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Sustainability in Business

“Guidelines on how to elaborate the Portfolio”
Haji Hussain
APCOMS Rawalpindi Pakistan
hakis@yahoo.com , hussain82@usa.com

Abstract
The purpose of this study is to find out the how sustainability has successfully been introduced,
implemented and proven to be a win-win situation. For this purpose secondary data was
collected from different business review, annual reports, company’s official websites and
financial journals of the world. We choose three companies from different region of the world to
conduct this study as; Volkswagen, British Petroleum, and Lukoil. Study indicates that various
challenges and barriers which directly affect the implementation of corporate sustainability in
business. This study also discusses the major social and environmental issues, rules regulations,
overall tendency toward or against corporate sustainability.

Introduction
Sustainability means is the potential for long-term maintenance or safeguarding of well being, it
has environmental, economic, and social dimensions. The history of sustainability traces human
dominated ecological systems from the earliest civilizations to the present era. This history is
characterized by the increased regional victory of a particular society, followed by crises
(Beddoea, 2009). Sustainable business is an enterprise that has no negative impact on the global
or local environment, community, society, or economy. Sustainable business is any organization
that contributes in environmentally friendly or green activities to ensure that all processes,
products, and manufacturing activities sufficiently address current environmental concerns while
maintaining a profit. In other words, it is a business that “meets the needs of the present world
without reconciling the ability of the future generations to meet their own requirements
(Anderson, 2006) It is the process of appraising how to design products that will take benefits of
the current ecological situation and how well a company’s products perform with renewable
resources (Rennie, 2008).

All major businesses of the world are trying to manage sustainability in their businesses. For
instant, Volkswagen has set up a CSR and Sustainability Coordination office, which is primarily
responsible for the strategic routes and optimization of CSR and sustainability management
across the Volkswagen Group (Volkswagen, 2009). British Petroleum claimed that “Our goal of
‘no accidents, no harm to people and no damage to the environment’ is fundamental to BP’s
activities. We work to achieve this through consistent management processes, ongoing training
programmes, rigorous risk management and a culture of continuous improvement” (BP, 2009).
Lukoil has a philosophy of sustainable development. The issues of energy efficiency, preventing
an environmental impact and the impact on human life and health are of top priority the
company. In 2008, Lukoil finished its five-year Environmental security program, and adopted a
new one to be followed up to 2013(Lukoil, 2008).

This study has concentrated primarily on what companies can do, but it is significant not to
ignore the role others play in supporting companies’ actions. An important role of governments
is to provide the climate for sustainable innovation, the regulatory frameworks that reduce
ambiguity that better solutions will succeed in the market place. Governments also act in ways
that can reinforce the principles of behavior that are sought of others, for example within public
procurement procedures

VOLKSWAGEN GROUP

Historical Overview
Volkswagen is formerly known as VAG a German automobile manufacturing group founded in
1937. This group develops vehicles and components for all marques of the whole group and also
manufactures complete motor vehicle for the Volkswagen passenger cares and Volkswagen
commercial vehicles marques. It has 61 production facilities in 21countries, 97 percent of which
are certified according to international environmental management standards or are currently
preparing for certification. In 2008, the Volkswagen Group delivered some 6.3 million vehicles
to customers worldwide, exceeding the previous year’s figure by 1.1 percent. 35 of the Group’s
models have CO2 emissions of less than 120 g/km (as of June 2009). Additional new models in
2009 and 2010 will also increase the number of vehicles that emit less than 100 g/km of CO2.
The Volkswagen Group employs just about 370,000 employees all over the world. Since 2003,
our health index has been at a consistently high level of at least 97 percent. In 2006, the Polo
BlueMotion became the first five-seater to consume only 3.8 liters of diesel and emit a mere 99
g/km of CO2. In 2010, the second generation Polo BlueMotion with CO2 emissions of 87 g/km
will be launched as the highlight of the BlueMotion series.

Automobile Sector of Germany
The automobile sector in Germany is one of the largest sectors in the country having more than
866000 labor force with 29% market share of passenger car production in Europe. Volkswagen
group dominate the automotive industry in the country, nearly six million vehicles are produced
in Germany and almost 5.5 million are produced overseas by German brands.

Brief History of Germany
Federal Republic of Germany is a country in Western Europe. It is bordered to the east by Czech
Republic and Poland; to north by the North Sea, Denmark and the Baltic Sea; to the south by
Switzerland and Austria; and to the west by France, Luxembourg, Belgium, and the Netherlands.
The territory of Germany covers an area of 357.021 km2 with 81.8 million inhabitants (Eurostat
2009).

Germany is a federal parliamentary republic of sixteen states, its capital and largest city is Berlin.
Currently Germany is a member of the Unite Nations, NATO, the G8, the G20 and OECD. It is
ranked fourth largest economy by nominal GDP and the fifth largest country by purchasing
power parity of the world. It holds a key position in European affairs and maintains a multitude
of close partnerships on a global level (International Herald Tribune, 2008).

SWOT Analysis of Volkswagen Group
Volkswagen was chosen for SWOT analysis because it exhibits how a successful company
experienced during great difficulties in the early 1970s, but then developed a strategy that
resulted in an excellent market position in the late 1970s. The analysis is below will focus on the
critical era from late 1973 to early 1975. The external threats and opportunities relate mostly to
the situation Volkswagen faced in the United States, but a similar situation prevailed in Europe at
that time also.

Threats
 Climate changes.
 Scarcity of resources demands solutions from industry that go beyond the usual
boundaries of sector and segment.
 Rising worldwide inflation rate.
 Continuing appreciation of the Deutsche Mark against the dollar.
 Withdraw from American market.
 Losing share of the small-car market.

Weaknesses
 Climate pigs protest
 European car industry fails to meet ACEA voluntary agreement
 Fifth place in VCD cars and environmental manufacturer ranking.
 Absent of survival strategy.
 The rising costs in Germany. For example, in 1973 wages and salaries rose 19 percent
over the previous year.
 One-model policy which presented a problem when the design of the Beetle became
obsolete.

Strengths
 Listed in two German sustainability indexes.
 A ward for volunteering initiative.
 Promote the health and physical fitness of employees.
 Fuel safer courses offer at home and abroad.
 Applying technological expertise with the aim of safeguarding jobs by using Blue
Motion technology.

Opportunity
 Building block principle was employed in the design of the new cars.
 Research, development, engineering, and its experience m production technology.
 A competitive pressure was to build by developing a car based on advanced-design
technology.
 build an assembly plant in the United States to reduce the threats of competition and the
effects of the unfavorable exchange rate
 To develop the very fuel-efficient Diesel engine.
 Volkswagen manufactured and sold small engines to Chrysler and American Motors.
 Employ Environmental Radar, to evaluate global developments at an early stage

BRITISH PETROLEUM
Historical Overview
British Petroleum Company was founded in 1954. It is core products are petroleum, derived
products, service stations and air aviation fuels. British Petroleum was ranked as the fifth
largest oil company in the world. The British Petroleum Company is the United Kingdom's
largest corporation. The pioneer of the Middle Eastern oil industry, BP discovered oil in Iran
before World War-I and eventually became involved in all aspects of the oil industry, from
exploration to marketing. By the mid-1990s, it was producing over 1.2 million barrels of oil and
1.5 million cubic feet of natural gas every day. "Downstream" operations--oil refining and
marketing--contributed the lion's share (over four-fifths) of BP's revenues in the mid-1990s. BP
is familiar to most people by virtue of its more than 16,400 service stations around the world, but
it also has significant interests in oil exploration (generating 13 percent of revenues) as well as
production of chemicals and plastics (Beck, Robert J. 1992)

Petroleum Sector of UK
The UK’s petroleum sector comprises the oil, gas and coal. This sector has been self-sufficient
since 1980. It is expected to remain self-sufficient in oil until approximately 2016, and in gas
until well into this century. However, the UK’s oil reserves are declining

UK’s Petroleum industry consists of more than 200 companies refining, distributing and
marketing petroleum, including large multinational oil companies, supermarkets, retailers and
rural filling stations.

Brief History of the United Kingdom
The United Kingdom is a sovereign state located of the northwestern coast of continental Europe
with an area of 243,610 km2 (Institutional Affairs, 2010). It is an island nation, spanning an
archipelago including Great Britain, the northeastern part of island of Ireland, and many smallest
islands. Northern Ireland is the only part of the UK with a land border with another sovereign
state, sharing it with the Republic of Ireland (London: Telegraph. 24, 2010). Apart from this
land border, the UK is surrounded by the Atlantic ocean, the North sea and the English Channel
and the Irish Sea.

The UK is a developed country, with the world’s sixth largest economy by nominal GDP and the
sixth largest country by purchasing power parity of the world. The nominal per capita income of
UK is $35,720 and nominal GDP is $2.183 trillion. It was the world’s first industrialized country
and world’s foremost power during the 19th and early 20th centuries (Ferguson 2004).

SWOT Analysis

Strengths
BP is ranked at the world’s 3rd largest energy company and is positioned as a multinational oil
company headquartered in London that:

 Operates petrochemical businesses worldwide through the network of its subsidiaries
and retail brands(Amoco; ARCO; BP Express, BP Connect; BP Travel Centre;
ampm; Burmah Castrol etc)
 Participates in London Stock Exchange, IPO in New York Stock Exchange. and is
listed in the FTSE 100 Index;
 BP Amoco strong brand loyalty for oil;
 Strong brand management driven by the ‘Beyond Petroleum’ slogan.
 BO Q3 net profit increase by 83% due to record oil and gas prices. The indicator
amounts to $53.43 per share compared to $21.27 during the same period in 2007.

Weaknesses

 Launch of controversial business with the Baku-Tbilisi-Ceyhan pipeline;
 Increase in petrol prices in the UK;
 Explosion of BP refinery in Texas that caused 100 injuries and 15 deaths in 2005;
 Criminal charges due to the spread of 270.000 gallons of crude oil in the Alaskan
tundra in 2006;
 Toxic spill of 2,000 gallons of methanol in the oil field (Prudhoe Bay) managed by
BP.
 Closing of Alaskan oil wells.

Opportunities

 8 b. USD investment in the research of alternative fuel methods, including hydrogen,
natural gas, wind and solar over the forthcoming decade;
 Expansion of frontier areas suitable for BP’s future reserves (post-Soviet Union
territories);
 Extension of strategic oil and gas acquisitions in North Sea area;
 Launch of more flexible price policy to compete main rivals;

Threats

 Environmentally unsound policies due to oil and toxic spills;
 Occasional refinery explosions;
 Corrosion in pipelines;
 Competition from Shell and Chevron
 Ceasing operations in a number of potential locations with their further re-branding
(Conoco);
 Sale of corporate-owned stations;
 More than 5.000 shortages within coming months;
 $66,71 per barrel creates considerable tensions for running oil business;
 Further lawsuits considering the company’s ecological

LUKOIL

Historical Overview
Lukoil is the 2nd largest private oil Company worldwide by proven reserves, the leading oil
company in Russia and the 6th largest oil company worldwide by production of hydrocarbons.
LUKOIL also produces and explores gas and petroleum products and is the only Russian oil
company with significant hydrocarbon reserves (in Timano-Pechora and the Northern Caspian).
(Lukoil 2005a)

West Siberia and Perm Oblast are Lukoil’s most important regions and main sources of
company’s production (West Siberia stores about 54% of company reserves), in Azerbaijan,
Kazakhstan, Egypt, North Africa and Columbia exploration and production projects are made.
LUKOIL owns around 1.5% of global oil reserves and 2.1% of global oil production and
dominates the Russian energy sector, with 19% of total Russian oil production and 19% of total
Russian oil refining. (Lukoil 2005a)

LUKOIL owns important oil refining capacities in Russia (four large refineries), in Ukraine,
Bulgaria, and Romania, have a sales network in 17 countries of the world, including Russia, the
CIS (Azerbaijan, Belarus, Georgia, Moldova, Ukraine), Europe (Bulgaria, Hungary, Cyprus,
Latvia, Lithuania, Poland, Serbia, Romania, Czech Republic, Estonia) and the USA. The retail
network includes 1,456 own and leased outlets as well as 276 franchised outlets. (Lukoil 2005a)

Petroleum Sector of Russia
The petroleum industry in Russia is one of the largest in the world. Russia has the largest
reserves and is the largest exporter of natural gas, second largest coal reserves and the eighth
largest oil reserves. Its average oil production is about 9.93 million berrels per day for a total of
494.2 million tons (2009). It produce 12% of the world's oil and has a same share in global oil
exports. The local demand for oil is growing continuously and Russian oil industry is need of
huge investment on the oil sector. Currently, Russsia gets over half of its domestic energy needs
from natural gas and about 19% from oil.

Brief History of Russia
Russia is state in norhern Eurasia. It is federal seme presidential republic, the northwest and
southwest borders shares with Norway, Finland, Estonia, Lativa, Lithuania poland, Belaru,
Ukraine, Georgia, Azerbaijan, Kazahstan, China, Mongolia and North Korea. It also has
maritime borders with Japan and the United States. It is area is about 17,075,400 square
kilometrrd with 142 million people. . Russia has the world's 12th largest economy by nominal
GDP or the 7th largest by purchasing power parity, with the 5th largest nominal military budget.
It is one of the five recognized nuclear weapons states and possesses the largest stockpile of
weapons of mass destruction. Russia is a great power and a permanent member of the United
Nations Security Council, a member of the G8, G20, the Council of Europe, the Asia-Pacific
Economic Cooperation, the Shanghai Cooperation Organization, the Eurasian Economic
Community, the OSCE, and is the leading member of the Commonwealth of Independent States.

Lukoil SWOT Analysis

Strengths

 Awarded ISO 1400 and OHSAS 18001 certification 2001, 2004
 Larges national corporation
 First company listed in the stock exchange London.
 Has its own fleet
 Long term partnership with municipal and public organization.
 Awarded for best issuer in Russian stock market..
 Research into bio fuels, solar power, wind power and energy from hydrogen helps the
organization diversify in a market where ecological issues are of increasing concern,
and also addresses issues of the longevity of fossil fuel reserves.
 Diversification into products such as fuel cards and credit cards helps Lukoil maintain
a wider portfolio of products, spreading risk.
 The organization has worked hard to improve its general reputation and believes it is
now seen more positively than it used to be.

Weaknesses

 Unfavorable geological conditions of fields which slowed the progress of drilling.
 Difficulties obtaining financing for start-ups and innovation projects
 Macroeconomic instability
 Depletion of reserves high as compare to competitors owned fields.
 High transportation cost due to long truck roads.
 High inflations ratio
 Excessive bureaucracy

Opportunities

 New oil and gas reserves are still being found, and there is the potential to discover
more.
 Petrochemical covers Russian domestic demand.
 Introducing new format/layout for gas stations
 Lukoil has been able to move into areas rich in reserves which were previously too
risky to operate in, for example Iraq.
 New product types are developed in response to ever changing customer demand
 Lukoil’s active response to criticisms of environmentally unfriendly activities may
lead to less antagonistic relationships with environmental groups.
 Emerging economies have a large and growing demand for fossil fuels.
 Diversification into new products and alternative fuels may open up new markets.

Threats

 Fuel prices in recent months have been particularly volatile, initially rising quickly
but subsequently falling sharply, reducing potential profit
 Political issues in some regions, Nigeria in particular, threaten operations.
 The economic downturn has led to a decrease in demand for fossil fuels, possibly
aggravated by changes in driving habits in response to high fuel prices earlier in
2008.
 Weather can have significant effects on production, with refineries particularly hit
recently by Hurricane Ike.

Discussion
Sustainability is being adopted around the globe as ambitious model and guiding principle. Most
of the growing companies of the world are adopting this sustainable model. Lukoil, British
Petroleum and Volkswagen are the major practitioners of sustainable model. They are publishing
their sustainability reports annually. The members of econsense have also promised to move
forward to implement the sustainability approach, through an open discussion process. This
course was chosen in the knowledge that business and its innovation and investment strength has
a special responsibility for seeing that sustainable development succeeds. It is also clear that
companies can only put corporate social responsibility into effect if they operate in an
appropriate environment established within a supportive and reliable political framework.

Sustainable development means to establish a balance between economic, social and
environmental interests. The principles of sustainable development require the harmonization
and integration of economic, ecological and societal interests. Implementing these principles of
sustainability in practice means leasing to determine how “environmentally compatible,
economically profitable, and so socially beneficial” can actually be harmonized. It is important
to realize here that sustainability is more than a pure environmental issue, it is vital to put to
employ the whole spectrum of economic and social development opportunities, and understand
sustainability as an overarching idea for optimizing of all three target dimensions (social,
ecological and economic).

The concept of what is "sustainability" evolves over time. Solutions are neither universally valid
nor final - they have to define for each specific case reflecting the latest social understanding.
Sustainability is a complex and challenging trade offs, have to be found between different needs
to harmonize the three sustainability dimensions - business, society and environment.

Sustainability therefore means an effort to find solutions which allow the multifarious demands
of sustainability to be incorporated in corporate strategies. A true "culture of sustainability"
within companies can help to implement sustainability in concrete ways in daily office routines
as well as shaping whole production processes and products. However, more is required than just
anchoring the values of sustainable economics in business alone: it is also crucial to convince
consumers to buy environmentally and socially compatible products. Business can assist this
goal by developing and launching environmentally and socially compatible products, and
highlighting their added value in product communications and marketing.

International standard organization also issued ISO 14001 standard against which organizations
are assessed. This standard is generic and flexible enough to apply to any organization producing
or manufacturing any product, or even providing a service anywhere in the world. Businesses are
adopting sustainable index for optimizing of all three target dimensions; social, ecological and
economic. BP's chemicals business has reduced its hydrocarbon emissions to water by more than
two-thirds from its 1990 baseline, and their refining arm has cut its hydrocarbon emissions to air
from 108,000 tonnes in 1990 to 45,000 tonnes in 1997. Volkswagen has set up a CSR and
Sustainability Coordination office, which is primarily responsible for the strategic routes and
optimization of CSR and sustainability management across the Volkswagen Group. Lukoil
finished its five-year Environmental security program, and adopted a new one to be followed up
to 2013. Unfortunately, some major barriers impede the decisive corporate action of various
organizations. Some companies don’t understand what sustainability is and what it means to the
enterprise. Some companies have difficulty modeling the business case or even finding a
compelling case for sustainability. Unfavorable geological conditions, macroeconomic
instability, excessive bureaucracy are big challenges for Lukoil to implementing sustainable
practices.

Exhibit.1. Sustainability Efforts Could Influence All the Levers That Companies Use to
Create Value

Profits
Pricing Power

Margin Cost Savings
improvement
Employee
Total recruitment &
Shareholder engagement
return

Free cash Market Share
flow Revenue
growth

New Market
entry

Valuation Risk
multiple Premiums
Sources: The sustainability Initiative 2009 Survey, BCG & MIT salon Management Review
For potential impact of sustainability efforts; “stronger brand and greater pricing power”,
“greater operational efficiencies and efficient use of resources”, “supply change optimization”,
“lower costs and taxes”, “greater employ productivity”, “customer loyalty”, “ more potential
sources of revenue”, “lower market and operational risks”, and “greater access to capital
financing and insurance” are necessary.

From the case studies of British Petroleum, Lukoil and Volkswagen; sustainability efforts,
employ productivity, operational efficiencies, are exhibits. But evident of supply change
optimization and more potential sources of financing and insurance were not found in the case of
Lukoil which are the most significant driver of sustainability. Political instability, unfavorable
climate conditions, transportation cost also big challenges and barriers of Lukoil to implement
sustainability. British Petroleum has a strong sustainability profile and utilizes its all efforts to
maintain sustainability. The big challenge for BP is change the misperception of people. About
13.1 % people believed that BP is no careful about environment which is much as compare to all
pervious records. That is why BP is going to organize Green Olympic London 2012.
Volkswagen is applying technological expertise with the aim of safeguarding jobs by using Blue
Motion technology. It has also manufactured and sold small engines to Chrysler and American
Motors which is great success and opportunity to improve potential sources of revenue

Conclusions
This paper examines the major issues (social and environmental), rules, regulations, challenges,
barrier and drivers each of these countries (Russia, Germany and UK) and business (Volkswagen
Group, British Petroleum and Lukoil) was faced with in order to achieve sustainable success. I
used latest data from case studies, annual reports, previous research papers, and official web of
the companies. SWOT analysis employed to examine the core challenges and barriers faced by
the businesses (Volkswagen Group, British Petroleum and Lukoil) and also investigate the
present potentials and future business opportunities. Our results show that all the companies are
doing positive efforts for optimizing of all three target dimensions (social, ecological and
economic). They are adopting sustainability index also, but some major issues as; political
instability, terrorism, people misperceptions, increasing inflation rate, unavoidable climate and
geological conditions are big challenges for them still now. I however, suggest that the
significant of this study results could be possibly improve by using daily or monthly data and
standard techniques.

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