exam questions Flashcards
1
Q
what is the definition of sustainability (development)?
A
Sustainability is hard to define, as there is no single definition. The most accepted definition is: “development that meets the needs of the present without compromising the ability of future generations to their own needs” (The Brundtland Commission, 1987).
2
Q
Does sustainability impact firms financial performance? How?
A
Sustainable can have a positive impact on a firm’s financial performance in such ways as:
- A strong sustainable reputation can lead to higher profit and increase shareholder interest in the firm and thereby increase funds and investments for the firm
- It can gives better cost advantages compared to less engaged firms - cost and tax reduction in terms of limiting waste and risks –
- Recycling of materials and resources leads to lesser cost as well
- Low staff turnover as employees are happy to work for a sustainable company that can offer them good working conditions
There are 4 approaches to account for these environmental, socially and economic changes (Gray and Bebbington, 2001).
3
Q
Corporate Social Responsibility (CSR)
A
CSR is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (European community commission, 2001)
It is often confused with sustainability, but UN suggest that “the concept of CSR has evolved and today is often referred to as “corporate sustainability” “responsible business practices” to avoid confusion s has shown the narrow (and wrong) interpretation of traditional CSR as charity events (UN, 2013).
4
Q
The pyramid of sustainability?
A
The pyramid of sustainability (Caroll, 1991): Relevant for companies that
- Must be profitable
- Must comply
- More than compliance
- Avoiding harm - being a good citizen
5
Q
Core characteristics of sustainability
A
Core Characteristics of sustainability:
- Voluntary
- Internalizing or managing externalizing (Husted and Allen, 2006)
- Multiple stakeholder orientation
- Alignment of social and economic responsbilities
- Beyond philanthropy (grayson and hodges, 2006)
6
Q
What is philanthropy
A
Synonymous with corporate giving or sponsorship. It can be viewed as one component of sustainability, but not a synonym.
7
Q
Discussion: Philanthropy - an act as a measure of sustainability?
A
- More a marketing value (PR) than sustainable value
- VIGEO
- Costly to implement sustainable reporting, so this is a easier way to be sustainable
- Relevant when the value benefit the company at the end. E.g.. A furniture donating to tree planting, it could benefit their business long term.
- Not relevant as it does not concern the core business.
- Motivation could be related to tax reduction policies
- Positive impact on the environment, economics and society
- Some companies consider it as an image investment to maintain customer loyalty
- Considered to be medium to reach a goal.
8
Q
Key concepts: The triple Bottom line (TBL)
A
The Triple Bottom line (1997): …->Environmental protection and ressource conservation -> Economic prosperity and continuity -> social well-being and equity… -> (full circle). Full cost accounting was created in the late 90s. Finding ways for company to externalize (air pollution etc.) their accounting.
The difference between TBL and full cost accounting is time. Does not focus on long term perspectives
9
Q
Key concepts: People-Planet-Profit
A
Creating a
- sustainable business,
- ensuring a fair society,
- living within environmental limits (Fisk, 2010).
10
Q
What is the difference between the TBL and 3P’s
A
The 2 concepts are not the same, the difference is that TBL is about the company’s relation (operations) to the society and the company’s impact on the society.
The 3P’s -From inside the company - to measure if company can profit by investing into sustainable business in environmental, economic and society.
11
Q
The business case for sustainability
A
Elements supporting the business rational for sustainability. Prestion and O’Bannon (1997) divide the business case into three types of relationship:
- that within which sustainability relates to financial performance
- financial performance relates to sustainability
- which sustainability and financial performance are synergistic.
In all three types the relationship an be postive, neutral or negative, so that according to Friedman (1962), e.g., there is a negative relationship between sustainability and financial performance because the former misuses company assets.
According to Cornell and Shapir (1987) there is a positive relationship, because meeting the stakeholders other than shareholders enchances financial performance. Case studies and other types of analyses exist for each type of relationship.
12
Q
A theoretical approach to sustainability
A
Legitimacy theory - Institutional theory, ressource dept theory and stakehodler theory
13
Q
Operationalizing Sustainability - principle of sustainable development (Pearce, Daly Turner)
A
the “capital” available to humanity can be divided into 3 categories:
- Critical natural capital (elements of the biosphere that is essential for life and which cannot be renewed or remained inviolate e.g ozone layer or a critical mass of trees),
- Other natural capital (elements that are renewable or substitutable e.g energy from fossil fuel or from renewable sources), and
- Artificial capital (elements that are no longer part of the nature ecology e.g. machines, buildings, human know-now etc.
Critique: Increased artificial capital is at the expense that our natural capital decline. What we current measure as our “income” is wrong, and our level of consumption has been paid out by our capital. Sustainability requires we maintain our capital and only spend the income that allows us to do so. This can be measured through accounting and reporting for sustainability.
14
Q
4 approaches to report sustainability
A
- Inventory approach
- environmental sustainable cost approach
- the ressource flow/input-outout approach
- triple bottom line approach
15
Q
Inventory approach
A
Reporting about sustainability: concerned with identifying, recording, monitoring and then reporting, probably in non-financial quatities, the different categories of natural capital and their depletion and/or enhancement. The different elements of critical, non-renewable/non-substitutable and renewable natural capital which could be thought of as being under the control of the organization would first be identified by the corporation. These would then be reported with changes therein.
16
Q
Environmental sustainable cost approach
A
Reporting about sustainability: This is easier to explain, but prove to be exceptionally difficult in practice. Its attractions, though, are that it can fit within current reporting practice., it is a simple concept and the accuracy of the actual sustainable cost is probably not important. In theory, the approach is about calculating the amount of money an organization would have to spend at the end of an accounting period to place the biosphere in the position it was in at the start. Thus, we are dealing with a notional amount but one that is based on costs not values. It is either a very large reduction of profit or to operating expenditure, wiping out the profit. However this is the correct way. This is due to the cost of our natural capital is considered an infinite cost or a cost that is hard to estimate.
17
Q
the ressource flow/input-output approach
A
Reporting about and for sustainability: It is based upon a systems conception of the organization and attemping to report its ressource flows. It does not directly report sustainability but provides a transparency to the organization which focuses upon ressource use - and ultimately, therefore the sustainability of the organization’s actvities. The approach is a catalogue of the resources flowing into an organization, those flowing out of it and the losses or leakages (wastes and emissions) from the process. Such an “account” would again be quantified -both financial and non-financial numbers (summary). However this approach may be cumbersome and a break of confidentiality for the organization, though it could fulfill the requirements of transparency and allow society to make choices about resource use. It was later redefined into New Consumer approach, where the flow was further separated into the source of origin, their function and ultimate decision. This was to create data sheets to customer who wish to acccess these kind of info (transparency). A move towards reporting for sustainability.
18
Q
triple bottom line approach (John Elkington)
A
Reporting for sustainability: John Elkington argues that a sustainable organization will perform in 3 dimensions, economic, social and environmental, and, consequently, must account for all 3. Thus, alongside the financial statements we need to see environmental and social accounts. Current thinking suggests that the environmental and social accounts would comprise a mass-balance-based environmental account and a stakeholder-based, compliance and performance social report. OBS! Dangers with this approach - it does not question the central tenet of the organization or demonstrate the unsustainability of financially driven economic actitivites. However such reporting for sustainability would certainly be a major and productive advance over current practice and is to be applauded for that. E.g. Novo Nordisk.
19
Q
how has sustainability moved from the organization fringes to core business?
A
SAR = Sustainable accounting research. Relevant authors : Lee (2011).
1960-70: The focus was on social accounting (Human resources/work welfare)
1980s: in 1987 Brundtland made the first definition of sustainability and the most accepted one.
The authors: Gray and Owen are re-current on sustainability
1990s: The focus was on Environmental accounting and assurance (balance scorecard (BSC) was invented in 1992) - First time creating a performance measurement . It made it easier to measure environmental returns than the social return.
Key author: Porter and Vanderlinde, 1995 - Harvard business review - main article to prove that investing in sustainability could create profit for the company.
Other authors: Matthews (AAAAJ), Elkington (1997 - cannibals with forks : Triple bottom line (TBL))
2000s: Social studies - ISO26000 (certification) and CAP&Trade (2005-2020) - revolution on the social side
20
Q
History: business relationship with the rest of the society (Laszlo and Zhexembayeva, 2011)
A
- Marriage: Before the year 1800. Dominance of town marketplace of family business, clusters, concentrated manufacturing and factories with machinery. Business was interconnected and embedded in society. The value created, therefore, was first and formeost understood in terms of the real and concrete end benefits and outcomes created for customers, while the other two dimensions were derived from and built on this primary purpose. The generation was dominated by poor labor conditions, tranparency were rudimentary and largely limited environmental damage (local not global).
- A tale of divorce: 19th and 20th centuries, when the coporation slowly acquired a distinct stature, separate from the rest of society and increasing focuses in on itself. Its single-minded purpose is to create wealth for its shareholder, a strict measure of coprporate performance. End benefits and outcomes to consumers was almost a secondary consideration. Value took on an entirely new shape, divorcing business from the rest of the society.1960-1970 Greenpeace and Friends of the earth were founded and putting pressure on corporations. 1980s the definition of sustainability was stated at UN commission. However no practial guideline for business to reconcile it responsibility. In 1990s, the triple bottom line became popular, however the mentallity was that value created for society was firmly held in opposition to the value created for business. The two were battling eachother.
- Today: reconciliation: Business for social responsibility emerged in 1992, UN Global impact in 1999. Business and society works together. Through the 2000s, the rapid and universal decline of resources became increasingly visible and tangible throughout the world. New expectations and demanding new outcomes from business. Radical transparency (technology) fueled the pressure with customers leading the way. The three dimensions of value were re-envisioned once again: to satisfy both it had to be done through sustainable value. Economc crisis further urged the pursuit of sustainability.
21
Q
What are the 3 big trends that have reshaped the end benefits expected from your business? (Laszlo and Zhexembayeva, 2011)
A
- declining resources
- radical transparency (e.g technology - internet)
- increasing expectation will continue to reinvent the rules of business.
22
Q
what is sustainable value and how do you (manager) and businesses create it?
A
A dynamic state that occurs when a company createe ongoing value for its shareholders and stakeholders - is a natural outcome of the new external environment. This also includes other who have “a stake” in the destiny of the company.
More importantly for managers, it is fast becoming indispensable to acheiving and maintaining competitive advantage. Managing in two - rather than one - dimensions represents a fundamental shift in how managers think about value.
Satisfying demands fo both stake and shareholders is driven by innovation, which in turn leads to reducing costs, differentiating products, growing intangible assets, shaping advantageous “rules of the game” and much more. Yet the coveted prize of sustainable value comes with its own set of unsual rules and dynamics. Value migration is the first on the list.
23
Q
Sustainable value framework/value migration
A
It consists of four squares and can be used to easily locate any product or company and to visualize its trajectory (path) over time.
- Plus shareholder, minus stakeholder value (upper left corner): Value transfer relied on stakeholders - heavy metal or toxic additives in consumer products e.g toys or bad labor conditons for workers
- minus shareholder, plus stakeholder value (lower right corner): value transfer from shareholder to stakeholder - E.g environmentalists or unfocused philanthropy of transferring financial value to one or more stakeholders
- plus shareholder and stakeholder value (upper right corner): sustainable value - package waste and right sizing the product can benefit both shareholder (cost) and stakeholder (less pollution, meeting customer needs). Doing good for the society and the environment, the company does even better for its customers and shareholder than it otherwise would.
- minus shareholder and stakeholder value (lower left corner).
24
Q
what is and is not sustainability strategies?
A
It is not operational effectiveness, which is performing similar activities better than rivals perform them such reducing risks and costs within the firm. It is definitely a strategic importance for the firm - and the reason why all firms should do it. Managing costs and risks will become just a license to operate. In contrast strategic positioning means performing different activities from rival’s or performing activities in different ways. Fundamentally, strategy entails choice, and choice involves trade-offs. Companies must offer uniqueness to its consumers and thus companies need to choose between clear trade-offs. They will need to eliminate, reduce and raise “the factors the industry competes on in products, services and delivery, and what customers receive from competitive offerings on the market”. Strategy is “doing better by being different”.
25
what are the five sustainability strategies?
- Eco-efficency
- Environmental cost leadership,
- Beyond compliance leadership and eco-branding.
- The fifth is sustainable value innovation (blue ocean strategy).
26
Strategy 1: Eco-effiency
Eco-effiency (within the company - business scale) - Easy and clear case for sustainability. Mostly B2B companies: Lean thinking, eliminate waste, reuse of waste and buying products that can be recycled in a profitable way (Industrial symbiosis). E.g Kalundborg at Danish Best Practice of Industrial Symbiosis - a close loop economy. Other examples are beverage industries. EU: "Cap and Trade". Competitive advantage: Lower costs - Competitive focus: organizational processes.
27
Strategy 2: Beyond compliance leadership
Beyond compliance leadership (the market comes into place - B2B) - Consumer has an emotional connection to the product and service - will pay more. Company reputation, a primary intangible asset: to be sustainability leader of the industry. A reputation issue: Greem Clubs (certification) are adopted by companies to be legitimized as an sustainable company in the eyes of stakeholders (consumer). Examples are ISO4001 (Global Level, ISO26000, EMAS (Europe).
- Competitive advantage: Differentiation
- Competitive focus: organizational processes
28
Strategy 3:Eco-branding
Eco-branding (B2C): Consumer are willing to pay for benefits they can see in the product. This is niche market segment is growing for example LOHAS = life of health and sustainability. Eco-branding is not legitimized, it is self-declared.
- Competitive advantage: Differentiation
- Competitive focus: products and services
29
Strategy 4: Environmental cost leadership
Adopting this strategy will give companies the main competitive advantage of cost and price leadership. Strategy 4 is the most difficult to implement as it requires companies to operate at a low cost while still reducing it environmental impact. Best practices have been investing in eco-design such as the packaging. This solution eventually contribute to a lower production costs and a reduced environmental impact.
- Competitive advantage: lower costs
- Competitive focus: products and services
30
Strategy 5: Sustainable Value Innovation
This is a non-competitive strategy. SVI looks beyond competition e.g product stewardship or downstream practices. An example is instead of looking at the cars, we address the service of mobility. By redefining the value proposition for customers, firms can eventually create value innovation - differentiated products and service at low prices. In other words, BOS eliminates the trade-off between cost and differentiation. Value innovation is created by satisfying untapped customer demands with new value propositions.
31
What is the difference between the CES strategies Eco-efficiency and E-cost leadership strategies?
They are only similar if eco-efficiencies in processes were enough to make a product e-cost leader. This is rarely the case. E-cost leadership requires a firm to acheive both the lowest cost and the lowest environmental impact of the products in its category wile eco-effiency. This requires reduction of both the final cost of the product and its environmental impact is a result of product redesign and substituion of raw materials, rahter than eco-effiency of processes.in other words, competitiveness can be obtained by focusing on the nature of the product, rather than on the process. While eco-effiency can be done in production and eventually cut the final cost of its products, it may still, however, present high levels of environmental impacts and may therefore not be able to become e-cost leadership.
32
What is the difference between the Beyond leader compliance vs. Eco-branding CES strategies?
Beyond leader compliance vs. Eco-branding: Undeniably, a selected number of companies have been able to link the environmental qualities of their products with organization proccesses, resulting in corporate-wide eco-differentiation. E.g a close link between ecological responsibility of organisational processes and the portfolio of products sold by them. thus the distinction is blurred between strategy 2 and 3. However, such strategic scope is restricted to a small number of firms born with eco-oriented values and commitments.Whether a company is followed by strategy 2 and 3 depends on the competitive focus and what the consumer are basing their purchase on - product or process?. A product or process might confound with the overall company identity such as Toyota's production process or GE hybrid car.
33
What is the difference between the Eco-effiency vs. Beyond leader compliance CES strategies?
Eco-effiency vs. Beyond leader compliance: managers and academics may argue that the work toward eco-efficiency can facilitate the development and reduce implementation costs of an Environmental Management System (EMS) such as the ISO14001 certification. However the process of implementing a EMS might lead to potential areas in which an increase in resource productivity can be obtained. If strategy choices reinforce eachother, there is no need to distinct the two, if opportunities for double dividends or win-win scenarios were always prevalent. But the reality is that EMS certification is often costly and opportunities for cost savings are exceptions rather than the norms. Managers must choose betwem the two. If process-oriented differentiation are not available to the firm, the choice will naturally emerge to Eco-efficiency.
34
What considerations must a manager/organization consider when implementing sustainability strategies
Even if we accept that opportunities to profit from eco-investments are available to any business at different degrees, internal and external circumstances will facilitate or hinder firms to explore them. In other words, particular conditions favor firms to transform eco-investments into profitable business opportunities and, eventually, into sources of competitive advantage. The structure of the industry in which a firm operates, its position within that industry, the types of markets the company serves and its capabilities to acquire resource or to deploy radically innovative strategies will suggest the appropriate competitive focus (organizational processes or prod- ucts/services) and the potential source of competitive advantage (cost or differentiation) for a firm.
35
What are the struggles the manager/organization is facing when it comes to eco-investments?
A great number of managers are wondering what they should do first and why. Many do a bit of everything and spend precious resources without sound rationales. Managers need a basis from which they can prioritize eco-investments. More broadly, they need to align these investments with the generic strategy of the company.
36
Competitive environmental strategies (CES) framework
Particular conditions favor firms to transform eco-investments into profitable business opportunities, and, eventually, into soures of competitive advantages. CES framework helps to decouple the elements involved in corporate environmentalism that have not been treated as independent areas of strategic action. The matrix combines these elements with the basic type of competitive advantage with which a firm seeks to acheive and generates four possible strategies that corporations may adopt. The industry, your position within the industry, the types of markets the company serves and its capabilities to acquire resources or to deploy radically innovative strategies will suggest the appropiate competitive focus (org. processes or product/service) and the potential source of competitive advantage (cost or differentiation for a firm. The four strategies can work independently.
37
The four facets about CES framework
First, it is not a stage model (from low to high level of ambitions) like Sustainable Value Framework (Stuart L) but a choice model. The strategies are influenced by the companys complexity and therefore applicable to certain conditions.
Secondly, the strategies are ideal types of a particular phenomenon. One sould consider, there is a cost component in every differentiation strategy and there is a differentiation component in every cost strategy. E.g. Mcdonals sell low cost products but also runs a lost-cost strategy with their packages.
Third, there is an importance difference betwen the scope of organizational processes and product/servcices. Organizational processes tend to have a more encompassing scope than products&/services, which are relatively easier to identify and isolate. Thus a firm can have an all-encompassing sustainability strategy, while they develop strategies for particular projects, product portfolio or strategi groups of products. The framework is useful here. It allows managers to think systematically about the various eco-investments they have to manage. Fourth, one specific strategy does not imply ignoring other areas in which environmental impacts can be reduced. Doing strategy 1, does not mean it should not try to reduce the impact of its products. Afterall the framework departs from proactive, beyond compliance behaviour (beyond what is required by law) and companies are expected to do their best to reduce their environmental footprint in as many front as possible. However resources are limited and hence it is about choice, priority and focus (strategy).
Lastly, the title of each strategy should not be taken literally. The strategies are suited to assist companies to compete in existing industries or market, but also companies that have little room to existing industries.
38
what are the benefits and skeptism about the CES framework?
Benefits: the quadrants of the framework are only to facilicate thinking and reduce the lack of clarity about environmental competitiveness. They help us to thinki about the scope of proactive strategies and idenfify ares of priority according to the reality faced by the company. The division should help managers to make a strategie choice between different types of eco-investments, as well as to prioritize them in time. Moreover, the separation between processes and products/services allows one to identify the trade-offs between the strategi choices available to managers (Skeptism about if boundaries between the four possible strategies are notional)
39
Sustainable Value Innovation framework (SVI)
Based on the blue ocean strategy of looking beyond competition and eliminates the trade-off issue. To redefine value porposition for customers, firms can eventually create value innovation - differentiated products and services at low prices. This is done through the SVI strategy, which redefines the boundarises of the value system of an existing industry. By presenting a value proposition that is so unique - normally via a new business model - companies can reduce both economic costs and environmental impacts, while generating value not only for customers but also for the society as a whole. It focuses on new market spaces and has no competition, no comparative standards for pricing, blurring the tradtional distinctions between low price and differentiation of supply-oriented strategies. It is a systems strategy, as it requires changes in both the nature and technology of products and in the logic by which systems of production and consumption are organized. Thus it also must difficult to be deployed. E.g of SVI strategies are product stewardship, close-loop recycling system, up and downstream practices.
40
SVI framework benefits and limitations?
Benefits: create value for existing and new customer at both reduced economic and environmental costs. By doing so, SVI strategies align shareholder pressure for profits with societal and environmental demands.
41
What is competitive advantage based on?
Michael Porter(1980): two generic types of competitive advantage that companies can pursue: low costs and differentiation - "to obtain competitive advantage companies need to have a clear strategy: the creation of a unique and valuable position, involving a different set of activities". A competitive advantage is a market advantage. Resource Based View: competitiv advantage results from the capabilities of firms to acquire and manage resources, not the choice available to firms regarding the structure of the industry. However both perspectives can be brought together to explain different sources of competitive advantage, as how firm produce and how they produce er related to eachother (Internal processes and external context).
42
What is value innovation?
value innovation is created by satisfying untapped customer demands with new value propositions. Since new market spaces do not compete with existing offers, there are no comparative standards for pricing, blurring the traditional distinctions between low price and differentiation of supply-oriented strategies.
43
Michael Porter Position School (PS)
The ground rules of Michael Porter’s views on strategy and the overall recognition that strategy involves trade-offs and choice. Michael Porter(1980): two generic types of competitive advantage that companies can pursue: low costs and differentiation - "to obtain competitive advantage companies need to have a clear strategy: the creation of a unique and valuable position, involving a different set of activities". A competitive advantage is a market advantage
44
Ressource-based view (RBV)
Resource Based View: competitiv advantage results from the capabilities of firms to acquire and manage resources, not the choice available to firms regarding the structure of the industry. However both perspectives can be brought together to explain different sources of competitive advantage, as how firm produce and how they produce er related to eachother (Internal processes and external context).
45
How is PS and RBV different and similar?
Compared to Porter's positioning perspective, the RBV does not constrain the choices available to firms regarding the structure of the industry: raither, it considers the competitive advantage resulting from the capabilites of firms to acquire and manage resources. Porters sees competitive advantage as related to companys external context and its position in it. While RBV sees competitive advantage obtained by company's abilities to use the internal capabilities and resources and tendency to be stable over time. However, PS and RBV should be seen as complementary perspectives, rather than rivals. The reason is simple: The way firms manage their actvities have the potential to create or destroy value. The valuation of processes and products/services can occur independently and thus you need both perspectives. Intangible value is growing importantly in modern businesses.
46
what is product stewardship? (e.g. Tetra Pak)
Product stewardship is where environmental, health, and safety protection centers on the product itself, and everyone involved in the lifespan of the product is called upon to take up responsibility to reduce its environmental, health, and safety impacts.
[1] For manufacturers, this includes planning for, and if necessary, paying for the recycling or disposal of the product at the end of its useful life. This may be achieved, in part, by redesigning products to use fewer harmful substances, to be more durable, reusable and recyclable, and to make products from recycled materials.
[2] For retailers and consumers, this means taking an active role in ensuring the proper disposal or recycling of an end-of-life product.
47
when does it pay to be green?
when it pays to be green are summarized in two dimensions:
1. the external context of organizations, such as the industry in which they operate
2. as well as their internal capabilities to deploy any of the sustainability strategies.
48
Environmental Management Systems
An Environmental Management System (EMS) is a framework that helps a company achieve its environmental goals through consistent control of its operations. The assumption is that this increased control will improve the environmental performance of the company. The EMS itself does not dictate a level of environmental performance that must be achieved; each company's EMS is tailored to the company's business and goals.
49
What does ISO stand for?
```
ISO = International Organization for Standardization.ISO give world-class specifications for products, services and systems, to ensure quality, safety and efficiency. They are are instrumental in facilitating international trade.
Benefit for businesses: ISO are strategic tools that reduce costs by minimizing waste and errors and increasing productivity. They help companies to access new markets, level the playing field for developing countries and facilitate free and fair global trade.
```
50
ISO14001 and ISO14004
ISO14001:2004 and ISO14004:2004 focus on environmental management systems and can be certified to. It does not state requirements for environmental performance, but maps out a framework that a company or organization can follow to set up an effective environmental management system. It can be used by any organization regardless of its activity or sector. Using ISO 14001:2004 can provide assurance to company management and employees as well as external stakeholders that environmental impact is being measured and improved. The release of ISO 14004 accompanied the publication of ISO 14001, the environmental management standard, in 1996. ISO 14004 was billed as a general guideline on environmental management principles, systems and supporting techniques. ISO 14004 has been viewed by many as having little to offer organizations with more than the most rudimentary approach to environmental management.
The benefits of using ISO 14001:2004 can include:
Reduced cost of waste management
Savings in consumption of energy and materials
Lower distribution costs
Improved corporate image among regulators, customers and the public.
51
ISO26000
Standardization of social responsbility. Business and organizations do not operate in a vacuum. Their relationship to the society and environment in which they operate is a critical factor in their ability to continue to operate effectively. It is also increasingly being used as a measure of their overall performance. ISO 26000:2010 provides guidance rather than requirements, so it cannot be certified to unlike some other well-known ISO standards. Instead, it helps clarify what social responsibility is, helps businesses and organizations translate principles into effective actions and shares best practices relating to social responsibility, globally. It is aimed at all types of organizations regardless of their activity, size or location.
52
Global Eco-labelling Network (GEN)
The Global Ecolabelling Network (GEN) is a non-profit association of third-party, environmental performance recognition, certification and labelling organizations founded in 1994 to improve, promote, and develop the "ecolabelling" of products and services.
53
What is eco-labelling?
"Ecolabelling" is a voluntary method of environmental performance certification and labelling that is practised around the world. An "ecolabel" is a label which identifies overall, proven environmental preference of a product or service within a specific product/service category. There are different classifications of label (type 1, 2 and 3 identified by ISO)
54
Green Clubs
firms voluntarily agree to meet environmental standards as "green clubs": clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public good e.g ISO standards
55
UN global impact
The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. By doing so, business, as a primary driver of globalization, can help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere.
56
3 types of voluntary labels and declarations
type 1: a voluntary, multiple-criteria based, third party program that awards a license that authorises the use of environmental labels on products indicating overall environmental preferability of a product within a particular product category based on life cycle considerations (ISO is under type 1),
type 2: informative environmental self-declaration claims (eco-labeling is type 2),
type 3: voluntary programs that provide quantified environmental data of a product, under pre-set categories of parameters set by a qualified third party and based on life cycle assessment, and verified by that or another qualified third party (Life-cycle assessment).
57
Life-cycle assessment (Bettley and Burnley, 2007)
Also known as life-cycle analysis, ecobalance and cradle to grave analysis. It is a technique to assess environmental impacts associated with all the stages of a product's life from cradle to grave (i.e., from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling). LCAs can help avoid a narrow outlook on environmental concerns by:
Compiling an inventory of relevant energy and material inputs and environmental releases;
Evaluating the potential impacts associated with identified inputs and releases;
Interpreting the results to help make a more informed decision.[2
The goal of LCA is to compare the full range of environmental effects assignable to products and services by quantifying all inputs and outputs of material flows and assessing how these material flows impact the environment.[3]
This information is used to improve processes, support policy and provide a sound basis for informed decisions.[4]]
58
FDA
Food and Drug Administration = FDA is responsible for protecting the public health by assuring the safety, efficacy and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation.
59
Red ocean
Red oceans refer to the known market space – all the industries in existence today. In red oceans, industry boundaries are clearly delineated and accepted, and the competitive rules of the game are known. Companies try to outperform their rivals to grab a greater share of existing demand, usually through marginal changes in offering level and price. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cut-throat competition turns the red ocean bloody.
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Strategic environmental management: basic options (Schaltegger et al, 2003)
Basic strategy options helps to assess the various spheres (external) and the business itself (internal) with the environmental opportunities and threats. The combination of opportunities and threats establishes different options (how to react to them):
1. Defensive strategy (high threat, low opp): eg. Used by the automobile and mineral oil industry to react to suggestions that climate change is being caused by carbon dioxide emissions from the burning of fossil fuels.
2. Indifferent strategy (low threat, low opp): as long as public attention is not aroused, businesses that have undistinguished environmental records can hope to remain out of the public's focus (limelight)
3. Innovative strategy (high threat, high opp): turn a threat into an opp, marketing advantage for differentiation
4. Offensive strategy (low threat, high opp): positive market response, clear distinction,providing additional benefits to the environment in products, expansion.
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Competitive strategies (Schaltegger et al, 2003)
Competitive strategies - Focus on the market and economic sphere
Finding the company's competitive advantages among competitors
4 seperate strategies that can be combined:
1. Cost strategy: Cost reduction e.g. Eco-effiency - defensive strategy
2. Differentiation strategy: focus on outputs of business and aims for increase sales turnover (depends on price, quality and serviceability of the product) - adopts an offensive strategy. Positioned as leaders in the market.
3. Mass market strategy: Niche markets going for the mass markets by multiplying "davids". "Davids" can be united through cooperative ventures in order to gain economies of scale to overcome cost disadvantages togehter.
4. Market development strategy: aim to reduce barriers that limit the potential sales turnover of environmentally friendly goods . Development can address issues such as: well-established life and consumption habits, reflecting lack of knowlegde in a large part of the population. It goes beyond economic marketplace and influence the public and politcal spheres. E.g Bodyshop
Competitive advantage (performance or price) - lays in the use of the company's strengths:
1) important for customers and
2) are made apparent for customer and
3) can be made permanently available
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Environmental Management accounting (EMA)
Environmental Management Accounting (EMA) is an attempt to integrate best management accounting thinking and practice with best environmental management thinking and practice. EMA is the generation and analysis of both financial and non-financial information in order to support internal environmental management processes. It is complementary to the conventional financial management accounting approach, with the aim to develop appropriate mechanisms that assist in the identification and allocation of environment-related costs (Bennett and James (1998a), Frost and Wilmhurst (2000)). The major areas for the application for EMA are:
product pricing
budgeting
investment appraisal
calculating costs and
savings of environmental projects, or setting quantified performance targets.
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EMA involves..
Deegan 2005: may include reporting and auditing in some companies, it typically involves life-cycle costing, full cost accounting, benefits assessment, and strategic planning for environmental management (The international federation of accounting, 1998). Additional for internal decision making both. It provides a broad range of information about financial and non-financial aspects of an org. environmental performance. Dual purpose of managing and improving the financial and environmental perfromance of an entity.
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Environmental costs
There is no single definition on what environmental costs is. It could be end-of-pipe costs associated with cleaning up sites after production, or waste-water treatments costs and technologies (short-term and does not include the consumption of resources within the organisation.It could also encompass material and energy used to produce waste plus any associated disposal costs, storage costs for particular materials, insurance for environmental liabilities, and environmnetal regulatory costs including compliance and licensing fees, inclusive of any fires.Environmental costs might also include the environmental and social impacts caused to other entities by the prganisation's operations. These "externalities" are typically referred to as "societal costs" - costs imposed on individuals, society and the environmental for which the organisation is not directly held accountable. Thus companies should provide definitions, and as long as it is accounted in a logical way and they are included, then that all that matters. Consistency is also good to have.
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private vs. Societal costs
Environmental costs have 2 dimensions:
1. private costs - costs that have directly impact on a company's bottom line.
2. societal costs/externalities - costs to individuals, society, and the environment for which a company is not directly accountable (costs by other entities)
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environmental costs - scope considerations
Deegan 2005: Ranging from the easier to measure to more diffucult to measure. This range( in ascending order of difficulty):
tier 1: conventional cost (cost of direct raw materials, utilities, labour),
2. hidden costs (up front environmental costs such as finding an eco-supplier, eco-design costs of products, overhead costs),
3. Contingent costs (clean-up costs, law-suit related to unsound products, fines for breaching eco-requirements),
4. relationship and image costs (hard to determine - some influence on the value of some intangible assets, such as goodwill, brand-names etc),
5. Societal costs (indirect environmental damage or health effects caused by org.generated emission for which the organisation is not held responsible. Difficult to put a cost on. Physical measure can be developed and related KPIs as assess performance.
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Costs involved in FCA
All 5 tiers of environmental costs
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Strategy maps (Kaplan and Norton, 2004)
A visual presentation of company' balanced scorecard.
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Limitations of traditional management accounting - how they fail to recognize "environmental cost"
Environmental costs are often accumulated in overhead accounts and hides various costs that are product or process specific. Thus production managers have no incentive to reduce environmental costs and executives are often unaware of the extent of environmental costs. As a result the "dirtier" product is being undercosted and not sold in its correct price- It is paid of by other product. It has be eliminated with a more activity-based costing (ABC) approach.
Moreover many costs are also "hidden" because they are wrongly included in particular costing categories such as waste costs - it is either unrecorded or greatly understated. It represents one of the most "hidden costs" in organizations (30% of an organisation's resources are wasted. It is often included in the cost of a particular product, when in fact, particular materials did not make it in the final products. Or with a percentage cut-off without any separate identification of the financial (environmental) implication of the waste. No remedial action taken. Waste costs is also limited to waste disposal cost only, when the material purchase value of non-product output (cost of the raw material, paper, labour, depreciation of machinery etc go into generating waste) can come up to 10 to 100 times the costs of disposal, depending on the business sector. Recommendation: Organisation need a separate account for waste, which records the cost have been incurred in producing the waste stream (deegan, 2005)
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The business case for FCA
literature identifies 3 main reasons:
1. to inform decision making by allowing comparisons between the externalities created by different options.
2. to highlight significant externalities in order to provide an impetus for organisation or governental action to reduce them and
3. that organisations might wish to calculate the externalities caused by their processes or products in order to demonstrate that a particular process or activity does not create major externalities or create less externalities than alternatives (tappen 2006 and beddenton 2001)
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What are the difficulties associated with FCA
difficult to estimate cost of environmental damage. It becomes a question of personal values.
Specific difficulties:
1.generating consistent methodogies is difficult among companies, 2.translating costs into prices
3.the lack of internal incentives
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Mitchell and Son case(privat costs example )
A case study of how they allocated their environment costs wrongly and how by changing the allocation made more sense of their accounting. It was also not difficult or pricey to do the transition.
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Pros and cons for FCA
Not for those organisations that just intially start environmental accounting.
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structure of the balance scorecard
1. mission
2. vision
3. strategy
4. balanced scorecard with 4 perspectives
5. objectives within each business unit
6. measurements
7. (targets and initiatives)
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Casual relations
when an event causes another event to happen
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Causal links between the perspectives
lower level perspectives should reflect on how we will acheive the higher level perspectives goals.
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sustainability balanced scorecard (SBSC)
Figge et al, 2002: sustainability management with the BSC seeks to address the problem of corporate contributions to sustainability in an integrative way. It posits that for companies to contribute to sustainable development, it is desirable that corporate performance improves in all three dimensions of sustainability – economic, environmental and social – simultaneously (see Figge et al., 2001a). An SBSC fulfils the central requirement of the sustainability concept for a permanent improvement of the business’ performance in economic, ecological and social terms. SBSC helps to implement soft factors such as environmental or social objectives within the core man- agement of businesses instead of just adding satellite systems. (page 4 and 5)
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Integrating the 3 pillars of sustainability into general business management by a pragmatic approach offers 3 manjor advantages
Figge et al, 2002:
1. Sustainability management that is economically sound is not endangered by economic crisis because it is not only carried out as long as the company is successful (e.g cost cutting). Sustainability management that is economically sound, however, will also be practiced in times of crises and not only as long as firms are successful. 2. Firms that want to promote or reinforce their environmental and social management often orientate themselves towards competitors. Therefore, sustainability management that also contributes to economic objectives helps to disseminate the idea of sustainable development in business, as it serves as an appropriate role model for other businesses.
3. corporate sustainability management covers all three dimensions of sustainability. Usually , it is implicitly assumed that these aspects bear a complementary relation to each other. Thus, from the viewpoint of sustainability, it is most favourable if a business improves performance with regard to all the three dimensions of sustainability simultaneously .
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how to include sustainability in BSC
1. environmental and social aspects can be integrated in the existing four standard perspectives.
2. an additional perspec- tive can be added to take environmental and social aspects into account.
3. a specific environmental and/or social scorecard can be formulated
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SBSC - An integrated framework
includes SBSC (leading and lagging indicators), sustainability accounting (develop KPIs indicators reflecting the SBSC causal chains), develop sustainability information system, collecting data), and sustainability reporting (internal external communication and reporting of sustainability performance)
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Pros and cons for performance balance scorecard
benefits:
- translation of strategy into measurable parameters, communication of the strategy to everybody in the firm, alignment of individual goals with the firm's objective
- the bsc recognizes that the selected measures influence the behaviour of employees, feedback of implementation results to the strategic planning process.
Potential pitfalls:
- lack of a well-defined strategy will defeat the purpose and success of implementing a BSC,
- using lagging measures only that describe past performance, but also leading measure can be used to plan for future performance,
- use of generic metrics: it usually not sufficient simply to adopt the metrics used by other successful firms. Each firm should put forth the effort to identify the measures that are appropriate for its own strategy and competitive position.
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how should firms manage and assess their social environmental performance?
Kaplan and Norton, 2004:
Through regulatory and social performance along several dimensions:
- Environment (waste, air emissions, risks - study input and output - ISO standards)
- safe and health (measuring on incidents sick days,safety-related incidents, track frequency of incidents),
- employee practices (quantative representation of diversity in percentage - age, gender, race on the different org. levels, benchmaking and rating on org. diversity program)
- community investments (philanthropy and employee engagement and actvities, alliances with related NGOS - lack of output measurement - important to do - measurement improvement should be done in educational performance, womens' opportunities, health etc and not in currency or mone ).
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How can firms integrate sustainability measures in their strategic performance measurement systems (SPMS)
Figge et al 2002: This can be done throught the sustainability balanced scorecard which integrates all three dimensions of sustainability - economic, environmental and social goals simultaneusly. It offers the possibility to integrate the management of environmental and social aspects into mainstream business activities. This can be in 3 different approaches:
1. environmental and social aspects can be integrated in the existing four standard perspective (financial, customer, internal processes, learning and growth) - either through respective strategic core elements or performance drivers for which lagging and leading indicators as well as targets and measures are formulated (for those firms already having an environmental approach,
2. An additional perspective can be added to take environmental and social aspects into account (as externalities/outside the market systems) - the environmental and social aspects from outside the market system must explicitly represent strategic core aspects for the successful execution of the strategy of the company considered. It arises when environmental or social aspects cannot be reflected according to their strategic relevance with the four standard perspectives at the same time significantly influence the firm's success from outside the market system.
3. A specific environmental and/or a social scorecard can be formulated - it cannot be developed parallel to the conventional scorecard. Instead in order to integrate sustainability management into mainstream business management this is only possible in conjunction with one of the two altneratives of integration discussed above. It is an extention and is mostly used in order to coordinate, organize and further differentiate the environmental and social aspects (once their strategic relevant and position in the cause and effect chains have been identified by the two approaches presented above). This additional variant of a derived environmental/social scorecard allows coordinated control of all strategically relevant environmental/social aspects, which are spread and integrated in the whole overarching BSC system.
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City Logistics-kbh Case
This is an example of a sustainable business that corporates with the government to address one of the biggest challenges in sustainable management in the cities and that is city logistics creating a huge negative environmental impact and also traffic incidents. A government funded project in collaboration with DTU, CBS and DK Traffik styrelsen to address the issue of big transportation trucks driving into the inner city of Copenhagen to deliver just one panel for one shop leading to huge traffic congestion. This is done by locating a logistic hub in Valby where trucks can off load the packages without having to enter the city. This makes package deliver much more efficient, as stores receives their package of different suppliers in one take whatever time fits them. The business considers all 3 aspects of sustainability: economic, environmental and social issues.
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Industrial Ecology
The framework for thinking about industrial production in a sustainable way (Cohen, 2011). It follows the principles of natural ecology to elimiates wastes, cycle elements from end-of-life products to new products, minimize the storage of materials and intermediate products (particular haazardous materials) and circulate energy within and between processes to minimize external energy inputs. E.g Kalundborg city, The close-loop supply chain, cradle-to-cradle design.
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The definition of Sustainable operations management
"the set of skills and concepts that allow a company to structure and manage its business processes to obtain competitive return on its capital assets without sacrificing the legiminate needs of internal and external stakeholders and with due regard for the impact of its operations on people and the environment" (Bettley and Burnley, 2008)
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GRI sustainability reporting guidelines
Includes the following aspects of sustainability: economic, environmental, social, society, product responsibility (Bettley and Burnley, 2008)
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What is green design
Green design focuses on singe issues, for example the inclusion of recycles or recycle plastic, or consideration of energy consumption for example the package and energy saving light bulbs (Bhamara and Lofthouse, 2007)
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what is eco-design
Environmental considerations are considered at each stage of the design process eg. Minimized material use, reduce the process making (Bhamara and Lofthourse, 2007)
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what is meant by design for sustainability
Design that considers the environmetal (for example ressource use, end of life impact) and social impact of a product (for example usability, responsible use) e.g Cradle-to-cradle (Bharama and Lofthouse, 2007)
