BUSS1000 Future of Business - Sustainability

7.1 WHAT IS SUSTAINABILITY?

Sustainability is not just about being green. It’s the core of economics. We need forests and
resources that are limited. Below is one such visual framework for sustainable development.

Implications for business

 Sustainability involves certain practices, social norms and business norms—such as using
a reusable and energy efficient model.
 “Sustainable development seeks to meet the needs of current generations without
compromising the ability of future generations to meet their needs” (United Nations
World Commission on Environment, 1987, p. 8_
 Even when there is no commercial angle associated with sustainability, organisations
need to care about sustainability because there is an ethical or humanitarian rationale.

7.2 SUSTAINABLE OPPORTUNITIES AND THREATS

 Climate change and sustainability have been in the news a lot lately. Drought, fire and
lack of water are critical challenges to business. With these challenges come
opportunities. It’s about finding better solutions rather than simply prohibiting the use of
something. Always consider your stakeholders and the role of your business is in
society. 
 On the other hand, never think that profit is bad! In fact, some experts believe
sustainability will help drive the next phase of global business transformation. 
 People often mistake making a profit as the opposite of creating value. When you buy a
product or service, you see some value or use for it. Businesses simply need to think of a
way to make profit sustainably.

7.3 WHY SHOULD BUSINESS CARE ABOUT SUSTAINBILITY?

BUSS1000 Future of Business - Sustainability
 Investment in companies will be based on whether the company is sustainable or not.
You are unlikely to invest in a company that you know will not survive the next 5 years!
 Top financial firms, including the Big Four, are putting more emphasis on providing
sustainable consulting services. According to Ernst and Young (2018), sustainable
investing now represents 18% of assets under management.
 “To prosper over time, every company must not only deliver financial performance, but
must also show how it makes a positive contribution to society.” (Larry Fink, from Black
Rock Investment Management Corp)

7.4 INVESTING SUSTAINABLITY

Five types of sustainability investment

Integrated
 Systematic and explicit inclusion of ESG factors in investment decision making
(drivers of risk and return)
 You eliminate unsustainable types of businesses by choosing only ethical suppliers.
Screening
 There are three types of screening:
o exclusionary/negative - avoiding sectors e.g. gambling, tobacco, alcohol, fossil
fuels
o positive/best-in-class - positive ESG, sustainability performance
o norms-based - minimum standards
 Most of the money goes into negative screening because it's the most effective. For
example, cigarettes are bad for health, yet these cigarette companies still thrive.
Sustainability themed
 building an all-round sustainable portfolio eg. clean energy, green tech, sustainability
agriculture, green property
Impact/community investing
 targeted investments aimed at solving a specific social or environmental problem
 this sector receives the least money because it is hard to identify social needs and create a
business around that (refer to Grameen bank case study).
 But, if you can find and address one fundamental need in society, there’s a huge
opportunity to make money.
Corporate advocacy and shareholder action
 shareholder power to directly influence corporate behaviour (corporate engagement,
proposals, proxy voting)

7.5 WHEN DOES IT PAY TO BE GREEN?

Porter’s Generic Strategy

Porter (1980) shows that with broad strategies of companies gain a competitive advantage either
through:
 lower cost (the price of a product/service is better value than another, for example
household goods)
 differentiation (the characteristics of a product/service is better than another, for
example the Apple iPhone)
On the other hand, narrower company strategies have a competitive focus on how a company
operates:
 Providing products or services that are different from competitors who target a broader
group of customers (for example ‘Shebah’ is a women-only ride sharing service)
BUSS1000 Future of Business - Sustainability
 A company seeks a lower-cost advantage by focussing on a smaller market.

Porter’s Generic Strategy applied to sustainability

Orsata (2006) applied Porter’s Generic Strategy to sustainability and came up with four
strategies.
Strategy 1: Eco-efficiency
Eco-efficiency is where:
 A product/service is manufactured/delivered in a different way at a lower cost.
 Suppliers’ low opportunity cost is used.
Strategy 2: Beyond compliance leadership
Beyond compliance leadership is most commonly adopted by companies. It is where the
competitive advantage comes from differentiation by focussing on organisational processes. Key
features include:
 There is a change process to differentiate the company, but not on cost side.
 Company adopts an EMS (Environmental Management System); a certified sustainable
strategy who set standards and activities to follow. Some examples are:
o CERES www.ceres.org
o UN Global Compact
o Global Reporting Initiative
 The company wants to create public awareness and inform customers about their
sustainable initiative
Strategy 3: Eco-branding
Eco-branding gives companies a competitive advantage by:
 differentiating and creating a niche through ecology-oriented products/services
 Capitalising on consumer’s willingness to pay (WTP) upward for trustworthy health
products
 Positioning products/services as a unique ecobrand that is difficult to imitate
Strategy 4: Environmental Cost Leadership
Environmental cost leadership gives companies a competitive advantage by creating a new
product and service which reduces cost. It’s a complex strategy:
 Differentiation is based on a more efficient product/service.
 Strategy works well in a market with lower scope of differentiation.
 It can create a first-mover advantage, especially to leverage (future) changes in
regulations.

7.6 THE TRIPLE BOTTOM LINE

Dimension Old paradigm New paradigm

Markets Compliance Competition
Values Hard (economic figures) Soft (additional values)
BUSS1000 Future of Business - Sustainability
Communication Closed (internal) Open (wider stakeholder
analysis)
Partnership Subvention Symbiosis (win-win)
Lifecycle technology Focused on products Focused on functions
Time Wide Longer
Corporate governance Exclusive Inclusive

7.7 GREENWASHING

 Business are made of people, by people, for shareholders and stakeholders. We need to
remember the profit motive.
 Be cautious about greenwashing: Greenwashing is to make people believe that your
company is doing more to protect the environment than it actually is. _The Cambridge
Business Dictionary (2017)
 Companies may position themselves as a sustainable organisation through conferences
and marketing, but in reality, they are not serious about change. Some are just using the
opportunity for publicity. Other companies might report a specific example to emphasise
their good deeds, but it is often a distorted account of their actions.