UNIT-3

ETHICAL CODES AND AUDIT

A code of ethics is a guide of principles designed to help professionals conduct business

honestly and with integrity. A code of ethics document may outline the mission and values of
the business or organization, how professionals are supposed to approach problems, the ethical
principles based on the organization's core values, and the standards to which the professional
is held.
A code of ethics, also referred to as an "ethical code," may encompass areas such as business
ethics, a code of professional practice, and an employee code of conduct.
A code of ethics sets out an organization's ethical guidelines and best practices to follow for
honesty, integrity, and professionalism.
For members of an organization, violating the code of ethics can result in sanctions including
termination.
In some industries, including banking and finance, specific laws govern business conduct. In
others, a code of ethics may be voluntarily adopted.
The main types of codes of ethics include a compliance-based code of ethics, a value-based
code of ethics, and a code of ethics among professionals.
A focus on climate change has become an integral part of companies' codes of ethics, detailing
their commitment to sustainability.

Understanding a Code of Ethics

Business ethics refers to how ethical principles guide a business's operations. Common issues
that fall under the umbrella of business ethics include employer-employee relations,
discrimination, environmental issues, bribery, insider trading, and social responsibility.
While many laws exist to set basic ethical standards within the business community, it is largely
dependent upon a business's leadership to develop a code of ethics.
Both businesses and trade organizations typically have some sort of code of ethics that their
employees or members are supposed to follow. Breaking the code of ethics can result in
termination or dismissal from the organization. A code of ethics is important because it clearly
lays out the rules for behavior and provides the groundwork for a preemptive warning.
the importance of climate change and how human behavior has led to negatively impacting the
climate in a severe manner, many companies have taken to include climate factors in their code
of ethics. These principles include manners in which the company is dedicated to operating
sustainably or how they will shift to doing so.
In many cases, this commitment to sustainability adds to the costs of a company, but because
consumers are becoming more focused on the types of businesses they choose to engage with,
it is often worth the cost to maintain a good public image.
Regardless of size, businesses count on their management staff to set a standard of ethical
conduct for other employees to follow. When administrators adhere to the code of ethics, it
sends a message that universal compliance is expected of every employee.
Types of Codes of Ethics
A code of ethics can take a variety of forms, but the general goal is to ensure that a business
and its employees are following state and federal laws, conducting themselves with an ideal
that can be exemplary, and ensuring that the business being conducted is beneficial for all
stakeholders. The following are three types of codes of ethics found in business.
Compliance-Based Code of Ethics
For all businesses, laws regulate issues such as hiring and safety standards. Compliance-based
codes of ethics not only set guidelines for conduct but also determine penalties for violations.
In some industries, including banking, specific laws govern business conduct. These industries
formulate compliance-based codes of ethics to enforce laws and regulations. Employees
usually undergo formal training to learn the rules of conduct. Because noncompliance can
create legal issues for the company as a whole, individual workers within a firm may face
penalties for failing to follow guidelines.
To ensure that the aims and principles of the code of ethics are followed, some companies
appoint a compliance officer. This individual is tasked with keeping up to date on changes in
regulation codes and monitoring employee conduct to encourage conformity.
This type of code of ethics is based on clear-cut rules and well-defined consequences rather
than individual monitoring of personal behavior. Despite strict adherence to the law, some
compliance-based codes of conduct do not thus promote a climate of moral responsibility
within the company.
Value-Based Code of Ethics
A value-based code of ethics addresses a company's core value system. It may outline standards
of responsible conduct as they relate to the larger public good and the environment. Value-
based ethical codes may require a greater degree of self-regulation than compliance-based
codes.
Some codes of conduct contain language that addresses both compliance and values. For
example, a grocery store chain might create a code of conduct that espouses the company's
commitment to health and safety regulations above financial gain. That grocery chain might
also include a statement about refusing to contract with suppliers that feed hormones to
livestock or raise animals in inhumane living conditions.
Code of Ethics Among Professionals
Financial advisers registered with the Securities and Exchange Commission (SEC) or a state
regulator are bound by a code of ethics known as fiduciary duty. This is a legal requirement
and also a code of loyalty that requires them to act in the best interest of their clients.

NEED FOR ETHICAL CODES:

Codes ac as guides for ethical functioning

Codes enhance the image of the profession
Codes support professionals to fight against unethical acts
Codes help in grooming future professionals
Codes generally promote ethical business
Codes provide deterrence to unethical conduct
Codes can create an ethical climate
IEEE: The Institute of Electrical and Electronics Engineers (IEEE) is a professional
association for electronic engineering and electrical engineering (and associated disciplines)
with its corporate office in New York City[4] and its operations center in Piscataway, New
Jersey. It was formed in 1963 from the amalgamation of the American Institute of Electrical
Engineers and the Institute of Radio Engineers
IEEE eLearning Library is a collection of online educational courses designed for self-paced
learning. Education Partners, exclusive for IEEE members, offers on-line degree programs,
certifications and courses at a 10% discount. The Standards in Education website explains what
standards are and the importance of developing and using them. The site includes tutorial
modules and case illustrations to introduce the history of standards, the basic terminology, their
applications and impact on products, as well as news related to standards, book reviews and
links to other sites that contain information on standards. Currently, forty states in the United
States require Professional Development Hours (PDH) to maintain a Professional Engineering
license.

NEED FOR ETHICAL CODES:

code of ethics as “a guide of principles designed to help professionals conduct business
honestly and with integrity.” Typically, a code of ethics outlines the mission and values of the
business or organization, the approach professionals are supposed to take when they encounter
a problem, the organization’s core values and the ethical principles they’re based on, as well
as the standards to which all professionals are held.

In the past, codes of ethics were commonly found only in non-profit organizations and other
similar entities, but they have since spread into the corporate world. A code of ethics is typically
employed in conjunction with a company’s specific politics and its code of conduct.

Code of ethics versus code of conduct:

Because the terms “code of ethics” and “code of conduct” are often used interchangeably,
there’s a lot of confusion surrounding their exact meaning. What they both have in common is
that they attempt to encourage specific behavior. A code of ethics accomplishes this by
providing guidance about values and choices, while a code of conducts clearly states which
actions are appropriate and which are not.

Most codes of ethics have a wide scope, covering a broad range of specific and non-specific
topics. Codes of conducts tend to be much narrower in their scope, dealing with a small number
of particularly relevant areas, such as sexual harassment, racial discrimination, offensive
language, and others.

BENEFITS OF A CODE OF ETHICS

1. Sets the right culture: The most important benefit of a code of ethics is that it can foster an
environment of trust, ethical behavior, integrity, and excellence. When everyone, from the c-
suite to the people at the very bottom, plays by the same rules and behaves in a certain way
toward one another, productivity tends to grow as conflicts and confusions disappear from the
workplace.

In this environment, employees who might otherwise be afraid to voice their opinion feel
encouraged to contribute, which is how good teams become excellent. Companies that foster
an environment of trust, ethical behavior, integrity, and excellence are also better prepared to
deal with unforeseen challenges because they have a very strong foundation to stand on.

2. Builds a good reputation

Today’s customers look well beyond the price tag. With so many choices, customers gravitate
toward companies they feel they can trust, and they stay far away from those companies that
don’t promote ethical behavior. But it’s not just customers to whom ethics matter. Companies
that pay strong attention to ethics also find it easier to establish lasting partnerships both
within and outside their industry.

To see why ethical behavior is so important, we don’t need to look further than at the recent
so-called Weinstein effect, which is a term that’s used to describe a worldwide wave of sexual
abuse allegations against film producer Harvey Weinstein, which eventually gave rise to the
#MeToo campaign. After it spent months looking for a buyer or investor, The Weinstein
Company was eventually forced to file for bankruptcy because nobody wanted to touch it.

3. Helps remain in compliance with laws and regulations: According to the

landmark Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform
and Investor Protection Act, all individuals serving on boards and organizational leaders of
public companies are required to have a code of ethics to make major corporate scandals like
Enron and WorldCom less likely to happen.

Any promises a company makes and fails to comply with can make it amenable to sue for
breach of contract, so companies that implement a code of conduct have a strong incentive to
ensure ethical treatment of its employees, clients, partners, as well as the public.

4. Attracts outstanding employees

Outstanding employees come from all walks of life, and they all expect to be treated justly and
ethically. Companies with a code of ethics reassure potential employees that they won’t be
discriminated against, sexually harassed, intimidated, bullied, or subjected to any other type of
workplace harassment.

“In the interest of fostering an open and welcoming environment, we as contributors and
maintainers pledge to making participation in our project and our community a harassment-
free experience for everyone, regardless of age, body size, disability, ethnicity, sex
characteristics, gender identity and expression, level of experience, education, socio-economic
status, nationality, personal appearance, race, religion, or sexual identity and orientation,”
states the Contributor Covenant.

5. Promotes social change

One less talked-about benefit of adopting a code of ethics is that it promotes social change.
We all live on the same planet and share the same finite amount of natural resources, so we’re
all responsible for the happiness or misery of one another. By promoting positive social change,
companies can contribute to making the world a better place for everyone, not just a select few.

REASONS FOR ETHICAL CODES:

Shows employees you are a responsible company

One reason to develop a Code of Ethics is that it communicates to employees that your
company is committed to doing business responsibly. New employees know right away your
company's standards and expectations. If management adheres strictly to the code of ethics, a
culture consistent with the code will grow among employees throughout the company. This
kind of company culture creates a kind of positive peer pressure to maintain a high level of
work consistent with the values of your company.
Shows customers you value integrity
Additionally, customers tend to feel reassured by the existence of a Code of Ethics within a
company. They feel that the company values its integrity and will operate accordingly when
doing business. Third party groups also tend to look more favourably upon organizations that
adopt a Code of Ethics, appreciating that some attempt is being made to develop a company
culture of responsibility and honesty.
Prevents 'innocent' violations of ethics
Another reason to maintain a code of ethics is that they address matters that might not occur
to employees on their own. While codes don't necessarily touch on matters of illegality, they
do address important matters that affect the integrity and reputation of a business. Having a
Code of Ethics outlining certain standards and expectations of your company will sensitize
employees to things that may not have been obvious to them.
Provides a clear point of reference when enforcing corrective action
Lastly, another reason to consider maintaining a Code of Ethics to guide the company culture
is that such a document will serve as a reference for corrective action or even termination for
employees who fail to meet these standards. A widely known code sets down clear rules
when dealing with an employee who consistently fails to behave in a manner that meets
company standards. Even one such employee can potentially cause great harm to a company,
but straightforward, objective expectations for employee behaviour provides a solid
foundation for catching and addressing this kind of problem.

Sample codes:
1.Be inclusive: It includes race, ethnicity, culture, national origin, social and economic class,
educational level, color, immigration status, sex, age, size, family status, political belief,
religion, and mental and physical ability.
2.Be considerate.

We all depend on each other to produce the best work we can as a company. Your decisions
will affect clients and colleagues, and you should take those consequences into account when
making decisions.
 3. Be respectful: An environment where people feel uncomfortable or threatened is not a
productive or creative one.

4. Choose your words carefully.

Always conduct yourself professionally. Be kind to others. Do not insult or put down others.
Harassment and exclusionary behavior aren't acceptable. This includes, but is not limited to:

● Threats of violence.
● Insubordination.
● Discriminatory jokes and language.
● Sharing sexually explicit or violent material via electronic devices or other means.
● Personal insults, especially those using racist or sexist terms..
● Advocating for, or encouraging, any of the above behavior.

5. Don't harass.

In general, if someone asks you to stop something, then stop. When we disagree, try to
understand why. Differences of opinion and disagreements are mostly unavoidable. What is
important is that we resolve disagreements and differing views constructively.

6. Make differences into strengths.

We can find strength in diversity. Different people have different perspectives on issues, and
that can be valuable for solving problems or generating new ideas. Being unable to understand
why someone holds a viewpoint doesn’t mean that they’re wrong. Don’t forget that we all make
mistakes, and blaming each other doesn’t get us anywhere.

common principles of ethics:

Respect for others. Treat people as you want to be treated.
Integrity and honesty. Tell the truth and avoid any wrongdoing to the best of your ability.
Justice. Make sure you’re objective and fair and don’t disadvantage others.
Lawfulness. Know and follow the law – always.
Competence and accountability. Work hard and be responsible for your work.
Teamwork. Collaborate and ask for help.
The Legal Profession

Lawyers, paralegals and other employees of the legal profession are bound to a general code
of ethics. A few of these governing ethics include:

● Confidentiality - Lawyers must maintain their clients' confidence at all times.

● Competence - Legal professionals must represent their clients with a high level of
competence.
● Professional Courtesy - Lawyers must treat their colleagues with fairness and
courtesy.
The Legal Profession

Lawyers, paralegals and other employees of the legal profession are bound to a general code
of ethics. A few of these governing ethics include:

● Confidentiality - Lawyers must maintain their clients' confidence at all times.

● Competence - Legal professionals must represent their clients with a high level of
competence.
● Professional Courtesy - Lawyers must treat their colleagues with fairness and
courtesy.

The Medical Profession

The American Medical Association imposes a code of ethics on physicians. It addresses

everything from interpersonal relationships with other staff members to information on patient
care. For instance:

● Trust - Doctors must instill a sense of trust between themselves and their patients.
● Do No Harm - Doctors cannot engage in any activity that would cause harm to their
patients.
● Privacy - Doctors cannot share the details of their patients' medical treatments or
histories without permission.
The Business World

Corporations and have codes of ethics to help workers decide if certain behaviors are
appropriate and acceptable when dealing with clients and outside agencies. Many organizations
require employees to attend yearly training on ethics and, in some cases, to sign statements
promising to adhere to all ethical guidelines laid out by the company.

Examples of ethics in the business world include:

● Integrity - Employees should maintain honesty and clear communication in the

workplace.
● Teamwork - Members of a professional organization should work together to get the
job done.
● Objectivity - Employers should not make career decisions based on whom they like
best or with whom they have personal relationships.
Teachers and Education

Teachers and other education professionals are role models to their students. Their code of
ethics not only protects their students against mistreatment, but it also protects their sense of
fairness itself. Some code of ethics examples in education include:

● Consideration - Teachers should put the needs of their students first.

● Growth - Educators need to pursue professional growth.
● Communication - Teachers work with parents as a support team for each student.
Religious Codes of Ethics

● Value of Life - Do not kill your fellow human.

● Pursue Peace - Avoid violence when possible.
● Do Not Steal - Don't take things that don't belong to you.

Corporate Code:
A corporate code of ethics is a statement of business guidelines meant to inform worker
behavior and prevent behavior that does not fall in line with the company's mission and greater
objectives.
Ethical codes, also called codes of conduct, can vary significantly from one company to
another.
This code applies to all directors, officers, managers and employees of Credicorp and its
subsidiaries, who must read and agree to comply with the principles contained therein. Any
conduct threatening or violating our corporate code of ethics or any other internal or external
policy or regulation will not be tolerated. We encourage the prompt internal reporting of
violations of this code either to an immediate superior, to the Corporate Compliance Division,
the Audit Committee of Credicorp or anonymously through the Credicorp Reporting System.
Disciplinary measures against any violation of the code will be taken, which may be anything
from a verbal reprimand to dismissal, according to the seriousness of the misconduct.

PRINCIPLES:
1.We promote ethical conduct based on integrity, respect and transparency, and exercise the
expected behavior in relation to different daily situations, including those related to money
laundering.
2. We undertake to comply with and implement the behavioral guidelines established in order
to guarantee the indefinite reservation of the information related to money laundering
(prohibition to inform any person or entity, the fact that some information has been requested
and / or provided to the regulator).
3. We encourage responsible decisions to avoid any kind of activities and misrepresentations
that may affect the reputation of our company.
4. We promote a culture of non-discrimination and mutual respect.
5. We are committed to treat our customers fairly, offering them products and financial services
that meet their needs.
6. We encourage the fair and respectful treatment of all our collaborators, providing a safe and
healthy work environment, promoting respect, mutual support, equal opportunities, and
professional development throughout the organization.
7. We are committed to working under fair competitive practices and complying with antitrust
laws.
8. We establish transparent recruitment procedures with our suppliers.
9. We maintain adequate dissemination of our financial and non-financial information in a
clear, transparent, and timely manner.
10. We are committed to good practices to safeguard and archive information so as to ensure
their availability.
11. We protect the confidentiality of the information of our customers and collaborators.
12. We reject the misuse of inside information for personal or third-party benefits, at all
levels of the organization.
13. We continually monitor policies and practices to identify and manage potential conflicts of
interest between personal and professional relations in our business. The Board of Directors
monitors the implementation of these policies.
14. We promote the responsible use of our products to contribute to the development of the
communities where we operate.
15. We act according to the regulations of each of the markets where we operate.

Limitations of the codes:

Without proper guidance, different parts of the organisation may interpret the code differently,
ultimately devaluing it
introducing and implementing the code effectively will be demanding of senior management
time
the code may raise public and employee expectations to a level that the organisation is unable
to live up to

Benefits of Business Code of ethics

The main concepts of a company code of ethics are Integrity, Honesty, Justice, Competence,
Utility, Conflict of Interest among others. Code of ethics are beneficial for an organisation as
it creates a positive work environment which makes employees highly motivated and also
increase the potential competitive advantage of the organisation which results in happy
customers and stakeholders

Limitations of Business Code of ethics

As all documentations have advantages and disadvantages, similarly business code of ethics
also has its limitations. It is sometimes difficult to adapt in the business culture. Some of the
limitations are described hereafter.

Nocommitment:
A business code of ethics has its limitations when there is no commitment from the entire
organisation. Unfortunately, no one can be force to adhere to the code but they can be
educated in this direction.

No use of the business code

Another typical example of limitation is that some organisations do have a code of ethics but
they are not being use. They may have created the code only for the sake of having it and
none of the staff of the company uses it or is aware of it. Top management or staffs are not
driven by the code of ethics that exists.

Ethical Audit: An audit is an inspection or examination of a process or system to ensure

compliance with requirements. It can apply to a specific process or can apply to nationally
recognised standards. An Ethical Audit assesses a company’s systems, its documentation and
facilities against the Ethical Trading Initiative (ETI) Base Code, as well as local laws.

There have been numerous news reports about (often migrant) workers being treated unfairly
by employers. These are typically in clothing sweatshops, pick and pack organisations and
factories with staff supplied by unscrupulous agencies or gang masters. For obvious reasons
retailers do not want to be associated with such activities. Therefore, auditing each stage of
their supply chain is a way of ensuring their suppliers are complying with ethical trading
standards and fair employment practices.

So it is these main areas that interest the ethical auditor:

Wages

Working hours

Health & Safety

Temporary workers

Right to Work

Provision of breaks and rest days

Fair treatment of staff

What Is an Ethics Audit?

An ethical culture is the foundation of effective internal controls. Every auditor knows that
internal controls are best practice and necessary to ensure compliance with applicable laws and
regulations and to ensure that there is a system of checks and balances to detect inappropriate
transactions

An ethics audit can include reviewing the code of ethics, reviewing past incidents and the
response by the individual and the organization, and interviewing employees to understand
their perspective on the organization’s ethics. Some choose to utilize different ethics audit
types. The ethics audit types vary from assessing individual employee awareness to
understanding the overall ethical culture. In the end, ethics auditing is similar to any other audit.
We approach the audit by defining an organizational objective, risks, and controls. The
objective is to build a strong ethical culture and the risks include lack of awareness, weak
incident reporting, and poor commitment from management. When considering the
repercussions of a weak ethical culture, why ethics is important in auditing.

The purpose of an ethical culture is to help steer employees to choose to do the right thing by
ensuring that company values are embedded in everyday work practices.

How Does an Organization Create an Ethical Culture:

Whether your company is looking for effective ways to audit and monitor an ethics program
or is just getting started building out an ethical controls program, this article will walk you
through a process for creating and maintaining an ethical culture.

Company Values

An organization should have clearly stated values to establish its culture of ethics and
compliance. Values that shape a company’s ethical culture through daily work practice could
include: integrity, respect, diversity, safety, conscientiousness, creativity, and more. For
instance, safety is our company’s number one value — it might not seem an obvious choice,
but our people work in nuclear plants, manufacturing, and construction worksites that may
contain dangerous hazards.

Code of Ethics and Code of Conduct

The values chosen in Step 1 should be incorporated into the organization’s code of ethics —
our guidelines about behavior and principles to govern decision-making — and the code of
conduct, which applies the code of ethics to a range of situations and actions. Both documents
should also include high-level guidelines regarding ethics and compliance risk areas. For the
code of conduct to be effective at guiding everyday work practices, it should give direction to
employees on applying the code of ethics to specific issues that are important to the company.

Risk Assessment

Once your company has a code of ethics that employees understand and believe in, the next
step is to understand compliance risks as well as risks in the code of conduct guidelines that
you provided.

To accomplish this, perform a risk assessment to ascertain whether your company is focusing
on current business risks as a result of changes in organizations, business practices, and laws
and regulations.

Ethics and Business Conduct Policies

An effective ethics and compliance program should include policies and procedures addressing
the particular risks facing a company. For example, policies and procedures relevant to
international trade should address risks related to import and export controls, anti-boycott
measures, and money laundering, among others.

If an employee says they are not aware of the company’s guidelines on a listed policy, refer
them to the relevant section of the code of conduct and the applicable policy.

Identify policies with which the majority of the employees were not familiar so that additional
training can be provided in these areas.

Awareness Training Audit

It is not sufficient for a company simply to have policies in place — there must be a program
that trains employees to be aware of relevant ethics and compliance issues. When developing
or evaluating a training program, you will want to consider:

How is this training delivered to employees? Is it an online program or live sessions? Is the
delivery method adequate to reach all employees who must take the ethics and compliance
courses?

How is one considered to have completed a course? Is there a quiz after a training course with
a minimum score requirement?
Inquiry and Reporting Mechanisms

It’s important that your ethics and compliance program includes a process for employees,
suppliers, customers and others who do business with your company to ask questions or report
concerns about ethics or violations of laws, regulations, and company policies.

Communication Program

Develop a communication plan to increase ethics awareness and remind employees that ethics
and compliance are important to the company. The most effective communication programs
should engage all audiences with specific messages about ethics using a variety of media.

Ethics and Compliance Program Assessment and Evaluation

At all points in the process of implementing an ethics and compliance culture, it is important
to maintain continuous program evaluation. There should be regular internal and external audits
of your ethics program, and an assessment of how often internal controls are tested. Conduct
employee surveys and focus groups to assess employee impressions of the ethics and
compliance culture.

Leadership Commitment

To achieve and maintain an ethical company culture, there must be strong commitment from
the top to create the perception that ethics and compliance is important to the company.
Leadership commitment may be the final step in this list, but it is fundamental throughout the
previous eight steps that management take responsibility for demonstrating through their
actions the importance of ethics and compliance.

NEED FOR ETHICAL AUDIT:

The primary purpose of an ethics audit is to provide social workers with a practical way to:

• Identify pertinent ethical issues in their practice settings. What specific ethical risks do social
workers face? Are there ethical issues that arise in the work that are unique to the client
population, treatment approach, setting, program design, or staffing pattern?

• Review and assess the adequacy of their current practices. Has the practice setting addressed
compelling ethical issues? How adequate are the current practices, policies, and procedures?
What issues need to be addressed?

• Design a practical strategy to modify current practices as needed. What steps does the agency
or practice need to take to protect clients, prevent disgruntled parties from filing ethics
complaints with state licensing boards and professional organizations, and prevent ethics-
related lawsuits? Who in the practice or agency should work to address these issues? What
resources will they need? What timetable should they follow?

• Monitor the implementation of this quality assurance strategy. How can practitioners ensure
that the implementation plan has been implemented effectively? What indicators can staff
members use to assess the extent to which the audit goals have been met?
ETHICAL STANDARDS:

Ethical standards are a set of principles established by the founders of the organization to
communicate its underlying moral values. This code provides a framework that can be used as
a reference for decision making processes.

Ethical standards are a set of principles established by the founders of the organization to
communicate its underlying moral values. This code provides a framework that can be used as
a reference for decision making processes.

These standards are an important part of an organization’s culture. They establish the
parameters of behavior that owners and top executives expect from employees and also from
suppliers, at least to the extent of their relationship with the organization. A corporate
governance system will put a lot of effort into communicating and enforcing these principles.
This is mostly done through behavior modeling, which means that top executives should set
the example of how lower-level employees should act.

A few examples of these standards would be responsibility, honesty, transparency or fairness

and even though they might be interpreted differently by each person, companies usually
describe the founder’s perspective of each value to avoid confusions.

These principles should serve also as guidelines for decision-making processes to help
employees align their personal criteria with the company’s perspectives as different ethical
issues arise within normal business activities. This moral “compass” is crucial to maintain
unethical behaviors down to a minimum, mostly in managerial positions.

Sustainability:

Sustainability focuses on meeting the needs of the present without compromising the ability of
future generations to meet their needs. The concept of sustainability is composed of three
pillars: economic, environmental, and social—also known informally as profits, planet, and
people. Increasingly, companies are making public commitments to sustainability through
actions like reducing waste, investing in renewable energy, and supporting organizations that
work toward a more sustainable future.

How Sustainability Works

Sustainability encourages businesses to frame decisions in terms of environmental, social, and

human impact for the long-term, rather than on short-term gains such as next quarter's earnings
report. It influences them to consider more factors than simply the immediate profit or loss
involved. Increasingly, companies have issued sustainability goals such as commitment to
zero-waste packaging by a certain year, or to reduce overall emissions by a certain percentage.

These companies can achieve their sustainability needs by cutting emissions, lowering their
energy usage, sourcing products from fair-trade organizations, and ensuring their physical
waste is disposed of properly and with as small a carbon footprint as possible
Sustainability focuses on meeting the needs of the present without compromising the ability of
future generations to meet their needs.

Investors can be wary of companies that commit to sustainability. Although the optics can be
beneficial to share price, investors worry about companies being transparent with their earnings
results.

Big brands often make pledges to sustainability, but it often takes a long time to achieve
sustainability goals.