Business strategies for sustainable development

Business strategies for sustainable development
Based on the book Business Strategy for Sustainable Development: Leadership and
Accountability for the 90s, published in 1992 by the International Institute for
Sustainable Development in conjunction with Deloitte & Touche and the World
Business Council for Sustainable Development.

Sustainable development: a business definition
The concept of sustainable development has received growing recognition, but it is a new
idea for many business executives. For most, the concept remains abstract and
theoretical.
Protecting an organization’s capital base is a well-accepted business principle. Yet
organizations do not generally recognize the possibility of extending this notion to the
world’s natural and human resources.
If sustainable development is to achieve its potential, it must be integrated into the
planning and measurement systems of business enterprises. And for that to happen, the
concept must be articulated in terms that are familiar to business leaders.
The following definition is suggested:
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.
This definition captures the spirit of the concept as originally proposed by the World
Commission on Environment and Development, and recognizes that economic
development must meet the needs of a business enterprise and its stakeholders. The latter
include shareholders, lenders, customers, employees, suppliers and communities who are
affected by the organization’s activities.
It also highlights business’s dependence on human and natural resources, in addition to
physical and financial capital. It emphasizes that economic activity must not irreparably
degrade or destroy these natural and human resources.
This definition is intended to help business directors apply the concept of sustainable
development to their own organizations. However, it is important to emphasize that
sustainable development cannot be achieved by a single enterprise (or, for that matter, by
the entire business community) in isolation. Sustainable development is a pervasive
philosophy to which every participant in the global economy (including consumers and
government) must subscribe, if we are to meet today’s needs without compromising the
ability of future generations to meet their own.

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Implications for business
It has become a cliché that environmental problems are substantial, and that economic
growth contributes to them. A common response is stricter environmental regulation,
which often inhibits growth. The result can be a trade-off between a healthy environment
on the one hand and healthy growth on the other. As a consequence, opportunities for
business may be constrained.
However, there are some forms of development that are both environmentally and
socially sustainable. They lead not to a trade-off but to an improved environment,
together with development that does not draw down our environmental capital. This is
what sustainable development is all about - a revolutionary change in the way we
approach these issues.
Businesses and societies can find approaches that will move towards all three goals -
environmental protection, social wellbeing and economic development - at the same time.
Sustainable development is good business in itself. It creates opportunities for suppliers
of ‘green consumers’, developers of environmentally safer materials and processes, firms
that invest in eco-efficiency, and those that engage themselves in social well-being. These
enterprises will generally have a competitive advantage. They will earn their local
community’s goodwill and see their efforts reflected in the bottom line.

Practical considerations
While business traditionally seeks precision and practicality as the basis for its planning
efforts, sustainable development is a concept that is not amenable to simple and universal
definition. It is fluid, and changes over time in response to increased information and
society’s evolving priorities.
The role of business in contributing to sustainable development remains indefinite. While
all business enterprises can make a contribution towards its attainment, the ability to
make a difference varies by sector and organization size.
Some executives consider the principal objective of business to be making money. Others
recognize a broader social role. There is no consensus among business leaders as to the
best balance between narrow self-interest and actions taken for the good of society.
Companies continually face the need to trade off what they would ‘like’ to do and what
they ‘must’ do in pursuit of financial survival.
Businesses also face trade-offs when dealing with the transition to sustainable practices.
For example, a chemical company whose plant has excessive effluent discharges might
decide to replace it with a more effective treatment facility. But should the company
close the existing plant during the two or three-year construction period and risk losing

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market share? Or should it continue to operate the polluting plant despite the cost of fines
and adverse public relations? Which is the better course of action in terms of economy,
social wellbeing and the environment?
Moreover, many areas of sustainable development remain technically ambiguous, making
it difficult to plan an effective course of action. For example, the forestry industry has
had difficulty defining what constitutes sustainable forest management. Some critics
believe that simply replacing trees is not enough, because harvesting destroys the
biodiversity of the forest. Clearly, more research will be needed to resolve such technical
issues.
From a broader perspective, however, it is clearly in the interest of business to operate
within a healthy environment and economy. It is equally plain that, on a global basis,
growing and sustainable economies in the developing countries will provide the best
opportunities for expanding markets.
To some, sustainable development and environmental stewardship are synonymous. In
the short term, sound environmental performance is probably a reasonable objective for
most businesses, with sustainable development as a longer term goal. However, this can
lead to confusion. In the developed world, the focus is on environmental management,
while in developing countries, rapid and sustainable development is paramount.
The global economy is coming under growing pressure to pay for the restoration of
damaged environments. But this economic engine is being asked to help solve other
pressing problems at the same time. The challenge is to solve all of these problems in a
sustainable manner, so as to generate continuing development.
Despite ambiguities about definitions, there is now widespread support for sustainable
development principles within the business community. However, for that support to
grow, it will be important to recognize and reward initiatives that are being taken to turn
the concept into reality.

Positive signs of change
William Mulligan, environmental affairs manager at Chevron Corporation, reflects the
view of many in the business community who believe that the environment is now a
major issue - one which presents both challenges and opportunities.
‘Over the last decade, we have seen many polls confirming the importance of the
environment to Americans,’ he says. ‘Only an irresponsible company would dismiss this
trend as a passing fad or fail to recognize the need to integrate environmental
considerations into every aspect of its business. Environmental excellence has to become
part of strategic thinking. It is in our best economic interests to do so. In fact, whenever
we are forced to change, we often find opportunities.’

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This positive change in attitudes and practices is echoed by the Organization for
Economic Cooperation and Development, which says: ‘There is now a realistic prospect
of harmonizing environmental and economic considerations, and thus of gradually
incorporating these objectives in policy.’
Many executives have demonstrated that pursuing sustainable development strategies
makes good business sense. For example, a 3M manufacturing plant scaled down a
wastewater treatment operation by half, simply by running cooling water through its
factories repeatedly instead of discharging it after a single use. Meanwhile Dow’s ‘Waste
Reduction Always Pays’ programme, which began in 1986, has fostered more than 700
projects, and saved millions of dollars a year. And in a Westinghouse metal finishing
factory in Puerto Rico, the company reduced ‘dragout’ - the contamination accidentally
carried from one tank to another - by 75% simply by shaking the tank to remove solids
before releasing the chemical to the next tank.
Pacific Gas and Electric decided that energy conservation was a more profitable
investment than nuclear power, and McDonald’s made its well-publicized move from
plastics to paper the cornerstone of a much broader, but less visible, waste reduction
strategy.
The managers of these businesses clearly believe that environmentalism has something to
offer business.
In an interview with Tomorrow magazine, John Elkington of environmental consultancy
SustainAbility says: ‘We are seeing the birth of corporate environmentalism. In fact the
main impetus for sustainable development in the future will probably come from
business.’
There are other significant developments too, Elkington points out. Many consumers are
now prepared to pay more for environmentally responsible products. And the emergence
of ethical investment funds has thrown the spotlight onto corporate environmental
performance.
Also significant, says Elkington, is that companies are changing from within, rather than
simply responding to external pressure from consumers and environmentalists.

Enhancing management systems
The concept of sustainable development needs to be incorporated into the policies and
processes of a business if it is to follow sustainable development principles. This does not
mean that new management methods need to be invented. Rather, it requires a new
cultural orientation and extensive refinements to systems, practices and procedures.
The two main areas of the management system that must be changed are those concerned
with:

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• A greater accountability to non-traditional stakeholders;
• Continuous improvement of reporting practices.
Developing an effective management framework for sustainable development requires
addressing both decision-making and governance. The concept of sustainable
development must be integrated both into business planning and into management
information and control systems. Senior management must provide reports that measure
performance against these strategies.
Governance is increasingly important because of the growing accountability of the
corporation and its senior management. Information and reporting systems must support
this need. Decision-making at all levels must become more responsive to the issues
arising from sustainable development.
Seven steps are required for managing an enterprise according to sustainable
development principles. These are set out below.

1. Perform a stakeholder analysis
A stakeholder analysis is required in order to identify all the parties that are directly or
indirectly affected by the enterprise’s operations. It sets out the issues, concerns and
information needs of the stakeholders with respect to the organization’s sustainable
development activities.
A company’s existence is directly linked to the global environment as well as to the
community in which it is based. In carrying out its activities, a company must maintain
respect for human dignity, and strive towards a society where the global environment is
protected.
At the beginning of this century, company strategies were directed primarily towards
earning the maximum return for shareholders and investors. Businesses were not
expected to achieve any other social or environmental objectives. Exploitation of natural
and human resources was the norm in many industries, as was a lack of regard for the
wellbeing of the communities in which the enterprise operated. In short, corporations
were accountable only to their owners.
Today, business enterprises in developed countries operate in a more complicated, and
more regulated, environment. Numerous laws and regulations govern their activities, and
make their directors accountable to a broader range of stakeholders. Sustainable
development extends the stakeholder group even further, by including future generations
and natural resources.
Identifying the parties that have a vested interest in a business enterprise is a central
component of the sustainable development concept, and leads to greater corporate
accountability. Developing a meaningful approach to stakeholder analysis is a vital aspect

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of this management system, and one of the key differences between sustainable and
conventional management practices.
The stakeholder analysis begins by identifying the various groups affected by the
business’s activities. These include shareholders, creditors, regulators, employees,
customers, suppliers, and the community in which the enterprise operates. It must also
include people who are affected, or who consider themselves affected, by the enterprise’s
effect on the biosphere and on social capital.
This is not a case of altruism on the company’s part, but rather good business. Companies
that understand what their stakeholders want will be able to capitalize on the
opportunities presented. They will benefit from a better informed and more active
workforce, and better information in the capital markets.
In identifying stakeholder groups, management should consider every business activity
and operating location. Some stakeholders, such as shareholders, may be common to all
activities or locations. Others, such as local communities, will vary according to business
location and activity. Finally, the stakeholder analysis needs to consider the effect of the
business’s activities on the environment, the public at large, and the needs of future
generations.
After the stakeholders have been identified, management should prepare a description of
the needs and expectations that these groups have. This should set out both current and
future needs, in order to capture sustainable development concept. The key is to analyze
how the organization’s activities affect each set of stakeholders, either positively or
negatively.
Developing these statements of needs and expectations requires dialogue with each
stakeholder group. To this end, some companies have established community advisory
panels. Similar groups made up of employees, shareholders and suppliers have been used
to help management better understand their needs and expectations.
Because the needs of stakeholder groups are constantly evolving, monitoring them is an
ongoing process.
The stakeholder analysis may reveal conflicting expectations. For example, customers
may demand new, environmentally safe products, while employees might be concerned
that such a policy could threaten their jobs. Shareholders, meanwhile, may be wary about
the return on their investment. A stakeholder analysis can be a useful way to identify
areas of potential conflict among stakeholder groups before they materialize.

2. Set sustainable development policies and objectives
The next objective is to articulate the basic values that the enterprise expects its
employees to follow with respect to sustainable development, and to set targets for
operating performance.

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Senior management is responsible for formulating a sustainable development policy for
its organization, and for establishing specific objectives. Sustainable development means
more than just ‘the environment’. It has social elements as well, such as the alleviation of
poverty and distributional equity.
It also takes into account economic considerations that may be absent from a strictly
‘environmental’ viewpoint. In particular, it emphasizes maintaining or enhancing the
world’s capital endowment, and highlights limits to society’s ability to substitute man-
made capital for natural capital.
Nevertheless, a policy on environmental responsibility is a good first step towards the
broader concerns of sustainable development.
Management should incorporate stakeholder expectations into a broad policy statement
that sets out the organization’s mission with respect to sustainable development. This
policy statement would guide the planning process and put forward values towards which
management, employees and other groups such as suppliers are expected to strive.
Drafting a policy statement that is both inspirational and capable of influencing behaviour
is a challenging task. However, the benefits justify the effort.
The following policy statement was developed by the Dow Chemical Company:
The operating units of the Dow Chemical Company are committed to continued
excellence, leadership and stewardship in protecting and conserving the environment for
future generations. This is a primary management responsibility as well as the
responsibility of every employee worldwide. We are sensitive to the concerns of the
public and accountable to them for our decisions and actions. We believe in the
responsible integration of environmental and economic considerations in all decisions
affecting our operations. We are continuously reducing our emissions to protect human
health and the environment. Our goal is the elimination of wastes and emissions.
Policy statements like this one should be developed and implemented in a way that
visibly involves directors and senior management.
A survey by DRT International of European companies found that half of the respondents
have board members who are responsible for environmental issues. The report adds:
The amount of time spent on environmental issues at board level varies greatly between
countries and sectors. The greatest involvement is found in the chemical and
pharmaceutical industries and in utilities. These sectors devote significant resources to
planning green strategies and establishing sophisticated environmental management
systems. The lowest involvement is in tourism and financial services, where none of the
companies surveyed had board-level appointments.
There are many benefits in actively involving the board of directors in the development
of a sustainable development policy. It is the board of directors that determines overall
priorities and sets the tone for management and employees. By itself, the board’s
commitment will not guarantee that a sustainable development policy will be effectively

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implemented. However, the absence of that commitment will certainly make it difficult to
implement the policy.
While statements of broad policy on sustainable development are important, senior
management and directors should supplement their policy statement with a series of
specific objectives. For example, the following statement of policy and objectives,
developed by Northern Telecom, illustrates the desirable scope and level of specificity:
Recognizing the critical link between a healthy environment and sustained economic
growth, we are committed to leading the telecommunications industry in protecting and
enhancing the environment. Such stewardship is indispensable to our continued business
success. Therefore, wherever we do business, we will take the initiative in developing
innovative solutions to those environmental issues that affect our business.
We will:
•
Integrate environmental considerations into our business planning and decision-
making processes, including product research and development, new
manufacturing methods and acquisitions/divestitures;
•
Identify, assess and manage environmental risks associated with our operations
and products throughout their life cycle, to reduce or eliminate the likelihood of
adverse consequences;
•
Comply with all applicable legal and regulatory requirements and, to the extent
we determine it appropriate, adopt more stringent standards for the protection of
our employees and the communities in which we operate;
•
Establish a formal Environmental Protection Program, and set specific,
measurable goals;
•
Establish assurance programs, including regular audits, to assess the success of
the Environmental Protection Program in meeting regulatory requirements,
program goals and good practices;
•
To the extent that proven technology will allow, eliminate or reduce harmful
discharges, hazardous materials and waste;
•
Make reduction, reuse and recycling the guiding principles and means by which
we achieve our goals;
•
Prepare and make public an annual report summarizing our environmental
activities;
•
Work as advocates with our suppliers, customers and business partners to jointly
achieve the highest possible environmental standards;
•
Build relationships with other environmental stakeholders - including
governments, the scientific community, educational institutions, public interest
groups and the general public - to promote the development and communication
of innovative solutions to industry environmental problems;

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•
Provide regular communications to, and training for, employees to heighten
awareness of, and pride in, environmental issues.
It is important that sustainable development objectives be clear, concise and, wherever
possible, expressed in measurable terms. Establishing measurable objectives is essential
if management and others are to be able to assess whether their business activities have
met the established objectives.
In setting these objectives, management will need to determine the appropriate level of
aggregation. For example, one objective might be to set measurable performance targets
for waste reduction at all operating locations. This goal would then be supported by more
detailed objectives for each operating location.
After the sustainable development objectives have been established, management should
compare its competitive and financial strategies against these targets. In some areas,
business strategies will be consistent with the sustainable development objectives. In
others, existing strategies may be incomplete or in conflict with them. Consequently,
strategies may have to be modified.
It is important to ensure that the sustainable development objectives that are established
complement the enterprise’s existing competitive strategies. In other words, sustainable
development should provide an additional dimension to business strategy. It provides
senior management with an additional benchmark against which business strategies and
performance should be assessed.
An effective external monitoring system is necessary for directors and senior
management, in order to ensure that sustainable development policies, objectives and
management systems are appropriate for the complex and rapidly changing world in
which their business operates. Information should be gathered on key subjects, including:
• New and proposed legislation;
• Industry practices and standards;
• Competitors’ strategies;
• Community and special interest group policies and activities;
• Trade union concerns;
• Technical developments, such as new process technologies.
For many enterprises, monitoring and influencing external developments means
becoming more actively involved in the public policy process. A commitment to
sustainable development involves helping to formulate policies that shape external
developments, so that industry-wide sustainable development objectives are achieved.

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To this end, responsible business enterprises are taking leadership roles in industry
associations, working with government and special interest groups to achieve positive
results for both the enterprise and the stakeholders.
The monitoring of external developments is particularly complex for companies selling to
export markets, and even more so for those with production facilities in several countries.
Many multinational corporations subscribe to the International Chamber of Commerce
principles on environmental management. These include adherence to international
environmental performance standards. However, monitoring all the relevant international
developments can be a daunting task.
This external monitoring can be integrated into a firm’s strategic management process, or
else carried out as a separate exercise. Some corporations have social policy committees
whose scope covers sustainable development issues. Others have environmental
committees with a narrower focus.

3. Design and execute an implementation plan
It is important to draw up a plan for the management system changes that are needed in
order to achieve sustainable development objectives.
Translating sustainable development policies into operational terms is a major
undertaking that will affect the entire organization. It involves changing the corporate
culture and employee attitudes, defining responsibilities and accountability, and
establishing organizational structures, information reporting systems and operational
practices.
These changes are normally so substantial that a three-to-five-year plan with one year
milestones will be needed.
Managing this type of organizational change requires leadership from senior
management. The board of directors, the chief executive officer and other senior
executives must be actively involved in the process. They need to lead by example, and
to set the tone for the rest of the organization.
As a starting point, after the board and senior management have established their
sustainable development objectives, these should be communicated to the various
stakeholder groups. Some organizations have ongoing consultation arrangements with
stakeholders which facilitates this process. There is little point in embarking on a
programme to meet stakeholders’ needs without first consulting stakeholders to ascertain
what those needs are.
It is also important to determine any modifications that should be made to the
organization’s systems and processes in order to ensure that day-to-day activities are
performed in a manner that is consistent with these objectives.

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