The Sustainability Frontier: Where are you on the Journey? Beth Davis-Sramek, Ph.D. University of Louisville.

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The Sustainability Frontier: Where are you on the Journey?Beth Davis-Sramek, Ph.D.University of Louisville

1Why the focus on sustainability?

2Why Even Bother?"There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits..

so long as it stays within the rules of the game..Milton Friedman, New York Times Magazine, 1970

3Rules of the GameOrganizations must conform to the rules and belief systems prevailing in the environment to earn the organization legitimacy

Formal Institutions Informal Institutions Premise 4The Rules of the Game are Changing: Ex: The Palm Oil Controversy

5The Rules of the Game are Changing: Ex: The Palm Oil Controversy

Source: RSPO.org6The Rules of the Game are Changing: Ex: The Palm Oil Controversy

7The Rules of the Game are Changing: Ex: Palm Oil Controversy Response

Fortune, Dec 2014

8Perhaps More CompellingNOW:-- Global population of 7 Billion-- 2 Billion people in global middle class -- More than half of the worlds population live in cities-- There are 34 megacities (more than 10M inhabitants)

BY 2030:-- 3 Billion MORE people will be joining the global middle class-- There will be 41 megacitiesTremendous opportunity resource/risk management is KEY.

Tokyo 37.8 Sao Paulo, Brazil 20.3Jakarta, Indonesia 30.5 Mexico City 19.4Delhi, India 24.9 Mumbia, India 17.7 Manila, Philipines 24.1 Osaka, Japan 17.4Seoul, S Korea 23.5 Moscow 16.1Shanghai 23.4 Dhaka, Bangladesh 15.7Karachi, Pakistan 22.1 Cairo 15.6 Beijng 21 LA - 159.. NY 20.6 Bangkok 14.9Guangzhou 20.5 Kolkata, India 14.6

The report indicates that India, China and Nigeria will account for the bulk of the worlds urban growth by 2050.6 of the 34 are in China, 3 in the top 10India has 3 in the top 20,

9Forces of Change

Expect the Unexpected: Building business value in a changing world, KPMG, 2012

10Sustainability definedMeeting the needs of the present generation without compromising the ability of future generations to meet their own needs.Enough, for all, forever.The simultaneous pursuit of economic prosperity, environmental quality and social equity. Companies aiming for sustainability need to perform not against a single, financial bottom line but against the triple bottom line.

1987 UN report Our Common Future 2010 Dr. Chuck Hopkins PhD in EducationWorld Business Council on Sustainable Development

11Sustainability and the Triple-Bottom Line

PeoplePlanetProfitsSustainable Businesses are RESILIENT, and they create: Economic valueHealthy ecosystemsStrong communities

The phrase the triple bottom line was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility.12Sustainability and the Triple-Bottom Line

People

Planet

ProfitsStrategyMission & Objectives Sustainable Businesses are RESILIENT, and they create: Economic valueHealthy ecosystemsStrong communities

13The SustainabilityJourney

Pre- Compliance ComplianceBeyondCompliance Purpose&PassionIntegrated Strategy

The Next Sustainability Wave, Bob Willard, 2005 14

1. Pre-ComplianceNike, 1997 Annual Report: We are not here to eliminate poverty and famine or lead the war against violence and crime. Our critics say that the world is going to hell in a Nike sports bag. Then, again, for the most part, our critics arent athletes. The Sustainability Journey15

2. ComplianceAvoid fines, prosecution, bad PRThe Sustainability Journey16

2. ComplianceThe Sustainability Journey3. Beyond Compliance 3.0 Improve company eco-efficiencies and brand 3.1 Improve supply chain conditions and footprints

3.2 Create new eco-effective products, services, leases 3.3 Embed sustainable governance17

The Sustainability Journey3. Beyond Compliance 3.0 Improve company eco-efficiencies and brand 3.1 Improve supply chain conditions and footprints

3.2 Create new eco-effective products, services, leases 3.3 Embed sustainable governanceWal-Mart Mission Statement: We save people money so they can live better.http://corporate.walmart.com/global-responsibility/

Except from The Sustainability Champions Guidebook, with more contextTransforming From a Stage 3 Company to a Stage 4 Company[The slide] depicts the sustainability journey for large, publically-traded companies. Corporate sustainability champions usually focus on leading their companies through the intermediary stages between Stages 3 and 4.

Stage 3.0: Improving working conditions and capturing eco-efficiencies within the companys internal operations and processes, especially energy efficiencies and carbon footprint reductions.Stage 3.1: Working with suppliers to improve working conditions and capture eco-efficiencies within suppliers operations and processes.Stage 3.2: Working with stakeholders to create innovative sustainable products and services that creatively replace todays unsustainable ones and strategically position the company to capture new markets. Stage 3.3: Revamping the companys governance system to ensure it aligns with sustainability principles.Stage 4: Rebranding the company as a sustainable enterprise, with sustainability deeply integrated into its business strategies and culture.

This guidebook shows how to progress through those stages in a way that works for the companys executives, employees, and important stakeholders. The change process transforms resource-depleting, pollution-spewing, unsustainable companies that are pushing nature ever closer to collapse and generating a gaping divide between the rich and poor that increasingly defies all conceptions of fairness. It enables companies to adopt an exciting, sustainable, winning, and circular, cradle-to-cradle model of commerce. Sustainability marries philanthropic and ecological motivations with bottom-line motivations. It is smart business.

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2. ComplianceThe Sustainability Journey3. Beyond Compliance4. Integrated Strategy Nike, 2011 Annual Report: I believe that any company doing business today has two simple options: embrace sustainability as a core part of your growth strategy, or eventually stop growing. Nike Profile, TODAY: NIKE, Inc. fosters a culture of invention. We create products, services and experiences for todays athlete while solving problems for the next generation.19

2. ComplianceThe Sustainability Journey3. Beyond Compliance4. Integrated Strategy Patagonia Mission Statement: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.

Purpose&Passion

Endangered Species Chocolate Promise: 10% of our net profits are donated annually to current 10% GiveBack Partners

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The Sustainability Journey: Where are we now?And the Survey Says..

New Business Models: Shared Value in the 21st Century, The Economist Intelligence Unit, October 2014.

David Kiron, Nina Kruschwitz, Holger Rubel, Martin Reeves and Sonja-Katrin Fuisz-Kehrbach, Sustainabilitys Next Frontier, MIT Sloan Review, December 2013.MIT-BCG: Based on a subsample of 1,847 respondents from commercial enterprises from an MIT Sloan Management Review and Boston Consulting Group (BCG) 2013 global survey of more than 5,300 executive and manager respondents from 118 countries.

EIU: Based on research in September-October 2013 with 285 senior executives, mostly in Asia-Pacific, Europe and North America. 58% of the 285 respondents are executives at C-level or above; approximately 60% are responsible for strategy and business development at their companies. Around 37% represent businesses with US$500m or more in annual revenue.

21Motivators for Sustainability66%: there is a strong causal link between a companys commitment to embed sustainability goals and its long-term (5-10 years) financial performance70%: having a sustainability strategy is a prerequisite for the companys long-term growth48%: sustainability practices are a source of competitive advantage

22Obstacles for Sustainability52%: immediate financial goals are more urgent44%: absence of a business case31%: no consensus on ultimate sustainability goals30%: inadequate budget27%: insufficient clarity concerning responsibilities of the company26%: lack of clarity on legal or regulatory obligations to meet sustainability standards

23Are companies putting more focus on sustainabiliy issues? Yes67% say social and and environmental issues are significant or very significantBUT40% say their companies are largely addressing them, and 10% say their companies fully tackle them.

THOUGHT ACTION

24Little progress to establish a business case

25Defining Talkers vs. Walkers

26Organizational Capabilities for Sustainability

27Moving from Talking to Walking

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Most Influential Stakeholders

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More CollaborationNearly 40% report increasing collaboration with customers and suppliers on sustainability matters. 34% say their companies have stepped up their engagement with governments, policy makers and regulators.

30Sustainabilitys Next FrontierPeople

Planet

ProfitsStrategyMission & Objectives Power in numbers through systemic sustainability collaborationsAddressing global sustainability challenges is beyond the capabilities of even the largest company.

31Four Models of Sustainable CollaborationsPLAYERSFOCUSOperational processesOutcomesCompanies acrossthe value chainCompanies and Nonbusiness stakeholdersDevelop industry benchmarks and standardized systems for measuring environmental performance across the value chainInstitute "payment for ecosystem services" models in which firms invest in funds that compensate local communities for improvingconservation and protectionoutcomesIdentify and share industrywide operational processes that protect the environment or protect human rightsInitiate extended collaborationsTo engage businesses and noncorporate stakeholdersin the pursuit of operationalinnovations and best practicesthat create shared value

Corporate collaborations include manufacturers, suppliers, distributors, retailers, ind other players across the business value chain. Noncorporate players such as NGOs, academics, and government may offer input, but they are not integral operational partners. It is the corporate players whose behavior must change to drive the requisite innovations Extended collaborations are those in which both businesses and noncorporate partnerslocal governments and other stakeholder communitiesare integral to the process. Coordinated processes. Stakeholders identify and share new operational processes that reduce resource consumption and waste and protect natural resources. Coordinated outcomes. Stakeholders work together to define desired outcomes, create standardized metrics for measuring environmental impacts, and benchmark performance32Enabling Successful CollaborationsStart with a small, committed groupLink self-interest to shared interestMonetize system valueCreate a clear path to quick winsAcquire independent project management experienceBuild in structured competitionNurture a culture of trust

The Collaboration Imperative, HBR, April 2014 33

Sustainability is no longer a nice-to-do. Its a must-do.

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