Business sustainability dec11

ISBS/Dec 2011
Prof. B.S.Guha

Dec 2011 Business Sustainability 1

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)


 “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 Elkington


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?

THIS The Concern.... Cont‟d.


The Concern.... Cont‟d.

Or


 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!

Fundamental Question!
 How much human life can the Planet
earth support?
 The ecological footprint is a measure of
human demand on the Earth's 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.

 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 and
abundant resources, two types are
seen:
k-selection – increase rapidly but tend
to regulate by slowing down birth rate
etc. to adapt to the resources available
and finally reach a stable level;
r-selection – increase exponentially till
resources are depleted and then
mortality is the prime regulator. With
resources replenished this cycle
repeats in Boom or Bust cycle. 10

 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



?
 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.


 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 enjoyed

 Documentation by 1962
American marine
biologist & naturalist
Rachel Carson in her
path-breaking,
revolutionary book:
Silent Springs

 Environmentalism's
concern with pollution
& depletion of finite
resources voiced in a 1972
series of hallmark
books e.g Limits to
Growth Sustainability
Dec 2011 14

 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.

 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.


Uncontrolled Development, "Overshoot and Collapse"


Sustainable Development



Alex Steffan‟s Summary - A short Video


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.

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.


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.”
23
Dec 2011 Business Sustainability


 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.‟

 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‟.

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)

 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)
Sept2011
Dec 2011 Sustainability 27
Business Sustainability 27

The coming decade
 Leaders of some of the world's 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.

Shifting Priorities
The economy is the The economy is a subsystem
predominant system, with of society, which is itself a
society 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

Currently prposed model is “The three spheres”: Social,
Environmental & Economic, represented by three
overlapped, mutually reinforcing ellipses (World
Summit, 2005)


 “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.”

 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
world's 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!”

 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.


Is this picture O.K.
and „sustainable‟?
Is it O.K. to look at
individuals only ? 2005
Data

Sept2011

 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!

 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.

The Environmental Protection Index (EPI), has been
developed to quantify and numerically benchmark the
environmental performance of a country's 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.


Sept2011

 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

 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.


Green = Countries that have ratified the treaty
Grey = Countries that have not yet decided
Sept2011 Brown = No intention to ratify at this stage.


The primary greenhouse gases in the Earth‟s
atmosphere are water vapour, carbon
dioxide, methane, nitrous oxide & ozone.

Sept2011


Top 3 (2005)
China – 17% (5.8t/capita)
US – 16%(24.1t/capita)
E U – 11%(10.6t/capita)
{India: 5% (2.1t/capita)}

Sept2011

Per Capita,
GHG emission

Sept2011

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..


Viewpoint: Developed Countries

Per Capita,
GHG emission

Viewpoint: Developing Countries


The State of Ecology & Environment

 Al Gore‟s Presentation: “An Inconvenient Truth”


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,"

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 globalization

 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, 2009

Sept2011


In Aug‟11, the US debt surpassed
100 percent of gross domestic product
for the first time since World War II

WW II


 On August 5, 2011, Standard & Poor's credit rating
agency downgraded the long-term credit rating of the
United States government for the first time in its
history, from AAA to AA+: "The downgrade reflects
our opinion that the fiscal consolidation plan that
Congress and the Administration recently agreed to
falls short of what, in our view, would be necessary to
stabilize the government's medium-term debt
dynamics".

 According to the International Monetary Fund, the
US joined a group of countries whose public debt
exceeds their GDP. The group includes Japan
(229%), Greece (152%), Italy (120%), Ireland (114%).

European sovereign debt
crisis:
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.

Sovereigns listings by Standard & Poor's 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%

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.)


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-corruption

 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?

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.

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 flourishes


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
management

Dec 2011
2010 Business Sustainability 60

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.


A contemporary view of Business Responsibility

Stakeholder Value


 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 Inclusive

 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.

 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.

“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.

“Corporate Social Responsibility” …..Cont‟d

Sept2011

“Sustainable Business”
“If it emerges at all, a sustainable global economy will
emerge through an era of intense technological,
economic, social and political metamorphosis .”
(Elkington, 2001).
 Current patterns of wealth creation will generate
worsening environmental and social problems - pressures
will continuously build on both corporations & governments
to make a transition to sustainable development.
 Four main types of company can be distinguished (or
„value webs‟) along the evolutionary path to a chrysalis
economy – namely, corporate „locusts‟, „caterpillars‟,
„butterflies‟ and „honeybees‟.

“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;


REGENARATIVE

DEGENARATIVE

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;


REGENARATIVE

DEGENARATIVE

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;


REGENARATIVE

DEGENARATIVE

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

 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.

 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.

 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 .

 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.

 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

 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 otherwise


 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.

 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.

 "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.


 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‟.

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 Address


Missing Brands?


From Chairman Y C Deveshwar‟s Address
Financial Performance
In its 100th year, your Company continues its
impressive record of financial performance. Gross
Turnover 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 by
24.7% to Rs. 6,015.31 crores while Post-tax
profits at Rs. 4,061 crores registered a growth
of 24.4%. Earnings Per Share for the year stands
at Rs. 10.73. Cash flows from Operations stood at
an all time high of Rs. 6,620 crores for the year.


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 %

Environmental and Social Performance
I have in the past drawn your attention to the
outstanding performance of your Company in creating
new benchmarks in the area of environmental and
social responsibility. The accomplishments continue
with your company achieving the status of being „water
positive‟ for the 8th consecutive year, „carbon
positive‟ 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 your
Company is the only enterprise in the world of its
size to have achieved and sustained these three global
environmental distinctions.

This stellar environmental performance is matched
by your Company‟s initiatives to build social capital
through extensive community engagement,
specially in India‟s rural areas. These initiatives
have led to the creation of sustainable livelihood
opportunities for over 5 million people, many of
whom represent the poorest sections of our
society.
ITC‟s deep commitment to pursue a Triple
Bottom Line strategy has earned it global and
national recognition for the leadership it provides
in responsible and sustainable business practices.

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


 CNBC Interview of Mr. Y. C. Deveshwar


Creating a Sustainability
footprint

a) Global Initiatives
b) Business Models


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

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‟.

 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)”

 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.

 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

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.

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!


Worldwide energy sources (TW) 2004



Revenues: 10x in 12 years

Taking Off!!


1000 MW: Operational; 2000 MW under
Second 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.

Global Initiatives
Recycling & Regeneration
Background
 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 Consumer

Recycling & Regeneration.... Cont‟d
„Life-cycle‟


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.


The Bottle Box(TM) Nike claimed making thePET bottles
Each shirt uses up to 8 shirts has
The Bottle Box(TM) is prevented nearly 13 million plastic
the first ever product bottles from going into landfill sites
from the true bottle-to-
box recycling process.
The unique and
innovative ECO-CHIC
designs are made from In South Africa, nine World Cup sides
100% post consumer wore shirts made entirely from
recycled PET bottles. recycled plastic bottles


 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.

 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 weight

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, 2006

“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 don't we call the world's 4 billion impoverished people
the Global Majority rather than Bottom of the Pyramid -
vibrant partners to be embraced, partners in whose future
everyone else's 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 developed
Dec 2011
markets‟ Business Sustainability 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.

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”.

Fortune at the bottom of the pyramid ....Cont‟d
E.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

Fortune at the bottom
of the pyramid ....Cont‟d

A Presentation by ISBS students


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
innovation

Getting started :Concepts, Forces & Factors
 Recognizing multiple  Recognizing forces
stakeholders: acting on industry:
Porter‟s 6-
Investor force model

Supplier Society

Customer Employee


“ 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 Porter


„ 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 Buffet


 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 by
Dec 2011
itself. Business Sustainability 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”


 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 improvement

Accounting
Entrepreneurship Economics

Finance Marketing
Strategy

Operations
Ethics Organizational Behaviour


Elements of Business: Accounting

1t of Carbon can be traded in EU @ $20; 1ha
of rain forest stores 500t of carbon = $ 10,000
(value).
Yet million acres of forests are being cut to
make agricultural land @ $200/ha!
Why „destroy‟ at a loss of $ 9800/ha? No
easy answer - but do we need to (re)look ?


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.


 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.


 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 industry


 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 reports



 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.

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”.

 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.


 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.


 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.

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
countries


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.


 Challenges, Trends & new Ideas The „global‟
world is faced with
1) Uncertainty: Country policies and speed of
implementation/ harmonization. In this there will be
„Free Riders‟ who do not take their fair share of
responsibility.
2) Determining the trade-offs: How much are we
willing to pay and for what „term‟ ? For what result?
Therefore, how far are we willing to go?
3) Determining what „Optimum‟ means: At our current
level of knowledge, there is no „zero‟
pollution/depletion. What is now „optimum‟?
Therefore, how to incentivize effort?



Challenges, Trends & new Ideas (cont‟d)
Emerging trends and Ideas include:
1) Alternative trading system: Co-operatives,
„Collective Consumerism‟
2) New Economic models: From „fast „ to „just‟
growth - no „bubbles‟! „Cradle – to – Cradle‟ , B.O.P
etc.
3) Cost of „inaction‟: Preventive actions cost – but
what about „inaction‟ ?
4) From „free‟ to „fee‟: Pay for actions e.g. Plastic
shopping bags


Collective Consumerism

A short film by Rachel Botsman on
emerging Consumer trends.


Business sustainability dec11

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