Sustainable Economics

Master of Business Administration (International MBA)
Rouen Business School
Green Initiative Drivers, Role of ICT and Linkage between green performance
and financial performance
Master Thesis
Author: Ansuman PATRO
Supervisor: Dr. Bruno
COHANIER
5th
March, 2011

2 Rouen Business School, IMBA 2009-11
DECLARATION OF TRUSTWORTHINESS AND ABSENCE OF PLAGIARISM
I, Mr Ansuman PATRO student enrolled on INTERNATIONAL MBA
certify that pieces of information contained in the professional thesis
have not been plagiarised.
Date 05th
March, 2011
Signature

CONFIDENTIALITY CLAUSE
All information related to the company Cisco SYSTEMS contained in Mr, Ansuman
PATRO’s professional thesis is strictly confidential and should, under no circumstances, be
diffused outside Rouen Business School.
Mont –Saint-Aignan
Date and Signatures
Pascal KRUPKA Student
Head of Postgraduate Programmes

Acknowledgement
I gratefully acknowledge Dr. Bruno COHANIER, Research Head Performance Management
at Rouen Business School, for his priceless supervision and indispensable guidance and
providing clear direction to think. He has supervised and supported me throughout my
research. My special thanks to Dr. Gireesh SHREEMALI associate professor at Indian School
of Business, Hyderabad, interviewees at CISCO for being a source of inspiration and guiding
me throughout my journey of thesis. I further acknowledge, Dr. Pascal KRUPKA, Director,
Postgraduate programs and Dr. Marina BASTOUNIS, Head of the M.Sc, Global Management
Program at Rouen Business School for giving me vision and direction for the completion of
my research. Cisco corporate sustainable team provided information that helped me to make
headway. My special thanks to Cisco CEO France Green initiatives Mr. Olivier SEZNEC for
handholding, Valerie SIMIER for her thoughtful remarks on its workplace resources. Marie
HATTAR, Benoit SERRAF provided me legal and marketing perspectives. Finally, the
practical viewpoint that I gained through the dashboard demonstration done by Laurent
ROBERT was the final insight that I gauged from what should be done to preserve corporate
image without loosing the primary focus of making and selling products and services that is
what any corporation does.
I dedicate my thesis to the academic community and in specific to my brother who inspires
me to dream and shares his current competitive Indian management education experiences.
Ansuman PATRO,
March 2011

Executive Summary
This report provides an analysis of ―corporate sustainability‖ and the green initiatives
which corporates are undertaking, why the need for change, what are the drivers of those
changes, the stakeholders, what could be some of the indicators to track them i.e. What is
the business case of sustainability efforts especially ICT initiatives? Historical development
and areas of potential exploration are highlighted for the research community to advance the
area as the topic is highly interdisciplinary in nature. Disagreement at various levels and the
commitment to the cause by different players has been analyzed.
The financial crisis and the recent recessionary cycle have posed some fundamental
questions of the way operations were in capitalistic economic systems. Management
practitioners have been forced to rethink the corporate strategy and should include a
component of green targets for the managers in their MBO‘s (Management by Business
Objectives) so the Vision, Strategy and Execution is inline with the overall objective of the
corporate existence and the changing world especially the climate change which could bring
dynamism to halt. Different corporate entities are playing different roles in different market
segments in this increasingly globalized world. Resources are limited and wants are unlimited,
it is becoming increasingly important for the corporations to project themselves as good
corporate citizens. What are the short-term and long term implications of not having clarity on
the energy and especially the environment management system? What can information
communication technology do for changing the 20th Century old grid to a dynamic varying
sources of energy without creating too much of systematic changes or creating more
problems instead of solving them i.e. the argument of the waste in comparison to the value
delivered? Moreover, Is the study of sustainability inventive, when considering all the
parameters of triple-bottom line?
Today's electric utility companies have their hands full with myriad dilemmas: the grid
is old and increasingly insecure, the traditional one-way broadcast model is outmoded, supply
and demand patterns are changing, and utilities are under regulatory pressure to address
increasing energy demand much more efficiently. At the same time, consumers are calling for
lower energy bills, more reliable service, better visibility into their usage patterns and more
choice about where their energy comes from. In the case study performed at Cisco

SYSTEMS a list of products are laid down so that an intelligent communications network that
can meet energy generation, transmission and distribution, consumption, and security
demands can be achieved. Moreover, through Grounded theory approach of Corbin &
Strauss, Telepresence, a technology solution that increases collaboration among
stakeholders is analyzed in the light of it being a green solution.
The final section concludes by providing a review of the relationship between green
performance and financial performance of the companies so that environmental concerns
form one of important components of corporate strategy apart from other traditional goals of
maximizing market share, maximizing stock price among others because ethical corporate
conduct in doing the right things and the things rightly is important.

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION .......................................................................................... 9
1.1 Brief Background .....................................................................................................................9
1.2 Overview of the issues ........................................................................................................... 11
1.3 Problem Statement ................................................................................................................ 14
1.4 Research Questions .............................................................................................................. 15
1.5 Research Method .................................................................................................................. 16
1.6 Significance of the Study........................................................................................................ 16
1.7 Theoretical Framework........................................................................................................... 16
1.8 Literature Review................................................................................................................... 18
CHAPTER 2: DRIVERS OF GREEN INITIATIVES ............................................................ 20
Macro Perspective....................................................................................................................... 21
A. Competition for Resources....................................................................................................21
B. Climate Change .....................................................................................................................22
C. Economic Globalization .........................................................................................................22
D. Connectivity and Communications........................................................................................22
Stakeholder Perspective .............................................................................................................. 24
Investor and Financial Perspective............................................................................................... 26
Approach to Embed Environmental and Social Concerns .............................................................. 27
CHAPTER 3: SUSTAINABILITY STRATEGY.................................................................... 32
Eco-Efficiency imperative ..........................................................................................................34
System change imperative.........................................................................................................35
Eco-Efficiency vis-à-vis System Change ......................................................................................36
CHAPTER 4: CORPORATE SUSTAINABILITY REPORTING ........................................... 42

CHAPTER 5: GREEN ICT NETWORKS ........................................................................... 48
CHAPTER 6: CISCO: A CASE ANALYSIS OF SUSTAINABILITY...................................... 57
Cisco Solutions to reduce Carbon Footprint .................................................................................. 65
Smart Grid Solutions..................................................................................................................65
Cisco Telepresence....................................................................................................................69
Grounded Theory Paradigm applied for qualitative research.......................................................... 70
CHAPTER 7: RELATION BETWEEN GREEN PERFORMANCE AND FINANCIAL
PERFORMANCE............................................................................................................. 78
CHAPTER 8: CONCLUSION............................................................................................ 81

CHAPTER 1: INTRODUCTION
1.1 Brief Background
Resource mobilization for national development has been the central focus of development
economics. Towards this, centrality of savings and investment in economic growth in
developing countries has attained enough focus of researchers (Oladipo, 2010). For
sustainable growth and development, funds must be effectively mobilized and allocated to
enable businesses so that the economies can harness their human, material and
management resources for maximum wealth creation.
In spite of the recession, sustainability projects are on track among the greenest of the
organizations (Longhurst, 2010). Businesses should be aware of the short-term agenda and
long-term sustainability issues of not switching to clean energy technologies. A study
conducted by Greenpeace International reasons out that attaining energy security as well as
local pollution from combustion of different fuels apart from combating against the growing
challenge of climate change are some of the compelling reasons to migrate to cleaner ways
of producing and selling energy for domestic and industrial usage (Zervos & Schäfer, 2007).
Environmental responsibility is quickly climbing up the strategy agenda of large companies
across many industries. Apart from the traditional utilities, sectoral companies in retail,
manufacturing, financial services and telecom due to the demands of the customers are
focusing on being greener than ever.
There is an increased focus of changing the context in which businesses are operating.
There are unprecedented and extraordinary sustainability challenges that the world is facing.
Businesses and capital markets are best positioned to profitably address the issues engulfing
the 21st
century problems which are exemplified in new companies being registered to cater
to different processes in the value chain apart from existing energy companies planning for
making or buying. As per the stakeholder theory that identifies shareholders or stockholders
as the owners of the company, and the firm or more appropriately the management of the
firm has the binding fiduciary responsibility to put the shareholders interest at first, to increase
value for them. Only those companies that strategically manage economic, social,
environmental and ethical performance of the company will be able to serve the interests of
shareholders, over time (Moffat, 2010).

The financial crisis that began in 2007 has reinforced the fact that sustainable solutions will
be the primary drivers of industrial and economic development going forward. While present
day CEO‘s and other C-class executives are focused on growth, profitability, competitive
position and shareholder returns which indirectly refers to the increased focus on
sustainability and long-term value creation. Sustainable value creation encompasses
strategies that are developed for reputation management, cost control, competitive
positioning and revenue opportunities. Sustainable challenges are interconnected; the
climate crisis and poverty, pandemics and demographics, water scarcity, migration and rapid
urbanization all cannot be considered in isolation.
Fundamentally, use of natural resources and human resources are at the heart of all
economic activities. There are high expectations from businesses to incorporate the tenets of
sustainability into their strategy. Studies have been conducted to create key building blocks
for integrating environmental and social challenges into core business practices to achieve
sustainability. The topic of sustainability has evolved from taking cues from past
environmental sensitive events, establishing a code of corporate environmental conduct,
specifying an international sustainable reporting standard, and also coining a term ―climate
risk‖ which is embedded these days into corporate and investor dictionary. Incremental
progress in tackling global climate change may not be able to meet the sustainability
objectives therefore accelerated performance improvements from agents that reflect the true
scientific and economic impacts is an important step towards containing the climate change.
My primary research with managers from different industry segment confirms to this view and
slowly senior managers are allocating greater amount of time for greening their companies.
Many researchers have considered Brundtland‘s as the standard definition of sustainability:
―Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs. It contains within it
two key concepts: the concept of needs, in particular the essential needs of the world‘s poor,
to which overriding priority should be given; and the idea of limitations imposed by the state
of technology and social organization on the environment‘s ability to meet present and future
needs.‖
Many industries have started to align themselves to a carbon-constrained world due to the
growing consensus among scientists and government to avoid catastrophic effects of climate
change and ensure their business continuity. Country specific economic, technological,
organizational and institutional drivers and barriers qualify the action that companies

undertake. Engels (2009) reports that EU companies encountered organizational hiccups
when the European Emissions Trading Scheme (EU ETS) came into being in 2005. How did
they learn to implement this or in scientific terms what is the cognitive basis of alignment of
the organization? They report that external consultancy and the internal assignment of
responsibility i.e. allocating responsibilities in the organization lays the basis of competencies
in which companies learn to carbon accounting. Organization financial and sustainable
reporting systems have to be adjusted to accommodate new accounts like carbon accounts.
1.2 Overview of the issues
There was a broad disagreement on the definition of sustainability in the research community.
In the beginning, sustainability was closely associated with maintenance of environment
quality. Analysis of sustainable development concept descriptions proved that none of
hundreds of sustainable development definitions found in the literature include all the aspects
of the concept and provide perfect understanding of it. Therefore there was less clarity on the
aspects of sustainable development that should come under the ambit of corporate goal
setting and decision making. Hence, believing in a common goal on the subject of
environmental climate change was challenging for institutions.
Corporate sustainability or corporate social responsibility is used interchangeably. Maharaj
(2008) statistically quotes that, out of 100 of the largest economic entities, 57 are
corporations, and not countries. There is an increasing accountability for global businesses
as the institutions adept to meet the long-term challenges. Coming to grips with them is more
than a corporate responsibility it's essential for corporate survival.
Climate Change Policy
Beginning 1994 the United Nations Framework Convention on Climate Change (UNFCCC)
began creating a momentum to reduce GHG emissions, however divergent positions
undertaken by different countries was the main reason for not making headway. In 2005, the
Kyoto protocol which was eye soothing to 163 countries and was passed in 1997 came into
force. The main mechanisms being
A. Joint Implementation
B. Emissions trading
C. Clean Development Mechanism

The EU Emission trading scheme became effective from 2005 and it sets limit on a number of
specific industrial activities in utilities and big industries emitters in the European Union. One
question that propped in my mind when I was researching on the topic of long term value-
creation or sustainability is, why should management‘s primary objective be long-term value
creation rather than reporting strong incremental Quarter over Quarter results? Upon reading
numerous authors I feel that companies which are dedicated to value creation are in good
shape or healthier and aid in building better and solid economies, better living standards, and
create more opportunities for individuals. There has long been other vigorous debate on the
importance of shareholder value relative to other measures such as employment, social
responsibility, and the environment. The debate is often cast in terms of shareholder versus
stakeholder. In ideology and legal frameworks, the US and the UK have given the more
weightage to the idea that shareholders are the owners of the corporation, the board of
directors is their representative and elected by them, and the objective function of the
corporation is to maximize shareholder value.
There are many non standardized processes because of diverse nature of human civilization.
Developed countries have been mainly responsible for research activities and showing the
path for policy implementers of developing and emerging markets. G-8 has been extended to
G-20 so as to make policies for a globalized world. Emerging markets defines the developing
states that are an important source of cheap raw materials and labor force for the
multinational companies, which are looking for competitive advantages (Laura, 2008). Aldy
and Pizer (2009) have focused on the issues in US climate change policy by analyzing six
key policy design issues that will determine the costs, cost-effectiveness, and distributional
impacts of domestic climate policy: program scope, cost containment, offsets, revenues and
allowance allocation, competitiveness and R&D policy. Similarly there are other divergent
issues due to the complexity of the nature of the problem and institutional issues in other
countries too.
The issue of non-CO2 gases has controversies around it. However as GWP (Global Warming
Potential) of gases are sensitive to damages, discounting, and time horizon (Schmalenesee,
1993).For example, methane has an extremely high GWP around 23 times CO2 by weight but
also has a very short life. So this adds to the complexity of quantifying the carbon footprint in
a holistic fashion. At a broader level warming effects of Carbon dioxide, methane, nitrous
oxide, Hydroflouro carbons, perflourocarbons and sulphur hexafluoride are considered for
scientific computations.

Globally, interest is growing in designing and implementing mandatory, domestic and market-
based climate change policies. The EU launched the Emission Trading Scheme (ETS) in
2005 covering roughly half of all CO2 emissions in the EU and announced its intent to
continue the ETS beyond the Kyoto protocols 2008-2012 commitment periods (European
Commission 2008). Iceland, Norway, New Zealand have developed a domestic cap-and-
trade program and EU has linked it. Governments in Denmark, Sweden, Finland, Norway
have pursued carbon taxation programs. Curbing greenhouse gas (GHG) emissions is a
critical component in what is believed as one of the most pressing environmental problem of
21st
century. Taking into consideration only the debates which is happening in US the cost of
U.S. climate change policy likely will be comparable to the total cost of all existing
environmental regulation- perhaps around 1-2 percent of national income roughly comparable
to all other environmental policies combined. As it has been the general trend developed
countries take the lead in major changes that has an impact at a global scale due to their
potential to invest and harvest innovation through institutions of excellence. Well-designed
national greenhouse gas mitigation policies can serve as the foundation for global efforts and
as an example for emerging and developing countries.
A unitary consumer perspective
In an article published by Nova Scotia Business Journal ―Carbon Footprint which is the
‗corporate greenhouse inventory‘ refers to greenhouse gases emissions associated with a
particular activity over a specified period of time, generally one year for organizations or all
for production process for products.― This includes both direct and indirect (e.g. electricity
generation) emissions, and is typically measured in tonnes of CO2 equivalent (CO2e).
As per carbonfootprint.com at an individual level
A carbon footprint is made up of the sum of two parts, the primary footprint (shown by the
green slices of the pie chart) and the secondary footprint (shown as the yellow slices).
1. The primary footprint is a measure of our direct emissions of CO2 from the burning of
fossil fuels including domestic energy consumption and transportation (e.g. car and plane).
We have direct control of these.
2. The secondary footprint is a measure of the indirect CO2 emissions from the whole
lifecycle of products we use - those associated with their manufacture and eventual

breakdown. To put it very simply – the more we buy the more emissions will be caused on
our behalf.
Fig1. Elements which make up the total of an typical person's carbon footprint in the
developed world (source: http://www.carbonfootprint.com/carbonfootprint.html). Let us now
explore what are the qualitative problems which I am trying to address through this study.
Upon analyzing the above data following are the action items to work on to gain the
maximum mileage in achieving carbon footprint–
 Home-Gas, Oil and coal –Mixing renewable energy sources
 Home- Electricity – Mixing renewable energy sources
 Transport – Switching to virtual mediums of conferencing, using public transport as
much as possible is strongly encouraged
 Recreation and leisure
1.3 Problem Statement
The aim of the study is to investigate the genuine sustainable development initiatives and
sustainable reporting, dissect and present the business implications of supplementing current
energy demands of an organization through cleaner ways. The goal is three fold
1) Understand the drivers of green initiatives. I am presenting issues which the managers of
an organization should consider or the motivation behind initiating green agenda especially

related to green (Internet and Communication Technologies) ICT initiatives covered in latter
sections.
2) Conduct qualitative case study on Smart Grid and Telepresence solutions and present the
findings as-is from Cisco SYSTEMS.
3) Overview of the understanding of how green performance is related to financial
performance.
This study should be considered as an attempt to study an economic concept of sustainability
and its growing importance due to the climate change and ―greening‖ agenda which leaders
are propagating.
1.4 Research Questions
The content in this thesis is built around the following questions
Q1. Fossil fuels are limited and oil is bound to decrease as time progresses.
Q2. What is the relationship between business cycle and carbon emissions?
Q3. What are the drivers of green initiatives?
Q4. Do we need transformational (System-change imperative) changes or gradual
changes to achieve sustainability?
Q5. What are the current states of affairs in corporate sustainability reporting?
Q6. What can Information Communication Technology (ICT) do for greening the
environment?
Q7. How Cisco is self-changing and can help other organizations combat the climate
change due to energy consumption through its smart-grid technology and
telepresence technologies?
Q8. What is the relationship between green performance and financial performance
from a corporate perspective?

1.5 Research Method
This study is of exploratory nature which tries to exemplify among other things the social
aspect of technology specifically virtual solutions that could help in resource preservation.
Grounded Theory methodology of (Corbin and Strauss, 1990) helps in providing an analytical
framework to structure the phenomenon through multiple participants. I have used Grounded
Theory methodology (Corbin and Strauss, 1990) for analyzing the Cisco Telepresence as
one of the solutions to increase collaboration while decreasing the carbon footprint due to
reduced business travel and operate more effectively in the globalized world. The other
sections are synthesis of articles, Cisco intranet documents (confidential), and interviews with
multiple expert participants to confirm the literature and academic papers which I have read
from EBSCO.
1.6 Significance of the Study
The study aims at uncovering the hoopla which is built around green business, analyze
academic literature and content of frontline organizations that are setting the trend and
leading the “greening of the business” in terms of providing a context for both corporate and
consumers to migrate to smart digital solutions, increased governmental regulations and a
growing concern built around reducing carbon-footprint and introducing renewable sources of
energy in the overall energy-mix. The study is an attempt to inform the academic community
about the technological solutions with economic cost which can be used to combat the
climate change issues.
1.7 Theoretical Framework
Manikas and Godfrey (2010) argue that a manufacturer will always feel pressure to focus on
the economic bottom line and give least equal importance to the second and third bottom
lines (environmental and social performance). They propose a newsvendor model to estimate
a manufacturing company‘s optimal production quantity based on maximization of expected
profits given the cost of emission permits and penalties for exceeding emission limits allowed
by the permits. Different companies have different role to play and their carbon footprints are

also variable. What are the business models for sustainable energy is the theme of the next
section?
Business models for sustainable energy
In general, a business model can be defined as a description of a planned or an existing
business and its specific characteristics with respect to value creation on the one hand and
market-orientation on the other hand (Osterwalder & Pigneur, 2005). A business model
describes how a business creates value and that it is an important new unit of analysis, highly
relevant to both management theory and practice (Belz & Bieger, 2004). One of the largest
sectors of the economy, the energy sector, accounts for annual sales of about $2,000 billion
worldwide (SAM, 2002). Technological innovation coupled with environmental and security
concerns are currently leading to fundamental changes in the energy industry. For example,
a shift towards renewable and distributed energy systems turns consumers into co-producers
of heat and electricity (Sauter & Watson, 2007). Nearly 80% of the electricity worldwide is
generated from fossil fuel which is cited to be a primary cause of global warming or nuclear
energy which can exhibit security concerns and risky by-products. Energy sector has been
identified as a key target area for efforts to promote sustainable consumption and production
(BMU, 2005).More than two thirds of primary energy gets lost as a result of inefficiencies in
the energy sector and on the demand side (UNDP/WEC/UNDESA, 2000).
Sauter & Watson (2007) describe that following are some of the challenges in
commercializing sustainable energy technologies
1. Environmental Externalities -Difficult to assign ownership of shared environmental
resources. The discrepancy between private and public benefit (and cost) is an impediment
to both consumer and investor decisions of sustainable development.
2. Capital intensity and long lead times -Successfully marketing new energy technologies is a
challenging task, and finding investors for a new venture in this business is equally
challenging.
3. Incumbency powers -Change is not easy to achieve.

Fig 2: How business model configuration addresses challenges in commercializing
sustainable energy technologies (Source: Business models for sustainable energy.
Wüstenhagen & Boehnke, 2006)
In the section of Smart Grid solutions some of the challenges presented above are being
proposed to be met through industry wide efforts.
1.8 Literature Review
Development has different semantics for different entities be it organizations or countries. A
correlation study between energy usage and the rate of economic development (Ghouri,
2006) predicted that there is a strong correlation between electricity usage and wealth
creation, but no relationship between total energy use and wealth in G7-countries. Back in
1998 environmental compliance costs had been estimated to exceed $1trillion, and about
$120 billion continued to be spent annually for pollution control in US (Berry & Rondinelli,
1998). Business-as-usual approach is worrying. A Harvard Business Study by Johnson and
Suskewicz (2009) reports that the Obama administration has pledged more than $100 billion
for sustainable technologies; China plans to spend $200 billion and the G-20 industrialized
nations some $400 billion. 20-20-20 agenda of the EU is a step forward to set a
benchmarking standard for other economies to follow so as to objectively achieve reduced
carbon footprint. Hence attempts should be made to demarcate genuine sustainable

development initiatives from mere attempts of greenwashing and businesses be convinced
that sound environmental practices are worth it.
Organizations have to continuously strive for economic, financial and environmental
performance improvement (Ambec & Lanoie, 2008). The conventional wisdom of firms
loosing global competitiveness had been challenged by many analysts (Porter & van der
Linde, 1995) who have argued that improving a company‘s environmental performance can
lead to better economic or financial performance and not necessarily an increase in cost.
Better environmental practices can result in developing and launching products in new
markets, product differentiation, selling pollution control technology, risk management and
external relationship management, cost of material, energy and services, cost of capital, cost
of labor. According to Ambec and Lanoie, managers have long associated environmental
protection with additional costs imposed by government, which in turn erodes a firm‘s global
competitiveness. Ambec and Lanoie also argue that one of the prerequisites for the adequate
functioning of markets is the existence of well-defined ownership rights. In the case of
environmental resources available to all, such as clean air and water, these rights are very
difficult to assign. They point that the market mechanism generates too much pollution, and
government intervention is legitimate to reduce it to a tolerable threshold. Billions of people
surviving on $2 a day or less should also be able to use common resources of world and
businesses could serve the ―Bottom of the Pyramid‖ (Prahalad, 2002) without jeopardizing
the future generation. Marketing, technical and financial information have been the decision
making criteria for taking investment decisions. Indeed, the prevailing thinking is that
environmental concerns divert managers from their main responsibility, which should be the
maximization of profit. However, the concept of human development might be defeated due
to poor execution or half-hearted attempt of carrying out environmental impact assessment
and social impact assessment (SIA) of major projects (Dey, 2006).
McKinsey studies project that by 2030 India is likely to have a GDP of USD 4 trillion and a
population of 1.5 billion. It may have an opportunity to pursue development while managing
emissions growth, improving its energy security and creating a few world scale clean-
technology industries. India‘s aspirations on high growth rate and inclusive development is
challenged by the need for a funding of EURO 18 billion on average, between 2010 and 2030.
Other challenges are also due to supply and skill concerns, technology uncertainty, market
failures and need for policy mechanisms.

CHAPTER 2: DRIVERS OF GREEN INITIATIVES
What is the primary need for green initiatives at a global and further at an individual level?
This question boils down to analyzing the following question -
Are fossil fuels are limited and oil is bound to decrease as time progresses?
Energy is inherently required for dynamic economies to roll-on. Winters (2007) in his study
has reported that ―there are two kinds of oil-using nations those that produce enough to
export and can use as much as they want, and the rich nations that can afford to import the
dwindling supplies of oil available on the world market. Everyone else is going to be
squeezed until they give up on oil. What they'll turn to then, no one knows.‖ In a recent study
the status of world oil reserves is a contentious issue. Owen et al. (2010) report that there are
different opinions on the above issue. On one hand there are pessimists who predict that
production will soon decline. On the other hand major oil companies say there is enough oil
to last for decades. They predict that even though there is certainly a vast amount of fossil
fuel resources left within the ground, the volume of oil that can commercially be exploited at
affordable prices for the global economy is limited and will soon decline. Due to the above
scenario, oil as a commodity will change from demand-led market to a supply constrained
market. They propose that the disagreement aspects can be resolved through clearer
definition of the grade, type, and reporting framework used to estimate oil reserve volumes.
Much of the activities that we do through oil have to be diversified to be done from other
sources of energy. Herein comes the role of alternative sources of energy that are derived
from other primary sources like wind, biomass and bio-fuels, solar etc. Mitigation of
environmental and social costs will judge the successfulness in migrating to poly-fuel
economy. Organizations have to adapt their strategies and include in their plan the above
aspects if they have to adapt itself to the changing business environment.
Different researchers have identified much causality for the green initiatives and those could
be summarized from different perspectives.
Macro Perspective
A. Competition for Resources
B. Climate Change
C. Economic Globalization

D. Connectivity and Communications
Stakeholder Perspective
A. Government
B. Investors
C. Labor Unions
D. Civil Society
E. Business Partners and Suppliers
F. Consumers
G. Employees
Investor and Financial Perspective
Macro Perspective
A. Competition for Resources
World population increased exponentially throughout the last century. It has increased from
2.55 billion in 1950 to 6.396 billion in 2004, and is projected to reach 9.276 billion in 2050. A
maximum of 2 billion human population can survive and live on earth (Pimentel et al., 1998a)
while ensuring a high standards of living. Rising living standards will result in flooding of
goods and services. Renewable resources like water, forests have become finite when we
consider that human demands are growing rapidly than the replenishing rate of resources.
Exhaustion of commodities can be monitored and measured, but the impact of depletion is on
ecosystems is difficult to gauge and impossible to rectify.
Struggling to meet the basic needs poses a risk of conflict among the people. Water-
population growth, economic development, and climate change are straining the access to
fresh water globally. By 2025, two-thirds of the world population will leave in water-scarce
countries posing significant risk to the economic and social stability of the local demographics
and as well as for the corporate operating in those regions.

B. Climate Change
There has been an increase in the extreme weather events e.g. more severe and frequent
cycles of drought and flood, rising sea levels and other such events in the recent past due to
the growing concentration of Green House Gases (GHG‘s). Governments are putting forward
new policies and regulations including those designed to limit and put a cost on carbon
emissions. There has to be clear cut accountability on managers to adapt their organizations
or business units to new environmental policies that are getting increasingly hostile towards
carbon emissions. Comprehensive climate policies implementation has encouraged the
formation of groups like Business for Innovative climate and energy policy (BICEP), US CAP,
Investor network on climate risk (INCR). These entities recognize the opportunity to profit
from technologies that reduce emissions and create solutions to global warming.
C. Economic Globalization
With organizations becoming boundary less more and more companies operate in or source
from multiple countries with wide variations in enforced environmental and social standards.
Many stakeholders groups demand, at a minimum, that companies meet international
expectations.
D. Connectivity and Communications
Modern ICT has helped organizations disseminate information effectively and efficiently. This
mechanism has increased both the advantage of building a reputation and also the time it
takes to destroy the reputation. Communication is disaggregated across multiple social
networks like FaceBook and Twitter. These platforms help people to effectively track and
disseminate sustainability performance of a company.

Fig3. World Bank data showing the % of alternative and nuclear energy in the total energy
mix of 19 G-20 countries in 2007. These relative data points might aid in corporate in
planning for changing rules and regulations, systems and processes and other systemic
changes due to the total carbon footprint because of operations in high-priority geographies
and the technology transfers that might happen in this space. The better-off can help in
technology transfer to underprivileged to help combat the climate change issue.
Relationship between Business Cycle and Carbon Emissions
In a recent study published in Nature Geosciences, the fact that the recent economic
downturn resulted in the worldwide emissions of carbon dioxide is optimism which has
happened first time since the late 1990‘s. Rice(2010) reports that as per a scientific study in
(2009), ―There is a close link between the world's gross domestic product and emissions of
carbon dioxide ―.The study presents that the largest decreases occurred in Europe, Japan
and North America US decreased by 6.9%, U.K. by 8.6%, Germany by 7%, Japan by 11.8%
and Russia by 8.4%. However other emerging economies recorded substantial increases in
their total emissions, including 8% in China and 6.2% in India.
Have the emissions dropped entirely as a result of the economic crisis? The same article
concludes that it is not just the recession that is a major cause there are other factors that
have contributed to the decrease. Focused efforts to curb carbon emissions and invest in
clean energy in countries such as Germany and the UK could be a cause. Reduced
deforestation has also contributed positively to the reduced carbon emissions.

Fig 4: Source: Global Carbon Project, World Bank by Frank Pompa, USA TODAY
Let us drill down further and see from a corporate stakeholder perspective the actors and
their various Roles and responsibilities in the problem of climate change.
Stakeholder Perspective
Actor Roles and Responsibilities
Government
Governments in developing and developed countries are implementing
policies to address key issues in sustainability like greenhouse gas
emissions, toxic chemicals, water usage, labor and human rights. There
is a renewed interest in developing more effective oversight and
accountability for corporate activities that impact society and
environment. The regulations on carbon emissions will provide a more
level playing field for lower emitters.
Investors
Investors are seeking to know the sustainability risks and opportunities
in a company‘s financial disclosures. Sustainability performance is a
indicator of strong management, strong governance, long-term thinking
and future growth potential. Rewards are higher for companies that
have a component of sustainability built into their strategic planning.
Benchmarking on the corporate performance of sustainable-based
stock indices against peer companies puts pressure on the businesses

to meet increasing expectations. Some of the market indices like Dow
Jones sustainability index have been able to provide relevant
information for investors to take more informed decisions.
Labor Unions
Unions expect companies to address issues that affect employees,
whether they are socioeconomic issues such as wages and healthcare
or environmental issues such as safety and climate change.
Mobilization and representation of the members is their primary
responsibility through formal negotiations, engagement on public policy,
and collaboration with other organizations that support common
positions.
Civil Society
Legal action, public campaigns and collaboration with the companies
are some of the mechanisms through which NGOs and community
groups (main entities of civil society) pressurize companies to address a
wide range of sustainability issues.
Business Partners
and Suppliers
From a systems perspective, sustainability is like a cascade.
Companies expect that those they do business with will follow the same
standards that they do for integrating sustainability into their business.
B2B relationships therefore increasingly incorporate sustainability
standards and criteria reflected through changes in Request for
Proposals (RFP‘s) and procurement guidelines. Companies in the
automotive, apparel, electric utility, electronics and pharmaceutical
sectors are among those collaborating to raise sustainability standards
across their entire industry supply chains.
Consumers
Consumers are concerned about the conditions under which products
are made, the materials used and post-use recyclability. The economic
recession has not dampened customer enthusiasm with regards to
commitment to the environment. 78% of U.S. consumers in a 2009
Cone survey had indicated that they are likely or more likely to buy
environmentally responsible products as they were before the crisis.
Employees One of the strongest forces demanding change comes from within the
organization. Current employees and talented job candidates seek work

that us meaningful and socially demonstrable, and they are prepared to
receive a lower salary in exchange for work at a socially responsible
company. Employees seek employers that have a clear vision for their
sustainable global economy and once insiders seek to drive
improvements through their specific responsibilities.
Investor and Financial Perspective
The financial crisis has resulted in an increased focus on the risk management processes at
financial institutions, with a push for greater transparency, holistic risk identification and a
longer-term focus. Investors are rewarding companies that factor-in sustainability issues into
their business planning and that are implementing strategies and actions that will enable
them to persist in a sustainable global economy. Apart from the traditional stock market
indices like NYSE, EURONEXT there has been increase in sustainable indices e.g. S&P/IFCI
Carbon Efficient Index, HSBC Climate Index, Prudential Green Commodities Index, and
NASDAQ‘s Global Sustainability 50 Index. For example, KLD Research and Analytics (now
part of Risk Metrics) launched a Global Climate 100 Index and posted a 57 percent return (17
percent annualized) since its launch in 2006 (Fowler & Hope, 2007).
Carbon focused due diligence process is in place in many financial institutions including in
City Bank, Morgan Stanley, and Credit Suisse for any future lending for coal-fired power and
other carbon intensive projects. Bank of America has also shown leadership by setting a
specific target to reduce the rate of greenhouse gas emissions in its lending to the utility
industry, and by disclosing publicly that it is using a $20 to $40 per ton cost of carbon in
evaluating loans.

Fig 5: Classical role of Managers from a corporate finance perspective (Lecture notes from
http://pages.stern.nyu.edu/~adamodar/)
This thesis covers the relationship of manager‘s role in creating value from a societal
perspective. The fundamental puzzle is as follows; social costs cannot be factored explicitly
into analyses. It is quite challenging to generate value for all the 4 important components
equally attracted to the nature of business operations and some of the major problems that
are existing presently in the corporate circles is partly also due to the fact that corporate
leaders are forced to take short term decisions that could be myopic and in-turn contrary to
the overall sustainable goals.
Approach to Embed Environmental and Social Concerns
A generic approach to begin embedding environmental and social concerns into corporate
makeup includes -
1. Assessing the company‘s baseline environmental and social performance
2. Analyzing corporate management and accountability structures and systems
3. Conducting a materiality analysis of risks and opportunities

However a company has to formulate its own route to sustainability so as to maintain its
identity and competitive advantage. It will be guided by the corporate culture and the sector in
which it is operating. A maturity model can be thought of for placing different companies in
their evolution of sustainability. Now I am quoting a 20 point expectation map of Ceres from
an organizational perspective.
Governance for
Sustainability
Stakeholder
Engagement
Disclosure
Board oversight Focus engagement
activity
Standards for
disclosure
Management
Accountability
Substantive
Stakeholder dialogue
Disclosure in financial
filings
Executive compensation Investor engagement Scope and content
Corporate policies and
management systems
C-Level engagement Vehicles for disclosure
Public policy Product transparency
Verification and
assurance
Let us see in detail what the expectation map means.
Board oversight- The directors should provide oversight and accountability for corporate
sustainability strategy and performance. Within the charter there should be a committee that
provides the oversight.

Management Accountability- The onus of achieving sustainability objectives could begin from
the CEO and C-Suite executives and percolate down to the business unit and functional
heads.
Executive Compensation- Sustainable objectives should be a core component of the
compensation package and incentive plan for all the executives.
Corporate Policies and Management Systems- Embed sustainability considerations into
corporate policies and Risk Management Systems to guide operational level of activities.
Public policy- Clearly state its position on relevant sustainability public policy issues. Any
lobbying should be done transparently and in a way consistent with sustainability commitment
and strategies.
Focus engagement activity- Identify a diverse group of stakeholders and timely engage with
them on sustainability risks and opportunities including materiality analysis.
Substantive Stakeholder dialogue- Engage stakeholders in a manner that is ongoing, in-
depth, timely and involves all appropriate parts of the business. Corporations should also
disclose how they are incorporating stakeholder input into corporate strategy and business
decision-making.
Investor engagement- Address specific sustainability risks and opportunities during annual
meetings, analyst calls and other investor communication.
C-Level engagement- Senior executives should participate in stakeholder engagement
processes to inform strategy, risk-management, and enterprise-wide decision making.
Standards for disclosure- All relevant sustainability information should be disclosed using
Global Reporting Initiative (GRI) guidelines as well as additional sector-relevant indicators.
Disclosure in financial filings- Companies should disclose material sustainability issues in
financial filings.
Scope and content- Disclose significant performance data and targets relating to their global
direct operations, subsidiaries, JVs, product and supply chain. Balanced disclosures covering
challenges as well as positive impacts.

Vehicles for disclosure- Aim to disclose through a range of disclosure vehicles including
standalone reports, annual-reports, financial filings, websites and social media.
Product transparency- Provide verified and standardized sustainability performance
information about its products at point of sale and through other publicly available channels.
Verification and assurance- Verify key sustainable performance data to ensure valid results
and will have their disclosures reviewed by an independent, credible third party.
Further detailed explanations are beyond the scope of the thesis.
ISO-14001 is a best practice adoption to ensure that the participants of entire value chain are
good citizens and countries have been incentivizing ISO 14001 adoption.
Examples of incentives for ISO 14001 certification.
Country Incentive
Spain
Services produced by ISO-14001 companies are favored within the public
procurement process and in service contracts.
Egypt
Through its IMP (Industry modernization program) and funded by the EU and
Egypt some 200 companies (2004-2006) have benefitted.
France
Beginning in 2008, Inspection will be done in 10 years rather than 5 years for
ISO sites as compared to non-ISO sites.
What are the different approaches towards sustainability is the next major question to be
answered. I am quoting the systemic and incremental changes that have been proposed in
the literature and a KPI based approach to measuring sustainability and keeping a tab on the
performance across different geographies. In chapter 3 I have tried to pose some questions
around building a sustainable strategy and then we will see what are some of the methods
through which corporates report their green performance or corporate social responsibility as
it is called otherwise. Green ICT networks have been presented which has to be embraced
sooner If energy consumption has to be managed inspite of the exponential increase of data
due to content explosion and convergence of Voice, Video and other forms of communication.
I would complement by presenting a case study that I conducted with the managers at Cisco

SYSTEMS to see one instance of how Environment Management System (EMS) functions
within the organization.

CHAPTER 3: SUSTAINABILITY STRATEGY
Nearly all industries, organizations and consumers are affected due to the ‗greening‘
initiatives. If we wish to halve the worldwide CO2 emissions by 2050 means that we have to
reduce worldwide energy consumption in 2050 to 1960s‘ levels. Since the current population
is double that of the 1960s, it means dropping living standards by half. By 2050, the world‘s
population is expected to increase by 3 billion beyond the current level. It will be impossible to
realize the goal of halving CO2 emissions without new ideas. Recent growing phenomenon of
living close to work, teleworking, and distance education will increase as people put growing
importance on travelling less.
Any program has to be conceptualized, then a thought leadership team has to be gathered
who need to oversee the execution at the field level which will in-turn lead to presentation of
metrics and measurement. This can be summarized as :-
Fig 6: Conceptualization to Realization and Sustainenance
Sustainable development indicators (SDI) have the potential of turning the generic concept of
sustainability into action. However there are disagreements of what constitutes a good
society so this has led to each institution offering measures or indicators for defining,
measuring, analyzing, improving and controlling initiatives within any strategy hence areas of
conflicts. Within the rest of the section let us see
What is the role of businesses in the greening of industry or rather why is business behavior
considered important?

As quoted earlier statistically, out of 100 of the largest economic entities, 57 are corporations
and not countries hence managing and monitoring the corporate sustainability strategy
activities closely is important step to take forward.
Some of the other reasons could be -
I. Businesses in general are the major user of energy and materials and also the
producer of pollution
II. Businesses also are the producer of solutions
III. They are examples or rather trendsetters for the society
IV. The greening of business will involve and transform many stakeholders in the
industrial function of society, including government, employees, suppliers, customers
and investors
The greening of industry should not be confused with sustainable development, which is
a goal for society as a whole. Integrating environmental and sustainability imperatives into
the structure, culture and action is the major task of sustainability managers of the
company. What kinds of knowledge generation and diffusion would be helpful in the
process of greening the industry for a sustainable future? It is quite difficult to generalize
the steps due to different priorities for different societies and industries. In Netherlands
Brand et al. (1997) built a strategic plan.
After conducting all analysis they identified the following major priorities
1. Transformation towards sustainable development
2. Changing consumption patterns
3. Finance, capital and performance indicators
4. Technological breakthroughs
The first theme is what they call an overarching question and the subsequent steps can
be perceived as the aspects of the transformational process.
The sustainability imperative: Eco-efficiency versus system change
Beginning 1987 when the concept of sustainable development gained momentum there
were two approaches being taken by industry practitioners and academicians. While the
former supported eco-efficiency the latter strongly advocated system change. There was

lack of consensus between the populations. I am again quoting the imperatives using the
normative language of its proponents.
Eco-Efficiency imperative
The eco-efficiency idea means that companies must come to terms with the new realities of
population growth, increased evidence of global warming, ozone depletion, loss of fertile-soils
and forests. These in turn will lead to tougher government regulation and change the markets
(consumer attitude) which ultimately would result in a change in the bottom-line of the
company. Eco-efficiency is about gaining ecological and economical efficiency i.e. value-
creation through minimizing resource input. Innovative processes help in creating
competitively priced goods and services and bring quality to human life. The ecological
impacts and resource intensity throughout the product-lifecycle progressively reduces to a
level at least in line with the Earth‘s carrying capacity. Some strategies to achieve this are
1. Dematerialization;
2. Minimize the energy intensity of goods and services;
3. Enhance recyclability;
4. Maximize the use of renewable resources;
In this methodology value-creation is sought by creating a solutions approach to
product offering rather than focusing on selling as much products as possible. Eco-
efficiency advocates do not ask for less government regulation, rather the current
weak and inconsistent set of rules and regulations are considered to be a policy
failure which needs mending. Changes they suggest are twofold
a. Regulations must ensure that ‗prices tell the truth‘ i.e. incorporate all
environmental costs e.g. In the price of electricity also calculate the costs of the
cleanup activities at the end of life cycle.
b. Governments are only entitled to determine the extent to which pollution
is acceptable.

System change imperative
Critics of the eco-efficiency imperative support the system change imperative paradigm, this
may be due to following reasons.
I. A high efficiency system may not necessarily prevent environmental degradation.
II. The concern is not only about the ecological impacts but also about the equity on a
global scale.
III. A eco-efficient company does not necessarily mean that companies are changing
their product mix and harmful products might still be in use.
IV. Sustainability means an eye for long-term value creation means companies are
operating on a wider horizon which could dampen short-term value creation and
money-related performance indicators.
The system change view is based on the idea that companies and the economic system
should be perceived as part of a larger ecosystem and not in isolation. To determine any
further action, a basic understanding of the ecosystem and the social system are critical.
Core values which drive this thinking are
Wholeness- Decision makers should understand the relationship between the internal
environment and the externalities. This will lead to shared responsibilities and community
among all stakeholders.
Care for future generations- Businesses have to listen to a new stakeholder i.e. appoint
some sort of future generation representative who closely works at the board level with
long-term planning horizon.
Smallness- Recent management theories have highlighted the idea of smallness and
organizations too are realizing the economic benefits of small work teams and defining
responsibilities at the lowest level possible. Sustainable development implies accepting
limits on the growth level of companies while producing value added and high quality
products for all stakeholders, including nature and future generations, without growth.

Eco-Efficiency vis-à-vis System Change
Both are ‗mental maps‘ which help in developing views on key uncertainties, strategies,
issues and desired futures. Eco-efficiency advocates stress the need to make a change now
and emphasize the importance of tool development (such as life-cycle analysis (LCA),
environmental management systems (EMS), performance indicators and new reporting
practices), showcases and guidelines. We will see in detail what each of these mean and the
issues around them. System change advocates view these tools as transformational process
aids which are important to bring about a change e.g. LCA helps in analyzing products in the
context of the entire production and consumption chain. Reporting activities acknowledge the
importance of the broader social context. Partnerships would be fostered for collective value
learning process. Much of the free-rider behavior of firms could be curbed when a direct
relationship is established between environmental, social and economic activities. Producers,
consumers and waste managers would be brought together to form a network which will
shape the nature and direction of the growth.
All the above discussion leads to some research priorities
Priority1: Analyze the tools in action. Some of the questions to be answered include
a) What is the effectiveness of the tools? What is the nature of the performance changes
that the tools deliver; Are they effective in shaping new values and developing new
partnerships?
b) What are some of the use cases involving management, external stakeholders such
as the financial community, environmental groups, employees and governments? Is
the relevant to meet the information needs of the above audiences?
c) What is the extent to which mandatory, international standards for performance
indicators, reporting mechanisms, LCA‘s and EMS‘s both feasible and desirable?
d) To what extent do these tools reflect the sustainability agenda and so incorporate
social and development issues?
Priority2: Understand what is the role of the government?
In both approaches the role of the government is central. Some of the questions to answer
include

a) How to shape effective government action to set conditions so as to achieve
sustainable development, including large efficiency gains and system change?
b) What is the role for economic instruments, voluntary agreements and command-and-
control regulation?
Priority3: What are the dynamics of emerging partnerships?
Development of partnership is central to the transformation process. Some of the questions
to answer include
a) What is the reason for the partners to enter into partnership? Which forms of
partnership are most effective in terms of original motivations but also in terms of
improvement of environmental and sustainability performance?
b) What factors dampen and accelerate the process of making partnership networks?
c) To what extent can partnerships become carriers of new activities which will change
existing production and consumption patterns in a more radical way?
d) How to classify, analyze and evaluate learning processes which takes place in these
networks?
Consumption Pattern Analysis
Any change towards sustainable development must involve changing consumption
patterns and life styles. Fundamentally we are seeking to answer, what if the poor in this
world and future generations were to embrace the present consumptions patterns of the
rich, mainly in the West today? Research points that the environment would be eroded
and destroyed beyond the ability of nature for repair, considering the current rate of the
population growth and the short-term technological opportunities to produce new eco-
efficient products and services. Consumption of resources has not been regulated and
most of the depletion of the resources occurs at the point of consumption. Most
consumption goods are used only once and many are expensive to recycle. The new
eco-efficient products enter niche markets and are not effective in substituting eco-
efficient products and hence new needs are generated without changing existing
unsustainable lifestyles.
What is the real need of the consumers? This is the real research question around which all
of the other questions are built. The flooding of products and services has created several
addictions and have led to unsustainable production and consumption patterns. Hence this

leads to aiming to find new ways of lifestyles which could quite vary between people, regions
and countries. The learning processes requires openness and access, however secrecy of
information precludes any such openness in present day organizations.
To sum it up, learning requires vision and any vision requires construction of scenarios which
in management literature is called as leadership by example.
Priority4: Deconstructing the sustainable consumption indicators
The goal is to define sustainable consumption and measure progress made towards that end
that will help in gauging the progress made.
Priority5: How to develop new consumption patterns?
What are the conditions, accelerators, barriers that help consumers and producers re-
evaluate their existing needs? Which methods like consensus conferences, dialogue
workshops, societal experiments etc will help producers and consumers reframe their needs
in a sustainable way?
Finance, Capital and Performance Indicators
Fundamental questions regarding the role of financial markets, including investors, bankers
and insurers, in a sustainable world needs to be analyzed at company level by changing
financial performance indicators. In the financial world Investors and bankers aim to increase
value and insurers target to decrease risk. A gap analysis suggests that there is a gap
between the know-ledge and application of the methodology and procedures to achieve
sustainability in the financial world. There has to be a fundamental paradigm shift in which the
financial sector operates i.e. depart from the emphasis on short term financial gains, and a
shift towards long term financial and other values as desirable business outcomes. However
If monthly ratings continue to evaluate the financial sector businesses then there may not be
much change.
GDP which currently is used a measure of national progress masks the breakdown of social
structure. Researchers have laid down the need of new models that do not allow for the
misrepresentation of social and environmental considerations which metrics like GDP do.
There is a need for standard system of environmental evaluation but is riddled with difficulties.

Techniques like contingency valuation method which were developed and improved upon still
do not allow the complete portrayal.
Dimensions of Sustainable indicators
Fig7. The above figure shows the dimensions which need to be analyzed for building a
sustainable corporate or national strategy. (Corina et al. (2009))
Due to the greater demand of the market forces for greater transparency and traceability of
the sustainable performance organizations should move ahead from making
sustainability only a public relations/ marketing device. Cash-strapped companies want
to make sure that their investments are targeted at the most high-impact projects.
Why Sustainability KPI’s?
Some of the reasons that I could gauge from interviewing managers during my research
process was
I. Doing the right thing for the environment
II. Reduce energy-related operating expenses
III. Historical and upcoming environmental compliance regulations
IV. Improve the perceived brand image of the company through customers and general
public
V. Competitive Differentiation
 Economic
 Population
 Education
 Innovation
 Infrastructure
 Environment

VI. Make the stock attractive for the socially responsible financial community
VII. Attract and retain best talent
The above list is not sorted in priority and as it would change who is voicing the concerns.
Presently, in U.S. sustainability reporting is voluntary but corporates have increasingly done it
even corporate websites in France also have a section on “développement durable” which
shows concerns for this topic. SEC and other agencies are evaluating mandatory reporting
on sustainability performance. In U.K. climate-related non-financial disclosure of certain
parameters is mandatory. The primary factors motivating companies to develop and disclose
KPI‘s are
A. Stakeholder demands- By including supplier‘s sustainability performance data a
corporate can align its sustainability goals and ensure that same set of practices are
emulated in its entire value chain. Ideas like carbon labeling are in corporate business
plans so as to influence consumers towards sustainable purchasing practices.
B. Shareholder expectations- In US the SEC has voted to provide public companies
with interpretive guidance on disclosure requirements. Just as internal controls are
present for material and financial reporting, Corporates should further develop the
proper internal controls and mechanisms to gather the necessary information for
reporting and disclosing how issues such as energy, emissions and access to natural
resources will impact business operations and shareholder value.
C. Evolving regulations- In US most of the sustainable reporting is voluntary, but as
trading systems for carbon credits and greenhouse gas emissions (GHG) regulations
mature, corporate will most likely be mandated for reporting key indicators such as
GHGs. Carbon and GHG emissions accounting will become more relevant as social
and environmental aspects are mandated to be in the public reports which corporate
publish. FASB and IASB are currently working on a joint project which began in 2007
to address GHG emissions accounting and the final report is not likely to be published
until 2011.
D. Performance evaluation of sustainability and corporate citizenship efforts –
Just as financial reporting is driven by metrics‘ to manage an organization‘s financial
performance, developing the appropriate processes for sustainability accounting is
essential for managing an organization‘s non-financial performance. Considering the
potential risks and opportunities of investments in sustainability it would become
increasingly important to manage green performance from the enterprise level down
to the business unit level and facility to maximize ROI‘s.

Realistically, If something cannot be measured then it cannot be managed. The
finance organization should work with business units to understand the Critical
Success Factors (CSF‘s) and key indicators that need to be managed, measured and
reported on. Presently solutions for measurement of sustainability performance are
evolving with GRI guidelines being the starting point. KPI development begins with an
assessment of an organization‘s key areas of impact and identifying where those
intersect with areas of CFO responsibility. A major change in the financial closure and
treasury processes would also incorporate carbon emissions trading as well wherein
one would try to answer the question Does the financial closure process present
timely and clear picture of assets and liabilities related to carbon offsets?
E. Relative Evaluations- Organizations should evaluate each indicator on a relative
basis like evaluating the GHG emissions per unit of product, or water used in a
specific process. Developing indicators that track stakeholder‘s expectations are
important. Such level of granularity is critical to understanding where there are areas
of opportunities and how can those specific initiatives be measured. Context based
sustainability could be handy and effective for managers to understand and control
the sustainability performance of organizations.
Sustainability of water use- Measure relative to the size of local supplies
Employee Compensation- Measure relative to livable wage standards
Social Impacts- Measured as per community needs
The above set of measurements can be thought as minimal. At a global level Human
Development Index (HDI) of the United Nations Development Program (UNDP),
Environmental Performance Index (EPI) of the World Economic Forum (WEP) is
gaining momentum but reluctance of policymakers and statistical services arising
mostly from conceptual and technical challenges and hence are areas of fertile
research topics.
Olivier Seznec, Cisco SYSTEMS France CEO, green initiatives too stressed on the
need of DfE (Design for Environment), LCA (Life Cycle Analysis) as some of the
underpinnings for developing products.

CHAPTER 4: CORPORATE SUSTAINABILITY REPORTING
In this chapter I am going to address the nuts and bolts of publishing two reports namely the
usual annual report and the CSR report that details out the regular operations, finance,
marketing and governance aspects among others both from an historical perspective and
presents forward looking statements regarding how it is going to perform in the future
considering the business environment, competitive landscape apart from other aspects. Over
the years there has been an increasing importance to publish the CSR or the sustainability
report that typically presents the CSR (Corporate Social Responsibility), Environmental
reporting, and triple bottom-line. It includes environmental impacts, employee programs for
healthier living, community development programs, customer safety programs, fair trade
practices and other aspects of organization functionalities not classified as the core business
of the company.
IFRS have been used as the framework for reporting business transactions and countries
have adapted to the versions of above to manage their economic activities. GAAP,
traditionally had provided the guiding principles for recording transactions and reporting the
leading indicators to the users of financial information. Customized versions of GAAP and the
above standards are being used to meet local rules and regulations e.g. at Cisco SYSTEMS
accountants in France record and report all transactions as per French rules and regulations
while the consolidated report presented to the regulators, SEC and financial markets
presents the global picture. Economic recession has brought about an increasing consensus
among practitioners and academicians to build a unified standard so that unique reality is
presented. Let me pose a question, does a global standard exists for preparing sustainable
reports? Sustainability reports present information material to an organisation‘s major
economic, environmental or social impacts and that substantially influences stakeholder
decisions. In other words it is a process for publicly disclosing economic, environmental, and
social performance (Geraghty, 2010). He mentions that more than 80 per cent of global
Fortune 500 companies now disclose on sustainability performance and hence having a clear
and lucid understanding of the subject is advantageous. 75 percent use the (Global Reporting
Initiative) GRI standards. GRI has developed a framework by taking into consideration inputs
from 3000 stakeholders from civil society and international business community and is
considered to be world‘s most widely used framework for sustainability reporting. Irrespective
of the size, sector or country the GRI‘s G3 sustainability guidelines is freely available as a
public good for the companies.

GRI‘s common framework aids businesses to report about generic and broader level issues
to internal and external stakeholders. Geraghty also stresses that national and international
policy; investors; and pressure from wider society are the major external drivers. By enabling
transparent disclosure of sustainability information the guidelines allows a climate for the
benchmarking of companies and, more crucially, allows for change to be made from within an
organisation. Companies have to move beyond the bottom-line and quarterly-results mode of
operating. Maximizing shareholder returns should be the main goal of any corporate however
not at the cost of degrading social and environmental value. When corporate earnings are
more than that of countries GDP e.g. GDP of Wal-Mart exceed that of Austria, Exxon-Mobil‘s
receipts are more than that of Argentina or Turkey the focus on social and environmental
agenda of the corporate becomes more important.
Is it a study in Ingenuity?
There has been too much of hoopla around sustainability in the recent economic recession
times. Aras and Crowther (2009) argue that corporate have been too much stressing on the
agenda of sustainability. They argue that the cost of capital for the firm is reduced as
investors are misled into thinking that the level of risk involved in their investment is lower
than it actually is. They analyse the effects of this misrepresentation and argue for a fuller
debate about sustainability. Reports which were designated as environment reports then as
CSR reports have been repackaged as sustainability reports. In academic circles CSR is
considered as a problematic because there is a dichotomy between CSR activity and
financial performance with one being deleterious to the other and corporate are obliged to
pursue activities to generate value for shareholders. Moreover there is no clear definition on
what constitutes as CSR (Martinez & Crowther, 2005) and therefore no agreement upon the
basis of measuring that activity and relating to the various dimensions of corporate
performance. Previously conducted studies have presented the issues and the problems in
developing widely accepted standards and reporting such activities (Crowther, 2006). Due to
the increasing pressures of different stakeholders for long-term sustainability, it is necessary
to develop some methods of analyzing and measuring CSR activities in an universally
acceptable manner so that it can also be evaluated by interested parties which could even
become a guideline to understand the decision making process in society.
Earlier analysis of sustainability (Dyllick & Hocketrs, 2002) began with a two-dimensional
approach of environmental and the social. A few other researchers (Spangenberg, 2004)
highlighted a third dimension related to organization behaviour. Aras and Crowther (2007b)

argued that such an approach is reductionist and may not lead to better understanding of the
issue. This is a dichotomous issue due to the fact that for a corporation optimizing both
financial performance and social/environmental performance are in conflict with each other
and hence most of the work done in corporate sustainability does not recognise the
importance of financial performance and hence a financial analysis is not performed.
Fig8. Model of corporate sustainability (Aras and Crowther 2007b)
My case study at Cisco confirmed to this model. It takes good amount of effort to really
influence change in organization culture.
Dimensions Meaning
Societal influence Impact that society makes upon the corporation in terms of the
social contract and stakeholder influence.
Environmental impact Effect of the actions of the corporation upon its geophysical
environment.
Organizational Culture Relationship between the corporation and its internal stakeholders,
particularly employees, and all aspects of that relationship.

Finance Adequate return for the level of risk undertaken.
Crowther (2000a) claimed that by quantifying environmental related costs and including them
in business planning strategies might result in firms reducing operating costs. There are
different definitions of socially responsible organizations and this leads to different
performance measurements. Pava and Krausz (1996) report empirically that firms as per
their definition which are ‗socially responsible‘ perform in financial terms at least as well as
firms which are not socially responsible, so why to be socially responsible when the primary
objective is to provide good returns to the shareholder?
Efforts are being made to provide a framework for certification of accountants who wish to be
considered as environmental practitioners and auditors. To quote an example the Canadian
Institute of Chartered Accountants is allocating a lot of resources to develop such a standard.
Technical implementation of social accounting and reporting has been laying forth the
philosophical basis for such accounting predicated in the transparency and the accountability
principles. Corporates have started to appreciate the business benefits of CSR activities in
their reporting, equally they recognize that sustainability is important and it plays an important
role in their reporting.
Extractive Industries
Heavy natural resources depleting industries or in other words extractive industries – which
by their innate nature cannot be sustainable in the long term – seems to be making
sustainability a very prominent issue. Clearly the vast majority do not mean sustainability as
discussed in this article, or as defined by the Brundtland Report. Their scope of definition is
just a bit more than business continuity.
Lets us see the above argument in a more detail. In 2006 BP reported that:
That is why we care about the sustainability of our activities and why, throughout the
company, we work to ensure that the things we do and the way we do them are genuinely
sustainable.
While later in the same report (on the same page even) is stated:
BP has now sustained itself as a company for almost 100 years through periods of dramatic
economic, social, political, technological and commercial change. This demonstrates that to

uphold corporate image and be in explorative business companies are projecting themselves
as green or sustainable.
Aras and Crowther argue that such treatment of sustainability is actually philistine and hides
the very real advantages that corporations obtain by creating such a false sign of
sustainability. BP has tried to project itself as an energy company with a feature of making
renewable energy as it even though it is a very small part of their actual operations. Does
sustainable corporates get access to easy capital?
Sustainability and the cost of capital
Cost of capital which a firm incurs is related to the perceived risk associated with investing in
that firm. Generally, the larger, more well-known companies are more certain about the
investments and the outcome of those investments and therefore have a lower cost of capital.
Henceforth most large companies discuss sustainability and frequently it finds place in the
business planning but lack of full understanding in the definition means that it is confused
with corporate planning and reporting and hence obfuscation occurs. Aras and Crowther
argue that such obfuscation may not be deliberate but suggest that it has an element of
disingenuity in it. The risk evaluation methodologies are often deficient in their evaluation of
environmental risk. The beginning step is the identification of costs and revenues which need
to be incorporated into the evaluation process. A firsthand identification of cost would lead to
quantifying such costs and incorporate qualitative data around intangible aspects. Many of
the beneficial aspects around sustainability are less tangible and are more related to image.
Some of the examples include -
 Enhanced company or product image – this might lead to increased sales
 Health and safety benefits
 Ease of attracting investment and lowered cost of such investment
 Better community relationships – this can lead to easier and quicker approval of plans
through the planning process
 Improved relationship with regulators, where relevant
 Improved morale among workers, leading to higher productivity, lower staff turnover
and consequently lower recruitment and training costs
 General improved image and relationship with stakeholders

The above benefits of are not just intangible but will take some-time to realize. An appropriate
time horizon is needed for the evaluation of risk and its effects. Presently for the cashflows
that are generated, Discounted Cash Flow (DCF) or any other method of valuation is
employed and none of the steps would change drastically with the incorporation of
environmental accounting information except for risk assessment and the impact it has on the
cost of capital. A step by step integration of environmental accounting into risk evaluation
system can be summarized as
 Perform cost-benefit analysis on environmental implications
 Quantify the costs and incorporate qualitative data regarding the less tangible benefits
 Identify and utilize appropriate financial indicators
 Provision an appropriate timeline so that environmental effects are fully realized.
Some authors claim that sustainability is a little more than rhetorical instead of being a
serious attempt to mitigate the issues which are involved due to the insufficient understanding
of the issue and hence any evaluation would lead to being simplistic and could be error
prone. The extent of disclosure manifested through the reporting has increased through the
last century as companies have started to recognize the benefits of providing increased
disclosure. Firms have witnessed commercial benefits of increased transparency which has
brought about due to increased disclosures. Hence it is rational to argue that in future the
amount of information regarding sustainability will increase as firms would understand both
the implications and the benefits of greater disclosure.

CHAPTER 5: GREEN ICT NETWORKS
What is the fuss about green Information and Communication Technology (ICT) network and
how to design such a network? What is the role of ICT sector to the global GHG emissions?
There has been academic literature on green data centres, but fewer studies have been in
academic circles on green networks. Historically, IT and Networking have been enablement
of many business functions, Minoli (2010) reports that ICT possess the capacity to
significantly reduce emissions in other business sectors by improving and automating their
operations, overall the industry could reduce the emissions by 15 per cent in 2020 and
research at Cisco SYSTEMS also confirms to these statistics. Analyzing the evolution of
content these days one can witness a lot of multimedia rich video, audio, podcast and other
which is more natural mode of communication however the size of the data centres will be
increasing but CIO‘s are under a pressure of no-change or reduced budget because of
recession which means leverage more of the existing IT infrastructure.
From an implementation perspective it can be accomplished by replacement of goods and
services with other virtual equivalents apart from increased use of sensing, telecommand and
telecommunications technology all of which could be made more energy efficient. Techniques
employed in Green IT and data centres have been broadened for incorporating green
principles in the intranet, extranet and internet. In 2008, Cisco unveiled a 40-core networking
processor which took 5 year of development effort which has the power saving potential
when compared to existing single- or dual-core networking processors because of fewer
discrete networking devices. Similar other innovations and standards are ―work-in-progress‖
for hardware and enabling software.
Many of the past ‗substance‘ based human activities have been virtualized e.g. Audio
Teleconferencing, Video Teleconferencing/ Telepresence, internet-based Whiteboarding/
Conferencing, E-mail communication-/m-commerce including online travel bookings and
purchases; internet-based home businesses; multimedia applications such as music
downloading (as contrasted to CD-based distribution); commercial-grade video entertainment
such as video-on-demand (as contrasted to a trip to a theatre); and IPTV based digital video
recording (as contrasted to DVD-based distribution); grid/cloud computing/virtualization
(reducing space, power and heating, ventilation and air-conditioning (HVAC) costs).
ICT contributes to 2- 2.5% of global GHG emissions and 7% of GDP. ICT can bring about
significant reductions of emissions in other sectors of the economy such as smart motor

systems, smart logistics, smart buildings and smart grids. Some studies project that ICT has
the potential to reduce global emissions by as much as 15% by 2020, specific ICT chances
and introduction of more virtualized services to enable energy efficiency, can lead to emission
cuts upto five times which the sector contributes i.e. 7.8 GtCO2e. During day-to-day
conversations green, often refers to renewable energy sources, such as wind, solar, biomass
and fuel cells. Some of these technologies can be used for wireless networks in rural
environments and/or developing countries. Nevertheless, the short-term opportunities for
green networks are (i) the design of Network Equipments that make efficient use of energy
and the optimized design of IT rooms, particularly from a cooling perspective. Technical
standards and performance benchmarks to consistently ‗quantify‘ conformity to, or levels of,
being green are beginning to emerge now.
Service Provider Think on aspects, issues and opportunities. Strategy employing which a
wireless carrier can reduce its energy consumption?
User Community Strategy employing which large firm could reduce its data centre and
networking use of energy.
Strategy and Motivation to go green
ICTs can help the greening cause or in other words reduce the carbon-footprint by promoting
the development of more energy-efficient devices, applications and networks, by encouraging
environmentally friendly design and by reducing the carbon footprint in its own industry.
Following should be taken into consideration for developing an effective green network
strategy -
System load- It is defined as the energy efficiency of the equipment (servers, storage,
switches, routers, repeaters) in the data centre or telecommunications node. It is defined as a
function of the capacity utilization.
Facilities load- Support mechanical and electrical equipments are covered in this such as
cooling systems (ACs), uninterrupted systems (UPS‘s), Power Distribution Units (PDUs).
Increased Socio-political momentum towards environmental responsibility and the growing-
felt need to decrease run-the-engine (RTE) costs has given birth to a novel discipline of
green IT. Estimates have shown that 1 MW highly-available data centre will consume US
$20m of electricity over its lifetime. Studies have shown that electrical costs for operating and

cooling constitutes up to 35–45 per cent of a data centre‘s total cost of ownership (TCO)
moreover energy costs have replaced real estate as the primary data centre expense.
Studies performed by Uptime Institute (consortium of companies devoted to efficiency
maximization and data center uptime) report that 60% of the energy consumed during cooling
is actually wasted.
Presently, A desktop computer dissipates almost fifty percent of the power it consumes
as heat. A device with a power rating of 120-W (such as a computer or a laptop not being
used, but left on in sleep mode) runs for (say) 16 hours a day, 365 days a year,
consumes about 700 kW-h a year; this equates to about US$100 in power consumption.
A medium-sized company with 1,000 PCs obviously would spend US$100K/ year
needlessly and a company with 10,000 devices would waste US$ 1m per year. Studies
conducted by IDC (a market research firm) have reported that companies spend US$ 26
billion to power and cool servers.
Hence, there are good reasons for pursuing green IT and green networking approaches.
(Energy) efficiency is just one episode of the ‗greening‘ initiative. Some other initiatives like
use of green (renewable) power sources, reduction of waste and decreasing the carbon
footprint per unit of manufactured goods are some of the other important factors. Recent
studies have shown that best practices can effectively reduce the data center energy
consumption by 45 percent.
Just as Total Cost of Ownership (TCO) has been an important measure of an ICT project,
some researchers are proposing Total Carbon Cost (TCC) to be an important criterion for
evaluating a vendor.
Now that some of the motivations for going green have been created, How will it operate or
rather which segments will be affected?
The characteristic of making highly optimized and economized use of energy which might
include changing the energy mix to include more sustainable sources, utilizing sustainable
processes with a low carbon footprint with a closer watch on the triple bottomline is what
constitutes the green operations. Minoli (2010) also identifies the different segments like
Green power, Green IT/green networks, Green buildings, Green fuels and transport,
Government and regulatory bodies where greening can be harnessed. There are
corresponding stakeholders in each of the different segments. Possessing the high-end
network components which are energy efficient is not sufficient to build sustainable networks

but it is a good first step in moving closer to the goal. Classification of the green initiatives of
telecommunications and networking equipment vendors are as follows -
 Reduce energy usage and heat generation and reduce equipment footprint, which in
turn reduces energy costs in networks and user devices (using an accepted industry
measurement metric).
 Using renewable materials to manufacture products and recycled materials for
packaging.
 Conforming to government regulations and recommendations for using renewable
energy.
Financial, environmental and legislative aspects are now inviting, if not forcing, IT
organizations to develop greener data centers. However, there is as no generally
accepted, standardized benchmark framework for the lowest energy consuming or green
data centers in terms of target architecture goals, benchmarks and scope. Following set
of practical principles and approaches has been in circles -
Improved Operation- This operates on a ―low hanging fruit‖ scenario and aims to make
use of the energy-efficiency improvements beyond currently existing operational present
day trends without any capital investment.
Best practice operation- Increased usage of best practices and technologies used in the
most energy-efficient facilities in operation today.
State-of-the-art operation- Attain the maximum energy-efficiency savings that could be
thought of utilizing available technologies. Servers and data centers will be operated at
maximum possible energy efficiency using only the most efficient technologies and best
management practices available today.
Metrics to measure greenness
Analytical metrics can help in preparing results that can be used across institutions.
In order to define a useful efficiency metric for NEs, one needs to normalize energy
Consumption E by effective full-duplex throughput T, namely:

Efficiency metric = E/T
The efficiency metric is typically quoted in watts/Gbps. Green grid (an industry consortium
formed in 2007) proposes two metrics which are emerging as industry standards for
measuring data centre power consumption power usage effectiveness (PUE) and data centre
infrastructure efficiency (DCiE).
The Green Grid defines these two metrics as follows:
o PUE = Total facility power/IT equipment power. PUE is a ratio; it should be less than 2;
the closer to 1, the better.
o DCiE = IT equipment power*100/Total facility power. DCiE is a percentage; the larger
the number, the better.
The further pending research question which needs to be done is to document ways to collect
power-consumption data and perform a comparative study on the efficiency of the data
centers in different organizations to establish best practices for different institutions. Energy
Consumption Rating (ECR) is a framework for quantifying the energy efficiency of telecom
and networking devices. Formed in 2008, due to the growing interest of the national and
international standards bodies to decrease the carbon footprint of networking equipments
ECR developed a methodology for reporting, measuring and regulating energy efficiency of
network and telecommunications components. Under the ECR specifications procedures and
conditions for measurements and calculations are laid out which can help in implementing
with industry-standard test equipment. Networking and telecom equipments are classified into
different classes and rules for measuring energy efficiency in each class of equipments are
provisioned in the ECR framework. Taking dynamic energy management features into
account the final ‗performance-per-energy unit‘ rating can be reported as a scalar or synthetic
(weighted).
ECR = Ef /Tf (expressed in watts/10Gbps)
Where Tf = maximum throughput (Gbps) achieved in the measurement Ef = energy
consumption (watts) measured during running test Tf.

In a nutshell, ECR means the energy required to move 10Gbits worth of user data per second
and is a notion of best platform performance for a fully equipped system within a chosen
application and relates to the commonly used interface speed.
ECRW = ((α* Ef) + (β* Eh) + (γ* Ei))/Tf (dimensionless)
Where
o Tf = maximum throughput (Gbps) achieved in the measurement
o Ef = energy consumption (watts) measured during running test Tf
o Eh = energy consumption (watts) measured during half-load test
o Ei = energy consumption (watts) measured during idle test
α, β, γ= weight coefficients to reflect the mixed mode of operation (ECR specifies
α = 0.35, β = 0.4 and γ = 0.25)
Similarly other metrics‘ like Telecommunications Energy Efficiency Ratio (TEER) and others
are modeled. Opportunities where greening can be applied are buildings, maintenance
services, publications/copier services, meetings, office supplies, electronics, IT/Networks,
fleets, landscapes, power, recycling and waste prevention. The above placeholders are to
meet some or all of the goals like increase energy efficiencies, decrease GHG emissions,
promote ‗reduce, reuse, recycle‘, promote business sustainability policies that are eco-aware,
support the potential for societal benefits.
From an IT perspective guidelines that could improve efficiency are
 Consider energy efficiency and power management as important criterion in making a
procurement decision by considering lower energy costs and trends.
 Provision for power management requirements into specifications as part of an
information communication technology equipment procurement process.
 Choose equipments with the best possible efficiency ratings (when using an industry-
accepted efficiency metric).
 Design for good system and network path utilization; keep off excessive capacity
reserves.

Sustainable Economics

Recommended

Recommended

More Related Content

Similar to Sustainable Economics

Similar to Sustainable Economics (20)

Sustainable Economics