sustainability and its impact on the corporate agenda

By Eric M. Lowitt,Andrew J. Hoffman,Judith Walls andAnna M. Caffrey

Sustainability and its Impact on the Corporate Agenda

2 Sustainability and its Impact on the Corporate Agenda

“Over the past five years, we’ve seensustainability steadily move from the periphery to the heart of business.Companies have adopted sustainabilitypractices for a host of reasonsdepending on the industries andgeographies in which they operate.”

Sustainability and its Impact on the Corporate Agenda 3


Dear Reader

“Based on ourexperience andresearch, Accenturebelieves that now isprecisely the time.”

Over the past five years, we’ve seensustainability steadily move from theperiphery to the heart of business.Companies have adopted sustainabilitypractices for a host of reasons dependingon the industries and geographies inwhich they operate.

Their practices—which focus on maximizingthe positive and minimizing the negativeeffects on social, environmental andeconomic issues—contribute to a globalmovement committed to building a better world. Society clearly benefits from their actions. So do employees and shareholders. As many companies have learned, embedding sustainability practices across the organization translatesinto critical performance benefits such as revenue growth, cost reductions, better risk management and stronger brand positioning.

Today’s economic downturn, driven in largepart by the frozen global credit markets,has placed an immediate premium onliquidity. As a result, companies are castinga critical eye towards all investments andinitiatives, including those focused onsustainability. Increasingly, sustainabilityprograms are in the cross-hairs. Some arehalted completely. Others are scaled back.Others are delayed.

Based on our experience and research,Accenture believes that now is precisely the time for companies to focus andaccelerate—not reduce—their sustainabilityinvestments and initiatives. Why? The keydrivers of sustainability are independent ofthe present economic context. They are notgoing away. The growing scarcity of naturalresources continues. So do consumerpreferences for sustainable products andservices. In addition, employees are moreaware of sustainability issues vis-à-vis thestrategy and actions of their companies.They want to work for companies that are making a difference. In capital markets,we see not only more references tosustainability indexes, but also investmentsin sustainable technologies—demonstratingthat investors still consider sustainability a wise investment option.

Finally, regulatory bodies at national,regional and global levels are not backingoff. In fact, there seems to be an almostunanimous recognition among regulatoryagencies of the need to increase pressureon these issues.

To maintain or restore the trust ofinvestors and markets, regulators,employees and customers, companiesshould not be perceived as shying awayfrom their sustainability objectives becauseof current economic conditions. Evidencesuggests that companies can achieve highperformance because of, not despite, theirattention to sustainability. This is as true in bad economic times as in good becausesustainability initiatives are generallyeconomically sound. This is most visible in environmental programs that reduceemissions and, at the same time, shrinkoperating costs.

We believe that companies that maintain—or strengthen—their sustainabilityinitiatives will be better placed to face this challenging economy and betterpositioned for high performance once the economy rebounds.

Gaining a better awareness ofsustainability’s challenges—and theirassociated implications—is a critical firststep toward crafting and executing therequired solutions. We have developedSustainability and its Impact on theCorporate Agenda as a tool to provideexecutives with a baseline understandingof what sustainability could mean fortheir business. Specifically, it exploresthree critical aspects of sustainability:

• The key concepts of sustainability and how each emerged

• The role that sustainability plays amid the global market shifts currently underway

• The ways that sustainability mightevolve over time

We hope that you find this a useful toolto help guide you and your organizationtoward a sustainable future.

Yours sincerely,

Bruno BerthonAccenture Global Sustainability Practice Lead

January 2009


The World Business Council for SustainableDevelopment (WBCSD) is pleased to supportAccenture in releasing Sustainability andits Impact on the Corporate Agenda.Accenture is one of over 200 globalcorporations among our members whohave identified the business benefitsderived from sustainable development. This rigorously documented new work by Accenture adds very substantially to that body of knowledge.

It is my view that the need for responsiblebusiness engagement in the big issues ofour time has never been more urgent. The current financial crisis is the result of short-term and unsustainable businessmodels. Our experience is that industriesthat have put sustainability issues at theheart of their business strategy offer somevaluable lessons for the financial sector.Different industries at different times have had to understand how sustainabilityissues such as constraints on carbon, waterand ecosystems, or social impacts impacttheir profitability.

The companies in our membership areinnovative and well managed partlybecause of their commitment tosustainable development.

They are also the front runners inunderstanding the business benefits derivedfrom innovative energy and environmentalapproaches. This means they are focusingon action, rather than continuing to debatethe science of climate change. The financialcrisis means that we must now developbusiness models for growth driven by a low carbon economy.

World Business Council forSustainable Development

“Business cannotsucceed in societiesthat fail.”

It is also important to remember that thecurrent global financial crisis will affect the people on low incomes most severely.The WBCSD business leaders in ourmembership also seek raise to awareness of the benefits of doing inclusivebusiness in developing countries whichrepresent valuable new markets.

This sustainability thought leadership is being released at a critical time for global business, a time when innovation,optimism and leadership courage aredemanded by society at large. One of thedefining mantras of the World BusinessCouncil for Sustainable Development is to remind our stakeholders that businesscannot succeed in societies that fail.

There is no future for a successfulbusiness if the societies that surround it are not working. The leading globalbusinesses that are our membersunderstand this. The companies thatcontinue to demonstrate thoughtfulresponses to society’s needs, and areplanning for a changing future, will beamong those that will still be operatingsuccessfully many years from now.

It is in this light I commend this valuable new work to the reader.

Bjorn StigsonPresidentWorld Business Council for Sustainable Development

January 2009

Sustainability—the goal of sustainingeconomic growth while maintainingnatural ecosystems while assuring the equitable distribution of goodsand services—is an increasingly urgent agenda item for business.Indeed, more and more corporationsare publishing annual sustainabilityreports, creating new positions such as the chief sustainability officer, developing new products with labels like “green,” “fairtrade”and “organic,” and gathering forconferences on the topic.

According to one 2005 survey, 87 percentof Fortune 1000 CEOs believe sustainabilityis important to a company’s profits, while89 percent believe sustainability will be asignificant issue in the next three years.1

But what, specifically, does sustainabilityentail and how is it affecting globalmarkets? And where is sustainability poisedto head next? This report answers thesequestions. It is divided into three sections.

The first section reviews sustainability’sconcepts and how they emerged. Thesecond section looks at sustainability’s role in a series of global market shifts thatare currently under way. The third sectionprovides a peek at the ways in whichsustainability might evolve over time.

1. Survey findings from 2005 survey conducted by PriceWaterhouseCoopers.



Sustainability aims for two things: first,an ongoing and stable resource base thatdoes not deplete, and may even expand,natural resources or ecosystems and,second, an ongoing and stable socialsystem that creates or preserves juststandards of living and security for all. It is a change process in which resources,investments and technology address bothpresent and future needs.2

The concept of sustainability is not new.According to the International Institutefor Sustainable Development, the termfirst originated in 1962 with “the gradualmerging of the environmental movementand the post-World War II internationaldevelopment community.”3 1962 was “the seminal year in which people beganto understand how closely linked theenvironment and development truly are,”the institute states. This was also the year that Rachel Carson published SilentSpring, a book that jolted the public intohigher levels of concern over threats tothe environment.

Since the early sixties, there have beenthree major areas of concern aboutbusiness’s impact on the environment and society.4 The first wave of concernswas regulatory and led to the formationof the U.S. Environmental ProtectionAgency in 1970. The second wave,appearing around 1990, was strategic in nature: that is, investors, insurancecompanies and consumers began puttingpressure on corporations to addressenvironmental issues. The third wave,which we’re still experiencing, began inthe late 1990s and is focused on how tomerge environmental and social issueswith global economic issues. The thirdwave is strengthening, and we have yetto see the full effects on markets and global economies.

In this section on history and concepts,we’ll look at past and present aspirationsby sustainability advocates, the financialand economic models now being used to support and develop sustainabilityinitiatives, and the metrics companies are applying to assess these efforts.

2. Gro Harlem Brundtland, Our Common Future: Report of theWorld Commission on Environment and Development (GeneralAssembly of the United Nations, 1987).

3. International Institute for Sustainable Development,http://www.iisd.org/rio+5/timeline/sdtimeline.htm (accessedJanuary 28, 2009).

I. History and concepts

4. Andrew Hoffman, From Heresy to Dogma: An InstitutionalHistory of Corporate Environmentalism (Stanford, California:Stanford Business Books, 2001).


The aspiration: the Brundtland Commission

The Brundtland Commission is generallycredited with defining sustainabledevelopment: development that “meets the needs of the present withoutcompromising the ability of futuregenerations to meet their own needs.”5

Named after its chairman, Gro HarlemBrundtland, and convened in 1983 by the United Nations, the commission was created to address growing concerns“about the accelerating deterioration ofthe human environment and naturalresources and the consequences of thatdeterioration for economic and socialdevelopment.”6 It was an independentbody, linked to but outside the control of governments and the UN. Its threemain objectives were to:

• Reexamine critical environmental and development issues and formulate realistic proposals for dealing with them.

• Propose new forms of internationalcooperation on these issues andinfluence policies and events in the direction of needed changes.

• Increase people’s understanding and commitment to action.

In 1987, the Brundtland Commissionpublished Our Common Future, a report on sustainability sponsored by the UnitedNations World Commission on Environmentand Development. The report provided themomentum for the 1992 Earth Summit/UNCED and Agenda 21, the RioDeclaration and the Commission on Sustainable Development.

The report also called for a newdevelopment path, one that workedtoward human progress not just for a few global players for a few years but for the entire planet into the distantfuture. The Brundtland Commissionhelped make sustainable development a goal for both developed and developingnations.7 It urged countries, governmentsand corporations to consider the ecologicaldimensions of policy along with economic,trade, energy, agricultural and otherdimensions. Our Common Futureplaced environmental issues firmly on the development agenda, linking them as a single issue.

5. Report of the World Commission on Environment andDevelopment, United Nations 42/187, December 11, 1987,http://www.un.org/documents/ga/res/42/ares42-187.htm(accessed January 21, 2009).

6. Ibid.

7. Gro Harlem Brundtland, Our Common Future: Report of theWorld Commission on Environment and Development (GeneralAssembly of the United Nations, 1987).


Many people felt the BrundtlandCommission’s definition of sustainabledevelopment didn’t translate into a usable business metric. That concern ledJohn Elkington to introduce the notion of the Triple Bottom Line (TBL) in his 1994book Cannibals with Forks. Sustainablecompanies, he argued, should have threebottom lines: what he calls “the 3 E’s”(Equity, Environment and Economy), or“the 3 P’s” (People, Planet and Profit). And business as a whole, he said, willneed to undergo seven “revolutions” in critical areas:

• Markets

• Values

• Transparency

• Life cycle technology

• Partnerships

• Time

• Corporate governance

Markets Elkington argues that markets will play a critical role in the shift towardsustainability—that a new form ofcapitalism, called “sustainable capitalism,”will emerge where the line betweenbusiness and government is blurring andwhere more predictable and government-driven markets will give way to lesspredictable and business-driven markets.As this change occurs, sustainability willcease to be a new cost burden forbusinesses but rather an opportunity forthem to grow, provided they are willingand able to embrace sustainability at theircore. The scale and importance of theseemerging opportunities, combined withthe pace of globalization, will result inmarkets that are more fluid andcompetitive than ever before.

Values Companies need to take a number of different actions to best positionthemselves for sustainability’s growthopportunities. In particular, they mustadjust their values and beliefs to embracetwo of the components of sustainability’striple bottom line: environment andequity. This change in corporate mindsetis critical as more people and institutionsspeak on behalf of the environment andsociety at large.

As Elkington says, every company needsto shift from “hard” economic bottom-line values to “softer” triple-bottom-linevalues that reflect its views on theenvironment and social issues and thatrecognize the impact of its actions.

TransparencyThe same people and institutions speakingon behalf of the environment and societyare also demanding more informationfrom businesses. As companies continueto expand into new countries and regions,the public is demanding more data andultimately more accountability. Businesseswill need to respond with greatertransparency as they are exposed to more scrutiny.

Life cycle technologyIt’s no longer acceptable for products to be seen as having a terminal life span. The same public that is demandingtransparency is also demanding thatcompanies extend the life of their productsand materials. This new expectation willlead companies to find new ways to makeand recycle products, which can both lowercosts and lower demand for resources.

Partnerships The TBL and its associated values,demands and inherent resourcelimitations represent uncharted territoryfor companies. Many environmental andsocial advocates are nontraditional marketplayers—primarily nongovernmentalorganizations (NGOs). Companies needguides to find and make their waythrough this new territory—and not justto survive, but potentially thrive, in thisnew landscape. NGOs aren’t the onlyorganizations with which companies will need to partner.

They’ll also need to partner with theircompetitors to bring about changes in their industries. Elkington says that “co-opetition”8—partnering for the greatergood while also competing to outperformthese partners—provides an effectivesustainability model.

TimeElkington claims that time is becoming“wider”—in other words, more activity and productivity are being packed intoevery minute of every day. Elkington alsoargues that time is getting longer—that is, the need for sustainability is forcingcompanies to develop longer timehorizons. Yet most companies suffer from a myopic view of their financialperformance, one that’s built to appeasethe short-term demands of shareholders.Companies need to move past this myopicview—of looking at time as primarilywide, not long—to adopt an investmentmind-set that allows them to manage forboth the short term and the long term.

Corporate governance According to Elkington, the public is notasking more of just companies but of theirgoverning bodies as well. Environmentaland social advocates are asking about thepurpose and role of businesses and whoshould have a say in how they’re run. Aswith companies generally, the greater thetransparency among governing bodies, the greater the chances for genuinelysustainable capitalism.

The model: the triple bottom line

8. Adam Brandenburger and Barry Nalebuff, Co-opetition: A Revolution Mindset That Combines Competition andCooperation: The Game Theory Strategy That’s Changing the Game of Business (New York: Doubleday, 1997).


Cannibals with Forks placed business frontand center in the sustainability movementand established performance indicators forattending to environmental and societalneeds. Once companies had a model ofsustainability, the next logical step was to establish ways to measure, manage andreport on sustainability initiatives. Whileseveral reporting schemes have beendeveloped, the most prominent set ofmetrics was created by the GlobalReporting Initiative (GRI) and based on the TBL. Today, more than 1,000 companiesin more than 60 countries publish annualsustainability reports based on the protocolestablished by the GRI Guidelines. NGOs,public agencies and industry groups also use the GRI Guidelines.

The GRI was formed in 1997 by the US-based Coalition for EnvironmentallyResponsible Economies (CERES) and theTellus Institute, with the support of theUnited Nations Environment Program(UNEP). It released an “exposure draft”version of the Sustainability ReportingGuidelines in 1999 and the first full version in 2000.

The second version (G2) was released at theWorld Summit for Sustainable Developmentin Johannesburg in 2002. The organizationand the guidelines were referred to in thePlan of Implementation signed by allattending member states. Later that year,the GRI became a permanent institution,with its Secretariat in Amsterdam. Althoughthe organization is independent, it remainsa collaborating center of UNEP and worksin cooperation with the United NationsGlobal Compact.9

The current set of guidelines, known as G3, was published in 2006. It includes 79performance indicators on issues related to economics (9 performance indicators),the environment (30), human rights (9),labor (14), product responsibility (9) andsociety (8). It also includes a series ofdisclosure requirements related to theprofile of the company.

The metrics: the Global Reporting Initiative

9. United Nations Environment Program,http://www.unep.fr/scp/gri/, (accessed January 21, 2009)


Both opponents and advocates ofsustainability have criticized calls forsustainable development and use of the TBL. The harshest critics believe that sustainable development and the TBL misappropriate the purpose of thecorporation and are contrary to the trueintentions of capitalism. The Economist,for example, published a cover story inJanuary 2005 that derided sustainabilityand corporate social responsibility asmisguided concepts driven by people withlittle knowledge—or a downright fear—of capitalism. And as some companieshave begun taking constructive actions to address environmental degradation,others have openly objected. WhenGeneral Electric announced plans for its first “Citizenship Report” in 2005, for instance, the Wall Street Journalpublished an article saying thatenvironmentalists had made their “biggest catch yet” and pondered whethercapitalists were “abandoning capitalism.”10

Some sustainability advocates argue thatthe concept as it is presently conceiveddoes not go far enough or obscures thereal issues it is intended to resolve. Theyargue that it is nothing but a label foractions or strategies that are actuallybeing driven by the standard social,economic and institutional mechanisms.11

They see the TBL more as a reportingframework and less as an effectivemanagement tool; it serves more as a lag indicator than a lead indicator, theycontend. Despite the efforts of the GRI,some sustainability advocates also saythat its guidelines are incomplete and still lack generally accepted metrics for all three bottom lines. Many companiesare developing their own metrics or notreporting on the TBL. What’s more, criticssay, it’s not clear how the three bottomlines should be prioritized. Manycompanies see the triple bottom linemostly as an economic model rather thanan environmental or equity-based model.

Finally, some people question how the 3E’s can be aggregated into a single usablemetric for making strategic go/no-godecisions. Companies live and die onsingular metrics like net present value and internal rate of return, yet there is no comparable metric for sustainability.

Two professors of ethics and philosophy,Wayne Norman and Chris MacDonald,captured the general criticism amongmany sustainability advocates, saying “The TBL paradigm is an unhelpful additionto current discussions of corporate socialresponsibility…the rhetoric is badlymisleading and may in fact provide asmokescreen behind which firms can avoidtruly effective social and environmentalreporting and performance.”12 The mainconcern is that economic growth remainsthe primary goal of development planning,while sustainability is diminished as areluctant constraint.13

Criticisms of sustainabledevelopment and thetriple bottom line

10. Alan Murray, “Will ‘Social Responsibility’ Harm Business?”Wall Street Journal, May 18, 2005.

11. Michael Jacobs, The Green Economy: Environment,Sustainable Development and the Politics of the Future(Vancouver: University of British Columbia Press, 1993).

12. Wayne Norman and Chris MacDonald, “Getting to the Bottom of the ‘Triple Bottom Line’,” Business Ethics Quarterly 14, no. 2 (2003): 243—262.

13. Michael Colby, “Environmental Management inDevelopment: The Evolution of Paradigms,” EcologicalEconomics 3 (1991): 193–213.


While the debate over sustainabilitycontinues, companies find themselvesunder mounting pressure for change. The list of companies facing demands for greater environmental and socialaction is growing, for example: Shell and authoritarian regimes in Nigeria; Nike and labor conditions in China; Pfizer and AIDS in Africa; Coca-Cola and water scarcity in India; Exxon Mobil and development in Chad;Caterpillar and the Israeli-Palestinianconflict. Even the broader institutions of the economy are under stress asprotesters challenge the World TradeOrganization, International MonetaryFund, G8 and World Bank meetings inSeattle, Genoa, Prague and elsewhere.

Clearly, the issue of sustainability is notgoing away. Companies must understandthe global shift it is creating and developappropriate levels of response. To begin,one must understand the core of theenvironmental and social issues at play.

The core problemsThe past century has witnessedunprecedented economic growth andhuman prosperity. World populationincreased by a factor of four, global percapita income tripled and average lifeexpectancy increased by almost two-thirds.14,15,16 In the United States alone, life expectancy rose from 47.3 to 77.3between the years 1900 and 2002.17 Butthese advances have been accompaniedby serious environmental and socialproblems that both the BrundtlandCommission and the TBL are seeking toredress. (See Figure 1. Key environmentaland social equity problems.)

II.Sustainability’smounting pressures

14. William Thomas, “Business and the Journey TowardsSustainable Development: Reflections on Progress since Rio,” Environmental Law Reporter, June, 2002.

15. World Business Council on Sustainable Development,Exploring Sustainable Development: WBCSD Global Scenarios (London: World Business Council on Sustainable Development, 1997).

16. World Resources Institute, World Resources (Oxford: Oxford University Press, 1994).

17. National Center for Health Statistics, Health, United States,2004 (Washington, DC: Department of Health and HumanServices, 2004).


EnvironmentThe Millennium Ecosystem Assessment (MEA), a 2005 studycommissioned by the United Nations and involving more than1,360 experts worldwide, concluded that humans have changedthe Earth’s ecosystems over the past 50 years “more rapidly andextensively than in any comparable period of time in humanhistory.”18 Of the 24 global ecosystems that were analyzed, 60 percent were found to be degraded or used unsustainably. Clearly, the economic development we have enjoyed over the past century has come at a high environmental cost, one that will be borne by future generations.

The environmental issues of most concern include:

• Climate change

• Water scarcity

• Biodiversity loss and species extinction

• Fisheries overexploitation

• Ecosystem destruction

• Toxic pollutants

• Deforestation

• Nutrient overloading and nitrogen fixing

• Land use changes and urban sprawl.

Social equityAccording to the United Nations, the richest 20 percent of theworld’s population consume 86 percent of all goods and services,while the poorest 20 percent consume just 1.3 percent. In fact,the richest three people in the world have assets that exceed thecombined gross domestic product of the 48 least developedcountries. Of the 4.4 billion people in the developing world,almost 60 percent lack access to safe sewers, 33 percent do nothave access to clean water, 25 percent lack adequate housing and30 percent have no modern health services.19 The World HealthOrganization reports that more than 40 million people worldwideare living with HIV/AIDS. In sub-Saharan Africa, nearly 70 percentof adults and 80 percent of children live with HIV/AIDS. Clearly,the economic development of the past century has not beenshared equitably among all people of the world.

The social issues of most concern include:

• Population growth

• Poverty

• Widening income disparity between rich and poor

• Access to food, water and housing

• Health care and pandemics

• Employment and fair wages.

Figure 1. Key environmental and social equity problems.

18. Millennium Ecosystem Assessment, Ecosystems and Human Well-Being: Synthesis Report (Washington, DC: Island Press, 2005).

19. Barbara Crossette, “Kofi Annan's Astonishing Facts,” New York Times, September 27, 1998.


Environmental degradation and socialinequity have been present for decades.So why are these problems now requiringa business response? Environmental andsocial issues have grown to such amagnitude and combined to create such a force for change within global marketsthat it’s now impossible to overlook theseproblems. The heightened response fromboth individuals and markets representsthe “third wave” of sustainability. (SeeFigure 2. The Third Wave.)

The strength of the third wave is largelydependent on the link and interactionbetween environmental and social issues.The ecosystem, for instance, directly affectshumans’ health and social relations. Itprovides services such as nutrient recycling,soil formation and primary production; is a source of food, fresh water, wood, fiberand fuel; it regulates climate, flood, diseaseand water purification. In 1997, a group of 13 economists, ecologists and geographersestimated the value of these servicessomewhere between $16 trillion and $54trillion per year, with a likely figure of atleast $33 trillion.20 But the MEA warns that human-induced degradation couldgrow significantly worse in the next 50years and diminish the benefits futuregenerations stand to gain from theseecosystem services.

Environmental and social issues are nolonger strictly the domain of specialinterests.21 Sustainability issues aremerging with broader concerns.

National security A 2007 report by the Military AdvisoryBoard warns that “projected climatechange poses a serious threat to America’snational security…climate change acts asa threat multiplier for instability in someof the most volatile regions of theworld.”22

Terrorism Defense analyst Thomas Barnett argues that the markets and economicconnectivity of the world’s poor is theonly way to reduce the global threat ofterrorism and extremism.23 Povertythreatens free markets with violence. A recent special report by the BBChighlights the impact of the current foodcrisis on civil unrest in many developingcountries that are net importers of food.

Economic competitivenessSyndicated columnist Thomas Friedmansees climate change as a call to the United States to maintain its economiccompetitiveness by developing the nextgeneration of technologies for creatingand conserving energy. He points to GE,which had to develop its wind energybusiness in Europe given the lack of carbon regulations that result in a market price for carbon in the UnitedStates. Friedman argues that green is “geo-strategic, geo-economic, capitalisticand patriotic” and that it will help theUnited States address the issues of “jobs,temperature and terrorism.”24

Resource pricesThe increased demand for resources isaffecting previously “free” ecosystemservices. The MEA warns that “higheroperating costs or reduced operatingflexibility should be expected due todiminished or degraded resources (such as fresh water) or increased regulation.”25

Today’s skyrocketing oil prices are a casein point, and many see water prices as the next to rise.

Religious moralityPreferring to call themselves “caringcreationists” rather than “environmentalists”—which they see as synonymous with“liberal” —a new segment of EvangelicalChristians are calling for action on climatechange to protect God’s creation. In 2006, more than 100 prominent pastors,theologians and college presidents signed an“Evangelical Climate Initiative” calling foraction on the issue. In May 2007, more than20 religious groups signed an open letterurging US leaders to limit greenhouse gas(GHG) emissions and invest in renewable energy sources.

Even the Vatican is getting on board. InApril 2007, it hosted a conference on climate change that acknowledged the seriousness of the issue, which isalready causing suffering to the poor. And more recently, the Holy See hasannounced plans to install solar cells on the roofs of Vatican buildings and will work toward carbon neutrality.

Economic, environmental and social trade-offsThe addition of social and environmentalconsiderations to standard measures ofeconomic development makes balancingcompeting interests challenging. Solutionsto one of the legs of the triple bottomline may create tensions with another. For example, many solutions to climatechange, such as biofuels or nuclear power,put stresses on water resources. Similarly,some solutions, like the development ofbiofuels from food stocks (such as corn),have increased the prices of many staple foods.

The third wave

20. Robert Costanza, Ralph d’Arge, Rudolph de Groot, StephenFarber, Monica Grasso, Bruce Hannon, Karin Limburg, ShahidNaeem, Robert O’Neill, Jose Paruelo, Robert Raskin, Paul Sutton,and Marjan van den Belt, “The Value of the World’s EcosystemServices and Natural Capital,” Nature, May 1997, 253—260.

21. Andrew Hoffman, “Consensus Builds to Create Limits onCarbon Emissions. Urgency on Climate Change Stirs Firms toDemand Change,” The Detroit News, November 14, 2007.

22. CNA Corporation, National Security and the Threat ofClimate Change (Alexandria, Virginia, 2007).

23. Thomas Barnett, The Pentagon’s New Map (New York:Berkley Books, 2003).

24. Thomas Friedman, “The Power of Green: What Does AmericaNeed to Regain Its Global Stature?” New York Times Magazine,April 15, 2007.

25. Millennium Ecosystem Assessment, Ecosystems and HumanWell-Being: Opportunities and Challenges for Business andIndustry (Washington, DC: Island Press, 2005).

Figure 2. The third wave

• National security

• Terrorism

• Economic competitiveness

• Resource prices

• Religious morality

• Economic, environmental and social trade-offs

Equity Environment

Economy

Set of Market Shifts


This broad set of concerns is creating newchallenges and expectations for companiesas they enter new regions. Local groupsare now starting to evaluate companies in terms of the net benefit they provide to the community. Pharmaceuticalcompanies, for example, can no longerclaim standard patent rights for AIDSdrugs in Africa. The humanitarian crisistrumps the economic imperative. Drugcompanies are building AIDS treatmentcenters for local communities and helpingto distribute tax dollars in some of Africa’smost unstable countries.

As the power and influence ofcorporations grows, many sustainabilityexperts believe that government alonecan no longer meet the challengessociety presents. The welfare of society,they say, depends on companies’contributions. Businesses are vehicles of productivity, innovation and research,employment, large-scale investment andhuman capital development. This factsweeps aside debates over “shareholder”or “stakeholder” models of thecorporation that some see as artificialand counterproductive.26 Social andenvironmental issues are fundamental to business because they affect the long-term viability of the firm. Indeed, theygenerate value-creating opportunitiesthat allow firms to grow. As the MEA

says, projects that use “innovation andtechnology to minimize the damage to ecosystems and to mitigate impactsalready occurring are creating significantnew business opportunities for thosewho are aware and prepared.”27

The social and environmental global trends,such as climate change, population growthand aging, wealth accumulation anddistribution, nutrition, health and education,are affecting what the World BusinessCouncil for Sustainable Development(WBCSD) calls “tomorrow’s markets,”yielding new opportunities in areas such as alternative energy, water, food, shelterand health care.28 For instance, the growingpopulation of young people in manydeveloping nations presents new labor andconsumer markets; conversely, the shrinkingpopulation of young people in manydeveloped nations is causing some marketsto dwindle. An expanding middle- and low-income consumer market in developingnations is driving innovation, new businessmodels and business growth, andmultinationals and smaller local companiesare developing “base of the pyramid” (BoP)models in response.29 BoP strategies alleviatethe social problems prevalent in thedeveloping world by using innovative andvalue-adding strategies to encourage localeconomic development.

Essentially, sustainable companies uselocal products, take responsibility for theireffects on the natural world, do not relyon nonrenewable capital, have dignifiedproduction and labor processes, producedurable long-term goods that will notharm future generations and try toeducate consumers to be moresustainability-oriented.30 What’s more,they fit with their external marketenvironment and make strides to respond to market demands.

Riding the third wave

26. Ian Davis, “The Biggest Contract,” The Economist, May 26, 2005.

27. Millennium Ecosystem Assessment, Ecosystems and Human Well-Being: Opportunities and Challenges for Business and Industry (Washington, DC: Island Press, 2005).

28. Don Doering, et al., Tomorrow’s Markets: Global Trends and Their Implications for Business (Geneva, Switzerland: World Business Council for Sustainable Development, 2002).

29. C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Philadelphia: Wharton School Publishing, 2004)

30. Paul Hawken, The Ecology of Commerce (New York: HarperCollins, 1993).


The social contract of businesses exceedswhat is defined as “corporate socialresponsibility.” It is more than just adialogue with stakeholders, production of glossy reports and setting andcommunicating well-intended corporatepolicy. Social and environmental issuesmust be rooted in strategy formulation and execution efforts; it must be committedto and sponsored by the highest levels ofthe organization so that change initiativeshave the financial, human and social capital needed to succeed.

These issues must be discussed throughouta company’s hierarchy so that the companyhas the proper market-sensing capabilitiesin place to effectively anticipatesustainability’s emerging trends and beprepared to meet the challenges and grabthe opportunities that arise as a result ofmeeting these trends.31 By activelymanaging and consciously shaping thedebate on social and environmental issues,businesses tie the meeting of societal needsdirectly to creation of shareholder value.

So in the end, sustainability becomes anumbrella term that encompasses a seriesof market shifts; each appears aimed at a market correction to accommodateinequities in the distribution of resources and the destruction of the natural environment.

These market shifts are best understoodwithin the context of three market-basedactivities: the value demanded byconsumers and talent, the value deliveredby companies and their supply chains, and the value that is graded by thefinancial markets and non-governmentalorganizations, or NGOs. The shifts in thesethree market-based activities, strengthenedby two moderating forces, are influencingthe competitive structure of manyindustries. (See Figure 3. Sustainability’sMarket Shifts are Effecting the ValueExchanged within Markets.)

Components ofsustainability’s set of market shifts

Value demanded• Consumer values and behaviors are

being influenced by sustainability

• Talent is beginning to assess companies’ sustainability strategies in employment decisions

Value delivered• Companies are thinking about

supply chains differently

• Companies are developing self-regulation mechanisms

Value graded• Financial markets and shareholders

are seeing risks and opportunities in sustainability

• NGOs are rising in power to effect change within markets

Figure 3. Sustainability’s Market Shiftsare Effecting the Value Exchanged within Markets

31. Ian Davis, “The biggest contract,” The Economist, May 26, 2005, 69-71.


Companies are being pressured by newconstituencies (such as NGOs and otherless structured forms of social pressure)that are making new forms of demandson companies to perform new taskstoday. Concerns over the myriad socialand environmental issues are seen ascritical to a company’s license to operate,both in local communities and worldwide.At the same time, consumers arebecoming more aware of sustainability’smyriad issues; many consumers areadjusting their values and beliefs toreflect this heightened awareness.

Consumer values and behaviorsWhile some government policies andindustry self-regulation mechanisms aredesigned to drive consumer values andbehavior, there are areas where consumervalues are driving business activity.Evidence suggests that consumers caremore and more about sustainability. Forexample, according to the 2007 BBMGConscious Consumer Report, 87 percent ofconsumers would like companies to committo environmentally friendly practices tosupport fair labor and trade practices.

The same survey also showed that most US consumers are concerned about the use of pesticides, hormones or chemicals in food (70 percent), renewable energy (73percent) and fair wages and safe working

conditions (81 percent). An overwhelmingmajority of US consumers feel that cleanair (86 percent) and safe drinking water(90 percent) are top issues.32

Some companies have even begunsegmenting customers according to how much sustainability affects theirpurchasing decisions. According to theNatural Marketing Institute (NMI), one of the “hottest trends within companiesand among consumers around the world”is Lifestyles of Health and Sustainability, or LOHAS.33 LOHAS refers to a marketsegment that endorses and promotes avariety of products, services and corporateactivities that are environmentallyconscious, socially responsible andsustainable for people and the planet. Offive different market segments identifiedby NMI, and recently updated in 2007,LOHAS is the most sustainability-minded.

LOHAS19 percent of US consumers (40 million US consumers)—LOHASconsumers are dedicated to personal and planetary health. Not only do theymake environmentally friendly purchases,they also take action—they buy greenproducts, support advocacy programs andare active stewards of the environment.

Naturalites19 percent (40 million)—Focused onnatural/organic consumer packaged goodswith a strong health focus when it comesto foods/beverages. They are not politicallycommitted to the environmentalmovement nor are they driven to eco-friendly durable goods.

Drifters25 percent (53 million)—This segment has good intentions, but when it comesto behavior, other factors influence theirdecision more than the environment.Somewhat price-sensitive (and trendy),they are full of reasons why they do notmake environmentally friendly choices.

Conventionals19 percent (40 million)—This verypractical segment does not have greenattitudes but do have some “municipal"environmental behaviors such asrecycling, energy conservation and other more mainstream behaviors.

Unconcerned17 percent (36 million)—The environmentand society are not priorities to thissegment. They are not concerned and showno environmentally-responsible behavior.

Three sets of market shiftsValue demanded

32. BBMG, “BBMG Conscious Consumer Report” (2007).

33. The Natural Marketing Institute, “Understanding the LOHAS Consumer: The Rise of Ethical Consumerism” (2008).


The 2007 BBMG Conscious ConsumerReport predicts that the percentages of LOHAS and Naturalites will increase. If this prediction holds true, thencompanies can look to LOHAS consumersto predict future purchasing trendsbecause they’re “early adoptors of manyattitudinal and behavioral dynamics.”34

Between LOHAS, Naturalites andConventionals, 57 percent of consumersare actively committed to buying greenand to leading sustainable lifestyles.

Companies that meet the green needs of today’s consumers are likely to benefit and get ahead of their “browner”competitors. Clorox, for example, hasrecently cut into the domain of moreniche first-mover companies like SeventhGeneration by introducing a new line ofgreen cleaning products. Whirlpool, too,in anticipation of greater consumerdemand for less energy-intensiveproducts, is leveraging its corecompetencies to continue bringing the most energy-efficient appliances tomarket.35 Toyota’s Prius, perhaps the mostsuccessful green product in the UnitedStates, meets consumers’ driving needswhile also providing gas savings from its fuel-efficient hybrid engine.36 A uniquescreen provides the driver with real-timefeedback on how much fuel is beingsaved at any given moment.

In 2007, Toyota won 16 percent ofthe US market, which was over double its share 10 years ago.37 Beyond thebenefits to Toyota, the Prius has inspiredcompetitors to develop hybrid cars and buses, further benefiting consumers and the environment.

Employee awarenessSustainability is now affecting thecompetition for talent. Recruits in the labor pool, particularly among the younger segment, are increasinglyconsidering either a company’s posture on sustainability issues or the connectionbetween their job and sustainability.College graduates today are much moremission-oriented than those in the past,and they are looking for companies thatmatch their personal values.38

If the company they join does not reflecttheir beliefs, they are more likely to pushtheir values on the company than let thecompany push its values on them.39

According to the 2003 Corporate SocialResponsibility Monitor by GlobeScan, 70 percent of North American studentssurveyed said they would not apply for a job at a company deemed sociallyirresponsible. A 2004 Stanford survey of more than 800 Master of BusinessAdministration graduates (MBAs) from 11 leading North American and Europeanschools found that out of 14 employerattributes, “reputation for ethics andcaring about employees” ranked in the topfour; 77 percent of respondents consideredethics and caring to be as important as“intellectual challenge,” which was rankedthe no. 1 attribute. Moreover, 97 percentsaid they were willing to forgo financialbenefits to work for an organization witha better reputation for corporate socialresponsibility and ethics.40 And a 2007Monster.com study found that 92 percentof students are more inclined to work for acompany that is environmentally friendly.41

Along these same lines, a 2003 StanfordUniversity study entitled “Corporate SocialResponsibility Reputation Effects on MBAJob Choice” found that MBA graduateswould sacrifice an average of $13,700 insalary to work for a socially responsiblecompany.42 The extent to which company’senvironmental strategy influenced students’employment decisions varied across regions,but in general, American students were lessinclined than European and Asian studentsto turn down an offer from a companywith a bad environmental record.43

Some MBAs are looking for a sustainablejob as well as a sustainable company.According to a 2008 study by the AspenInstitute’s Center for Business Education,25 percent of MBAs are seeking a jobwith the potential to make a contributionto society, up from 15 percent in 2002.44

Monster.com found that 80 percent ofstudents interested in a job that positivelyaffects the environment.45

What does this portend for the future?Firms may need to become more ethicallyand socially responsible in order to attractcandidates. Human resources and careerexperts already have been tellingcorporations that ethics is important tothe best and brightest job hunters of thefuture. Indeed, a poll of career transitionand career management professionals in26 countries found that 82 percentbelieve that corporate leadership ethics is of critical importance to job seekers.According to a recent global survey byconsulting firm DBM, ethics is fastbecoming a major factor in thecompetition for top talent.

Those companies that excel onsustainability issues will soon find they have more applicants than theircounterparts. Patagonia, for example,claims to have 5,000 applicants for eachopening, due in large part to its strongenvironmental and social mission. JeffreyImmelt, GE’s CEO, stated at the 2008 WallStreet Journal ECO:nomics Conferencethat GE’s position on environmental issueshas “helped recruiting immensely.” Thecompany’s ability to recruit “has neverbeen higher.”

Good sustainability practices also have the benefit of increasing retention. NovoNordisk, a Danish pharmaceuticalscompany, has seen its turnover rate drop to 5 percent, half the industry averagesince it initiated its “Values in Action”program as a way to infuse sustainabilityprinciples into its strategy.46 Interestingly,an analysis by the Pew Center on GlobalClimate Change also found that companies’greenhouse gas reductions motivated theiremployees and drove innovation.47

34. Ibid.

35. Andrew Hoffman, Getting Ahead of the Curve: CorporateStrategies That Address Climate Change (Arlington, VA: The Pew Center on Global Climate Change, 2006).

36. Jacqueline Ottman, “The Five Simple Rules of GreenMarketing,” Sustainable Life Media, June 2007.

37. Chuck Salter, “Fast 50: The World’s Most InnovativeCompanies,” Fast Company, March 2008.

38. Paul Ray and Sherry Ruth Anderson, The Cultural Creatives (New York: Harmony Books, 2000).

39. Debra Meyerson, and Maureen Scully, “Tempered Radicalismand the Politics of Ambivalence and Change,” OrganizationScience 6, no. 5 (1995): 585—601.

40. David Montgomery and Catherine Ramus, Corporate Social Responsibility Reputation Effects on MBA Job Choice, May, 2003.

41. Based on July 2007 survey of 4,700+ MonsterTRAK job seekers,http://media.monster.com/monstertrak/GreenCareers_092407.pdf (accessed July 29, 2008).

42. David Montgomery and Catherine Ramus, Corporate SocialResponsibility Reputation Effects on MBA Job Choice, May, 2003.

43. Ibid.

44. Bronk, K., “The Do-Good Disconnect,” BusinessWeek.com.,April 22, 2008.

45. Based on July 2007 survey of 4,700+ MonsterTRAK jobseekers, http://media.monster.com/monstertrak/GreenCareers_092407.pdf (accessed July 29, 2008).

46. Novo Nordisk, Annual Report (Bagsvaerd, Denmark: 1999).

47. Michael Margolick and Doug Russell, Solutions: CorporateGreenhouse Gas Reductions (Washington, DC: Pew Center onGlobal Climate Change, 2001).


The products and services that companiesdeliver as well as the processes by whichthey are delivered are redefined, expandedand altered. Market participants rangingfrom consumers to NGOs are demandingthat companies evaluate the impact of the activities within their supply and valuechains on sustainability. Companies arenow viewing inefficient use of resources,energy and emissions as forms of economicinefficiency in production and representingevery bit as much a loss of value as didinefficient processes, tasks and activities in the 1990s. Production processes that do not attend to the needs of a company’sworkers will also face increasing scrutiny.

The future success of companies will bedetermined by their ability to recycle raw materials and resources, close theproduction process loop and maintainstewardship over the entire life cycle of a product, as well as provide for thewelfare of the workforce and thecommunity. Companies are being asked toperform these tasks with greater levels oftransparency and openness to communityconcerns and interests. Finally, thesechanges are putting pressure on boardmembers to monitor the sustainabilityefforts of the companies they oversee.

Shifting supply chainsCompanies and consumers are realizing that when they buy products, they are also buying the supply chains that go withthem. Since between 50 and 70 percent of a product’s value is derived from its supplychain, companies cannot disconnect theirproducts from those products that camebefore or after.48 Companies are finding that they are both responsible to and forother companies up and down their valuechains. Activists hold large multinationalsresponsible for the actions of theirfranchisees or suppliers. A smaller companymay find itself having to abide by the new sustainability requirements of a major purchaser such as Wal-Mart.

Not surprisingly, more and more companies,particularly large multinationals, are payingattention to their supply chains in order to

reduce costs, attain sustainability goals andimprove brands or reputation. Currently, justover one-third (36 percent) of companiessurveyed have a formal strategy for supplychains and 48 percent of them reward theirsuppliers for good sustainability practices.And emphasis on supply chains is increasing,as seen by the companies that joined theCarbon Disclosure’s Project Supply ChainLeadership Collaboration, which aims tostandardize ways to measure the carbonfootprint of supply chains.49

A report by the Aberdeen Group comparedgreen supply chain strategies of “best-in-class” companies with other companies andfound that leading companies, as a result of “greening” their supply chains, havedecreased logistic and transport costs,energy costs, costs of operations andfacilities, and supply costs.50 The same reportsays that leading companies have commoncharacteristics, like technology solutionsthat enable supply chain improvements and track results; practices that help identifyan executive to take a leadership role withrespect to sustainability within the supplychain responsibility and communicate theirprogress; and systems that clearly documentthe benefits of green initiatives.

These company leaders are moving from a“cradle-to-grave” mentality to a “cradle-to-cradle” mentality.51 Applying the notion that“waste equals food,” they are going beyondcurrent linear approaches to industrialinfrastructure and thinking in more complexand interconnected ways.52 If you consider,for instance, that 90 percent of thematerials extracted to make durable goodsin the United States become waste almostimmediately, the notion of “reduce, reuseand recycle” is no longer enough to offsetthis surprisingly high level of inefficiency.53

By rethinking the specifics of their supplychains, however, some companies havesucceeded in releasing fewer pounds ofwaste, meeting the complexities of marketdemand, producing fewer dangerousmaterials and using less valuable materials, all while increasing profits.

Cradle-to-cradle production is perhaps best seen in industrial ecology, or industrialsymbiosis—the exchange of by-products,wastes and energy among a group of firmsthat are geographically co-located. One of the most famous examples is theKalundborg industrial park in Denmark,which began in the 1970s and has sincegrown into a complex system of companiesthat exchange sulfur, waste heat, steam,sludge and fly ash.54 Industrial symbiosisrepresents an opportunity for innovation at several levels: between firms within thesame sector, between firms along a supplychain, between firms and regulatory bodiesand other interest groups, and betweenfirms and their customers. These “spaces of innovation” provide many opportunities to develop competitive advantage.55

Such thinking challenges companies toreconceptualize even the most benignproducts. It encourages companies toconsider simple questions such as, “What is waste?” “What is our feedstock?” and“What do our customers really want?”

Corporate self-regulationmechanismsNot wishing to wait for governmentregulation to set the rules, more companiesand industries are establishing their ownenvironmental or social guidelines. Self-regulation helps companies preemptgovernment mandates. It also drivesinnovation through more indirectincentive-based approaches to anticipatedregulations. These programs force thelaggards within a sector to come up to the standards set by the collective.

Self-governing mechanisms come in manyforms. They can be initiated by companies,nonprofit organizations or other interestgroups. Some are inter- or intra-industryagreements; others cross sectors to include suppliers, buyers and private-publicpartnerships. Member organizations mightbenefit in reputation and branding, or from having access to the latestinformation and standards.

Value delivered

48. Daniel Mahler, “The Sustainable Supply Chain,” SupplyChain Management Review, November 1, 2007.

49. See Carbon Disclosure Project website for moreinformation: http://www.cdproject.net/sclc_home.asp.

50. Robert Shecterle and Jhana Senxian, Building a GreenSupply Chain: Social Responsibility for Fun and Profit,Aberdeen Group, 2008.

51. William McDonough and Michael Braungart, Cradle toCradle: Remaking the Way We Make Things (New York: NorthPoint Press, 2002).

52. Paul Hawken, The Ecology of Commerce (New York:HarperCollins, 1993.

53. William McDonough and Michael Braungart, Cradle toCradle: Remaking the Way We Make Things (New York: NorthPoint Press, 2002).

54. Nicholas Gertler and John Ehrenfeld, “A down-to-earthapproach to clean production,” Technology Review, February12, 1996.

55. Ken Green and Sally Randles, Industrial Ecology and Spaces of Innovation (Northampton, MA: Edward ElgarPublishers, 2006).


Adoption of best environmental practicescan also give companies early-mover and cost advantages and help them todifferentiate themselves from competitors.56

Most programs set standards to which all members must abide. For example, the world’s largest self-governingcorporate citizenship initiative is the 2000 UN Global Compact, a frameworkfor businesses committed to 10 principlesrelated to human rights, labor standards,forced labor, child labor, discrimination,environmental responsibility andanticorruption. The initiative has morethan 5,200 participants, including morethan 4,000 businesses in 120 countries.Similarly, the Equator Principles requiresits 60 participating banks (accounting for as much as 78 percent of all projectfinance in 2003) to assess projects fortheir social and environmental impactbefore making lending decisions.

The Responsible Care program, anotherself-regulated program in the chemicalsindustry, requires its 128 global companiesin 53 countries to improve health, safetyand environmental performance andcommunicate with stakeholders aboutproducts and processes (covering nearly90 percent of all global chemicalproduction).

Some programs are more targeted in theirapproach and involve direct alliances withNGOs. For example, Unilever, one of theworld’s largest buyers of seafood, partneredin 1999 with the World Wildlife Fund toestablish the Marine Stewardship Council(MSC). The goal of the MSC is to harnessconsumer purchasing power to generatechange and promote environmentallyresponsible stewardship by reversing thecontinuing decline in the world’s fisheries.As of 2007, the MSC involved 22 fisheriesand 857 labeled seafood products sold in 34 countries. Thirty-eight retailers, 49 manufacturers and 14 food servicecompanies use the MSC brand, and morethan 300 suppliers participate in theprogram. It is estimated that more than 7 percent of the world’s edible wild-capture fisheries are now participating in the program.

The Forest Stewardship Council (FSC) is a similar initiative. Established in 1993, its 738 members promote standards forsustainable forest management in morethan 57 countries, representing about 20percent of wood sold in the United States.But universal acceptance is hampered bythe presence of competing standards suchas the Sustainable Forestry Initiative (SFI),which has 219 participants.

A slightly different kind of initiative is showcased in the U.S. Climate ActionPartnership (USCAP). Rather than pushing its internal members to adoptnew standards, its 32 business membersare pushing the federal government toenact legislation that requires significantreductions of greenhouse gas emissions.57

The U.S. Green Building Council, yetanother self-regulation initiative, hasbecome a certification agency in itself.With more than 15,000 memberorganizations, the council certifiessustainable buildings, homes, hospitals,schools and neighborhoods according to a green building rating system knownas LEED (Leadership in Energy andEnvironmental Design), emphasizing five areas: sustainable site development,water savings, energy efficiency, materialsand resources selection, and indoorenvironmental quality.

The LEED certification system is changingthe norms and metrics of success withinthe building industry. There are some 50 standards around the world, and that number is expected to grow.

Corporate governance Because of its overarching influence on companies, nearly every aspect ofsustainability is rooted in corporategovernance. Additionally, companies are facing increasing pressure fromshareholders, stakeholders andgovernments to take responsibility for sustainability-related action.

Boards have a vested interest in the caseof sustainability because if companies fail to comply with regulations, boarddirectors may be held personallyresponsible for the resulting fines andpenalties. The Investors and Business forU.S. Climate Action group, for instance,called on the U.S. Securities and ExchangeCommission to issue guidelines on climatechange risk disclosure as part of the“material disclosure” section of Sarbanes-Oxley Act. Legal risks for companies anddirectors are growing and have become a concern for insurers. Lawsuits alreadyhave been filed against power, coal, oil,refining and motor vehicle companiesover CO2 emissions.58

Interest groups such as the CarbonDisclosure Project and the InvestorNetwork on Climate Risk are adding tothe pressure on boards. Such groups drawon sustainability indices and independentrating agencies in support of their cause.Activist investors are turning to proxyresolutions and the media in order to spuraction on sustainability. And in Europe,long-term investors such as pension andinsurance funds are required to disclosesocially responsible investments.59

Even when companies actively addresssustainability to mitigate their own risks,they must often bear substantial capitalcosts—investments that require boardapproval because of their long-term,uncertain impacts. Reporting onsustainability, setting up dedicatedsystems, adopting certification schemes,changing products and processes,allocating oversight to the board andconnecting with external stakeholdersand shareholders are all a part ofcorporate governance.60 To monitormanagers and create incentives to meetsustainability goals, boards often establishdedicated committees and pay policies.61

56. Petra Christmann, “Effects of ‘Best Practices’ ofEnvironmental Management on Cost Advantage: The Role of Complementary Assets,” Academy of Management Journal43, no. 4 (2000): 663—680.

57. Odell, A.M., Top Five Socially Responsible Investing NewsStories of 2007, Sustainability Investment News, January 8, 2008, www.socialfunds.com/news/article.cgi/2446.html(accessed May 1, 2008).

58. Andrew Hoffman and John Woody, Climate Change: What’s Your Business Strategy? (Boston: Harvard BusinessSchool Press, 2008).

59. Eurosif (2003). Socially responsible investment amongEuropean institutional investors. European Sustainable and Responsible Investment Forum.

60. Grant Ledgerwood, Greening the boardroom: corporategovernance and business sustainability (Sheffield: GreenleafPublishing, 1997).

61. Pascual Berrone and Luis Gomez-Mejia, “Do firmscompensate their CEOs for environmental performance? Anempirical analysis of U.S. polluting industries,” Academy ofManagement Journal, 2006.


Wall Street metrics such as return oninvestment, return on assets and earningsbefore interest, taxes, depreciation andamortization are no longer the solemetrics of a firm’s value. More and moreWall Street analysts are adding analysesof company’s sustainability efforts totheir stock recommendations. And WallStreet analysts are no longer the solearbiters of a company’s value andprospects. Social and environmentalmetrics are working their way intocorporate analyses conducted by non-traditional constituents (such as NGOsand specialized rating services) as well.

Recognition by financial marketsand shareholders of sustainability’srisks and opportunities In addition to forming the EquatorPrinciples, Citigroup, Morgan Stanley and J.P. Morgan established the “CarbonPrinciples” in February 2008. These banks,in consultation with several powercompanies and NGOs, established “aprocess for understanding carbon riskaround power sector investments neededto meet future economic growth and theneeds of consumers for reliable andaffordable energy.”62

Bank of America, which also recentlyadopted the Carbon Principles, has goneone step further, establishing an internalprice of carbon per ton, reported to bebetween $20 and $40, which the bank is using to determine whether tounderwrite debt for coal-fired powerplants.63 Financial markets, investors andshareholders are beginning to considerthe issue of sustainability in their capitalasset decisions.

The underwriting process isn’t the onlyaspect of the financial markets that haschanged in response to sustainability.Institutional shareholders are joiningforces to put pressure on companies to disclose information about theirsustainability efforts. About 280institutional investors, representing morethan $57 trillion, have become membersof the Carbon Disclosure Project (CDP)since 2000. The CDP urges companies toannually publish data about their carbonemissions. This united front seems to beworking: in 2007, more than 1,300companies formally disclosed data andother information related to climatechange. Similarly, CERES has beenworking since 1989 to integratesustainability into capital markets.

It directs the Investor Network on Climate Risk (INCR), a group of more than 60 leading institutional investorswith collective assets of $5 trillion. TheINCR is using this massive shareholderpressure to force companies to addresssustainability.

Individual sustainability investors are a growing segment as well. An increasingnumber of financial services firms,including Fortis Bank, have introducedfinancial instruments that invest insustainable companies to attract individualinvestors, and several organizations havecreated financial indexes comprised ofcompanies that are seen as leaders insustainability. KLD, Sustainable AssetManagement and Innovest are three of the largest such indices.

Value graded

62. Citigroup press release, http://www.citigroup.com/citigroup/press/2008/080204a.htm (accessed May 5, 2008).

63. Wall Street Journal Environmental Capital blog,http://blogs.wsj.com/environmentalcapital/2008/02/13/bank-of-america-puts-a-price-on-carbon/ (accessed May 5, 2008).


Focusing on the financial risks of climatechange, Innovest has created the “carbonbeta” to systematically link climate-related risks and opportunities. Usingproprietary data, it incorporates threebroad factors in corporate financedecisions: the cost of a company’s carbonexposure as a percentage of revenues, thecompany’s geographic risk exposure andcompany-specific factors such as energyintensity and technological trajectory.66

More and more mainstream investmentfirms are pursuing similar initiatives. For example, Goldman Sachs introducedthe “Sustain List” in 2007, a list of thecompanies, in various industries, that are both attractive financial investmentsand leaders in sustainability. In otherexamples, two of the world’s largestfinancial markets have launchedsustainability-focused stock indices: the Dow Jones Sustainability Indexes were launched in 1999, and the FTSE4GoodIndex was launched in 2001. Both indicesconduct periodic reviews of companies to determine whether the companiescurrently meet the sustainability standardsput forth by each index.

The increased pressure by the financialmarkets is causing companies’ cost ofcapital to increase. Some companies,primarily those focused on developingnew coal-fired power plants, are finding it more difficult to raise capital asinvestment banks such as Bank ofAmerica begin to factor in an assumptionfor the price of carbon. This kind ofincreased scrutiny is also putting morepressure on management teams andmaking them more accountable for their sustainability efforts.

The rising power of NGOsIn step with the public’s increasedawareness and interest in sustainability,NGOs are more successful than ever at mobilizing public opinion onenvironmental issues and holding largecorporations responsible for their impacton society and the environment. SomeNGOs may picket a company’s facility or file lawsuits; others may meet with a company’s management team to workout solutions; still others may work withlegislators, investors, banks or even clerics to call attention to the company’streatment of sustainability. NGOscomprise a diverse network oforganizations that are multifaceted intheir influence and engagement styles. As companies struggle to meet the

demands of today’s socially consciousstakeholders, it is often wise to work with NGOs rather than view them as foes. NGOs can help corporationsunderstand their effects on local andglobal communities and help themimplement genuine long-term changes.

As noted, some NGOs actively engagebusinesses to help them find solutions todifficult environmental and social problems.For example, moving beyond its early stylerepresented by their informal slogan “Suethe bastards,” the Environmental DefenseFund (EDF) now has a formal motto:“Finding the ways that work.” EDF haspartnered with some of the largestcorporations in the world, including FedEx, UPS, SC Johnson, Starbucks andMcDonald’s, resulting in some of the mostinnovative and high-impact corporatepartnerships today. In fact, theattractiveness of NGO-corporate allianceshas grown to such proportions that thedemand now appears to exceed the supply.Gwen Ruta, the vice president of corporatepartnerships at the Environmental DefenseFund recently shared with us that"Eighteen months ago, I was happy whenanyone returned my calls—now I hardlyhave time to return all of theirs.”

NGOs are uniquely positioned to helpcorporations because they are notsuppliers, consultants, clients or regulatorsbut rather are entities that bring a varietyof intangible assets to the table. Theyoften have local knowledge and the trustof the local community that companieslack. NGOs know how to mobilize peopleand build networks, and understandwhich issues matter to communities. They are a tool for breaking intountapped markets and serve as a catalystfor new business opportunities and highlyvisible positive change in communities.The benefits of a business-NGOpartnership can endure longer thancharity donations from corporations tonon-profit organizations or even the best-intentioned transactional relationshipswith NGOs.

Companies committed to embracingsustainability “seldom operate solo in the social and environmental realm”; they commit to partnerships to “addressproblems, reach new markets and developlocal communities.”65 Companies that usepartnerships correctly don’t just leveragethese alliances to improve communityrelationships; they use them “to createnew markets by fusing their citizenshipand business agendas.”66

64. Deutsch, C., “Wall St. Develops the Tools to Invest in Climate Change,” New York Times, May 24, 2006.

65. Bradley Googins and Philip Mirvis, Stages of CorporateCitizenship: A Developmental Framework (Chestnut Hill, MA:Center for Corporate Citizenship at Boston College, 2006).

66. Ibid


In recent years, three powerful forces haveamplified the salience of sustainability tobusiness: globalization, climate change and information technology. As companiesexpand their global footprint, they becomemore deeply entangled in a complex webof competing economic, legal, cultural andenvironmental claims. The search for priceadvantages and new markets carries withit the risk that global businesses will haveto assume responsibility for complaintsregarding unfair labor practices,environmental degradation and so on.

Fears over climate change have contributedto the public’s sense that corporations,especially in certain industries, must workwith governments and nongovernmentalorganizations to heavily reduce theircarbon usage through conservation, cap-and-trade regulations and the creation of innovative products.

Finally, information technology makesavailable vast resources of information on the state of the planet, economicdevelopment and business success.Individuals can also easily join with like-minded people and groups to supportnew regulations and to pressure businessto change.

As the concept of sustainability continuesto develop in light of these forces,companies will have to rethink strategiesand processes and how they are providingvalue to customers, employees and otherstakeholders.

GlobalizationCoverage of globalization’s progressionand implications is ubiquitous. For brevity, we’ll focus our comments onglobalization’s role as an amplifier ofsustainability’s salience. We live in ashrinking world where global sourcingbrings corporate interests into ever-increasing contact with peoples andissues around the world. This contactmakes vivid the disparities between rich and poor, between developed anddeveloping countries.69

Consider for example the recent anti-Coca-Cola campaigns on collegecampuses around the country are being driven largely by one man, Amit Srivastava, from his laptopcomputer in Southern California (formore on how information technology isamplifying the salience of sustainability,see the Information Technology sectionbelow). Using the Web, he is mobilizingcollege students to pressure their

administrators to ban Coke products from their campuses because of themultinational’s drawdown of wateraquifers in India.70 This nontraditionalform of pressure has led Coca-Cola to dosomething it would never have previouslyagreed to do: open its overseas facilitiesto an independent, transparent, third-party environmental audit. In fact, thecompany has recently begun changing its water-management practices globally,and it is now regularly integratingconcerns for sustainability into itsoperating decisions.

Climate changePerhaps no other issue has galvanized attention and debate in the domain ofsustainability as much as climate change.Regulations are being developed that willalter the price of carbon at all levels of the local and global economies, and moreregulations are on the horizon.69 These new rules will affect fossil-fuel-basedenergy and resource pricing and availability,creating a ripple effect throughout acompany’s entire value chain.

While the United States has not ratifiedthe Kyoto Treaty, much is happening atother levels of the US economy. In July2007, more than 600 mayors representingmore than 59 million Americans signedthe U.S. Mayors Climate ProtectionAgreement. Forty-seven states have someform of climate-related policies: emissionsinventories, renewable portfolio standards,climate action registries or mandatorycap-and-trade systems.70 And federal levelaction appears very likely. In 2007, the U.S.Supreme Court authorized the EPA toregulate carbon dioxide under the CleanAir Act, and both Barack Obama and JohnMcCain have gone on record supporting aclimate change bill. In many areas outsideof the United States, carbon regulationalready exists. Consider the EuropeanUnion’s Emissions Trading Scheme, forexample. In addition, discussions arealready under way for a post-Kyoto 2012international framework in which theUnited States will likely participate.

These developments suggest a largemarket shift, one that will create bothwinners and losers. A report by SirNicholas Stern, former chief economistfor the World Bank, puts the annualworldwide costs of reducing GHGemissions to 500 to 550 parts per millionat around 1 percent of global GDP. Butthe Stern report goes on to point out that

if we do nothing, “the overall costs andrisks of climate change will be equivalentto losing at least 5 percent of global GDPeach year. If a wider range of risks andimpacts is taken into account, theestimates of damage could rise to 20 percent of GDP or more.”71

These uncertainties are spurring financialmarkets, investors and shareholders toconsider climate change as part of theircapital asset decisions. Some majorinsurers (and reinsurers) have expressedgrowing concern about the physical,financial and disclosure risks posed byclimate change; many are consideringthese issues in directors’ and officers’insurance coverage.72

Companies must consider how climatechange both alters their core competenciesand creates new business opportunities. A company might ask itself, for example,whether cutting GHG emissions couldreduce costs and exposure to variousbusiness risks.73 DuPont has identified the most promising growth markets in theuse of biomass feedstock that can be usedto create new bio-based materials such aspolymers, fuels and chemicals, appliedbiosurfaces and biomedical materials.

The company hopes to have 25 percent of its revenue come from such non-depletable resources; as of 2007, it wastwo-thirds of the way toward meetingthat goal.

Information technologyIn making information much moreavailable across a wider range ofconstituencies, information technologyalters the relationships among players suchthat previously weak or dispersed groupsare able to change the power dynamicswithin a market. The antiglobalizationprotests in Seattle, Prague and elsewherewere made possible by the connectivity of the Web.

Social media is another aspect ofinformation technology that is changingthe face of business. It includes “onlineapplications, platforms and media whichaim to facilitate interaction, collaborationand the sharing of content” and refers to

Three amplifying forces

67. Andrew Hoffman, “The Real Thing: Coca-Cola learns a toughlesson about corporate sustainability,” September 5, 2006.

68. Stecklow, S., “How a Global Web of Activists Gives CokeProblems in India,” Wall Street Journal, June 7, 2005.

69. Andrew Hoffman, and John Woody, Climate Change: What’s Your Business Strategy? (Boston: Harvard BusinessSchool Press, 2008).


the online community of messageboards,chat rooms, blogs, widgets, socialnetworking sites, podcasts, video andphoto-sharing sites and really simplesyndication (RSS) or Web feeds—sites thataggregate online content from a variety of sources). Social media is very much aworldwide phenomenon; 2008 globalsurveys indicate that most of today’sInternet users are producing online contentand participating in this media platform.Over a three-year period, social media hasseen enormous growth. For instance, thepenetration rate of video clips was 83percent as of early 2008, compared with 31 percent in 2006.

More than half of all people online havejoined a social network and uploadedphotos, nearly a quarter have uploadedvideos and almost three-quarters have read a blog.74

Social media, particularly blogs, has anenormous impact on company productsand brands. There are now more than

184 million bloggers worldwide, and 34 percent of them post opinions aboutproducts and brands—that adds up tomore than 62 million consumers. Indeed,when people visit blogs, 26 percent of the time they do so to get opinions onproducts and brands; what’s more, 32percent of people who read blogs saythey trust them as a source. And 36percent of Internet users say they feelmore “positive” about companies thathave blogs.75

The online world has brought members ofthe global community into direct contactwith corporations and with one another.Consumers have been known to “e-mailcarpet bomb” executives for badcustomer service or being stuck on planes.They can educate themselves much moreeasily, as information is readily availableto anyone who knows how to search forit online. (Consumers, for instance, canfind out about toxic chemicals in theirarea by going to sites like

www.scorecard.org.) Video technologycontributes an added dimension ofemotion to experiences, beyond what’spossible with text. Internet users caneasily view a disastrous oil spill, not justread about it in the news.

In essence, companies must answer to agrowing community of external auditors—a fact that has made transparencydifficult to avoid.76 Social media and theInternet make it easy for the truth tocome out. Remember the embarrassingvideo posted on YouTube of cabletechnicians caught sleeping on acustomer’s couch?77 Companies will find it harder to spin messages or cover thingsup. Leading firms such as Oracle and HPhave already built online communities to solicit customer involvement.78

70. Barry Rabe, Greenhouse and Statehouse: The Evolving StateGovernment Role in Climate Change (Arlington, VA: Pew Centeron Global Climate Change, 2002).

71. Sir Nicholas Stern, The Economics of Climate Change: TheStern Review (Cambridge, England: Cambridge University Press, 2007).

72. Andrew Hoffman, Carbon Strategies: How LeadingCompanies Are Reducing Their Climate Change Footprint (AnnArbor, MI: University of Michigan Press, 2006).

73. Andrew Hoffman, “Climate Change Strategy: The BusinessLogic Behind Voluntary Greenhouse Gas Reductions,” CaliforniaManagement Review 47, no. 3 (2005): 21—46.

74. Universal McCann, Power to the People: Social MediaTracker—Wave.3, March 2008 (accessed May 7, 2008, onwww.universalmccann.com/Assets/wave_3_20080403093750.pdf).

75. Ibid.

76. Charlene Li, Jeremiah Owyang, Peter Kim, Josh Bernoff and Scott Wright (2008) Top Social Computing Predictions for 2008, Forrester, January 15, 2008.

77. Brian Haven, Marketing’s New Key Metric: Engagement,Forrester, August 8, 2007.

78. Brad Bortner, Ellen Daley and April Lawson, Top MarketResearcher Predictions for 2008, Forrester, December 31, 2007.


Expanding corporate controlAll of these market shifts place newexpectations on the corporation.Shareholder value is still important, butcompanies’ range of constituencies andconcerns is broadening. Executives who do not recognize this increased breadth of stakeholders will be ill-equipped to dealwith sustainability. Greater attention totransparency, time horizons, communityengagement, employee values and thelocal and global communities will requireshifts in corporate governance models.

The solutions to the world’s social andenvironmental issues are increasingly beingplaced on business’s shoulders. A GlobeScansurvey showed that in 2001, most peoplebelieved that corporations must lead theway in sustainable development.79 The samesurvey showed that the public thinks largeglobal companies hold the key to improvingthe lives of people in poor countries(though most respondents in Africathought international bodies were stillmore important).

Navigating the sustainability terrain will be challenging. Most companies areunfamiliar with the new set of expectationsbeing placed on them, and constituents areless trusting of companies’ intentions. Fifty-two percent of GlobeScan’s surveyrespondents placed “not much trust” or “notrust” in global companies, and 55 percentsaid the same for national governments,compared with 61 percent who place “a lot of trust” or “some trust” in NGOs. Themajority of respondents also said that theywould respect companies that partneredwith NGOs, national governments or theUnited Nations.80

Elkington describes how companies mustundergo a metamorphosis in order toaddress sustainability challenges.81 Theentire organizational system, not justvarious functions and technologies, musttransform itself, he says. Business leadersmust have strong visions for change, goodpolitical and commercial timing, stamina topursue agendas and a host of other traitsthat would make them “citizen CEOs.”

Central to this overhaul is a change in the nature of competition itself. Indeed, a strong reputation for effectivesustainability strategies may be anessential corporate attribute in thecompetition for customers, employees,investors, governments, NGOs and themedia. High sustainability rankings inpublications like Fortune, BusinessWeekand the Financial Times are apt to givecompanies a distinct edge.

Environmental issues, in particular, arealtering key questions about competition.Consider the auto industry. Automobileemissions can be reduced in one of twoways: by altering the engine design or by altering the formulation of gasoline.Which of these two methods is better has been debated since the 1960s, whenauto companies were required to installcatalytic converters and oil companieswere required to remove lead fromgasoline formulations. In 1999,automobile makers infuriated oil refinersby asking the US government to cutgasoline-sulfur levels to near zero to helpthem achieve future emission standards.The tension between carmakers and oilrefiners continues today with theintroduction of flex-fuel vehicles.

It’s no wonder: a change like this can cost industries significant amounts ofmoney in research and product costs.

With the introduction of the zero-emissions automobile, we may seeanother, more intriguing, reconfigurationof competition. The zero-emission car will be run by computers, servomotorsand switching equipment, so the questionbecomes, “Is it a car with highly technicalelectronic equipment, or is it a computeron wheels?” The difference is significantin terms of which companies possess the complementary assets and corecompetencies to develop it. Amory Lovinsof the Rocky Mountain Institute believesthat it’s more accurate to think of theelectric car—what he calls the “hypercar”—as a computer on wheels.

Therefore, he says, it is not the big threeautomakers that will develop these carsbut companies like Siemens, Hewlett-Packard and Motorola. They possess thecompetencies to develop the hypercar’ssophisticated circuitry, and they haveaccess to sales outlets through thegrowing marketplace on the Internet. One can already buy a Dell computer overthe Internet. And because companies likeSaturn have already begun standardizingtheir sales, it’s not hard to imagine thatyou could choose your car as well as itscolor, style and options through the Weband have it delivered right to your door.82

This kind of competitive shift alsooccurred when the supply of lumberdecreased in the mid-1990s due to effortsto protect the endangered spotted owl.

Potential changes tostrategy and competitivestructure

79. GlobeScan, Research Findings (accessed May 9, 2008 onwww.globescan.com).

80. Ibid.

81. John Elkington, The Chrysalis Economy: How Citizen CEOsand Corporations Can Fuse Values and Value Creation (NewYork: John Wiley & Sons, 2001).

82. Andrew Hoffman, Competitive Environmental Strategy: A Guide to the Changing Business Landscape (Washington, DC: Island Press, 2000).


When the stumpage prices for severalspecies of saw timber from nationalforests increased and steel pricesremained relatively stable, the economicsbetween building a house with steelversus wood became more competitive.Attempting to capitalize on this economicopportunity, the steel industry sponsoredan advertising campaign on steel’senvironmental benefits, referring to it asthe world’s most recycled material.83 Withthe environment as the new battleground,the lumber industry has found a strongnew competitor in the steel industry.

Competition is also changing around social issues. As companies enter globalmarkets, they are finding that theirpositioning on issues like living wages,health care, community engagement and environmental standards are gainingprominence alongside taxes paid and jobscreated. Companies now find themselvesproviding health care for workers as wellas local community and buildingcommunity centers, sewage treatmentfacilities, and housing and water

distribution systems in order to be seen as positive contributors to society.Exxon Mobil recently made an unusualagreement with the government of Chadto pay 80 percent of tax revenues from itspipeline operation into an escrow accountmanaged by the World Bank for schools,clinics, roads and other basic needs. Whilethe deal was renegotiated in July 2006after the government reneged, a majormultinational acknowledging the socialand environmental impact of its privateinvestment (the project will double Chad’sper capita GDP in two years) and trying tobenefit the people in its host country setsa powerful precedent for other companies.

This kind of redefinition of thecompetitive landscape is not justaffecting international operations. In the weeks following Hurricane Katrina,companies found themselves under closescrutiny for how they handled theirworkers and the community. CVS, thelargest pharmacy chain in the UnitedStates, ignored the economic incentivesto close its devastated shops and leave

the area. Instead, it set up mobilepharmacies, gave away thousands of medications to people withoutprescriptions or even identification, flewin employees from Florida, Michigan andIllinois, kept stores open 24-hours-a-dayto meet demand, and set up a hotline tolocate and help evacuated employees.84

The sustainability challenge requirescompanies to adopt new strategies,engage new constituents, use new skillsand tactics and seek new goals that arenot just economic but also social andenvironmental. Rising to this challengerequires seeing the sustainability-relatedmarket shifts and understanding theirimplications for your business, developingand executing an effective strategy thataddresses these market shifts, andcreating an organization that can make the necessary changes while still outperforming the competition.

83. Ibid.

84. Andrew Hoffman, “The Real Thing: Coca-Cola Learns a Tough Lesson About Corporate Sustainability, ” Grist ,September 5, 2006.


The biggest sustainability challenges we face at present are rooted inenvironmental and social issues. Six major environmental challenges includeclimate change, water scarcity, habitatchange, loss of biodiversity/invasivespecies, overexploitation of oceans andnutrient overloading. Four key socialchallenges are resolving regional conflicts, developing aid and traderegimes to promote development in poor regions, resolving health care and pension issues in the developedworld, and balancing the risks andrewards of new technologies.

In order to address these challenges orreverse them, the Millennium EcosystemAssessment has identified five areas inwhich changes need to be implemented:institutions and governance, economicsand incentives, social and behavioral,technological and knowledge. Each ofthese has implications for how businesses are affected.

Institutions and governanceBecause sustainability issues are global,more coordination is needed amonginternational economic and socialinstitutions, and multilateral agreementsneed to be in place for environmentalissues. In addition, greater transparency

and accountability is required both of governments and the private sector.Stakeholders must also be included in the process.

Sustainability is poised to affect changethrough a variety of new market shifts as the number and type of institutionsparticipating in the process continues to expand. There are at least four newmarket shifts that Accenture believescould play out.

Negative Becomes the New Neutral:Today, companies are focused on settingand achieving goals of neutrality, such as carbon neutrality and water neutrality. As a critical mass of companies achievesuch goals, companies seeking ways to be distinctive could pursue a set of new goals—carbon negative or waternegative. For example, BASF iscommunicating its belief that the carbon its products help its consumersavoid is greater than the carbon that isemitted in the process of delivering theseproducts. As a result, BASF claims to becarbon negative.

All for One, A Carbon Price for All:The EU ETS (Emissions Trading Scheme)has established a market that sets a pricefor carbon. Observers believe that asimilar market system will be established

in the United States once a newpresidential administration takes office.Savvy companies will find ways to workwithin these two systems to invest andoperate wherever the carbon price islower; this, in turn, may impact theefficacy of carbon policies. A way toeliminate this potential situation is bylinking the geographical carbon marketsso that one carbon price emerges thatwould apply where carbon regulations are in force.

The Triple Bottom Line Will Revert to A Single Bottom Line, with a Twist:One of the benefits of Elkington’s work on the TBL is that it calls attention tocorporations’ environmental and socialinteractions. This approach makes sensetoday—measuring and managingenvironmental and social interactionsmight seem like uncharted territory formany companies. As standard metrics for each type of interaction continue toemerge, we might reach a point wherecompanies consider their environmentaland social interactions as concomitantwith their financial decisions, thusnegating the need to think in terms ofthree separate but inseparable interactions.

III. Looking tosustainability’s future


Sustainability Will Evolve from Money Saver to Money Maker:We suspect that more companies areconsidering sustainability actions that will produce energy efficiencies and/orreduce their carbon emissions. As moreand more companies adopt thesepractices, visionary companies will seeknew paths to distinction. One way theywill achieve distinction, even if just in the short term, is through introducingproducts and services that are based on sustainable development principles.

Economics and incentivesEconomic approaches towardssustainability call for a greater use ofinstruments and market-based approachessuch as, for instance, carbon pricing and similar schemes. In addition, theMillennium Ecosystem Assessment calls for the need to eliminate subsidies thatpromote excessive use of the ecosystemsuch as agricultural subsidies.

The use of such economic instruments and incentives has numerous implicationsfor businesses. For instance, companies in particular sectors (for example,agriculture, energy, forestry) need toanticipate future regulation onenvironmental and social issues andprepare for those issues. Companies may want to hedge and manage carbonpricing and track their carbon footprint.Companies operating in subsidized sectors may invest in alternative skills and technologies to redirect their businessto other sectors. To improve efficiency andlower costs, companies may need to sourcelocal products to minimize transportationand associated environmental costs. In addition, management of risk andinsurance is crucial.

Behavioral and socialFrom a behavioral and social perspective, changes are needed inaggregate consumption if we are to build a sustainable world. This requires anincrease in education, communication andempowerment of groups, in particularwomen, young people and indigenouspeoples, that depend directly on and areaffected by ecosystems. In addition, issuessuch as HIV/AIDS and other preventableinfectious diseases need to be addressed. All of these things require a change invalues and demands from society andconsumers.

While many of these issues pertain toconsumer behavior, businesses can alsoadjust their behavior and social actions to be more responsible toward society. For instance, businesses can increase the

availability of green products andservices, giving consumers a choice forsustainable action. In addition, they canprovide detailed and reliable informationabout the sustainability of their products,through more rigorous eco-labelingschemes and consumer education.Companies can also play a sustainablerole in reducing travel and transportthrough sourcing local products andincreased use of information andcommunication technologies.

Companies gain beneficial reputation andlegitimacy effects from taking action onsustainability, but they must be careful toavoid “green washing.” Charitable donationsare commendable, but capacity building islonger lasting—by developing a workforce,educating people and creating a market inpreviously under-developed regions,companies can contribute to social welfare.“Base of pyramid” business models aim todo just that. However, there are also manyarguments against such models that can beviewed cynically as ways to exploit nations.

TechnologicalTechnology plays an important role insustainable development, but can also beharmful. The types of technology that can promote sustainability include thosethat increase energy efficiency, reducegreenhouse gas emissions, enable cropyields without harming water or nutrientsand minimize pesticide use, and restoreecosystem services.

Given that the bulk of research anddevelopment is conducted in industry,85

business plays an important role intechnological development and innovation.Different industries will have very differentpriorities regarding the types of technologyto develop. For instance, the power industrymay need to consider development ofrenewable energy technologies, such assolar and wind. In turn, this affects relatedbusiness, such as those that make turbines,aluminum or steel, or semiconductortechnologies for photovoltaics. Inresearching and developing newtechnologies such as renewable energy,cost-benefit analyses and trade-offs need to be considered. For instance, the use ofbiofuels as a renewable energy source mayappear beneficial to address society’sgrowing energy needs, but is lessattractive in the context of the food crisisand related social unrest occurring in manycountries across the world.

Technological development forsustainability applies to many industries.The management of material use andwaste flows is important to all companies

that pollute, not just the wastemanagement industry—the solution mayrely on design for the environment so thatproducts do not become useless at the endof their life cycle, extracting raw materialsin better ways or ensuring water exitsproduction cleaner than it entered.Alternative solutions may rest on industrialecology principles mentioned earlier. Anycompany that owns real estate may needto consider greening its buildings; anycompany that relies on transportation ofits goods will want to address weight ofproducts and packaging to reduce bulktransport and associated pollutions oreliminate the need for materials to besourced half way across the world.

KnowledgeKnowledge refers to the building ofinformation, skills and expertise regardingthe environment and business interface.Sustainability is an area of business thatrequires non-market values of theecosystem to be incorporated in researchmanagement and investment decisions. To this end, all forms of knowledge areimportant, including traditional andpractitioner knowledge. Using knowledgein this manner enhances the human andinstitutional capacity to assess theconsequences of sustainability decisionsand their impact on human well-being.

Businesses are affected by knowledgecreation for sustainability because it is acomplex and interdisciplinary issue. Thus,it requires talent development throughtertiary education and interdisciplinarycooperation. Locals and expertpractitioners need to be engaged—inother words, companies will need toengage new sets of stakeholders, or oldstakeholders more intensely. In pursuingsustainability goals, companies thereforefind themselves working together withlocal communities, NGOs andgovernments that might previously have been outside the corporate radar.

In addition, companies will want torecruit and retain employees withenvironmental and social as well as business or industry knowledge.Recruiting such people can extend a company’s sustainability reach, andcontribute to innovation through which a firm may gain tacit knowledgeand competitive advantage.

Sustainability is a huge imperative thatcontinues to evolve. While sustainability’sfuture form continues to take shape, theimperative’s impact on the corporateagenda is clear and here for theforeseeable future.

86 National Science Board, Science and engineering indicators2008, Volume 1, NSB 08-01 and Volume 2, NSB 08-01A.Arlington, VA: National Science Foundation.

85. National Science Board, Science and engineering indicators 2008, Volume 1, NSB 08-01 and Volume 2, NSB 08-01A. Arlington, VA: National Science Foundation.


Definitions of sustainabilityDon S. Doering et al., Tomorrow’sMarkets: Global Trends and TheirImplications for Business (Geneva,Switzerland: World Business Council for Sustainable Development, 2002).

John Elkington, Cannibals with Forks: The Triple Bottom Line for 21st CenturyBusiness (Oxford: Capstone, 1998).

Stuart Hart, “Beyond Greening: Strategiesfor a Sustainable World,” HarvardBusiness Review, January—February, 1997.

World Commission on Environment andDevelopment, Our Common Future (NewYork: Oxford University Press, 1987).

Challenges to sustainabilityIan Davis, “The Biggest Contract,” The Economist, May 26, 2005.

Wayne Norman and Chris MacDonald,“Getting to the Bottom of the ‘TripleBottom Line’,” Business Ethics Quarterly14 (2003): 1 – 13.

The state of the environmentMillennium Ecosystem Assessment,Ecosystems and Human Well-Being:Synthesis Report (Washington DC: Island Press, 2005).

Bottom of the pyramidStuart Hart, Capitalism at the Crossroads:The Unlimited Business Opportunities inSolving the World’s Most DifficultProblems (Upper Saddle River: WhartonSchool Publishing, 2005).

C.K. Prahalad, The Fortune at the Bottomof the Pyramid: Eradicating PovertyThrough Profits (Upper Saddle River:Wharton School Publishing, 2004).

Climate changeDouglas Cogan, Corporate Governanceand Climate Change: Making theConnection (Boston: Percent Inc., 2006).

Andrew Hoffman, “Examining theRhetoric: The Strategic Implications of Climate Change Policy,” CorporateEnvironmental Strategy 9, no. 4 (2002):329 – 337.

Andrew Hoffman and John Woody,Climate Change: What’s Your BusinessStrategy? (Memo to the CEO) (Boston:Harvard Business School Press, 2008).

Andrew Hoffman, Carbon Strategies: HowLeading Companies Are Reducing TheirClimate Change Footprint (Ann Arbor, MI:University of Michigan Press, 2007).

Stephen Pacala and Robert Socolow,“Stabilization Wedges: Solving theClimate Problem for the Next 50 Yearswith Current Technologies,” Science 305(August, 2004): 968 – 972.

Sir Nicholas Stern, The Economics ofClimate Change: The Stern Review(Cambridge, England: CambridgeUniversity Press, 2007).

Future issues Thomas Barnett, The Pentagon’s New Map (New York: Berkley Books, 2003).

John Ehrenfeld, Sustainability by Design:A Subversive Strategy for TransformingOur Consumer Culture (New Haven: YaleUniversity Press, 2008).

Paul Hawken, The Ecology of Commerce(New York: HarperCollins, 1993).

Paul Hawken, Amory Lovins, and HunterLovins, Natural Capitalism: Creating theNext Industrial Revolution, (New York:Little, Brown and Company, 1999).

James Gustave Speth, The ComingTransformation: America, Capitalism and the Environmental Future (NewHaven: Yale University Press).

Selected references

About AccentureAccenture is a global managementconsulting, technology services andoutsourcing company. Combiningunparalleled experience, comprehensivecapabilities across all industries andbusiness functions, and extensive researchon the world’s most successful companies,Accenture collaborates with clients to helpthem become high-performancebusinesses and governments. With morethan 187,000 people serving clients inover 120 countries, the companygenerated net revenues of US$23.39billion for the fiscal year ended Aug. 31,2008. Its home page iswww.accenture.com.

About the World Business Councilfor Sustainable DevelopmentThe World Business Council forSustainable Development (WBCSD) is aunique, CEO-led, global association ofsome 200 companies dealing exclusivelywith business and sustainabledevelopment. The Council provides a platform for companies to exploresustainable development, shareknowledge, experiences and bestpractices, and to advocate businesspositions on these issues in a variety of forums, working with governmentsand non-governmental andintergovernmental organizations.www.wbcsd.org

About the Authors

Eric M. Lowitt is a Research Fellow at theAccenture Institute for High Performance,where his research focuses on theconnection between sustainability andhigh performance. Eric’s research hascontributed to highly visible articles andpublications such as "The Chief StrategyOfficer" (Harvard Business Review, October2007) and Competing on Analytics(Harvard Business School Press, 2007).

Andrew J. Hoffman is the Holcim (UnitedStates) Professor of SustainableEnterprise at the University of Michigan.He has published seven books and morethan 70 articles/book chapters onenvironmental and social issues as theyrelate to business. Andrew’s latest book,Memo to the CEO: Climate Change.What’s Your Strategy?, was released byHarvard Business Press in April 2008.

Judith L. Walls is an Alcoa FoundationPost-Doctoral Research Fellow at theUniversity of Michigan’s Erb Institute forGlobal Sustainable Enterprise. Her workfocuses on corporate governance andenvironmental strategy. In 2008, Judithpublished a book chapter on innovation in energy-efficient lighting. She alsopublished a Harvard Business School case study on ecopreneurship of an NGO in 2004.

Anna M. Caffrey is a research associateat the Accenture Institute for HighPerformance. Her research includes avariety of topics such as sustainability,corporate governance practices, andNGO-corporate partnerships.

About the Accenture Institute for High Performance

The Accenture Institute for HighPerformance develops and publishespractical insights into critical managementissues and global economic trends. Itsworldwide team of researchers connectswith Accenture’s consulting, technologyand outsourcing leaders to demonstrate,through original, rigorous research andanalysis, how organizations become and remain high performers.

Copyright © 2009 AccentureAll rights reserved.

Accenture, its logo, and High Performance Deliveredare trademarks of Accenture.

sustainability and its impact on the corporate agenda

Documents