This document provides an overview of the topics that will be covered in a course on sustainability. The course objectives are to develop an understanding of sustainability trends, stakeholder sensitivity, and tools for integrating sustainability into business decision making. It will cover concepts like sustainable development, corporate sustainability, market failures, externalities, and frameworks for managing sustainability. Case studies on past industrial disasters and critiques of economic indicators will be discussed. The implications of firm assumptions and economic systems for sustainability will also be examined.

1. What is sustainability?
Session 1

2. • Introduction to the course
• What assumptions do we live with?
• Public goods, private goods and externalities
• Market failure and government failure
• Sustainable development, corporate
sustainability

3. Course objectives
• develop an understanding of the emerging
national/global sustainable development trends and
their relevance to business management
• develop stakeholder sensitivity to be able to drive
management decisions to create shared value for
inter and intra generational equity
• develop a familiarity with the various tools and
frameworks that enable integration of sustainable
development concerns into business decision making

4. Evaluation
• Class participation (and presentation) 10%
• Concept based examination 30%
• Term paper – (group) 20%
• End Term (Case, Descriptive questions) 40%
11. Groups- first roll no. belongs to group 1 and so on
Group 1 presents case analysis during session 3
Group 11 discussed ideas about term paper in session 3
Submission of term paper on August 5

5. Why this course needs to be studied?
• Or why not?

6. Course contents- sessions 1-6
• What is sustainability
• Problems in achieving sustainability
• Business case for sustainability:
• Business environment: Drivers of
sustainability
• Stakeholders perspectives on sustainability
• Multi-stakeholder partnerships

7. Session details – sessions 7-13
• Tools for managing sustainability
• Markets for sustainable products
• Sustainability metrics
• Sustainability reporting
• Implementing a sustainability management
system
• Corporate social responsibility
• Towards a sustainable future: how firms can
contribute to a sustainable habitat

8. Focus of this session
• How to reconcile between issues of growth,
environment (sustainability)and
market/exchange

9. Key incidents: Union Carbide, 1984
• Over 500,000 people were exposed to methyl isocyanate (MIC) gas and other
chemicals. The toxic substance made its way into and around the shanty
towns located near the plant.
• The official immediate death toll was 2,259. The government of Madhya
Pradesh confirmed a total of 3,787 deaths related to the gas release. A
government affidavit in 2006 stated that the leak caused 558,125 injuries,
including 38,478 temporary partial injuries and approximately 3,900 severely
and permanently disabling injuries Others estimate that 8,000 died within two
weeks, and another 8,000 or more have since died from gas-related diseases.
• The cause of the disaster remains under debate. The Indian government and
local activists argue that slack management and deferred maintenance created
a situation where routine pipe maintenance caused a backflow of water into a
MIC tank triggering the disaster. Union Carbide Corporation (UCC) contends
water entered the tank through an act of sabotage.

10. Key incidents: Exxon Valdez oil spill
• March 1989, supertanker Exxon Valdez ran aground
on Bligh Reef in Prince William Sound, Alaska, spilling
11 million gallons of crude oil into the sea.
• If in addition to the out-of-pocket losses suffered by
fishermen, resort owners, tour guides, recreationists
and others directly and indirectly harmed by the
accident, Exxon would be forced to pay also for lost
nonuse or existence values, the compensation would
be raised substantially. This possibility focused the
attention of Exxon and many other companies on
existence values and the contingent valuation
method.

11. From Paul Hawken- the ecology of
commerce, 1998
• If all the firms adopt practices of ‘leading’ companies,
the world would still be heading for a disaster.
• Need to ensure that each act is inherently sustainable
and restorative
• Need to focus on principles such as reduction of
consumption of natural resources, provide stable
employment, ensure self-actuated progress to
sustainability (as opposed to regulated), rely on
current income, exceed sustainability by restoring past
degradation of habitat.

12. • How do we measure performance-
growth/utility
• How do we define the purpose of the firm
• What is sustainability, how has the concept of
sustainability evolved
• Problems of commercial view of markets in a
country like India

13. GDP based economic focus
• Case of two economies
• Focus only on monetised activities
• Fiction of the nation state- positive view of
demographic dividend?- are we too many?
• Confusing between stock and flow
– Very high resource consumption in some parts of
the world- US? Bangladesh? Amazon Basin? India?
• De-linking sustainability from consumption, and
waste- hence conceptualization of alternative
economics based on sustainability

14. Congestion on roads, air pollution
• Estimated 1 billion cars in 2010
• Projected 3 billion cars in 2035
• Currently more cars in US than drivers
• Car sales in India 700,000 per year, in 2010
about 2 million an year.
• Search for innovative solutions for parking
etc.-(People adapting to technology, rather
than the other way around)-limited thinking?

15. Are we locked into certain ways of thinking? Assumptions?
Moving beyond thinking out of the box about the box
• Rational thinking, ceteris paribus,
– Graham T Allison
– Frameworks in strategy
– Thinking silos- eg. US vs Japanese
– Invisible hand, counter- lighthouse example
• Assumptions about the firm as a perpetual entity
• Why do we feel happy when the stock markets
rise? Role of media in perpetuating ways of
thinking

16. Resulting implications from the
“fiction of a firm”
• Explicit shift to a profit motive- the organized
and concerted actions of a group of
individuals, over a long period of time,
institutionalization of the legitimacy of the
for-profit-firm

17. Treadmill of production (Schnaiberg,1997)
• Capitalist induced production
• Investor driven focus on profits and growth
• Competition for markets, resources, reducing
margins
• Political bargaining for better economics
• Either exit or continue to struggle
• Lower prices stimulate more demand, but tech
advances continue to maintain efficiencies
• Continue to ignore the environment
• Invisible elbow (Jacobs,) instead of invisible hand

18. What are the assumptions and
implications of the current economic
system
• Market based on exchange
• Products based on individual incentives
– Assumption that costing is right and hence prices
would provide the right incentives for the invisible
hand
• At the firm level also, assumption that
markets would take care of the costs
• Markets would weed out the less desirable
firms and products

19. Problems based on the current
economic system/markets
• Our consumption on public goods- beyond
entitlement
• Tragedy of the commons
• Problem with valuing resources which do not
allow costing
• Problems of market failure

20. Characteristics of goods
• Rivalrous
• Excludability
• Public goods: non rivalrous, non excludable
(additional consumers may be added at zero
marginal cost)
• Private goods: rivalrous, excludable
• Impure public goods- mix of both

21. Classification of goods
Excludable Non-excludable
Rivalrous
Private goods
food, clothing, cars,
parking spaces
Common
goods(Common-
pool resources)
fish stocks, timber,
coal
Non-rivalrous
Club goods
cinemas, private
parks, satellite
television
Public goods
free-to-air television,
air, national defense

22. Demand and supply of public goods
(Buchanan, 1967)
• If each person’s contribution is independent
public goods are underprovided
• If the public good is recognized as important
individuals may be willing to trade their other
private goods to allocate responsibility for
producing the public goods

23. Provision of public goods- the free
rider problem
• Everyone’s child is no one’s

24. Common-pool resource (CPR), also
called a common property resource
• A type of good consisting of a natural or human-
made resource system (e.g. an irrigation system or fishing
grounds), whose size or characteristics makes it costly, but
not impossible, to exclude potential beneficiaries from
obtaining benefits from its use. Unlike pure public goods,
common pool resources face problems of congestion or
overuse, because they are subtractable.
• A common-pool resource typically consists of a core resource
(e.g. water or fish), which defines the stock variable, while
providing a limited quantity of extractable fringe units, which
defines the flow variable.

25. Externalities
• The cost or benefit that affects a party who
did not choose to incur that cost or benefit
(Buchanan and Stubblebine, 1962)

26. Types of externalities
• Negative production externalities- eg.
pollution, “tragedy of commons”
• Negative consumption externalities: eg.
shared costs of smoking
• Positive production externalities- e.g
demonstration effect by MNCs to local firms
• Positive consumption externalities- positive
network externalities

27. Solution to problems of negative
externalities
• Pigovian taxes or subsidies intended to redress
economic injustices or imbalances. (Pigou, 1932)
• Regulation to limit activity that might cause negative
externalities- (problem of knowledge gaps)
• Government provision of services with positive
externalities (Who pays for that? Funds diverted from?)
• Lawsuits to compensate affected parties for negative
externalities (how to determine value?, who is responsible?)
• Mediation or negotiation between those affected by
externalities and those causing them (knowledge gaps,
transaction cost)

28. • Pigouvian logic of tax: If the marginal private
benefit is more than the managerial social
benefit, the government can increase welfare
by taxing, and if the private marginal benefit is
less than the marginal social benefit, it is
socially beneficial to offer a subsidy. This takes
care of the logic of positive and negative
externalities.

29. Coase’s critique of Pigouvan taxes
(Coase, 1960)
• ‘Coase Theorem’ - efficiency is independent of the
initial endowment of liability
• an efficient level of harm would be reached without
the requirement of direct government action if
parties could costlessly bargain (and property rights
were well defined, and people act rationally),.
• that the Pigouvian prescription to externalities was
entirely misguided as this perspective failed to take
into account the reciprocal nature of harm

30. Market failure
• A situation in which the allocation of goods and
services is not efficient. That is, there exists
another conceivable outcome where an individual
may be made better-off without making someone
else worse-off. (The outcome is not Pareto
optimal).
• Market failures are often associated with time-
inconsistent preferences, information
asymmetries, non-competitive markets-
deadweight (Stiglitz, 1998), principal–agent problems,
externalities, or public goods(Stiglitz, 1989)

31. Tragedy of commons (Hardin, 1968)
• Individuals acting independently and rationally
according to their self-interest behave contrary to the
best interests of the whole group by depleting some
common resource. - related to free rider problem
• "Commons" in this sense has come to mean such
resources as atmosphere, oceans, rivers, fish stocks,
the office refrigerator, energy or any other shared
resource which is not formally regulated; not common
land in its agricultural sense.

32. Issues in emerging economies like
India
• Economy not fully monetised
– Social and community work
• Patron client relationships and interlocked
factor markets

33. Along with market failure,
government failure also occurs
• Failure in appropriate regulation- eg.
Regulation and control of mines
• Failure in providing laws that balance out
between groups that are differently affected
• Hence need for others- individuals,
institutions, organizations to be proactive

34. Definition of sustainable
development
• “Development that meets the needs of the
present without compromising the ability of
future generations to meet their needs
(WCED, 1987:43)
– Implications of this definition?

35. Critiques
• The definition considered too anthropocentric- as it
places the economic and social needs of the human
society over the natural environment (Vucetich and Nelson, 2010)
• The aspect of economic value of the ecosystem as
specified in (WCED 1987, page 147) is an attempt to trivialize the
environment
• What about human resources? (Farver, 2013)
• Managing tradeoffs between current and future, and
between stakeholders

36. Value of the natural environment
• Ecological and other perspectives are critical of the
tendency to put an economic value to bio-diversity
(Giddings et al, 2002) or that the value derived has
any sanctity (Diamond and Hausman, 1994)
• Use values and non use values
• Non use values of natural environment may imply
recreational value as well as non-recreational value
(Giddings et al, 2002)
• Recreational value can be considered as part of the
benefits that can be excluded.

37. Valuing the natural environment
• The non use value is usually derived from the
contingent valuation method which mainly look at
the hypothetical price that people are willing to pay
for public good eg. improvement in environmental
conditions measured through a survey, or even
measured for instance in Hotelling’s travel cost
method or the existence value that people would be
assigning to the continued existence of natural
phenomenon (Krutilla, 1967). There could be some
value even beyond this.
• Use of revealed preferences, hedonic pricing (eg.
hedonic wage analysis for risky jobs that reduce life
spans)

38. Definition of corporate sustainability
(WCED, 1987)
• Focus on three basic resource areas that are
impacted by any company (Farver, 2013)
– Environmental
– Social
– Economic

39. Overlapping themes of the
sustainability paradigm

40. Corporate sustainability-
operationalizing definition (Farver, 2013)
• Balancing environmental stewardship, social
wellbeing and economic prosperity while
driving towards a goal of long term success for
the health of the company and its
stakeholders.
– Sustainable corporation- transparent in
management of these responsibilities and is held
accountable to its stakeholders for its results

41. ‘Positive’ approach
• Negative effects can be removed, problems
can be resolved in ways such that profitability
of all concerned improves

42. Hart 1995: Natural Resource View of the firm
• Focus on three interconnected strategic
elements of
– Pollution prevention (minimise emissions,
effluents and waste)
– Product stewardship (minimise life cycle cost of
products) and
– Sustainable development (minimise
environmental burden of firm growth and
development)
• Concept of ecological capital (Coleman, 1988)

43. • Western world- system built out of
exploitation= Huberman, Lewis, Marx, Gandhi,
Veblen
• Earlier focus on exploitation of nature
– Eg. British introduction of Anthropology as one of
the earlier subjects in Indian universities.
• The conservation movement- in the 1800s-
forerunners of the modern environmentalism-
Emerson, Thoreau

44. Building Sustainability or
resilience?
• Resilience- seen as the capability of a system
to be resistant or responsive to change
(UNISDR, 2002)