Expert Opinion

Over the last 20 years, there has been a growing realisation that the current models of economic and social development are unsustainable. The loss of biodiversity, created by felling rainforests, over-fishing, and negative consumption patterns, is having a negative impact on our environment and our climate. In reality, our way of life is placing an increasing burden on the planet. The Sustainable Development Unit (SDU) of the UK Department for Environment, Food and Rural Affairs (DEFRA) believes that a decisive move toward more sustainable development is urgently needed. Not only is it the right thing to do – it is also in our long-term collective best interest. In the UK, the following key areas relating to sustainability have been prioritised for immediate action:

• Sustainable consumption and production;
• Climate change and energy;
• Natural resource protection and environmental enhancement;
• Sustainable communities.[2]

Integrated Sustainable Development

Sustainable development initiatives are much more effective when taking in a wide spectrum of issues and treating them as an integrated whole. Placet and colleagues, from the Energy Policy and Planning Group at the Pacific Northwest National Laboratory in the United States, note [3] that effective sustainable development involves an integrated approach to:

1. Environmental stewardship;
2. Social responsibility; and
3. Economic prosperity.

Each of these elements is closely related to the well-being of organisations, and of society as a whole. The formation of an effective sustainability-focused business strategy requires each element to interrelate and support the others. Alarmingly, researchers have estimated that if the per-capita resource consumption rates currently found in the developed world were extrapolated to the developing world, an equivalent of three Earths would be required to support the projected rate of resource consumption. [4] This, of course, is not possible, and has led those advocating sustainability to estimate [5] that resource consumption in all industries must decrease by at least a factor of four in order to secure a sustainable future. To achieve this, “radical innovation” practices would be needed, for example:

• Developing new processes that have less impact upon the environment;
• Creating new products that are better for—or improve—the environment;
• Formulating improved business processes that incorporate social and environmental considerations;
• Inventing totally new industries that are devoted to improving environmental and social conditions.

ince sustainability practices need to be adapted to fit situations affecting various industries, locations, and cultures that are subject to unique and evolving environmental and social pressures, there is a need for great flexibility in their implementation. A high degree of customisation, time, and careful planning is required to develop sustainability strategies.  Figure 1, see below, adapted from Placet and colleagues, depicts three interrelated and mutually supporting key elements of sustainable development:

Figure 1: Three Elements of Sustainable Development 

Unified Energy Strategy Brings Savings

Andrew Bray, the European head of Johnson Controls (a specialist energy management organisation), observes [6] that many organisations are often not aware of the full impact of price increases upon their operations, as they do not have a unified energy strategy. And because they lack accurate trend data, there is often confusion about where energy savings can actually be made. This is compounded by the fact that the responsibility for energy management is commonly split between the purchasing, finance, and health and safety departments. However, the following organisations, all based in the UK, have made significant efforts towards sustainability:

• HSBC, the second largest bank in the world, decided to become carbon neutral in 2004, and has subsequently invested £650,000 towards climate-change research;
• Dow Chemicals has reduced energy consumption per unit of production by 21 per cent since 1994, producing cumulative savings of £1.6 billion;
• Chemical group BASF, through the adoption of energy-efficiency measures, reduced annual costs at one of its sites by £340 million.

Stable Economic Growth is a Precursor for Sustainable Development

Stable levels of economic growth have been recognised as an important precursor for sustainable development. Joachim Spangenberg, vice-president of the Sustainable Europe Research Institute in Vienna, Austria, writes [7] that the UK government characterised sustainable development as being directed towards the achievement of four main objectives:

1. Social progress that recognises the needs of everyone;
2. Effective environmental protection;
3. Prudent use of natural resources; and,
4. Maintenance of high and stable levels of economic growth and employment.

To achieve sustainability at a given rate of economic growth, government policies are required that:

• Seek to improve resource productivity through efficiency standards;
• Provide economic incentives; and
• Encourage innovation.

Spangenberg believes that it is important to carefully limit the increases in production per capita in order to achieve economic sustainability. (See Spangenberg’s formula for economic growth, which has been recorded in the Measures section of this Management Brief, page 11.)

Management of World Energy Sources

José Goldemberg [8], an author and statesman who was honoured by Time magazine as being one of the “Heroes of the Environment,” cites the chief economist of the International Energy Agency (IEA) Fatih Birol as saying that, “on its current course, the future global energy situation will remain dirty, vulnerable, and expensive.” [9]

Figure 2, see below, adapted from Goldemberg, depicts current world energy sources. It shows that exhaustible fossil fuels represent 80.1 per cent of the current world energy supply, nuclear energy 6.3 per cent, and renewables 13.6 per cent. It should be noted that a large part (8.5 per cent) of the renewable component comprises traditional biomass, which is used inefficiently and in highly polluting ways, often leading to deforestation.

Figure 2: Overview of Global Energy Sources 

At the current rates of use, the known reserves of oil are expected to last around 41 years, natural gas 64 years and coal 155 years. In order to meet our perceived future needs, sustainable energy systems must comprise four important components, i.e.:

• Physical energy supplies – through securing adequate supplies with an extended life to meet future energy needs;
• Environmental management – related to the use of our present energy supplies at local, regional, and global levels, including addressing global warming and catastrophic climate change;
• Geopolitical risk management – related to security risks and possible conflicts associated with escalating competition for unevenly distributed energy resources;
• Equity of access to energy (a global humanitarian issue). The sufficient growth of energy supplies for meeting human needs is a key element of sustainability goals.

With regard to the better management of the world’s energy resources, the “Stern Review of the Economics of Climate Change” [10] points out that effective disincentives to the burning of fossil fuels are needed. It estimates that that pricing carbon at US$100 per ton would go a long way toward reducing the deforestation of tropical forests, which contributes approximately 15 per cent of all carbon emissions. By assigning a price to the carbon stored in forests, i.e. approximately 100 tons of carbon per hectare, a further impetus is created to reduce carbon emissions into the atmosphere.

ith the rising price of oil, and the probability that the most easily accessible fossil fuel reserves are dwindling, there is a great incentive to look for alternative solutions, the most likely of which are renewable sources such as hydroelectric, biomass, wind, solar, geothermal, and marine tidal. Other options, such as, (a) synthetic fuels from coal, (b) biomass refineries for the production ofwide variety of fuels, and (c) carbon capture and storage, will also benefit from higher oil prices. However, each of these options poses additional environmental problems. The main danger is that if developing countries simply follow the energy trajectory of those countries that are already developed, the course correction needed to ensure a sustainable future for the world’s energy supplies will not be possible.

Biofuels and Food Supplies

The impact on net food producers and consumers in low-income countries associated with the anticipated large-scale global expansion of biofuels production presents serious challenges for food policy planners. It also raises questions as to whether sustainable development targets can be reached.

Rosamond Naylor director of Stanford University’s programme on food security and the environment, states that “growth in biofuels production capacity offers many promises, and many threats, concerning the future course of sustainable development. The design and implementation of sustainability audits is critical as the biofuels industry develops, with clear metrics for evaluating the environmental and social consequences of biofuels and feedstock production, and for ensuring that management and governance practices are compatible with pre-determined sustainability goals. In defence of the world’s poorest populations, it is urgent that the ripple effects of crop-based biofuels on food security and the environmental be understood soon and considered carefully in the design of development policies and investments.” [11]

Measures and Management of Sustainability: Triple Bottom Line

A feature article in the June 2006 Business Credit Journal described a sustainable business as an organisation that:

• Simultaneously enhances natural, social, and economic capital;
• Assumes product stewardship by enabling customers to return products at the end of their life for re-manufacturing into new generation products;
• Provides tangible social benefits to employees, customers, suppliers, vendors, and the local community;
• Improves its ability to use resources efficiently, closes material cycles, uses renewable energy, and practises green procurement (i.e. procurement policies that seek to provide high quality, while continuously reducing destructive environmental and social impacts);
• Incorporates value over the long term, rather than seeking unsustainable short-term results;
• Measures, reports, and operates using environmental, social, and financial performance criteria i.e. using “triple bottom line” methodologies. [12]

Triple Bottom Line and Business Sustainability

Greater stakeholder activism, along with increased global production and trading, has led to an increasingly complex management environment. Organisations are developing an increasing interest in sustainability, which is leading them to focus upon their “triple bottom line” (i.e. the balance of economic, social, and environmental performance factors).

Dr. Barry Colbert and Dr. Elizabeth Kurucz, senior partners with Stakeholder Research Associates from Ontario, Canada, write that changing expectations of society have brought new challenges to business leaders. [13] Reportedly, 68 per cent of the top 250 global companies on the Fortune 500 list have embraced triple bottom line (TBL) public reporting. They have also sought international honours such as those associated with the Dow Jones Sustainability Index, an award given to the world’s most sustainable organisations. TBL reporting may offer a useful framework for rethinking business operations. The authors conducted extensive case studies using three Canadian companies, and discovered that each had conceptualised TBL according the business environment in which they operated. The following three separate views of sustainability were reported:

1. A balanced operational view, in which the primary objective was to make a reasonable profit, while managing the constraints imposed by stakeholders and thereby sustaining the business;
2. An integrated operational view, which built upon sustainable competitive advantage, by integrating synergistically with the interests of the key organisational stakeholders (i.e., employees, customers, investors, communities, and suppliers);
3. An integrated strategic view of business sustainability, in which the organisation’s stakeholder integration model was leveraged at a global level. New ventures sought out fresh markets and these simultaneously remedied global problems, while making a profit in the process. Figure 3, see below, adapted from Colbert and Kurucz, highlights each of the three distinctive viewpoints.
   

Figure 3: Three Conceptual Positions Associated with Triple Bottom Line Reporting

ISO 14001 Standard for Environmental Management Systems

Joel Makower, the CEO of Greener World Media in the United States, states that the growth in Environmental Management Systems (EMS) represents an indicator of the adoption of environmental responsibility by companies worldwide. [14] The International Organization for Standardization ISO 14001 standard for EMS provides a universal methodology with which organisations can monitor their environmental performance. Compliance with ISO 14001 provides a universally understood system for addressing environmental impacts. However, at an international level, certification varies widely, with Japan and China leading the world. Figure 4, see below, adapted from Makower, depicts the top ten countries that achieved ISO14001 certification in 2006.

Figure 4: Top Ten Countries Achieving ISO 14001 Certification, 2006

Energy Efficient Buildings

According to DEFRA, new buildings that have been built to current industry standards are 40 per cent more energy efficient than those built 5 years ago. In addition, in order to spread best practices further a-field, sustainable construction strategies for both the domestic and commercial sectors are being reviewed. Bill Watts, a senior partner at British building services engineering firm Max Fordham, states that there has been a boom in eco-friendly architecture in recent years. [6] Watts believes that proposed European Union (EU) directives relating to the energy performance of buildings will have a major impact on how firms treat energy management. The directive requires all buildings in the EU to be ranked in terms of their energy efficiency. According to Watts, this will have an impact on property owners, because any stock labelled as having poor energy efficiency may lose value. It is interesting that it is already possible for organisations to become self-sufficient in energy usage. As an example, the UK-based Renewable Energy Systems has redesigned its headquarters to maximise energy efficiency, and is completely powered by wind and solar energy, which are captured and converted on site. Biofuels are also grown in the fields surrounding the Renewable Energy Systems buildings.

Sustainable Responsible Design

According to the Design Wales (UK) definition, Sustainable Responsible Design (SRD) should follow a holistic and multi-stakeholder approach, taking into account all key environmental, social, and economic impacts throughout the lifecycle of products and packages, without unduly compromising other criteria such as performance, aesthetics, function, quality, and cost. Frank O’Connor and Iain Cox of Design Wales believe that as supply chain pressures, market demands, and legislation push SRD to the top of the agenda, it will become increasingly important to organisations worldwide. [15] SRD involves far more than products, processes, and services. It encompasses all aspects of an organisation, and requires all stakeholders to carefully examine their beliefs and values. SRD includes the following aspects:

• Choice of materials;
• Employing appropriate manufacturing processes (i.e. those that have minimum adverse environmental impact and minimise energy use);
• Designing products for life, by balancing functionality, comfort, durability, style, and aesthetics;
• Supporting local economies by providing quality skilled employment;
• Making products that are a delight to own; and,
• Calculating the lifecycle costs of products. A fundamental component for the success of SRD is for governments to encourage and enable lifecycle costing, so that industry players and consumers understand the true cost of their actions.

Renewable Energy for Hospitals

As hospitals have such high energy demands, renewable energy sources often offer attractive and cost-effective options. [16] The National Health Service in the UK reportedly emits—from energy use alone—1 million tonnes of carbon per annum. A lack of disposable income for hospitals and other public sector organisations makes it difficult for them to fund renewable energy systems. However, this lack of funding can be offset by using Renewable Obligation Certificates (ROC). Legislation enacted in the UK requires electricity suppliers to provide a portion of their sales from renewable energy sources, and renewable obligation orders are issued annually that detail the level of obligation required by suppliers along with the “buy-out” price. ROCs, which are held in a register as electronic certificates, are issued for each megawatt-hour of eligible renewable output. Suppliers meet their obligations by presenting ROCs. Where suppliers do not have enough of these to cover their obligation, they must make a payment into the buy-out fund. (ROCs may be also sold entirely separately from the electricity produced.) Once on-site generation has been established, hospitals can meet some or all of their energy needs through renewables, and reinvest the money acquired from the sale of their ROCs. Moving to renewables can also assist hospitals to make carbon savings for the local community. It is expected that in addition to the exemption from the climate change levy for electricity from renewables, the funds derived from the sale of ROCs will provide £1 billion-worth of support per year by 2010. This will enable the government to provide financial support towards the development of renewable energy technologies. [17]

Healthy and Productive Working Environments

Theddi Chappell, CEO of Sustainable Values Inc. in the United States, believes that the framework for establishing value is changing to include factors that are not only economic, but also social and environmental. [18] Investors increasingly balance longer-term environmental and social costs against solely bottom-line results. They weigh up the use of products and practices that either deplete or destroy environmental resources against savings from reduced water and energy consumption, and the potential for a healthier work environment and increased worker productivity. This leads to the need to consider complex issues such as risk assessment and the enhanced marketability of a particular building, product or company, because of its association with environmental responsibility. The following significant developments in relation to building standards have been recently created:

• Green building standards and green building councils have been created in 17 countries worldwide, including the LEED (Leadership in Energy and Environmental Design) and Green Globes rating systems in the United States and Canada;
• The United Nations Environment Programme was established as a worldwide initiative to monitor the environmental impact of the building and construction industries, as well as provide guidelines concerning environmental issues, products, and practices;
• In May 2006, the US Conference of Mayors resolved that all city buildings should be carbon-neutral by 2030;
• The provision of energy tax credits by a growing number of states for the use of energy-efficient practices and systems.

_________________________________________________________

You are reading a Management Brief Report in html-format. Become a member of the BPIR to receive a new report in PDF-format every month (see examples: Benchmarking & Business Excellence). PDF-format can be saved on your hard drive, emailed to work colleagues, and are much easier to read and print out!.. For BPIR updates and best practices sign up to our FREE newsletter.