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September 04, 2002
Shifting the Sustainability Dialogue from Values to Value
    by William Baue

A recent Ecos Corporation discussion paper advocates integrating the social and environmental considerations of sustainability into the financial bottom line.


The concept of corporate sustainability evolved from a moral imperative to prioritize social and environmental viability alongside financial performance, according to a recent discussion paper published by the Australia-based consultancy firm Ecos Corporation. However, the paper proposes replacing this values-driven approach with a strategy that prioritizes the creation of shareowner value. Instead of pitting sustainability against profitability, as the moral case often does, the business case identifies how sustainability can enhance value and profits.

When John Elkington of SustainAbility introduced the term "triple bottom line" in 1997, he placed social and environmental performance on the same plane as financial performance. In reality, however, profit eclipses benevolence as a motivating factor, the Ecos paper argues. The three-pronged approach therefore unwittingly retained the separation of social and environmental considerations from economic considerations, according to the paper.

To redress this divide, Ecos posits the integration of social and environmental considerations directly into the financial bottom line. Ecos thus coins the term "single bottom line sustainability." Hence the title of the paper, Single Bottom Line Sustainability: How a Value Centered Approach to Corporate Sustainability Can Pay Off for Shareholders and Society. By fusing the social/environmental/financial trinity into one entity, single bottom line sustainability assesses all three components together.

"Action or inaction on sustainability will lead to the creation or destruction of value--not in a generic sense, but in a definable, measurable and communicable way, sector-by-sector and company-by-company," said Ecos' U.S. business leader Don Reed. Mr. Reed co-authored the paper with Ecos founder Paul Gilding, a former executive director of Greenpeace International, and Murray Hogarth.

The paper presents seven principles for defining and applying sustainability. For example, principle five suggests that companies "evaluate possible [sustainability] strategies against their potential to create or protect significant value for your business." The principles thus serve more as practical tools than as theoretical signposts.

The authors propose two tactics that enact the principles comprehensively: a Sustainability Strategy Guide and a Sustainability Value Screen. The Sustainability Strategy Guide plots on a four-squared graph how actions can create societal value and/or shareowner value. Actions that benefit one but not the other, or neither, are considered unsustainable. Only those actions that benefit both society and shareowners can be considered truly sustainable. The Sustainability Value Screen applies traditional financial analysis to sustainability to identify exactly how social and environmental performance can add value to the financial bottom line.

"The evidence that there is value at stake for most companies in most industries in their performance and positioning on environmental and societal issues is strong, measured and consistent with intuition," Mr. Reed said.

The Ecos paper cites evidence that strong social and environmental performance does not inhibit and can enhance financial performance. Business professors from the University of Michigan and Harvard found that three quarters of the 95 empirical studies they surveyed established a neutral or positive correlation between social/environmental performance and financial performance.

"Beyond that, the research reveals virtually no evidence to support the contrary position that sustainability has a negative impact on financial performance," the authors state in the paper.

This suggests that companies have little to lose but much to gain from practicing sustainability.

 

 
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