Brief History of Corporate Sustainability

The idea of corporations being responsible to society beyond profit maximization

is deemed to have been around for many years as well as the public concern about the

negative environmental and social impacts of business.

Corporate sustainability in Europe

It started when Sir Titus Salt opened a new mill with a model village for the

benefit of his workers at Saltaire, near Bradford in 1853. Later on, others also have

followed including Quaker confectionery dynasties, and the Cadburys and the

Rowntrees who built Bournville and New Earswick respectively, constructing

parks, hospitals, museums, public baths and reading rooms for the benefit of factory

workers. William Hesketh Lever, founder of Lever Brothers (now the anglo-dutch

company Unilever) believed that cleanliness and hygiene should be affordable for

all which led to an idea of creating mass-produced product of bar soap which helped

to transform the lives of the lower classes in the 1890s. In addition, by using his

wealth to build Port Sunlight, a village for Lever Brothers' employees, he started

pension schemes, unemployment and sickness benefits, work canteens, and the

concept of working eight hours a day (Porritt, 2012).

Corporate sustainability in Asia

While this is happening in UK, Jamsetji Tata, founder of the global $100bn

Tata Group business empire in India, being much influenced by his visits to

England established the JN Tata Endowment in 1892 that enabled Indian students,
regardless of caste or creed, to pursue higher studies in England carrying his belief

that for India to climb out of poverty, its finest minds would have to be harnessed

(Porritt, 2012).

World War I: a time of social justice

During World War I, the idea of Corporate Social Responsibility was seen

to be a disturbance as global free trade and corporate businesses power grew since

the best way of serving the public good at that time was all about private self-

interest.

However, this ideology had changed after the War when the International

Labor Organization was founded in 1919, as part of the League of Nations, bringing

together government, business and trade unions. Furthermore, it was based upon an

appreciation of the importance of social justice in securing peace, against a

background of ruthless exploitation of workers in the industrializing nations at that

time.

In the aftermath of World War II, President Franklin D Roosevelt's New

Deal of 1934, a series of measures designed, in part, to limit the power of

corporations, had a big impact on European public policy putting welfare safety

nets in place, and in the UK, major industries such as coal, railways, steel, gas

distribution and power generation were nationalized by the post-war Labor

government. In 1943, Johnson & Johnson had published its 'Credo' in which it

affirmed its stewardship role within society stating that its primary stakeholders

were its customers, employees and the communities in which it operated making it
explicitly ahead of its shareholders a radical view which is still relevant up until

now.

New social concerns emerged however, after the eventual post-war

prosperity claiming the lives of many people in the UK and USA caused by 'pea

soupers' - thick, poisonous fogs triggered by the burning of coal for home heating

and industry - making pollution a political issue and resulting in the passing of the

US Air Pollution Control Act and the UK Clean Air Act in 1955 and 1956,

respectively (McCarthy et al., 2010).

1960s development of anti-corporate campaign

In 1962, Rachel Carson's Silent Spring was published covering the explicit

effect of man-made pesticides on nature, and which made many more people aware

of the connection between environmental degradation and corporate activity. In the

following years, many horrendous examples of corporate wrongdoings took place

including buried chemical waste at Love Canal in New York, the Bhopal lethal gas

leak in India, the Chernobyl nuclear disaster and the Exxon Valdez oil spill, in

which all further proved the connection between the two.

1970s and the rise of NGOs

In 1970s, the rise of non-governmental environmental groups emerged,

notably Greenpeace and Friends of the Earth, which developed campaigns that

shifted the focus away from governments onto the corporate sector. For instance,

the Greenpeaces confrontation with Shell over the Brent Spar oil installation in the
North Sea draws the attention of the public around the world. Other NGOs set the

agenda for a broader range of rights on focused activities, including the protection

of interests of workers, indigenous people, children and animals, along with every

aspect of the earth. NGOs at present carry on to make the pace on many of these

issues, and continue to play a vital role concerning corporate responsibility and

sustainability.

Economic liberalization

In the wake of 1970s stagflation where economic and social policy

underwent a radical transformation caused by regulatory constraints due to power

of the labor movement and stifling taxation systems, Ronald Reagan and Margaret

Thatcher then legislated policies that supported more private enterprise, reduced

labor power, freer markets and more incentives for private investment.

Exploitation of underdeveloped economies

Institutions such as the World Bank and the IMF which came to be known

as the 'Washington Consensus' widely adopted these principles and those countries

who wish to seek international assistance had to adopt also these principles if they

were to receive support from these organizations. However, critics of trade

liberalization, such as Noam Chomsky, Tariq Ali, Susan George, and Naomi Klein,

have always seen the Washington Consensus as the means by which less developed

economies were prone to exploitation by companies from more developed

countries.
 Prominent examples of corporate exploitation surfaced in the late 1990s

which include the discovery of alarming conditions in factories manufacturing Nike

garments and the movement against Cadbury in 2000 which was alleged by the

British Press of buying slave-farmed cocoa beans from West Africa. Due to these

accusations, Cadbury somehow managed to redeem itself and has one of the best

track records on a whole host of ethical and sustainable issues today.

Corporate social responsibility as part of mainstream management theory

One of the first examples of social auditing had been witnessed when the

chair of Tata Iron and Steel Company asked its Audit Committee to report on

whether it had fulfilled its moral and social obligations in 1979. The publication of

Edward Freeman's book, Strategic Management: A Stakeholder Approach in

1984, was considered the point at which Corporate Social Responsibility became

part of mainstream management theory. At that time, transparency and traceability

in the supply chain became a more important concern especially with regard to

labor rights which is the reason for the existence of plethora of reporting standards

which attempt to tackle these issues.

1990s and the global business cooperation

During 1990s, international cooperation between businesses and society to

address sustainable development challenges had been rampant. The World

Business Council for Sustainable Development - a CEO-led global association of

businesses - was founded at the time of the Earth Summit in Rio de Janeiro in 1992
to ensure that the business case for sustainable development was properly

promoted. Moreover, frameworks for understanding the relationship between

economic, social and environmental health became significant especially the John

Elkington's concept of the 'triple bottom line', and 'natural capitalism,' coined by

Amory Lovins and Paul Hawkens. These frameworks had then been reviewed and

elaborated by Forum for the Future and was able to develop its Five Capitals

Framework and finally in 2000, the UN Global Compact - a UN initiative to

encourage businesses worldwide to adopt sustainable and socially responsible

policies, and report on their implementation was established.

Establishment of third-party certification schemes

In addition, the establishment of third-party certification schemes with the

aim of promoting social and environmental goals also sprouted such as Max

Havelaar, the first Fairtrade label, launched by Dutch development NGO

Solidaridad in 1988 which ensures a fairer deal for disadvantaged farmers and

workers in developing countries. Another one is the Forestry Stewardship Council

and the Marine Stewardship Council established in 1990 and 1997 which brought

together businesses and NGOs to establish systems that acknowledged responsibly-

managed forests and fisheries correspondingly (Gulbrandsen, 2009).

2000s and the cooperation for sustainability

Henceforth, this arrangement of collaboration between businesses and civil

society has grown tremendously causing international roundtables to be

 established which attempt to mitigate the environmental destruction associated with

key food commodities including palm oil, soy and beef. Companies are gradually

working together on quite specific sustainability challenges, in a pre-competitive

manner, in confronting systemic sustainability problems that cant be solved single-

handedly namely The Consumer Goods Forum, The Sustainability Consortium,

The Sustainable Food Lab, and targeted collaborative partnerships such as the

Sustainable Shipping Initiative led by Forum for the Future.

Sustainability as strategically critical to businesses

The existence of corporate sustainability or more commonly referred to as

corporate social responsibility is now being recognized as strategically critical to

businesses by leading companies. More of which are now testing innovative new

approaches to success by adopting to a low-carbon, resource-constrained world.

Examples include Unilevers Sustainable Living Plan, Pumas work on an

environmental profit and loss account, M&Ss Plan A, Kingfishers Net Positive

strategy, and an equally impressive range of initiatives from US companies such as

Nike, GE, WalMart, Levi Strauss and the like.

What is Corporate Sustainability?

According to Dow Jones Sustainability index (DJSI), corporate sustainability is a

business approach that creates long-term shareholder value by embracing opportunities and

managing risks deriving from economic, environmental and social developments. This is

further explained by the Sustainable Asset Management Group stating that sustainable
organizations integrate economic, environmental and social criteria into strategy and

management, they pursue opportunities and manage risks that accompany sustainability

trends, and they create long-term shareholder value by leading their industry with a strong

commitment and superior performance in all these dimensions.

Corporate sustainability can be defined as meeting the needs of a firms direct and

indirect stakeholders such as shareholders, employees, clients, pressure groups, and

communities without compromising its ability to meet the needs of future stakeholders as

well (Dyllick and Hockerts, 2002).

An Interesting point of view is offered by Dyllick and Hockerts (2002) who focused on

three major directions:

1. Integrating the economic, ecological, and social aspects in a triple bottom line

2. Integrating the short-term and long-term aspects

3. Consuming the incomes and not the financial, natural and social capitals

Dow Jones Index (DJSI) offers a more in depth view of the concept identifying the

major areas in which leading sustainability companies should display higher levels of

competence:

1. Strategy: Integrating long-term economic, environmental and social aspects in their

business strategies while maintaining global competitiveness and brand reputation

2. Financial: Meeting shareholders demands for sound financial returns, long-term

economic growth, open communication and transparent financial accounting

 3. Customer and product: Fostering loyalty by investing in customer relationship

management and product and service innovation that focuses on technologies and

systems, which use financial, natural and social resources in an efficient, effective

and economic manner over the long-term

4. Governance and stakeholder: Setting the highest standards of corporate governance

and stakeholder engagement, including corporate codes of conduct and public

reporting

5. Human: Managing human resources to maintain workforce capabilities and

employee satisfaction through best-in-class organizational learning and knowledge

management practices and remuneration and benefit programs

To fully understand what sustainability is in the context of corporate responsibility,

Epstein and Buhovac (2014) have broken it down into nine principles which share three

attributes:

1. They make the definition of sustainability more precise.

2. They can be integrated into day-to-day management decision processes and into

operational and capital investment decisions.

3. They can be quantified and monetized.

The nine principles of sustainability as presented by Epstein and Roy (2003) below

highlight what is important in managing stakeholder impacts such as impact of company

products, services, processes and other activities on corporate stakeholders:

1. Ethics: The company establishes, promotes, monitors, and maintains ethical

standards and practices in dealings with all of the company stakeholders.

2. Governance: The company manages all of its resources conscientiously and

effectively, recognizing the fiduciary duty of corporate boards and managers to

focus on the interests of all company stakeholders.

3. Transparency: The company provides timely disclosure of information about its

products, services, and activities, thus permitting stakeholders to make informed

decisions.

4. Business relationships: The company engages in fair-trading practices with

suppliers, distributors, and partners

5. Financial returns: The company compensates providers of capital with a

competitive return on investment and the protection of company assets

6. Community involvement/economic development: The company fosters a mutually

beneficial relationship between the corporation and community in which it is

sensitive to the culture, context, and needs of the community

7. Value of products and services: The company respects the needs, desires, and rights

of its customers and strives to provide the highest levels of product and service

values

8. Employment practices: The company engages in human-resource management

practices that promote personal and professional employee development, diversity,

and empowerment
 9. Protection of the environment: The company strives to protect and restore the

environment and promote sustainable development with products, processes,

services, and other activities.

Corporate Sustainability Model

According to Epstein and Buhovac, the Corporate Sustainability Model uses the

social, environmental, and financial dimensions of sustainability as its foundation. The

model explains the drivers of corporate sustainability performance, the actions that

managers can take to affect that performance, and the consequences of those actions on

corporate environmental, social, and financial performance. Moreover, it describes the

inputs, processes, outputs, and outcomes necessary to implement a successful sustainability

strategy.

The inputs include the external context, internal context, business context and,

human and financial resources. These guide the decisions of leaders and the processes that

the organization undertakes to improve its sustainability. They provide the foundation for

understanding complex factors leaders should consider and often take form of constraints

that must be addressed. After evaluating such inputs and their likely effects on

sustainability and financial performance, leaders can formulate various processes which

includes leadership, sustainability strategy, sustainability structure, and sustainability

systems, programs and actions to improve sustainability. Subsequently, outputs which

includes sustainability performance and stakeholders reactions must be monitored to

determine the effectiveness of sustainability management practices.

 Therefore, these inputs, processes and outputs are all critical elements in producing

an outcome involving long-term corporate financial performance and sustainability

performance. Inputs, outputs, processes and outcomes are the factors leading to

sustainability success.

The framework only helps to understand the relationships among key factors for

success and customizing and implementing the framework carefully throughout the

company is viewed to be critical and challenging. Since the focus of the framework relates

to simultaneous improvement in both sustainability and financial performance, top

managers throughout the organization must also be engaged. To test the foundation of the

customized corporate framework, an appropriate set of measures should be developed.

 References

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Dyllick, T., & Hockerts, K. N. (2002). Beyond the business case for corporate

sustainability. Fontainebleau: INSEAD.

Epstein and M.-J. Roy. (2003). Improving Sustainability performance: Specifying,

Implementing, and Measuring Key Principles. Journal of general Management.

Epstein, M. J., & Buhovac, A. R. (2014). Making sustainability work: best practices in

managing and measuring corporate social, environmental, and economic impacts.

Sheffield: Greenleaf Publishing.

Gulbrandsen LH. 2009. The emergence and effectiveness of the Marine Stewardship

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