Business sustainability dec11

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Business sustainability dec11

  1. 1. ISBS/Dec 2011 Prof. B.S.GuhaDec 2011 Business Sustainability 1
  2. 2. Who am I ? Joined Philips India as a Management Trainee (1969) After O-J-T of 18 months, became a Section In-charge in a factory 18 months later, become Shop In-charge 24 months later, took over as I/C Engineering & Customer Support 18 months later, Project 2nd I/C for new Factory 18 months later, Manager Quality Control 42months later, Manager Innovation Group 42 months later seconded to Philips Germany 24 months later returned as Factory Manager, Luminaire Centre/Calcutta 36 months later took over as Plant Manager, Kalwa Lamp Factories/ Thane the largest Philips Production complex – first Indian Manager 54 months later took over as SBU head- Professional Lighting/India 36 months later took over as Head, Corporate Purchasing/India for 12 months; Started (1998) up a joint-venture between Tata AutoComp & Yazaki Corp/Japan for Auto EDCS (C.E.O, Tata-Yazaki) and steered it for 60 months; Retired from Tata-Yazaki to start a career as a Teacher. (2003)Dec 2011 Business Sustainability 2
  3. 3.  “The Sustainable MBA: the manager‟s guide to Green Business” – Giselle Weybrecht ; (Times Knowledge Series/Times Group Books & Wile; ISBN : 978-81-265-2770-0) References  “The Necessary Revolution” - Peter Senge et al; (Doubleday; ISBN : 978-0-385-51901-4)  “The Fortune at the Bottom of the Pyramid” - C.K. Prahalad; (Wharton School Publishing, ISBN: 978 81 7758 776 0) Further Reading  “Limits to Growth” - Meadows, Donella, J. Randers and D. Meadows; (New York Universe Books, 1972)  “Beyond the Limits”: - Meadows, Donella, J. Randers and D. Meadows; (Chelsea Publishing Co.. 1992)  “Cannibals with Forks: the Triple Bottom Line of 21st Century Business” – John ElkingtonDec 2011 Business Sustainability 3
  4. 4. Dec 2011 Business Sustainability 4
  5. 5. The Concern Are Earth‟s resources in-exhaustible OR will they run out some day?  How will we get “energy” ?  Minerals to make “goods” ?  And food to eat ? Water to drink ?  Finally, Air to breath ? Will nations live harmoniously?  Will people within a nation be at peace ?  Will there be equitable distribution of wealth?  What about “Quality of life” ? Can “Economic Prosperity” be ensured for development ? Is the World and Life-style that we take for granted be there forever i.e. Human Sustainability? Dec 2011 Business Sustainability 5
  6. 6. THIS The Concern.... Cont‟d.Dec 2011 Business Sustainability 6
  7. 7. The Concern.... Cont‟d. OrDec 2011 Business Sustainability 7
  8. 8. The Concern.... Cont‟d.  OK, but...  How urgent is it?  How important is it?  Is it both urgent and important?  If the answer is „Yes‟, then...  Who or what is responsible?  Is there „something‟ that can be done?  To do that „something‟, what is the scale, time-frame and diversity of effort required?  Are their „Opportunities‟ & „Threats‟ for Businesses?  Does it, therefore require management involvement?  This course attempts to provide direction!Dec 2011 Business Sustainability 8
  9. 9. The Concern.... Cont‟d. Fundamental Question!  How much human life can the Planet earth support?  The ecological footprint is a measure of human demand on the Earths ecosystems: represents the amount of biologically productive land and sea area needed to Mother  regenerate the resources a human population Earth! consumes  AND to absorb/render harmless the corresponding waste.  Estimates how much of the Earth (or how many planet Earths!) it would take to support humanity if everybody lived a given lifestyle.Dec 2011 Business Sustainability 9
  10. 10. The Concern.... Cont‟d. One of the earliest concepts related to the issue of scale is that of carrying capacity. Biologists define carrying capacity as the maximum population of a given species that can survive indefinitely in a given environment.Starting with low population andabundant resources, two types areseen:k-selection – increase rapidly but tendto regulate by slowing down birth rateetc. to adapt to the resources availableand finally reach a stable level;r-selection – increase exponentially tillresources are depleted and thenmortality is the prime regulator. Withresources replenished this cyclerepeats in Boom or Bust cycle. 10 Dec 2011 Business Sustainability 10
  11. 11. The Concern.... Cont‟d. The I PAT formula in the 70„s was an attempt to explain impact of human consumption in terms of three components:  population numbers,  levels of consumption (which it terms "affluence", although the usage is different), and  impact per unit of resource use (which is termed "technology", because this impact depends on the technology used) Environmental I=P×A×T Compounding Effect Impact Population „affluence‟ Technology Dec 2011 Business Sustainability 11
  12. 12. The Concern.... Cont‟d. ? There have been a large number of published estimates for the human carrying capacity of the earth; they range from  a low of half billion people  to a staggering 800 billion. Many of these estimates are more ideologically based than determined by scientific principles.Dec 2011 Business Sustainability 12
  13. 13. The Concern.... Cont‟d. Post-1950s the Developed World entered a great acceleration of growth and population (the Golden age of Capitalism):  technological innovations viz. plastics, synthetic chemicals and  nuclear energy as well as fossil fuels continued to transform society. Gathering environmental movement highlighted there were environmental costs associated with the many material benefits that were being enjoyedDec 2011 Business Sustainability 13
  14. 14. The Concern.... Cont‟d.  Documentation by 1962 American marine biologist & naturalist Rachel Carson in her path-breaking, revolutionary book: Silent Springs  Environmentalisms concern with pollution & depletion of finite resources voiced in a 1972 series of hallmark books e.g Limits to Growth SustainabilityDec 2011 14
  15. 15. The Concern.... Cont‟d. Historically, humanity has responded to a demand for more resources by trying to increase supply. In 1972 the book “Limits to Growth” sent out shock waves around the world.  Using computer modeling, it warned of catastrophic consequences by 2100 if the then current rates continued:  growth in resource use,  industrial output,  food production and  population expansion.  The only computer scenarios which indicated human welfare could be sustained were ones in which growth was reduced.Dec 2011 Business Sustainability 15
  16. 16. The Concern.... Cont‟d. The study team published both a 20 year and a 30 year follow up, adding measures and making improvements in their computer simulation model. These analyses came to the same conclusions as the original study – that continued growth would lead to overshoot and catastrophe for human civilization.  In their original study in 1972 they warned that overshoot was a possibility  In the 1992 report “Beyond the Limits” they argued that overshoot had already occurred in a variety of areas, and that their original warning were even more urgent.Dec 2011 Business Sustainability 16
  17. 17. The Concern.... Cont‟d. Uncontrolled Development, "Overshoot and Collapse"Dec 2011 Business Sustainability 17
  18. 18. The Concern.... Cont‟d. Sustainable DevelopmentDec 2011 Business Sustainability 18
  19. 19. The Concern.... Cont‟d. Alex Steffan‟s Summary - A short VideoDec 2011 Business Sustainability 19
  20. 20. Dec 2011 Business Sustainability 20
  21. 21. The Situation  In 1960 almost all countries in the world had the capacity to meet their own demand but  by 2000 most countries were able to meet their needs only by importing resources from other nations  Environment & Ecology is a „common resource‟ !  By the late 20th century environmental problems were becoming global in scale.  the 1973 and 1979 energy crises demonstrated the extent to which the global community had become dependent on a non-renewable resource.Dec 2011 Business Sustainability 21
  22. 22. The Situation.... Cont‟d. In parallel, greater concern for „human values‟, lead by the formation of Amnesty International in mid-60‟s and carried world-wide by Globalization and the Information Revolution emerged. Failure of Communism as an economic model and widening disparities and inter-dependence only brought to sharper focus the growing differences in distribution of wealth and the need for a more comprehensive economic model. In the developed world, these led to the rise in importance of ethics and equity (and morality) in governance and consumerism.Dec 2011 Business Sustainability 22
  23. 23. The Situation.... Cont‟d.The growing „unease‟ and its investigation by UN (UNWCED: United Nations World Commission on Environment & Development a.k.a the Bruntland Commission, 1987) gave rise to most widely quoted definition of sustainability and sustainable development in the report “Our Common Future” :“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” 23Dec 2011 Business Sustainability
  24. 24. The Situation.... Cont‟d.  The definition contains two key concepts:  „Needs‟: in particular the essential needs of the world‟s poor – to which overriding priority should be given  „Limitations‟: imposed by the state of technology and social organizations on the environment‟s ability to meet present and future needs  The definition as extended to Business:  „for a business enterprise, sustainable development means adopting strategies and activities that meet the needs of the firm and its stakeholders today while protecting, sustaining and enhancing the human and natural resources needed for the future.‟Dec 2011 Business Sustainability 24
  25. 25. The Situation.... Cont‟d. The idea of sustainability is not new  societies in the past and over time had learnt to balance social, environmental and economic concerns. At its core, sustainable development is about creating an interactive and appropriate balance between:  Social Equity: i.e. Human rights, peace, justice, gender equity, cultural diversity etc.  Environmental protection: referring to natural environment i.e. Air, water, biodiversity, forests, energy etc.  Economic development: understanding the limits and potential of economic growth factoring in poverty reduction, responsible consumption, corporate responsibility, employment and allied themes. With Industrial Age we lost the balance, perhaps due to rapid development and „convenience‟. Dec 2011 Business Sustainability 25
  26. 26. The Situation.... Cont‟d.According to John Elkington, the movement built up on three „pressure waves‟ of public awareness:  Wave 1 – brought an understanding of the issues and the finite limits to demand on natural resources. Business response was defensive. (60‟s – mid 70‟s)  Wave 2 - brought in the awareness for newness in technologies and alternatives, leading to industry initiatives towards sustainability. Business response became more competitive. (mid 70‟s – mid 90‟s)  Wave 3 – focuses on the growing recognition that profound changes are needed to governance and in the globalization processes. Business will need to focus on long-term and market creation. (mid 90‟s – current)Dec 2011 Business Sustainability 26
  27. 27. The Situation.... Cont‟d. Wave 1 Milestones:  Wave 3 Milestones:  Amnesty International  Shell Nigeria, Brent Spar formed („61) issues („95)  „Silent Springs‟ („62)  „Mad Cow‟ Disease,  Earth Day celebrated („70) UK/Nike „sweatshops‟ (‟96)  Greenpeace founded („71)  Kyoto Protocol („97)  Arab Oil embargo („73)  GM Foods issues, UK/EU Wave 2 Milestones: (‟98)  „Battle of Seattle‟ /WTO  OCED „State of Environment‟ report („78) („99)  CSR on WEF Agenda (‟00)  Bhopal Disaster („84)  9/11(„01)  Chernobyl Disaster („86)  BRIC in G8 Rounds („04)  „Our Common Future‟ („87)  Meltdown US Economy  Exon Valdez Disaster, Berlin Wall („89) („06)  Copenhagen Summit (‟08)  Gulf War („91)Sept2011Dec 2011 Sustainability 27 Business Sustainability 27
  28. 28. The Situation.... Cont‟d. The coming decade Leaders of some of the worlds most successful companies say the whole system of capitalism is at risk; there does seem to be consensus on what the big problems are: 1. Unrestrained migration in numbers greater than the capacity to productively absorb the newcomers. 2. Environmental degradation of food and water supplies, and many other aspects of quality of life. 3. Failure of the rule of law; radical movements, terrorism/war which destroy the stability that markets need. 4. Low levels of education, which limit worker productivity. 5. The rise of state capitalism in response to free market shortcomings. 6. Pandemics that disrupt trade and decimate labour. 7. Inadequacy of existing institutions – not just a matter of resources and competence; but also jurisdictions as nation-based institutions face global issues. Dec 2011 Business Sustainability 28
  29. 29. The Situation.... Cont‟d. Shifting Priorities The economy is the The economy is a subsystem predominant system, with of society, which is itself asociety and environment as subsystem of the biosphere. A supportive domains. gain in one is loss in the other. Economy Society Environment “Early 20th Century” “Late 20th Century” Sept 2011 Dec 2011 Business Sustainability Sustainability 29
  30. 30. The Situation.... Cont‟d. Currently prposed model is “The three spheres”: Social, Environmental & Economic, represented by three overlapped, mutually reinforcing ellipses (World Summit, 2005)Dec 2011 Business Sustainability 30
  31. 31. The Situation.... Cont‟d.  “What would it take to get rid of disposable cups?” was a question Prof. Senge raised in the keynote address at the MIT Sustainable Summit .  The responses include everyone from Starbucks & it‟s competitors to paper manufacturers, food service providers, recyclers and municipal governments.  To make progress on really tough sustainability issues is a “massive undertaking in collaboration,” Senge explained; “what‟s more the parties that need to collaborate often aren‟t naturally inclined to.”Dec 2011 Business Sustainability 31
  32. 32. The Situation.... Cont‟d. Sustainability, thus, involves everyone:  Individual („be the change you want to see!‟)  Local Communities ( to give the movement „mass‟)  Business & Industries ( for appropriate products & practices)  Countries (for adequate governance) No one person could destroy a species or warm the planet no matter how high (s)he tried. But that is what we are doing collectively!” "Corporations are not responsible for the entire worlds problem, nor do they have the resources to solve them all." “Earth provides enough to satisfy every man‟s need, but not every one‟s greed!”Dec 2011 Business Sustainability 32
  33. 33. The Situation.... Cont‟d. A universally accepted definition of sustainability is difficult because it is expected to achieve many things:  factual and scientific: a clear statement of a specific “destination”. The simple definition "sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems” conveys the idea of sustainability having quantifiable limits.  call to action: a task in progress or “journey”, therefore a political process, so some definitions set out common goals and values e.g.The Earth Charter.Dec 2011 Business Sustainability 33
  34. 34. The Situation.... Cont‟d. Is this picture O.K. and „sustainable‟? Is it O.K. to look at individuals only ? 2005 DataSept2011Dec 2011 Sustainability 34 Business Sustainability 34
  35. 35. The Situation.... Cont‟d.  In answering these „simple‟ questions, different dimensions need be considered:  Economic Development: There are large disparities – leading to the three economic worlds „Developed‟ , „Developing‟ & „Under-developed‟. Requires „Political Settlement‟  Social Equality: is a direct fall-out of the above!  Environment & Ecological Protection: is by now self- evident.  Obviously, there are large differences of opinion – with each nation/union prioritizing differently.  Environment & Ecology lends itself to a more scientific rigour: therefore, greater „unified action‟ , led the more economically developed. The threat to their „affluence‟ is greater from this factor!Dec 2011 Business Sustainability 35
  36. 36. The Situation.... Cont‟d. Incidental elements which strongly influence sustainability are:  Culture: shared values and attitudes that provide the framework by shaping our day-to-day behaviour.  Governance: is the overarching principle that provides the context for sustainable development; promote the structure(s) at local, national and international levels, transparently and effectively.  The principles that guide responsibility and accountability:  Precautionary principle: preventive measures even with the lack of full scientific evidence  Proximity principle: disposal & treatment of waste as close to the point of generation, within technical feasibility  Polluter-pays principle: cost of pollution should be covered by those causing it.Dec 2011 Business Sustainability 36
  37. 37. The Situation.... Cont‟d.The Environmental Protection Index (EPI), has been developed to quantify and numerically benchmark the environmental performance of a countrys policies.  working as an index that can be used by policy makers, environmental scientists, advocates and the general public,  comprising  ENVIRONMENTAL HEALTH POLICY ( 6 Indicators)  ECOSYSTEM VITALITY POLICY (8 Indicators)  PRODUCTIVE NATURAL RESOURCES (8 Indicators)  CLIMATE CHANGE (3 Indicators)  Pilot study done in 2006.Dec 2011 Business Sustainability 37
  38. 38. The Situation.... Cont‟d.Sept2011Dec 2011 Sustainability 38 Business Sustainability 38
  39. 39. The Situation.... Cont‟d.  Three EPI reports have been released - the Pilot 2006, the 2008 and 2010 Environmental Performance Index.  In the 2010 scorecard, the top 5 countries (of 163) were:  Iceland,  Switzerland,  Costa Rica,  Sweden and Norway.  The US fell to the 61st position (as compared to 39th in the 2008 EPI), Brazil ranks 62nd , Russia 69th , China 121st , India ranks 123rd .Sept 2011 Business Sustainability 39
  40. 40. The Situation.... Cont‟d. One of the most significant developments on Environment was the „Kyoto Protocol‟ , Sept. 1997:  Is an international environmental treaty with the goal of achieving the "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous interference with the climate system”.  The target agreed upon was an average reduction of GHG emissions by 5.2% from 1990 levels by the year 2012.  The Protocol came into force on 16 Feb. 2005 and as of September 2011, 191 states have ratified the protocol.  USA signed yet to ratify,  China has not proposed any emission cuts as binding.Dec 2011 Business Sustainability 40
  41. 41. The Situation.... Cont‟d. Green = Countries that have ratified the treaty Grey = Countries that have not yet decidedSept2011 Brown = No intention to ratify at this stage.Dec 2011 Sustainability 41 Business Sustainability 41
  42. 42. The Situation.... Cont‟d. The primary greenhouse gases in the Earth‟s atmosphere are water vapour, carbon dioxide, methane, nitrous oxide & ozone.Sept2011Dec 2011 Sustainability 42 Business Sustainability 42
  43. 43. The Situation.... Cont‟d. Top 3 (2005) China – 17% (5.8t/capita) US – 16%(24.1t/capita) E U – 11%(10.6t/capita) {India: 5% (2.1t/capita)}Sept2011Dec 2011 Sustainability 43 Business Sustainability 43
  44. 44. The Situation.... Cont‟d. Per Capita, GHG emissionSept2011Dec 2011 Sustainability 44 Business Sustainability 44
  45. 45. The Situation .... Cont‟d The Kyoto Protocol „climate pact‟ is expiring in 2012.. The Copenhagen rounds were stormy: with major disagreements between „developed‟ and „developing‟ countries on emission caps..  Developing nations want an ? extension of the Kyoto Protocol with tougher norms for developed countries! Australia-Norway are proposing agreement for a new pact, but no outcome expected before 2015.. Dec 2011 Business Sustainability 45
  46. 46. The Situation.... Cont‟d. Viewpoint: Developed Countries Per Capita, GHG emissionViewpoint: Developing Countries Dec 2011 Business Sustainability 46
  47. 47. The Situation.... Cont‟d. The State of Ecology & Environment  Al Gore‟s Presentation: “An Inconvenient Truth”Dec 2011 Business Sustainability 47
  48. 48. The Situation .... Cont‟d The State of “Economy” Robert Greenhill, Managing Director and ? chief business officer at the „09 World Economic Forum, said: "Twentieth century systems are failing to manage 21st century risks; we need new networked systems Global economy in to identify and address no state to cope global risks before they with new shocks become global crises,"Dec 2011 Business Sustainability 48
  49. 49. The State of Economy .... Cont‟d "Globalisation has generated sustained economic growth for a generation; it has shrunk and reshaped the world, making it far more interconnected and interdependent. But the benefits of globalisation seem unevenly spread – a minority is seen to have harvested a disproportionate amount of the fruits.“ W.E.F Study, 2009 The United states wheels from a recession. A lot of people wonder what went wrong?  Greed in Wall Street,  the War in Iraq and  the unprecedented rate of change overlapping the world today thanks to globalizationDec 2011 Business Sustainability 49
  50. 50. The State of Economy .... Cont‟d US Economy:  The „Meltdown‟ of US Economy:  Subprime mortgage crisis  US „Housing Bubble‟ Jun‟07 –  US Housing market correction Nov‟08, 25%  Energy Crisis reduction of  Late „00 Recession: net worth!  Auto Industry crisis of ‟08-‟10  US Govt. Interventions  Troubled Assets Relief Program, 2008  Economic Stimulus Act, 2008  American Recovery & Reinvestment Act, 2009Sept2011Dec 2011 Sustainability 50 Business Sustainability 50
  51. 51. The State of Economy .... Cont‟d In Aug‟11, the US debt surpassed 100 percent of gross domestic product for the first time since World War II WW IIDec 2011 Business Sustainability 51
  52. 52. The State of Economy .... Cont‟d On August 5, 2011, Standard & Poors credit ratingagency downgraded the long-term credit rating of theUnited States government for the first time in itshistory, from AAA to AA+: "The downgrade reflectsour opinion that the fiscal consolidation plan thatCongress and the Administration recently agreed tofalls short of what, in our view, would be necessary tostabilize the governments medium-term debtdynamics". According to the International Monetary Fund, theUS joined a group of countries whose public debtexceeds their GDP. The group includes Japan(229%), Greece (152%), Italy (120%), Ireland (114%).Dec 2011 Business Sustainability 52
  53. 53. The State of Economy .... Cont‟dEuropean sovereign debtcrisis: From late 2009 (Greece), fears of a sovereign-debt crisis developed with the situation becoming particularly tense in early 2010.  The crisis has reduced confidence in other European economies. Ireland, with a government deficit in 2010 of 32.4% of GDP, Spain with 9.2%, and Portugal at 9.1% are most at risk.Dec 2011 Business Sustainability 53
  54. 54. The State of Economy .... Cont‟dSovereigns listings by Standard & Poors as of August „11 Green AAA Turquoise AA L/Blue A D/Blue BBB 80% of World GDP: Purple BB EU 26% ? Red B US 23% BRIC 17% Japan 9% Dec 2011 Business Sustainability 54
  55. 55. The Situation .... Cont‟d The State of „Society‟ The Earth Charter (2000): “a sustainable global society founded on respect for nature, universal human rights, economic justice, and a culture of peace.” It outlines caring & respecting through ecological integrity, social and economic justice, democracy, non- violence and peace and similar factors.(„The Millennium Development Goals‟ , time-lined for 2015.)Dec 2011 Business Sustainability 55
  56. 56. The State of „Society‟ .... Cont‟d The Millennium Goals “The Global Compact” 1. Eradicate extreme poverty Launched simultaneously as a and hunger policy platform and action 2. Achieve universal primary framework for companies education committed to sustainability & 3. Promote gender equality and responsible business practices empower women (in 130 countries, with over 4700 corporate & other 4. Reduce child mortality stakeholders). The members 5. Improve maternal health support the Millennium Goals 6. Combat HIV/AIDS, malaria and focus on: and other diseases 1. Human Rights 7. Ensure environmental 2. Labour Standards sustainability 8. Develop a global partnership 3. Environment for development. 4. Anti-corruptionDec 2011 Business Sustainability 56
  57. 57. The State of „Society‟ .... Cont‟d Links of Business and Industry to „Economics‟ and „Environment/Ecology‟ are intuitively direct. Actions impacting these are:  „Consumption‟ is influenced by Business/Industry by generating demand, often aiding consumers‟ ability to pay.  Business/Industry then leverage „Financial Capital‟ to use „Natural , Human, Social & Technical capitals‟ (resources!) to make and deliver „required‟ Products and Service. Thus the links to Society at large is at „arms length‟ – left to Economy Governments/Nations to provide resources with varying Society Environment regulatory mechanisms.  Therefore, what is Business/Management responsibility? Dec 2011 Business Sustainability 57
  58. 58. The State of „Society‟ .... Cont‟d Business Responsibility: the Reality How has Business acted?  Great Success: „The Golden „Specialists‟ e.g. Lobbyists Age of Capitalism‟. intervene to reduce pressure  Side effects were „unseen‟ – Easier & Faster but environmental, economic & symptomatic & short-term social  Finding stop-gap solutions and Pressure to meet tougher environmental standards shifting the burden to experts  Rather than work proactively DELAY Harder & take time but with Governments to come up fundamental solutions with innovative solutions, Managers develop capacity „lobbyist‟ employed to maintain for innovative solutions e.g. Better products status-quo.Dec 2011 Business Sustainability 58
  59. 59. The State of „Society‟ .... Cont‟d explaining reality: „Take-make-waste „Take-Make-Waste‟ solutions Easier & Faster but symptomatic & short-term Damage to Social & Societal Needs Environmental Systems DELAY Harder & take time but fundamental solutions Regenerative Solutions – all life flourishesDec 2011 Business Sustainability 59
  60. 60. The State of „Society‟ .... Cont‟d explaining reality: „Take-make-waste Relocate plants to where regulations are more lax Easier & Faster but symptomatic & short-term Water Shortages DELAY Harder & take time but fundamental solutions Integrated watershed managementDec 2011 2010 Business Sustainability 60
  61. 61. The State of „Society‟ .... Cont‟d Responsibilities of business: Definition  Classical view: “ There is one and only one Shareholder Value social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as they stay within the rules of the game, which is to say: engages in open and free competition without deception and fraud”. Milton Freidman (1970)  Contemporary View: A representative model was proposed by A.B. Carroll. (1980) – managers have four areas of responsibility: Economic, Legal, Ethical and Social.Dec 2011 Business Sustainability 61
  62. 62. The State of „Society‟ .... Cont‟d A contemporary view of Business Responsibility Stakeholder ValueDec 2011 Business Sustainability 62
  63. 63. The State of „Society‟ .... Cont‟d  The emerging paradigm („chrysalis economy‟) is driven by 7 closely linked „revolutions‟ – many of which we see and recognize as full-blown and others formating even as we discuss the topic!  The peoples‟ attitudes and perceptions are radically changing – inducing business & governments to govern cohesively and „responsibly‟. REVOLUTIONS OLD PARADIGM NEW PARADIGM 1.Markets Compliance Competition 2.Values Hard Soft 3.Transparency Closed Open 4.Life-cycle technology Product Function 5.Partnerships Subversion Symbiosis 6.Time Wider Longer 7.Corp. Governance Exclusive InclusiveDec 2011 Business Sustainability 63
  64. 64. The State of „Society‟ .... Cont‟d Market: from local to global - for the foreseeable future, business will operate in markets that are more open to competition, both domestic and international; Values: the worldwide shift in human and societal values - entire societies can go into quicksand (e.g. the Jasmine Revolution), roll- call of companies that have crashed because of values-based crises: Enron, Arthur Andersen, Lehman Bros., Satyam & ....; Transparency: is well under way, is being fuelled by growing international transparency and will accelerate – RTI in India, Swiss Bank disclosures, Wiki-leaks & .... In many respects, the transparency revolution is now „out of control‟! Life-cycle technologies: riding on transparency, information on „cradle-to-grave‟ implications of products & services: managing the life cycles of technologies and products ( e.g. batteries, jumbo jets & oil rigs) will be a key emerging focus of 21st-century business. Dec 2011 Business Sustainability 64
  65. 65. The State of „Society‟ .... Cont‟d Partners: acceleration of the rate at which new forms of partnership spring up between companies, and between companies and other organizations – „adversaries‟ to partners e.g. Greenpeace & DuPont, WWF & Coke. Campaigning groups will need to work out ways of simultaneously challenging and working with the same industry e.g. Auto-emission norms; Time: business finds that current time is becoming ever „wider‟. This involves the opening out of the time dimension, with more and more happening every minute of every day: online reporting requirements are key drivers towards this wide-time world. Sustainability agenda is pushing us in the other direction: requires thinking across decades, generations and even centuries! Corporate Governance: planning agenda for the business „bottom-line‟ is the responsibility of the Corporate Board. New spin is being put on the already energetic debate: engaging and balancing the multi-stakeholder demands. Dec 2011 Business Sustainability 65
  66. 66. The State of „Society‟ .... Cont‟d “Corporate Social Responsibility” Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business) is a form of self-regulation integrated into a business model.  CSR-focused businesses promote the public interest by encouraging community growth and development and voluntarily eliminate practices that harm the public sphere, regardless of legality. ISO 2600 is the recognized international standard for CSR. An approach for CSR that is becoming more widely accepted is a community-based development approach.  In this approach, corporations work with local communities to better themselves; building of a trade network with the community - guaranteeing regular “fair trade” purchases.Dec 2011 Business Sustainability 66
  67. 67. “Corporate Social Responsibility” …..Cont‟d Sept2011 Dec 2011 Sustainability 67 Business Sustainability 67
  68. 68. The State of „Society‟ .... Cont‟d “Sustainable Business”“If it emerges at all, a sustainable global economy willemerge through an era of intense technological,economic, social and political metamorphosis .” (Elkington, 2001). Current patterns of wealth creation will generateworsening environmental and social problems - pressureswill continuously build on both corporations & governmentsto make a transition to sustainable development. Four main types of company can be distinguished (or„value webs‟) along the evolutionary path to a chrysaliseconomy – namely, corporate „locusts‟, „caterpillars‟,„butterflies‟ and „honeybees‟.Dec 2011 Business Sustainability 68
  69. 69. “Sustainable Business”.... Cont‟d LOW IMPACT HIGH IMPACT REGENARATIVE BUTTERFLIES HONEYBEES (increasing returns) DEGENARATIVE CATERPILLARS LOCUSTS (decreasing returns) Locusts: Some corporations operate as destructive locusts throughout their life cycles; others only display locust-like behaviours occasionally, characterized by: • the destruction of natural, human, social and economic capital; • collectively, an unsustainable „burn rate‟, potentially creating regional or even global impacts; • a business model that is unsustainable over the long run; • periods of invisibility, when it is hard to discern the impending threat;Dec 2011 Business Sustainability 69
  70. 70. “Sustainable Business”.... Cont‟d LOW IMPACT HIGH IMPACT REGENARATIVE BUTTERFLIES HONEYBEES (increasing returns) DEGENARATIVE CATERPILLARS LOCUSTS (decreasing returns) CATERPILLARS: are harder to spot than locusts because their impacts are more localized; their degenerative impacts may make it hard to see that they have a high potential for metamorphosis: • generate relatively local impacts, most of the time; • show single-minded dedication to the business task at hand; • depend upon a high „burn rate‟, although usually of forms of capital that are renewable over time; • operate on a business model that is unsustainable when projected forward into a world of 8 to 10 billion people;Dec 2011 Business Sustainability 70
  71. 71. “Sustainable Business”.... Cont‟d LOW IMPACT HIGH IMPACT REGENARATIVE BUTTERFLIES HONEYBEES (increasing returns) DEGENARATIVE CATERPILLARS LOCUSTS (decreasing returns) BUTTERFLIES: are easy to spot, though most are comparatively small; they are conspicuous and have been abundantly covered in the media. Yet if every company in the world were to model itself on such companies, our economies would still not be sustainable – not enough „critical mass‟ or „hive strength‟: • As a sustainable business model over reliance for expansion on financial markets and large corporate partners; • a strong commitment to the corporate social responsibility (CSR) and sustainable development (SD) agendas; but a tendency to define its position by reference to locusts and caterpillars;Dec 2011 Business Sustainability 71
  72. 72. “Sustainable Business”.... Cont‟d LOW IMPACT HIGH IMPACT REGENARATIVE BUTTERFLIES HONEYBEES (increasing returns) DEGENARATIVE CATERPILLARS LOCUSTS (decreasing returns) HONEYBEES: is the domain into which growing numbers of government agencies, innovators, entrepreneurs and investors will head in the coming decades - global economy would hum with the activities of corporate bees and the economic versions of hives. • a sustainable business model, albeit based on constant innovation; • a clear – and appropriate – set of ethics-based business principles; • strategic sustainable management of natural resources;Decsociability and the evolution of powerful symbiotic partnerships; • 2011 Business Sustainability 72
  73. 73. “Sustainable Business”.... Cont‟d Sustainable business (green business) is thus an enterprise that has no negative impact on the global or local environment, community, society or economics and covers six essentials:  Triple Top-line Value: The TTL Establishes three simultaneous requirements of sustainable business activities  financial benefits for the company,  natural world betterment,  social advantages for employees and members of the local community – with each of these three components recognized as equal in status.Dec 2011 Business Sustainability 73
  74. 74. “Sustainable Business”.... Cont‟d Nature - Based Knowledge and Technology:  bio-mimicry based principal involves the conscious emulation of natural-world in terms of  growing our food,  harnessing our energy,  constructing things,  conducting business,  healing ourselves,  processing information and  designing our communities; Products of Service to Products of Consumption:  Products of service are durable goods that are returned to the manufacturer and re-processed into a (new generation) of products when they are worn out.  Products of consumption are shorter lived items made only of biodegradable materials.Dec 2011 Business Sustainability 74
  75. 75. “Sustainable Business”.... Cont‟d  Solar, Wind, Geothermal and Ocean Energy: emphasizing the use of renewable energy sources  Local-Based Organizations and Economies:  durable, beautiful and healthy communities with locally owned and operated businesses and New life to: “Think Global,  locally managed non-profit organizations, Act Local”  along with regional corporations and shareholders working together in a web of partnerships and collaborations.  Continuous Improvement Process:  constant advancements and upgrade of Operational processes as the company does its business.  The continuous process of monitoring, analyzing, redesigning and implementing is used as conditions change and new opportunities emerge .Dec 2011 Business Sustainability 75
  76. 76. “Sustainable Business”.... Cont‟d What does “all this” have to do with Business „now‟?  Everything! Because Businesses have to...  Reduce Cost: using less and wasting less does so  Preserve resources: resources are increasingly hard to get – need to conserve  Keep up with legislation: laws governing businesses are becoming tougher e.g. Pollution, anti-dumping etc.  Enhance Reputation: to build trust and loyalty with the society It can be triggered by  Satisfy Customer & Stakeholder needs: by conforming to any of these laws and obtaining a „licence to operate‟ in thispremises – increasingly ethically conscious world. with great  Differentiate: by increasing customer loyalty, particularly linkages! creating niches for cause-related groups  Capitalize on new opportunities: improving living standards always provide this. Dec 2011 Business Sustainability 76
  77. 77. “Sustainable Business”.... Cont‟d  Philips India used (ply)wood boxes to Next: as primary packing for lighting Recyclable equipment. G.O.I made wood/logging Crates? increasingly controlled – forest protection. Reduce  In the 80‟s, wood progressively became Cost expensive. Philips switched to Cardboard – took 2 years. Savings: 30% Keep up  Per unit packing, wood /paper ratio is with 3:1 by weight. Also with 1t wood, 3t of legisla- paper can be made; put together: 9x tion preservation! Enhance Preserve CB boxes used to advertise product & Reputa-  Resource dealers started storing in showrooms tion  Additional cost savings by volume reduction: Handling (products/truck), lower inventory & disposal costs!Dec 2011 77 Sustainability
  78. 78. “Sustainable Business”.... Cont‟d  Actual reasons why management is getting involved are:  Sustainability is not totally new to any business, it is about being more „with it‟ and effective  Continuity is more important than a carefully crafted starting point; creation of habits leading to culture  Potentially high cost of inaction for both business and society.  Even if there is no immediate impact, inaction can lead to major issues in the future  Multiple, unforeseen benefits  Effect is strongest when embedded into culture ( like Quality!)  Top driven initiatives, personal reasons or otherwiseDec 2011 Business Sustainability 78
  79. 79. “Sustainable Business”.... Cont‟d  To ensure triple-top line actions for „green‟ or sustainable business – responsible companies have moved on to a holistic measurement encompassing results impacting:  People  Planet  Profit. SustainAbilty © The reporting contained performance metrics to give:  The triple bottom line (abbreviated as "TBL" or "3BL") captures an expanded scope of values and criteria for measuring organizational success.Dec 2011 Business Sustainability 79
  80. 80. “Sustainable Business”.... Cont‟d  Triple bottom line score-card means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance.  "People, planet and profit" clearly describes the triple bottom lines and the goal:  "People" (human capital) pertains to fair and beneficial business practices toward labour, the community and region in which a corporation conducts its business.  "Planet" (natural capital) refers to sustainable environmental practices. A TBL endeavor reduces the ecological footprint by both controlling consumption and reducing waste.Dec 2011 Business Sustainability 80
  81. 81. “Sustainable Business”.... Cont‟d "Profit" is the economic value created (for the society in which it operates) by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It differs from traditional accounting definitions of profit:  Current accounting practices do not take into account „true‟ or „full‟ cost of inputs since many of the social and environmental costs are not identified and measured – being „externalities‟.  „Provisioning‟ omissions or errors for contingent and liability costs which could arise in the future. These are usually factored in on a probability of occurrence.  „Tragedy of the Commons‟ – misuse or overuse of resources commonly available to all for „free‟ (e.g. Fishing in the seas & oceans) making the resource scarce.Dec 2011 Business Sustainability 81
  82. 82. “Sustainable Business”.... Cont‟d  One of the major drawbacks of the TBL framework is its inability to be applied in a monetary-based economic system.  Because there is no single way (in monetary terms) to measure the benefits to the society and environment as there is with profit, it does not allow for businesses to sum across all three bottom lines, making it difficult for businesses to recognize the benefits of using TBL for the company itself.  Many organizations, however, are using voluntary disclosures in their annual reports on the major Key Performance indicators for „People‟ & „Planet‟.Dec 2011 Business Sustainability 82
  83. 83. “Sustainable Business”.... Cont‟d Using the TBL Scorecard An Example: 99th Annual General Meeting ITC Limited Commemorating The ITC Centenary 100 Inspiring Years : One Mission – India First Chairman Y C Deveshwar‟s AddressDec 2011 Business Sustainability 83
  84. 84. “Sustainable Business”.... Cont‟d Using the TBL Scorecard Missing Brands?Dec 2011 Business Sustainability 84
  85. 85. From Chairman Y C Deveshwar‟s AddressFinancial PerformanceIn its 100th year, your Company continues itsimpressive record of financial performance. GrossTurnover for the year grew by 13.5% to Rs.26,259.60 crores. Net Turnover increased by 16.3% to Rs.18,153.19 crores. Pre-tax profits rose by24.7% to Rs. 6,015.31 crores while Post-taxprofits at Rs. 4,061 crores registered a growthof 24.4%. Earnings Per Share for the year standsat Rs. 10.73. Cash flows from Operations stood atan all time high of Rs. 6,620 crores for the year.Dec 2011 Business Sustainability 85
  86. 86. From Chairman Y C Deveshwar‟s Address ITC : Financial Highlights 1996-2010* March March 31, 31,1996 2010 Gross Income 5,188 26,863 Profit After Tax 261 4,061 Return on Net Assets (%) 28 41 Net Assets Employed 1,886 14,957 Net Worth 1,121 14,064 Market Capitalization 5,571 1,14,000* CAGR in Total Shareholder Returns in the period 1996- 2010 : 24.3 %Dec 2011 Business Sustainability 86
  87. 87. From Chairman Y C Deveshwar‟s AddressEnvironmental and Social PerformanceI have in the past drawn your attention to theoutstanding performance of your Company in creatingnew benchmarks in the area of environmental andsocial responsibility. The accomplishments continuewith your company achieving the status of being „waterpositive‟ for the 8th consecutive year, „carbonpositive‟ for the 5th year in succession and also„solid waste recycling positive‟ for 3 years in a row.You will draw justifiable pride in the fact that yourCompany is the only enterprise in the world of itssize to have achieved and sustained these three globalenvironmental distinctions.Dec 2011 Business Sustainability 88
  88. 88. From Chairman Y C Deveshwar‟s AddressThis stellar environmental performance is matchedby your Company‟s initiatives to build social capitalthrough extensive community engagement,specially in India‟s rural areas. These initiativeshave led to the creation of sustainable livelihoodopportunities for over 5 million people, many ofwhom represent the poorest sections of oursociety.ITC‟s deep commitment to pursue a TripleBottom Line strategy has earned it global andnational recognition for the leadership it providesin responsible and sustainable business practices.Dec 2011 Business Sustainability 89
  89. 89. Comments on Y C Deveshwar‟s Address“The company‟s longest-serving chairman, Deveshwar has repeatedly stressed the company‟s environmental record as a green company, and established a triple- bottom line objective (offering financial, environmental and social returns) while also making the company carbon-neutral and water-positive. Among other diversifications, he has moved aggressively into a core Unilever territory like foods, and notched up a Harvard Business School case study with his e-choupal rural marketing initiative. But the company remains fundamentally dependent on the cigarette division for most of its profits, and in that sense the task of transforming the company remains an unfinished one.” Source: Business Standard, 27 Aug 2010 Dec 2011 Business Sustainability 90
  90. 90. “Sustainable Business”.... Cont‟d Using the TBL Scorecard  CNBC Interview of Mr. Y. C. DeveshwarDec 2011 Business Sustainability 91
  91. 91. Creating a Sustainability footprint a) Global Initiatives b) Business ModelsDec 2011 Business Sustainability 92
  92. 92. CO2e The concern for “carbon”? We are adding 5 billion tons T every year! 8 billion tons go in, Fossil Fuel burning CO2 in the atmosphere 800 billion tons (380 ppm) 3 billion tons go out, absorbed by land and oceans 93Dec 2011 Business Sustainability 93
  93. 93. Carbon Trade… Cont‟d The Carbon trading is one of the fastest growing financial markets in the world. It is the most visible result of early regulatory efforts to mitigate climate change, and grew out of the Kyoto Protocol, 1997.  The protocol requires that by 2012, developed countries will achieve greenhouse gas emission reductions of at least 5% against baseline levels of 1990.  The Protocol agreed on caps or quotas on the maximum amount of Greenhouse gases for developed and developing countries,  A tradable permit system has been effective in the industrial sector: trade (i.e. „sell‟ your allowance to „buyers‟ who exceed their quota ). Thus, „Cap & Trade‟. Dec 2011 Business Sustainability 94
  94. 94. Carbon Trade… Cont‟d Participating countries set quotas on the emissions (1 unit = 1 tonne of CO2e) of installations run by local business and other organizations, generically termed operators.  Countries manage this through their own national registries, which are required to be validated and monitored for compliance. (Certified or Verified Emission Reduction )  Businesses that are about to exceed their quotas can buy the CERs/VERs, privately or on the open market.  This gives operators time to invest in/develop cleaner processes & developing machinery/ practices The primary goal is “Carbon Offset” rather than cap.  „Offsets‟ are achieved by investing in sustainable practices: “Clean Development Mechanism (CDM)”Dec 2011 Business Sustainability 95
  95. 95. Carbon Trade… Cont‟d CDM‟s typically give financial support to projects that reduce the emission of greenhouse gases in the short or long-term.  The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams.  popular carbon offset projects from a corporate perspective are energy efficiency & wind turbine projects  Others include the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects.  Many companies offer carbon offsets as an incentive in the sales process for customers to mitigate the emissions related with their product or service.Dec 2011 Business Sustainability 96
  96. 96. Carbon Trade… Cont‟d The market is emerging strongly despite various global factors e.g. uncertainty with US regulatory efforts. With existing regulation, the emerging carbon trade has reached US $70 billion (€52 billion) in 2008.  For the third consecutive year, China was the world leader with a 70% market share in terms of transacted volume.  Brazil and India, at 8% market share each, transacted the highest volumes after China. Africa followed with 5% of the market.  These figures do not account for US volumes since US is not a signatory to Kyoto Protocol, though there are some voluntary efforts Dec 2011 Business Sustainability 97
  97. 97. Creating a Sustainability footprint Global Initiatives Renewable Energy  Renewable energy commercialization involves the diffusion of 3 generations of renewable energy technologies dating back more than 100 years.  Second-generation technologies are market-ready and are being deployed at the present time; they include solar heating, photo-voltaics, wind-power, solar thermal power stations & new forms of bio- energy.  Third-generation technologies require continued R&D efforts in order to make large contributions on a global scale. E.g. Ocean energy, biomass gasification.Dec 2011 Business Sustainability 98
  98. 98. Renewable Energy …Cont‟d What is the scope? Available renewable energy The volume of the cubes represent the amount of available geothermal, hydropower, wind and solar energy in TW, although only a small portion is recoverable. The small red cube shows the proportional global energy consumption!Dec 2011 Business Sustainability 99
  99. 99. Renewable Energy …Cont‟d Worldwide energy sources (TW) 2004Dec 2011 Business Sustainability 100
  100. 100. Renewable Energy …Cont‟d Revenues: 10x in 12 years Taking Off!!Dec 2011 Business Sustainability 101
  101. 101. Renewable Energy …Cont‟d 1000 MW: Operational; 2000 MW underSecond Generation in Solar Energy Construction; 18000MW Announced.  Solar energy is not available at night; modern energy systems usually assume continuous availability of energy. Thermal mass systems can store solar energy in the form of heat at domestically useful temperatures.  Solar energy can be stored at high temperatures using molten salts. Salts are an effective storage medium because they are low-cost, have a high specific heat capacity and can deliver heat at temperatures compatible with conventional power systems. Dec 2011 Business Sustainability 102
  102. 102. Creating a Sustainability footprint Global Initiatives Recycling & RegenerationBackground Products require „consumers‟! Today‟s consumers are:  Conscience-focused & demand good-governance  Want ethical business processes  Are independently informed  Require „service‟ more than „ownership‟  Ready to access goods through non-traditional „channels‟ Manufacturer Manufacturer Distributor Intermediary(s) Dealer Retailer Consumer Consumer Consumers ConsumerDec 2011 Business Sustainability 103
  103. 103. Recycling & Regeneration.... Cont‟d „Life-cycle‟Dec 2011 Business Sustainability 104
  104. 104. Recycling & Regeneration.... Cont‟d Recycling involves processing used/ spent articles & waste into useable products to prevent destruction of potentially useful materials to:  reduce the consumption of fresh raw materials,  reduce energy usage,  reduce air pollution (incineration) and  water pollution (from landfill) by reducing need for "conventional" waste disposal, and lower GHG emissions as compared to virgin production.  Recycling is a key component of modern waste reduction.Dec 2011 Business Sustainability 105
  105. 105. Recycling & Regeneration.... Cont‟dThe Bottle Box(TM) Nike claimed making thePET bottles Each shirt uses up to 8 shirts hasThe Bottle Box(TM) is prevented nearly 13 million plasticthe first ever product bottles from going into landfill sitesfrom the true bottle-to-box recycling process.The unique andinnovative ECO-CHICdesigns are made from In South Africa, nine World Cup sides100% post consumer wore shirts made entirely fromrecycled PET bottles. recycled plastic bottles Dec 2011 Business Sustainability 106
  106. 106. Recycling & Regeneration.... Cont‟d Electronic waste, e-waste, e- scrap, or Waste Electrical and Electronic Equipment (WEEE) describes loosely discarded, surplus, obsolete, or broken electrical or electronic devices. The informal processing of electronic waste in developing countries causes serious health and pollution problems. Some electronic scrap components, such as CRTs, contain contaminants such as lead, cadmium, beryllium & mercury and other toxic materials. Dec 2011 Business Sustainability 107
  107. 107. Recycling & Regeneration.... Cont‟d  Canon strives to recycle products and parts that are not suitable for reuse as materials in the manufacture of new products. Plastics collected from Canon products during 2009 for reuse in new products totaled 2,087 tons.  Canon strive to make their products 75 % recyclable by mass (for re-use and material recycling) and 85 % recoverable by mass (including thermal recycling).  Canon markets the "Refreshed" series of remanufactured products for the Japan market. The iR 6570N-R high- speed monochrome MFD, launched in 2009, achieved an average parts reuse ratio of 91% in terms of weightDec 2011 Business Sustainability 108
  108. 108. Creating a Sustainability footprint Global Initiatives “Inclusive Growth” Two Statements:  “a sustainable global society founded on respect for nature, universal human rights, economic justice, and a culture of peace.” Earth Charter, 2000  “....a minority is seen to have harvested a disproportionate amount of the fruits.” W.E.F Study, 2009 Reflection:  “Why is it that all our technology, managerial know- how and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disenfranchisement?” Prof. C.K.Prahald, 2006Dec 2011 Business Sustainability 109
  109. 109. “Inclusive Growth” …. Cont‟d Start with a new approach: „a clean sheet of paper‟:  “If we stop thinking of poor as victims or as burdens and start recognizing them as resilient, creative entrepreneurs and value-conscious consumers – a whole new world of opportunity will open up.” OR  “Why dont we call the worlds 4 billion impoverished people the Global Majority rather than Bottom of the Pyramid - vibrant partners to be embraced, partners in whose future everyone elses are inextricably linked?” Dominant (but questionable) logic:  „Poor can‟t afford „our‟ products: they are not target customers‟  „The have no use for products sold in developed countries‟  „Only developed countries pay for technological innovation‟  „Intellectual excitement & long-term growth is in developedDec 2011 markets‟ Business Sustainability 110
  110. 110. “Inclusive Growth” …. Cont‟d Fortune at the bottom of the pyramid Traditional approach to stimulate BOP consumption via philanthropy, direct or indirect, and „free‟ does not create sustainable business; it only gives the donor a „feel-good‟.  Reflects the „shifting the burden‟ approach of the old  Empowerment gives livelihood, charity gives „first-aid‟! Creating this BOP sustainable model is based, on 3 “A‟s”:  Affordability: without sacrificing efficacy or quality  Access: time & distance matter most; BOP customers can‟t spend on travel : time/costs and opportunity loss (of income)  Availability: Cash on hand at that instant is important, if they cannot buy „X‟ they will buy „Y‟; they cannot defer buying decisions (there are many claimants for that surplus!). “Switching costs” are thus negligible. Dec 2011 Business Sustainability 111
  111. 111. Fortune at the bottom of the pyramid ....Cont‟d “Trust” plays a big role in creating business. Without „collateral‟, money is not forthcoming. Businesses assume that the default rate among the poor will be higher. Practice proves the reverse is true!  The default rate in Grameen Bank, dealing in micro- finance, is 1.5% among 2,500,000 customers;  in ICICI Bank the rate is less than 1% for 200,000 customers in micro-finance.  The logic is very clear: for the BOP customer the alternative finance is 50 times more expensive and certainly underhand if not underground.  „personal loans‟ from recognized banks can be obtained @ 17% p.a interest; for the BOP customer, without credit- worthiness, the money-lender will lend @ 600% p.a. Prahalad called this “Poverty Premium”.Dec 2011 Business Sustainability 112
  112. 112. Fortune at the bottom of the pyramid ....Cont‟dE.g. e-Choupal (ITC initiative)  ITC built a system that changed the „economics‟:  Traditional „mandis‟ required the farmers to sell to buyers through auction, who in turn sold it to processors like ITC.  The buying intermediaries cartelized to the disadvantage of both the farmers and the processors.  ITC used „information age technologies‟ to ensure fair and steady supply of quality produce, starting with soya beans.  Net Savings: to the farmer Rs.270/mT; to ITC Rs.300/mT.  The real benefits of e-Choupal are more than the cost- reduction in the supply-chain/system. It addressed four „friction‟ points arising from distortions (against the farmers): “…universal  Access to information human rights,  Right of choice economic  Ability to enforce contracts justice…”Dec 2011  Social standing Business Sustainability 113
  113. 113. Fortune at the bottom of the pyramid ....Cont‟d A Presentation by ISBS studentsDec 2011 Business Sustainability 114
  114. 114. Seeing Systems  First step: learn to see the larger system in which we live and work.  Look beyond the events and superficial fixes to see the deeper structures and forces at play  Think out of the self-created boxes; do not allow artificial „boundaries‟ to limit thinking  Second step: make strategic choices based on natural and social limits  Mimic how growth happens in the real world  Third Step: create self-reinforcing cycles of innovationDec 2011 Business Sustainability 115
  115. 115. Getting started :Concepts, Forces & Factors  Recognizing multiple  Recognizing forces stakeholders: acting on industry: Porter‟s 6- Investor force model Supplier Society Customer EmployeeDec 2011 Business Sustainability 116
  116. 116. Getting started :Concepts, Forces & Factors “ Many companies have done much to improve their social and environmental consequences of their activities, yet these efforts have not been as productive as they could have been: - First, they put the business against society when clearly they are interdependent - Then, they pressure managers to think of Corporate social responsibility in generic ways instead of the way most appropriate to the firm‟s strategy.” Michael PorterDec 2011 Business Sustainability 117
  117. 117. Getting started :Concepts, Forces & Factors „ Let‟s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper; and never proceed forward simply on the basis of the fact that other people are doing it.‟ Warren BuffetDec 2011 Business Sustainability 118
  118. 118.  Many models have been developed to provide ways to understand sustainability, balancing the three factors: The 5-Capital Model, looks at different „capital‟ (rather than resources!)required to produce goods & services:  Natural Capital: any stock or flow of energy and raw material that produce goods or services;  Human Capital: people‟s health, knowledge, skills and motivation;  Social Capital: concerns institutions which help maintain and nurture human capital e.g. Families, educational institutes, Trade Unions etc.  Manufactured Capital: consist of material goods and fixed assets which contribute to operations  Financial Capital: enables other types of capital to created, owned or traded. However, it has no real value byDec 2011 itself. Business Sustainability 119
  119. 119.  The Natural Step framework is derived from „system thinking‟ i.e. recognizing what is happens in one part of a system affects every other part.  Understanding the broader system within which the issues are contained  Takes an upstream approach and addresses problems at the source  Developing effective, durable and „total‟ solutions to the environmental and social problems of this century  “Creating a sustainable world means creating new ways for people to live and thrive – while keeping the planet‟s ecosystems and the global tissue healthy and able to sustain us and the future generations”Dec 2011 Business Sustainability 120
  120. 120.  Sustainability is journey – takes time, never ends!  Like excellence or quality, there is no definite destination or terminus  Starting point: where does the business now stand?  „Not yet on board..‟  No requirement or even contrary to current practice: rejection  Lip service and sloganeering: do the barest minimum  Seen as an „avoidable cost‟ : „conservation if convenient‟  „Getting on board...‟  Risk avoidance and cost cutting: short term horizon  Indirect benefits and Opportunities: longer term drive  Strategic integration & continuous improvementDec 2011 Business Sustainability 121
  121. 121. Accounting Entrepreneurship Economics Finance Marketing Strategy Operations Ethics Organizational BehaviourDec 2011 Business Sustainability 122
  122. 122. Elements of Business: Accounting1t of Carbon can be traded in EU @ $20; 1haof rain forest stores 500t of carbon = $ 10,000(value).Yet million acres of forests are being cut tomake agricultural land @ $200/ha!Why „destroy‟ at a loss of $ 9800/ha? Noeasy answer - but do we need to (re)look ?Dec 2011 Business Sustainability 123
  123. 123. Elements of Business: Accounting Role of accounting: Tools of the trade: 1. Identifying the full cost 1. Full or True Cost of products & services Accounting 2. Determining which 2. „Materiality‟ issues are priority 3. Key Performance 3. Measuring progress Indicators towards goals 4. Measuring „Social 4. Measuring impact on Impact‟ Society 5. Assurance 5. Verifying the accuracy 6. Publicly disclosing the 6. External reporting on 3BL scores – not programs financial alone.Dec 2011 Business Sustainability 124
  124. 124. Elements of Business: Accounting  Full or True Cost accounting:  Typically, costs are classified as direct material, labour, R&D and „overheads‟,  Thus the impact of/on environment and society is hidden/ distributed, making it difficult for operating managers to identify  Or not considered at all since they are „external‟ i.e. not legally attributable to the business.  E.g. Who pays for restoration of „land‟ dug-up in mineral mining process? The mining company only pays for leasing and extraction.Dec 2011 Business Sustainability 125
  125. 125. Elements of Business: Accounting  Materiality:  Conventionally, any issue which has impact of 5% (thumb rule) on net profit is considered significant i.e. „Material‟  However, many issues are „material‟ in the eyes of different stakeholders - particularly considering the longer term e.g. changing legislation  Peer businesses may deem many issues to be „material‟ e.g. Access to life-saving drugs in Pharma industryDec 2011 Business Sustainability 126
  126. 126. Elements of Business: Accounting  Key Performance Indicators:  Obviously, accounting has to go beyond the routine financials and use metrics related to all goals/objectives  The measurement need not be „perfect‟ or accurate/quantitative: „approximately right‟ is better than „precisely wrong‟!  Must satisfy/make sense to stakeholders who want these reportsDec 2011 Business Sustainability 127
  127. 127. Elements of Business: Accounting  Measuring Social Impact:  „Social return on investment‟ (SROI) is a tool to asses the environmental, social & economic value, in monetary terms, created by any investment;  However, the market valuation of social benefits is imperfect - thus SROI provides an approximate value for guiding program effectiveness.  Both positive and negative „impacts‟ , directly attributable to the firm‟s initiatives, need be factored in.Dec 2011 Business Sustainability 128
  128. 128. Elements of Business: Economics Economics guides the understanding of incentives which govern unsustainable behaviour in order to replace them with those that support more sustainable behaviour:  Rise of Consumer societies  about 60% of GDP is accounted for by Consumer spending. Resources required to support this is putting pressure of Earth‟s eco-system. Policies to foster „sustainable consumption‟ is under consideration by UNEP & UN Dept. Of Economic & Social Affairs through the “Marrakech Process”.Dec 2011 Business Sustainability 129
  129. 129. Elements of Business: Economics  Management of shared resources  A „commons‟ is a geographical area not owned by anybody, thus resources there are shared by everybody e.g. Seas (and fishing), Air etc. People misuse these common, freely available resources till exhaustion: „the tragedy of the commons‟. There is still a long way to go to resolve this issue.  Regulatory Instruments  The regulatory framework in which (global) companies work is becoming extensive, complex and confusingly diverse! Legislation and enforcement can cause many complications in view of compliance for products/ processes/ services.Dec 2011 Business Sustainability 130
  130. 130. Elements of Business: Economics  Externalities are an important consideration since cost/ benefits to the Company is often different from those to the Society e.g. If cost for polluting is not borne by the polluter, then there is no „economic‟ incentive to be non-polluting. If cost/benefits are incorrectly quantified, Private players cannot make appropriate calculations about economic justification for the activity. In a sense, externalities are a form of market failure since amount of activity under free market conditions result in inefficient use of resources.Dec 2011 Business Sustainability 131
  131. 131. Elements of Business: Economics  Market-Based Instruments  using this route is seen to be very effective in reversing the negative trend s via incentives. About $3.5 billion of „regulated biodiversity offsets‟ take place annually, projected $10 billion in 2020! Three broad types of instruments are in use: 1) Price based instruments: comprising Taxes, Subsidies, Charges, Deposit-refund (e.g. soda bottles) systems for ecological impacts. 2) Quantity based instruments: Tradable permits (e.g. Carbon Trade), Quota (e.g. fishing) and Offsets (e.g. „clean development mechanism‟). 3) „Market friction‟ instruments: using product differentiation in form of eco-labelling (e.g. „no animal testing‟) and certification.Dec 2011 Business Sustainability 132
  132. 132. Elements of Business: Economics Market-Based Instruments (cont‟d) These instruments provide industries a tool for regulating their effort since „language of money‟ is readily understood. However, market dynamics are not easy to forecast and these alone may not provide the long-term solution.  Emerging Markets „Developing‟ world accounts for > 50% of the World‟s GDP, up from 39% in 1990! Emerging market companies can be classified as: 1) Fully-fledged globalizers: comprising old / established companies which have attained global status e.g. Tata, CEMEX 2) Regional Players: Are emerging players trying to make a mark globally; usually starting with neighbouring countriesDec 2011 Business Sustainability 133
  133. 133. Elements of Business: Economics Emerging Markets (cont‟d) 3) Global Sourcers: Selling locally but sourcing globally to overcome local resource constraints e.g. HPCL 4) Global Sellers: based at „home‟ but seeking to expand sales by accessing global markets. 5) Multi-regional niche players: are small, niched firms operating across multiple regions leveraging their uniqueness. Together, they are important to „sustainability‟ since they provide Talent, Resources, New Consumers, Growth opportunity and innovative business models.Dec 2011 Business Sustainability 134

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