The notion of globalization has been around since humans began to migrate. But let’s focus on its usage from the latter part of the 20th century into the 21st century. During this time, global flows of people, capital, ideas, and culture became increasingly interconnected and interdependent. Technology, primarily driven by the Internet, smartphones, and social media, provides access for global citizens to witness how others live. This transparency also highlights how people in developed and developing countries use dwindling or finite planetary resources and the underlying environmental costs of this increased social comfort.
This timeframe coincided with an increased flow of capital, global market expansion, and mounting consumerism. Economic development was a key driver for politicians and corporations in developed countries to open markets in and move capital into developing ones. As a result, tensions materialized between pollution prevention in the developed world and poverty reduction in the developing world.
The resulting reconciliation of factors linked to globalization and economic development has come to be known as sustainable development (SD) or sustainability. It is the area where economics blend with environmental protection for future generations.
To support this definition, it is important to review the history of this compromise between globalization and economic development, which was first addressed in 1972 during a United Nations conference focused on the human environment. From this meeting, the United Nations convened the World Commission on Environment and Development and tasked it with conceptualizing the future of sustainable development from the year 2000 and beyond. By June 1987, the group published Our Common Future, also known as the Brundtland Report, defining SD as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This argues for the rights of future generations to have the same planetary resources and economic access as current generations.
The Origin of the Triple Bottom Line
By 2005, another UN group, the World Summit on Social Development, took this concept of SD further by embracing the notion of the triple bottom line (3BL). This concept, originally introduced by John Elkington in a mid-1990s model, expanded and reconciled the overlapping demands of sustainable development as defined by the Brundtland Report among economic, social, and environmental performance, meaning that progress in sustainability required greater efforts in each domain. By understanding the coordinated and interconnected relationship between economic outcomes, social elements, and environmental considerations, a business begins to view its responsibility much more holistically. Economic gain with environmental or social loss is no longer acceptable.
High-Performance and Sustainability Matter to Businesses
To understand what drives sustainability in business, it is useful to look at the context and history of the role of business, particularly in the United States.
The Free Market View
The dominant view in the United States is epitomized by the work of Milton Friedman, a Nobel Prize-winning economist who promoted free markets with limited government intervention. He suggested: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Interpretations of his work center on the idea that chief executive officers (CEOs) are focused solely on shareholder returns and profit becomes the primary responsibility of a corporation. While Friedman’s view prevails, the role of the firm is under pressure.
What Matters to CEOs
Friedman’s view that CEOs should care only about profits and shareholder returns provides a starting point for understanding their priorities. To support this goal, firms typically focus on priorities that include competitive advantage, access to financing, cost reduction, risk management, secure supply chains, talent acquisition and retention, strong management and leadership, quality products and services, customer satisfaction, and brand leadership and reputation.
Brand Leadership and Reputation
From the mid-1980s to the present, brand leadership and reputation have become more important to companies due to the transparency provided by the Internet and social media outlets. Interested stakeholders can now scrutinize corporate behavior and practices in the financial, social, and environmental domains that can lead to public relations fiascos.
Building Boardroom Buy-in
These examples underscore the growing importance of reputation, brand, and image to businesses. In his book The Next Sustainability Wave: Building Boardroom Buy-in, Bob Willard, formerly with IBM and now a leader in business sustainability strategies, cites the 2004 World Economic Forum’s Voice of the Leaders poll of CEOs to underscore the importance of reputation: “Sixty percent of the market capitalization of corporations is based on ‘hard’ financial data, while 40 percent is dependent on ‘reputation.'” He suggests a compromised brand or reputation takes roughly four years to recover.
Corporate Social Responsibility Response
How did corporations respond? In response to brand, reputation, and PR disasters in the 1990s, companies began to embrace corporate social responsibility (CSR) programs. Early versions of these programs were typically linked to the UN Global Compact and aligned corporate operations and strategies focusing on compliance with laws and regulations on issues involving human rights, labor, the environment, and anticorruption. Early CSR programs were described as responsive, designed to mitigate risk rather than to align corporate compliance with strategy and improved competitive advantage.
Yet public distrust of corporate interests continues to grow in the 21st century. High-tech firms are accused of human rights abuses in supply chain and environmental issues associated with manufacturing and disposal. Oil and energy companies are accused of lobbying campaigns against GHG pollution controls and the development of renewable energy sources during a time of more profound accidents polluting the environment (for example, the BP Gulf of Mexico oil spill in April 2010). Large global conglomerates are accused of workforce and gender discrimination.
Corporate Social Responsibility Reports
CSR programs are evolving. During the early years of the 21st century, many publicly traded corporations instituted CSR programs that moved beyond mere compliance to laws and regulations. In addition to annual financial reports, these companies issue annual reports on global citizenship and CSR goals, performance, and metrics. Some specific examples of reports include:
- Corporate governance: reports showing compliance with the UN Global Compact
- Environmental practices: reports related to energy efficiency or waste reduction
- Community issues: reports showing financial or in-kind donations, corporate giving, and volunteerism
Although many of these reports focus on cost reductions and marketing, their very existence underscores the growing importance of corporate responsibility. Compliance within the corporation and throughout the supply chain is emphasized. Goals to support worker rights, health and safety, and employee diversity are established and tracked. Environmental goals are emphasized. Social awareness through community efforts comes into focus. These reports highlight progress, and any progress is better than none. In many cases, this is when concerns about the triple bottom line (3BL) emerge.
Corporate Social Responsibility versus Sustainability Strategies
What separates CSR efforts from sustainability strategies? The boundaries are blurred and the names vary according to corporate branding departments. Ultimately, the delineation to sustainability (or strategic CSR) describes the migration to a more transformative strategy, where the 3BL is integrated into a company’s boardroom, culture, and business plan to boost competitive advantage and business value.
Embracing Sustainability Strategies
Embracing a transformative and integrated sustainability strategy requires companies to change focus and planning to a longer-term view of the future. Efforts shift from today’s continuous improvements that mitigate cost and risk to tomorrow’s implementation of breakthrough technologies that provide value-added products and services to existing and new or underserved markets. Companies seek opportunities and investments by collaborating with diverse, new partners to maximize revenue, innovation, and productivity. Rebranding occurs with a true commitment to the 3BL, and companies succeed in doing the right thing for themselves, society, and the environment.
Growing Public Awareness
Growing public awareness and interest in how companies respond to 21st century issues, particularly relating to environmental protection and social consciousness, are repositioning Friedman’s view of the role of the firm. Due to the transparency provided by the Internet and social media platforms, businesses find it necessary to protect brand reputation while avoiding PR disasters. The need to satisfy mounting demands from interested stakeholders and minimize risk has propelled CEOs to embrace sustainability programs, initiatives, and strategies to protect business value and increase competitive advantage.
This article is adapted from BOMI International’s course High-Performance Sustainable Building Principles, part of the RPA|HP and FMA|HP designation programs. More information regarding this course or the new High-Performance certificate courses is available by calling 1-800-235-2664. Visit BOMI International’s website, www.bomi.org.