Exploring the Concept of Sustainable Business – by Geoffrey Wells

Sustainable building

photo credit: I ♥ Brizzle
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Recent surveys of international CEOs confirm that companies increasingly see sustainability as critical to their business strategy.  But what exactly is ‘sustainable business’? Geoffrey Wells explores the history of the concept, explaining that in today’s society there is an acceptance that a firm’s responsibility extends beyond its formally regulated boundaries.  In addition to economic, environmental and social dimensions, social justice and human rights are also becoming increasingly important considerations.

What is sustainable business?

Sustainable business is business conducted under sustainability principles.

‘Sustainability’ is one of those popular terms that are difficult to pin down, but we all have a sense of what it means.  Probably we would point to ideas of stewardship, of acting responsibly with respect to the environment and natural resources.   But it goes much wider than that.

The roots of sustainability thinking extend over many decades, as, for example, in the ‘Limits to Growth‘ project of Donnella Meadows and her co-workers. However its modern formulation is identified with the 1987 United Nations report, Our Common Future. This report ranged widely over global challenges, predominantly economic and environmental, and proposed a view of sustainability which has been definitive:

Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future. 

Social justice is equally emphasized:

A world in which poverty and inequity are endemic will always be prone to ecological and other crises.

Our Common Future framed the development of sustainability principles and practice for two decades, through many international forums. For example, The Rio Declaration on Environment and Development articulated 27 principles, which are a formalization of the 1987 report. One is the precautionary principle (Principle 15):

Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.

Another is the internalizing of external costs (Principle 16):  “. . .the approach that the polluter should, in principle, bear the cost of pollution.”  The recent Rio+20 deliberations have essentially confirmed these principles.

Sustainability principles began to be applied systematically to business in the 1990s.  In the process it picked up other dimensions.  In line with the founding emphasis on removal of poverty and on equity, international supply chains came under scrutiny: sweatshop labour was exposed, and a general pattern of exploitation of suppliers in developing countries by buyers in developed countries became evident.  A demand grew internationally for fairer treatment across stakeholders in these supply chains.  In recent times we have seen this theme played out in the unacceptable conditions of those working in China to manufacture smartphones and tablets.

Internally, too, within organisations the demand for ethical treatment not only of employees but of other stakeholders in the firm, such as suppliers and customers, has come under the umbrella of sustainability in business.  This has been extended even to new models of organisational decision-making which are more devolved and participatory, and to the extension of occupation health and safety to areas of general welfare and well-being.

Is sustainable business controversial?

This somewhat unsystematic program, although relatively recent, has a pedigree.  The debate on the social responsibility of business extends back 60 years.  It has been framed as a series of responses to an article by Milton Friedman, the noted American economist, who famously proposed that the sole social responsibility of business is to be profitable.  Matters of wider social responsibility, Friedman argued, should be left to the democratic process that underpinned legislation.  Business should simply do its job within the legal limits defined by law.

The decades after Friedman saw many approaches which opposed this view and argued instead for ethical and socially responsible business behaviour on its own ground.  This was variously developed as Corporate Social Responsibility (CSR), Business Ethics, Stakeholder Theory and so on.  However the common theme was that firms had responsibilities that went beyond the purely commercial.  This has been framed as a ‘license to operate’: the idea that firms are embedded in their societies, and there are in consequence social expectations of them, beyond legal requirements, that they are expected to meet.  If firms don’t meet those expectations, over a period of time, that license can be placed in jeopardy.

What does the practice of sustainable business demand today?

Sustainable business as it has emerged since the 1990s has incorporated and extended these themes.  There is a general view among commentators that CSR and CS (corporate sustainability) are converging on economic, environmental and social dimensions (the conventional ‘triple bottom line’) but now extending to issues of social justice and to human rights, both externally to the organisation and internally.  Two themes characterise this in practice.

A central principle is an acceptance that the firm’s responsibility reaches beyond its formally regulated boundaries.  It is responsible, for example, for the materials it uses, and how they have been acquired.  Thus makers of mobile phones use the metal coltan, which has been associated with questionable labour practices and with serious conflicts in the Democratic Republic of the Congo: firms using it cannot ignore these origins.  Moreover, firms are being held responsible for what happens to their products after they are sold.  Mobile phones eventually break down or are discarded, and the question of their disposal becomes material: can they be recycled or reused?  Sustainable business principles rest centrally on this ‘whole of life’ responsibility, which is carried out directly, in collaboration with other members of the value chain, and by internalising the social costs that are generated by such practice.

More fundamentally, however, sustainable business is ethical business, in the wider sense.  This doesn’t exclude business success: it’s been well demonstrated that many sustainable business practices—for example, increasing efficiencies in energy, waste and water—deliver immediate improvements in profitability, and most such practices deliver business value in the longer term.  This is the business case for sustainable business.  But even without this justification it is increasingly recognised that businesses need to act according to the ethical norms and values of their societies, and according to internationally accepted human rights frameworks.  In this sense, sustainable business is the re-embedding of firms in the societies of which they are part, and to which they can deliver benefits beyond the economic—benefits which support the social good that we all seek.

Dr Geoff Wells is a Senior Research Fellow at the University of South Australia. His research has focused on the application of sustainability principles to business. He was the founding director of UniSA’s graduate program in sustainable business, and a founding board member of the Asia Pacific Academy of Business in Society. He is an advisor to CEOs and executive teams throughout Australia on sustainability principles and practice. Dr Wells has recently worked with research teams on a national project to develop technical management responses to climate change impacts at the local government level.

 

Geoff has recently edited Sustainable Business: Theory and Practice of Business under Sustainability Principlesa new book presenting important new work in the theory of the sustainable firm, in the application of sustainability principles to key management disciplines, in sustainable business in practice, and in the international challenges that are critical to sustainability demands.

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  1. ElgarBlog: my piece on sustainable business | Dr Geoff Wells - April 9, 2013

    […] Here is a piece I wrote for ElgarBlog, which is run by the UK publishers Edward Elgar.  The piece goes along with the publication of my book, Sustainable Business: Theory and Practice of Business Under Sustainability Principles which I edited. […]

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