Business and sustainability

Anna Széchy
Zsófia Nemes
Outline

 The role of business in society

 The concept of corporate sustainability
 What motivates companies to behave in a
more sustainable way?
The World’s 100 largest economies in 2016:
29 countries & 71 companies
CSR_1
The concept of corporate
sustainability
 Taking into account social and environmental
considerations during business operations
 Can be considered synonymous with
corporate social responsibility (CSR)

The „triple bottom line”

EU definition

„To fully meet their corporate social responsibility,

enterprises should have in place a process to integrate
social, environmental, ethical, human rights and
consumer concerns into their business operations and
core strategy in close collaboration with their
stakeholders with the aim of:
– maximising the creation of shared value for their
owners/shareholders and for their other stakeholders and society at
large;
– identifying, preventing and mitigating their possible adverse impacts”
Stakeholders of the company

 Stakeholder: any person group or organisation

who is affected by the activities of the company
– Internal/external
– Different stakeholders have different degrees of
influence on the company
– They may have different interests
 Responsible (sustainable) companies consider
not only the interests of their shareholders but
other stakeholders as well
 The interests of various stakeholders
Employees
• Wages
• Working counditions
• Working hours
• Development opportunities
Authorities • Equal treatment
• Respect laws
•
Customers
Collective rights
• Pay taxes • Product quality
• Avoid corruption
(safety,durability
• Transparency
• Privacy

Local
population, Suppliers
society • Refrain from
• Job creation abuse of market
• Environmental impacts power (eg.
• Charity
NGOs timely payment)
• Specific interests
according to theme Investors
• Profit
• More recently also
sustainability requirements
Top issues according to companies
The „expansion” of corporate
sustainability topics
 Environment
– Originally, only directly harmful effects (eg. local air pollution,
hazardous waste) were considered
– Now attention extends to climate change, non-hazardous waste
(eg. plastic), water consumption, biodiversity (?)
– How good is good enough? – It is difficult to say when a company
can be considered sustainable
 Society
– Even more complex, because the range of issues companies may
be expected to take responsibility for is constantly expanding (from
the „classic” issue of workers’ rights) and the limits are unclear
– This dimension is much harder to measure
Why should companies behave
responsibly?
1. Because they have to

 Legal regulations, social pressure

 Regulations are tightening (eg. environmental
standards, disclosure requirements)
 In some developing countries, where
enforcement of regulations is weak, legal
compliance can also be „voluntary”
 Central question: will a company go beyond
the legal requirements?
2. Because it is the right thing to
do

 Moral obligation to behave responsibly

– How much room do managers of (large) companies have
to bring their personal values to the business?
 Opposing argument: the task of companies is to
make a profit, not to solve the world’s problems
Milton Friedman:
„the business of business is business”
– if a company spends more on env/social issues
than it has to to comply with legal regulations,
it is stealing from its shareholders
3. Because it is good for business

Potential benefits of
responsible behaviour
 Improved image
 Reduction of risks

(accidents, scandals)
 Reduction of operating costs
 Human resource benefits
 Pre-empt or prepare for
future regulations
 Product differentiation, new
markets
 Attracting investors
Image: more than just a buzzword
Risks
Reduction of operating costs

 Cleaner technology often results in cost

savings as well as environmental
improvements
– Less energy and raw materials used, less waste
– Substitution of hazardous materials means
reduced administration and safety expenses
HR benefits

 Treating employees well results in improved health and

motivation of workers, better recruitment & retention
possibilities
– The issues are of course very different in low-income countries &
low paying jobs (basic health, safety, human rights, etc.) vs.
developed countries & highly skilled jobs (various extra benefits,
training opportunities, work-life balance, etc.)
 Beyond their direct concerns, workers may increasingly care
about the broader sustanability performance of the company
as well
Prepare for future regulations

CFCs – Dupont profits again

from the phase-out

Internal carbon pricing

used by a growing number of companies to prepare for the future
Product differentiation
 Sustainable products may result in higher prices and increased
customer loyalty
Investor interest
 Investors increasingly consider sustainability
performance of companies they invest in
 Their motivation
– Reduce financial risks
– Achieve positive impact
 Methods
– ESG (Environmental,
Social and Governance)
rating of companies
– Dedicated sustainable

investments (green bonds, etc.)

Central question: do the benefits of
responsible behaviour outweigh the costs?

 A lot of studies have addressed the relationship between

CSR/sustainability and financial performance, but the
empirical evidence is inconclusive
– Difficult to separate causes and effects (are responsible
companies more profitable, or do profitable companies have
more resources to behave responsibly?)
– What is the time frame? (benefits are usually in the longer term)
 Instead of asking „does it pay to be sustainable?” we
should ask: when and how can these benefits be
realised?
– Key: integrate sustanability efforts with daily operation and
company strategy
Example: charitable activities
Strategic CSR: activities in line with the company’s expertise,
Creating business opportunities as well as social good

Defensive CSR („Giving

money to people that
don’t like us”) or
unrelated activities