Leadership Briefing from
CST VII/VIII
Publication Date: June 2003
"Revealing the Value of Sustainable Development"
By Joseph Fiksel, Ph.D.
Principal & Co-Founder
Eco-Nomics LLC
ABSTRACT:
Arguing the premise that there is really only one bottom line, the author examines new valuation techniques to measure the business consequences of socially responsible business behavior and strategy.
EXCERPT:
DEVELOPING A BUSINESS CASE FOR SUSTAINABLE DEVELOPMENT
Sustainable Development (SD) is an emerging strategic issue in both U.S. and global markets. The United Nations defined the principle of SD as follows: Development today must not undermine the development and environment needs of present and future generations. In other words, as we strive for prosperity today, we must not compromise quality of life for our descendants. A more useful definition for business purposes is as follows: A sustainable enterprise is a company that delivers enduring growth and superior long-term financial returns by addressing the economic, social and environmental needs of all stakeholders, including employees, customers, shareholders communities, regulators, and other interested parties. These three major dimensions of SD — economic, social, and environmental — are often called the "triple bottom line."
Many CEOs have asserted a belief that SD will improve both enterprise resource productivity and stakeholder confidence. According to KPMG, 36% of the top 100 U.S. companies now publish annual Sustainability Reports. At the same time, a recent PricewaterhouseCoopers survey of 140 U.S. companies, 101 of which are in the Fortune 1000, showed that 75% claim to have adopted sustainable business practices. The most common reasons cited were enhanced reputation, competitive advantage, and cost savings. There are several factors that underlie this growing business interest in SD:
- SD not only provides direct financial benefits through greater efficiency, but also enhances several intangible factors that are known to influence shareholder value including — reputation, brand equity, strategic relationships, human capital, and innovation.
- Top executives in the post-Enron era are increasingly stressing ethical obligations and accountability, including social responsibility, transparency, and constructive engagement with external stakeholders.
- Competitive pressures are mounting as more leading companies in every industry adopt progressive codes of conduct (e.g., CERES principles), openly report on their SD progress, and demand that their suppliers adhere to the same practices.
- Emerging regulatory initiatives embrace principles such as climate stabilization and extended producer responsibility, which broaden the boundaries of corporate accountability and raise public expectations regarding company practices.
- The financial community has begun to recognize that attention to sustainable development is an indicator of overall superior management, as exemplified by the increasing interest in the Dow Jones Sustainability Group Index.