The Chartered Accountant Journal • Sustainability Vol. 68 | No. 11 | May 2020 | Pages 71–74 (1479–1482)

Corporate Sustainability

By CA. Ashok Sharma  |  Member of the Institute  |  (ashok23460@hotmail.com • eboard@icai.in)

“The objective of this Article is to make the corporates aware of the term Sustainability i.e ability to create long term stakeholders value and the way to achieve it in its true spirit by emphasising on all 3 Ps- PROFIT, PEOPLE AND PLANET. We have very good opportunity in terms of Sustainable Development Goals (SDGs) provided by The UNITED NATIONS to achieve Sustainability. Businesses are being called upon to contribute to the SDGs to achieve Sustainability. While overall responsibility to achieve the SDGs lies with the policy makers, these cannot be achieved without a concerted effort by Businesses. Read on…”

Meaning and Evolution of Corporate Sustainability

Sustainability may be defined as the ability to be maintained at a certain rate or level. When it is used in reference to Corporates, it refers to the ability of corporates to create Long Term stakeholders Value. One has to be consistent in its ability through relentless pursuit of achieving Long Term Stakeholders Value. The term ‘Stakeholder’ remained very happening as per the passage of time and state of level of development in respective country. At start, it used to include the promoters and its interest only in form of PROFIT. But with the passage of time due consideration was started to be given to the Social angle hence interest of PEOPLE around like employees, consumers, suppliers, community etc. were started taken care of. The reason was that corporates started realising the importance of people for whom they are producing goods or rendering services and the people who help in manufacturing the goods or rendering services. Some of the corporates out of its sincerity towards PEOPLE started giving respect without waiting for the implementation of relevant regulations and others as a compliance of rules and regulation later on.

During the start of current century in special, one more interest was very rightly added to the term Stakeholder- PLANET. The reason is the continuous deterioration of our environment being caused by lavish standard of living by inhabitants of Rich Nations, aspirations of developing Nations to imitate them among others which compel the Corporates- both manufacturer and service providers to go on utilising the natural resources to please them without considering its availability limits. This has caused the very severe outcomes-Global Warming out of excessive emission of CO2, Water Crisis, depletion of natural resources among others.

Global Footprint Network & Earth Overshoot Day: According to The Global Footprint Network which estimates Earth Overshoot Day each year, we now need 1.5 Earths to satisfy our current demands and desires. But that’s a global figure. Wealthy nations- such as United States- have a large Ecological Foot Prints than poorer ones, meaning they use larger areas of land and sea to maintain their lifestyles. If everyone in the world lived as Americans do, we would need 5 Earths to support humanity- Augt.26, 2013. Earth overshoot Day 2019 was July 29. Each Overshoot Day marks the date when humanity’s annual demand on nature exceeds what Earth’s ecosystems can regenerate in that year. Over the past 20 years, it has moved up 3 months to July 29, the earliest ever. This means that humanity is currently using nature 1.75 times faster than our planet’s ecosystem can regenerate, equivalent to 1.75 Earths.

Corporate Sustainability is built on three pillars- Profit, People and Planet. Corporate to become sustainable has to give due consideration to People, Planet aspects along with earning Profit.

So if we linked the way vest with the corporates to achieve this, we may define Corporate Sustainability as an approach aiming to create long term stakeholders value through the implementation of a business strategy that focus on the people, environmental, and economic dimensions of doing business.

Justification for Corporate Sustainability

The big question is why the corporates go for this or what are the justification for making efforts to achieve Sustainability. The justifications are:

A- Increase in Revenue

  • 1 - Increase in sales both within the country and overseas due to emerging interest of customers towards Sustainable Businesses.
  • 2 - Sustainable Innovations resulting in extension of Product and Service portfolio.

B- Reduction in Cost

  • 1 - Saving in use of energy and water.
  • 2 - Reduced sourcing and after sales cost by improved supplier reliability and quality of goods through Supply Chain Management.
  • 3 - Reduced R&D costs by improved interaction with stakeholders.
  • 4 - Reduced labour cost by increased loyalty of employees.

C- Increased Reputation

  • 1 - Increased brand value.
  • 2 - Increased attractiveness for investors.
  • 3 - Improved employer branding.
  • 4 - Increased trust and customer loyalty.

D- Risk Reduction

  • 1 - Protection of right to license.
  • 2 - Reduced reputational risks.
  • 3 - Reduced regulatory risks.

Move Towards Sustainability: Three Stages of the Journey

We will now see how these 4 justifications are usually considered by decision makers as businesses moves on their journey of becoming Sustainable one. There are three stages to this journey:

1. Unsustainable

They have the increase in opportunities by way of increase in revenue or reduction in cost or mitigation of risk, as a prime justification for becoming sustainable.

2. Sustainable

They consider Increase in reputation as a priority over others like opportunities and mitigation of risk as justification for becoming Sustainable in true spirit.

3. Sustainable in True Spirit

They have the same justification as the Sustainable one has. They both deploy business strategies that respect the health of the environment and community and the going business health of it. The only difference is that whereas the Sustainable one wants itself as a successful business as an outcome whereas Sustainable in True Spirit one has purpose and values of contributing to a better world and eventually become leaders and motivators for others to become Sustainable in true spirit.

Corporate Sustainability and Sustainable Development Goals (SDGs)

As explained above that our Planet is facing economic, social and environmental challenges so are our businesses. Companies to gain sustainability required to set long term goals and short term targets for their environment and social efforts and to measure progress against these. We have very good opportunity in terms of Sustainable Development Goals (SDGs) provided by The UNITED NATIONS to achieve Sustainability as claimed by the UN Global Compact & Accenture Strategy CEO Study, “Agenda 2030: A window of opportunity”, 2016, that 87% of CEOs globally believe that SDGs provide an opportunity to rethink approaches to sustainability.

Sustainable Development Goals (SDGs) Overview

At Global Level, the efforts toward Sustainable Development during this century in form of Millennium Sustainable Development goals 2000-15 (MDGs) and then Sustainable Development Goals 2015-30 (SDGs) were taken. Unlike MDGs, SDGs explicitly called on businesses to apply their creativity and innovation to solve sustainable Development Challenges as also seen in statement by BAN Ki-moon, United Nations Secretary –General:

“Business is a vital partner in achieving the Sustainable Development Goals. Companies can contribute through their core activities, and we ask companies everywhere to assess their impact, set ambitious goals and communicate transparently about the results.”

Also the UN Global Compact & Accenture Strategy CEO Study, “Agenda 2030: A window of opportunity”, 2016, states that 49% of CEOs globally believe that business will be the single most important actor in delivering the SDGs.

SDGs encourage corporates to reduce their negative impacts and enhance their positive contribution to the SDGs and in turn their own performance and get advantages to earn sustainability.

So it is important to understand first the SDGs. There are 17 Goals agreed to by 193 countries. Each goal offers several specific and actionable targets (169 in total). The goals to achieve by 2030, in short are as follows:

  1. End poverty
  2. End hunger, achieve food security.
  3. Ensure good health and well being
  4. Ensure quality education
  5. Achieve gender equality
  6. Ensure clean water and sanitation
  7. Ensure affordable and clean energy
  8. Promote decent work and economic growth
  9. Industry, innovation and infrastructure
  10. Reduce inequality
  11. Sustainable cities and communities
  12. Ensure sustainable consumption and production
  13. Combat climate change
  14. Life below water
  15. Life on land
  16. Peace, justice and strong institution
  17. Revitalise global Partnerships for sustainable development

Though all goals are interlinked but generally the goal no. 13, 9, 11, 12 and 8 are good business cases. The companies can go for achieving the goals relevant for them by introducing practices for change in their value chain and company management. For others, companies can engage in partnership and advocate for change in their ecosystems. By developing and delivering solutions for the achievement of the relevant SDGs, Businesses can prove their justification explained above as right.

How Companies Can Incorporate SDGs: The SDG COMPASS Guide

The question arises ‘How’ companies can incorporate these SDGs in their goals, implement into their strategies to achieve SUSTAINABILITY. For company’s action on the SDGs, an important guide named SDG COMPASS is developed by GLOBAL Reporting Initiatives (GRI), UN Global Compact (UNGC) and World Business Council for sustainable development (WBCSD).

The objective of SDG COMPASS is to guide companies on how they can align their strategies as well as measure and manage their contribution to the SDGs. It suggests five steps to be followed by companies to maximise their contribution to the SDGs. In brief, the five steps are as follows:

Step 1: Understanding The SDGs

Since all companies in a way directly or indirectly impacted by the challenges that the SDGs address, it is important to familiarise themselves with the SDGs. We have already provided the SDGs above. These are 17 goals with 169 Targets in total to be achieved by the year 2030. Companies must know the opportunities and threats as an outcome of taking action to go or not to go for achieving these. Opportunities as short term outcomes are like Increase in Revenue or reduction of cost. Similarly long term opportunities are in form of Increase in Brand value and Mitigation of Risks. These are provided in detail above under the heading JUSTIFICATION.

Step 2: Defining Priorities

Based on an assessment of their positive and negative, current and potential impacts on the SDGs across their value chain – supply chain, production, use and end of Product etc., identification is done of the segments of value chain with high potential impact requiring increase in efforts or the areas requiring reduction in efforts on part of company. Further to measure the performance of relationship between efforts on part of company and their impacts on Relevant sustainable development, identification of INDICATORS is done.

Step 3: Setting Goals

As explained in above 2nd step, your goals should encourage improvement across the entire value chain. The key performance indicators representing goals should be SMART- specific, measurable, achievable, relevant and time bound. Due consideration should be given to the ambition aspect. Ambitious goals generally motivate for more innovative efforts and hence better results. Similarly making public the goals, also motivate employees and all other stakeholders. It also attracts prospective investors.

Step 4: Integrating

Since sowing the seed of sustainability and nursing it further is a strategic decision, it requires sincere spirit on part of top management to make it happen. Rather sustainability ambition should be reflected in its vision, mission and strategy statements. Top management plays a key role especially where the importance of it is not fully understood across the parts of the organisation. To achieve goals, Top management can motivate by clearly communicating the business case and how it can complement progress towards other business goals. It can also integrate performance incentives with the result in achieving sustainability goals. Companies for embedding sustainability across all functions within the organisation can take help of external consultants also. Companies can also take benefit of shared opportunities by interacting with relevant industry forums, governments etc.

Step 5: Reporting And Communicating

SDGs has also given emphasis to reporting aspects by providing SDG Target 12.6 calling on Governments everywhere to encourage companies, especially large and trans-national companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycles. Aligning company’s reporting and communication with the SDGs provides opportunity to discuss the performance in context to the expectations set by the SDG vide key performance indicators as defined in the process of assessing impacts and setting goals as described in step 2 and 3 above. Also aligning disclosures with the language of the SDGs ensures a common dialogue among stakeholders.

Companies can also integrate information on the SDGs into existing types of reports if there, by adding a column to provide for their list of relevant SDGs. Say in INDIA SEBI vide its circular dated February 6, 2017 recommended that Integrated Reporting might be adopted on a voluntary basis by top 500 Listed companies which were required to prepare Business Responsibility Report. Under Integrated Reporting, it is required to disclose about the 6 capitals- Financial, Manufactured, Intellectual, Human, Social and relationship and Natural. Companies while reporting about these 6 capitals can also include there status of SDGs. It is easy as transformation of the Capital will often relate to one or more SDG/s. like Natural Capital may be related to nine of the SDGs- 2, 6, 7, 11, 12, 13, 14, 15 and 17. For example, increased reliance on renewable energy sources and improving diversity in the work force enhance Natural and Human capital and may contribute to the achievement of SDGs 5, 7, 10 and 13.

Conclusion

Sustainability is inevitable for CORPORATES. They require goals and targets to achieve it. SDGs provide a very good opportunity by way of common goals and targets to corporates also, even though these are mainly an agenda of nations. Companies can go ahead with the goals relevant for them and introduce practice for change in the relevant segments of their value chains to achieve the set goals. By doing so, companies in turn improve their own performance and earn sustainability i.e. real contribution towards three P’s– Profit, People and Planet.■