December 2002

The quest for 'sustainable' business

Sustainable development cannot be achieved by a single enterprise or by the entire business community in isolation, argues Syamal Gupta, the chairman of Tata International. It is a pervasive philosophy to which every stakeholder in society and participant in the global economy must adhere

Syamal Gupta

The earth provides enough to satisfy every man's needs, but not every man's greed - Mahatma Gandhi

Our lives are inextricably linked to our environment. With the world around us changing, the environmental challenges facing us are gaining complex dimensions. While the earths life forms draw their sustenance from a vast reservoir of natural resources, the burgeoning global population has been putting our fragile ecosystem under stress, and threatening to cause irreversible damage to its balance.

The world has witnessed rapid, unprecedented technological advances that have had a profound bearing on all aspects of the production of goods and services. The increased scale and reach of human activity have led to mounting pressure on not just the global commons (water, air, soil, etc), but also on local and global sinks (the ability of the biosphere to absorb waste and regulate climate).

It is feared that greenhouse gas emissions cannot be reined in unless a concerted effort is made to increase energy efficiency, reduce our current dependence on fossil fuels, and develop viable clean-energy options. Added to this, we have seen that poverty has been a concomitant of economic development..

To put things in perspective, one needs to consider that nearly 3 billion people almost half the worlds population continue to live on less than $2 a day. In the next 50 years, the global population is expected to increase by 50 per cent, with a majority of them in poor countries. The challenge of meeting present and future needs is immense.

States the Living Planet Report, 2000: If every human alive today consumed natural resources and emitted carbon dioxide at the same rate as an the average American, German or Frenchman we would need at least another two earths

The core development challenge is about ensuring a better quality of life for everyone. Business, as the most potent force of wealth creation, has an essential role to play in promoting the move towards sustainable development.

Businesses need an enabling environment to operate effectively. In todays tripartite world of government, enterprise and civil society, a key business asset will be the ability to work in creative partnerships to find solutions that, in the long term, will be seen as legitimate and fair.

The concept of sustainable development
The most widely accepted definition of this term is the one adopted by the International Commission on Environment and Development (Brundtland Commission) Report, 1987. It defines sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Essentially, sustainable development is built on three pillars: economic growth, ecological balance and social progress.

A healthy economy is as essential in satisfying our material and non-material needs as preserving the natural foundations of life. Societys ability to enhance human wellbeing is, in the long run, intertwined with the choices made by individuals, companies, communities and governments on how to optimise the usage and transformation of their assets.

In this context, development in the 21st century is a multidimensional concept that encompasses five perspectives:

  • Financial capital: Sound macroeconomic planning and prudent fiscal management.
  • Physical capital: Infrastructure assets such as buildings, machines, roads, power plants and ports.
  • Human capital: Good health and education to maintain labour markets.
  • Social capital: People skills and abilities, as well as the institutions, relationships, and norms that shape the quality and quantity of a societys social interactions.
  • Natural capital: Natural resources, both commercial and non-commercial, and ecological services which provide the requirements for life, including food, water, energy, fibres, waste assimilation, climate stabilisation and other life-support services.

Given the finite resources of our planet, current practices of development cannot be sustained. The focus, hence, should be on equitable consumption of resources as much as on regeneration and recycling. In reality, this does not happen.

Although the concept of sustainable development evolved a quarter century ago, not a single country is known to have developed a comprehensive strategy to build an eco-economy; to restore carbon balances, stabilise the population and water tables, conserve forests and soil, and preserve the diversity of plant and animal life.

International initiatives
It was way back in 1972 at the Stockholm Conference that the view of the developing countries with respect to the environment was brought to the fore. Developing countries may not be major contributors to environmental evils, but the environmental tribulations faced by them are severe.

These countries account for 77.5 per cent of the world population and 32 per cent of global emissions, whereas the United States, with less than 5 per cent of the world population, alone accounts for 23 per cent of global emissions.

The Earth Summit held in 1992 at Rio de Janeiro clearly endorsed the principle that global environmental problems should be solved by consensus and through multilateral environmental cooperation. It provided an all-encompassing view of the nexus between development and environment.

The Millennium Development Goals provided a framework for poverty reduction and sustainable development efforts under the aegis of the World Bank. These goals, agreed to by over 150 heads of state and government at the UN Millennium Summit in 2000, provide the measurable targets needed to collectively measure global progress in improving living standards.

At the recently concluded World Summit on Sustainable Development in Johannesburg, the overriding theme was access to clean water, sanitation, energy and agriculture, to improve health conditions and better protect the worlds biodiversity and its ecosystems. In addition, for the first time, countries undertook commitments to increase the use of renewable energy.

The clean-air initiative has been building consensus among government, civil society and the private sector to introduce measures for to improve air quality. The World Bank is involved in other partnerships and special initiatives, such as its alliance with the World Wildlife Fund to protect 125 million acres of highly threatened forest area around the world by 2005.

Business perspective of sustainable development
Growing environmental concerns, coupled with public pressure and increasingly stringent regulations are changing the way people do business across the world. Protecting the organisations capital base is a well-accepted business principle. Yet, companies do not generally recognise the possibility of extending this notion to the worlds natural and human resources.

If sustainable development is to achieve its potential, it must be integrated with the planning and measurement systems of business enterprises. According to the International Institute of Sustainable Development (1992), companies should be adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today, while protecting, sustaining and enhancing human and natural resources that will be needed in the future.

This highlights businesss dependence on human and natural resources, in addition to physical and financial capital. Although its activities are circumscribed by consumer preferences and governmental regulations, business is the agent for many measures which can help mitigate environmental change.

The concept of sustainable development needs to be incorporated into the processes of a business. This dimension of business strategy does not mean new management methods need to be invented. Rather, it requires a new orientation and extensive refinements to the prevalent systems and practices a new mindset.

Sustainable development is good business in itself. It creates opportunities for suppliers of green consumers, developers of environmentally safer materials and processes, firms that invest in eco-efficiency, and those that engage themselves in improving social wellbeing. Besides earning the goodwill of society, such enterprises will also have a competitive advantage vis--vis its competitors.

Though economic growth, ecological balance and social progress have always been on the sustainability agenda, far greater emphasis is being placed on social progress and, specifically, on what business is doing to contribute to this goal and how its delivering that contribution.

Dynamic role of business: Developing partnerships
Industry analysts recognise a natural progression of businesses through a number of phases since the 1970s: from basic compliance with environmental regulations to broader concerns and, finally, to a proactive setting of goals that embrace environmental, social, and ethical concerns.

Market forces have played a big role in the progression from the era of mechanics to the era of physics to the era of biology. Market institutions combine three elements that compel dynamism and a search for ways to use materials more efficiently: source reduction (material conservation), pollution prevention and residuals recycling.

There is general acceptance that governments, businesses and civil society have to interact constructively to find solutions to the challenges of sustainable development. The Johannesburg Summit generated concrete partnership initiatives by and between governments, citizen groups and businesses. The aim is to create a pool of resources and expertise that will help tackle global problems on a global scale.

According to Bjorn Stigson, president of the World Business Council for Sustainable Development, the redistribution of roles and responsibilities based on the changing perceptions of the stakeholders within the new tripartite world has created two sustainable agendas for business:

The business agenda: This pertains to what companies need to do in their everyday operations to become eco-efficient, reduce environmental impact and create more value with reduced impact. Radical market changes and heightened awareness among various stakeholders have led to a greater focus on the triple bottom line, based on approaches that will move towards the goals of environmental protection, social wellbeing and economic development simultaneously.

The political agenda: This would be set and steered largely by forces from outside the business sector. It would focus on the framework conditions within which business must work. Governments best role may lie in restructuring the ground rules: environmental and health regulations, tax codes and incentives for green investments and practices.

Many business leaders have begun to realize that achieving truly sustainable enterprises will require going beyond incremental improvements in product and process efficiency to restructuring markets and changing the economic incentives that drive enterprise and consumer behaviour. The new set of ground rules offers progressive businesses fresh commercial opportunities to distinguish themselves from competitors on the basis of innovation, product quality and environmental performance.

The sustainable company
Sustainable development provides decision makers with an additional benchmark against which business strategies and performance can be assessed. Benchmarking policies that promote sustainable development provide a system to explore the commitment to principles of sustainable industrial development.

This benchmark information will be a vital starting point for companies, regulators and the public as they explore new ways of working towards a co-regulation partnership.

The evaluation criteria for a sustainable company could include:

  • Environmentally sound products, processes and services.
  • Integration of sustainable development and economic growth.
  • Extent of reduction of risks and hazards to human health and the ecosystem.
  • Community/stakeholder participation in sustainable development commitments.

Smaller companies often lack the knowledge and resources to make significant changes in their organisations or technologies. With incentives lacking and the financial benefits of going green remaining controversial, there is a need for more focus on ensuring that sustainable industrial development is compatible with profitability.

The growth of innovative programs and self-regulation are important indicators of change. But the steps taken so far represent just the start of a complex and lengthy transition to more sustainable enterprises.

Balancing growth and the environment
Many businesses have incorporated initiatives in their business operations and culture through environmental management systems, voluntary codes of conduct, performance indicators and regular reports to stakeholders. Multinationals such as British Petroleum and Shell have been investing in the development of renewable energy products and services; they are diversifying in anticipation of future markets.

Here I want to cite the example of the Tata Group, one of the most respected industrial houses of India. The group has been consistent in integrating social and environmental issues, and it has long recognised that sustainable solutions had to be rooted in the principles of ecology, equity and ethics, in addition to those of economics.

The road ahead
We want a better world, a better environment, peace and prosperity. But our path is fraught with enormous challenges, environmental, social and economic. Our development efforts must be complemented by technological innovations that extend the reach of knowledge and learning to the remotest corners of the earth. Education and literacy must necessarily be brought to a level that will help create awareness among people and support sustainability.

Business, as the principal engine of wealth creation, can no longer afford to de-link itself from the economic and social impact of its goals and processes. It is against this broader canvas that international cooperation is imperative in order to address cross-boundary and global environmental challenges.

This is an edited version of the paper, titled 'Business and sustainable development', that Mr Gupta presented at the Commonwealth Business Forum held in London in September 2002.