. In 2010 its Bluewater Horizon platform exploded which heavily impacted the environment. With its already damaged legitimacy BP was unable to return its stock prices to pre 2010 levels ever again. This incident also had a spillover effect of to peer companies e.g., Shall whose share prices have dropped as well. Live Session 3: “Third” generic solution in practice Solving the tragedy of the commons is especially challenging as there is no world government. However, there are quite a few communities that have solved the tragedy of the commons with bottom-up institutions 1. How can we self-govern corporate sustainability behaviors? Social pressure, Fridays for future, bankers-oath (rules and regulations on behavior of bankers that banks were made accountable for to regain trust in the financial system, WestLB founded equator principles to rebuilt reputation, also other banks joined to prevent such situations happening again, hence it is an example of self-regulations standards also ISO (e.g. ISO 26000) is an example) industries try to protect their reputation and prevent spillovers. Also, certifications can be used to form some generalized trust, however they are rather theoretical options if there are really working or if it is more greenwashing is difficult to determine. 20 / www.temagroningen.nl / [email protected] Gedownload door Bart S ([email protected])  lOMoARcPSD|11364796 2. What are concrete examples of new institutions compelling firms to become more sustainable? Certifications Sustainable standards 3. Can there be sustainability forces in markets? Scarcity of resources (e.g., BMW announced to refurbish batteries due to its scarcities) Government pressure (e.g., fossil fuel cars will be banned from streets) Bargaining power of the customers Bargaining power of the supplier Potential Entrants (e.g., Tesla entering the market made other firms to innovate as well) Threat of substitute: (e.g., urban millennials are not into owning cars anymore but rather into carsharing) Case Analysis: WestLP Firm was held responsible for its systemic consequences (not only their own operations but also the further impacts of their operations) Other Examples: H&M faced protest when Ranaplaza on Bangladesh collapsed Siemens building parts of coal mine railway track Stakeholders: - Customers/clients - Society / NGOs most prominent in the case, but the NGOs cannot influence the banks business, maybe only in combination with the general public - Shareholders: such as the state of NRW which makes the issue to a political topic 21 / www.temagroningen.nl / [email protected] Gedownload door Bart S ([email protected])  lOMoARcPSD|11364796 - Some stakeholders maybe also do not have a lot of interest such as the world bank Overall: different stakeholders have different opinions, while the bank itself initially believes it is only responsible for the economic and legal part other stakeholders such as the NGOs pressure for more systematic responsibilities. However, stakeholder opinions also change over time. Before the first protest, WestLB ignored the environmental causes. After the protest, WestLB came in contact with the Ngo’s and other stakeholders (for example, IFC meeting) to make sure they did what is expected of them. They also introduced the equator principles. Lack of response -> defensive / antagonistic response -> collaborative response Nike: Is changing its approach to avoid sweatshops Takeaway: Reputation is important for banks (find a balance between stakeholder interests) Business Strategy 22 / www.temagroningen.nl / [email protected] Gedownload door Bart S ([email protected])