FINANCE AND

SUSTAINABILITY
DR. A H M E T G Ö N C
Ü
SUSTAINABILITY CHALLENGES

From maximizing profit

To maximize integrated value
I=F+S+E
integrated value
Financial value
Social value
• Environmental Value
1 SUSTAINABILITY CHALLENGES

Social challenges
Environmental challenges
Global Strategy
UN Sustainable Development
Local level
• Bioregions
2 COMPANIES

Social and environmental problems are linked to the production processes of companies.
The role of regulation and taxation
The companies themselves – corporate governance
Company elements Purpose, mission, strategies, models, integrated reporting
•
3 FINANCE

Allocation of funds to sustainable companies

Investors: e.g. pension funds, asset management companies
• The transition from short-term to long-term value-creating companies
4 TRANSITION

Doing business as usual is no longer an option

Strong business case for sustainable finance
Invest/lend to companies preparing for the transition
• Mindset change needed
WHY IS SUSTAINABILITY
IMPORTANT?
Labor and capital were scarce factors of production to optimize economic production at the
beginning of the industrial revolution in the 19th century.
The industrial revolution has led to an intensive use of fossil fuels and other renewable
resources.
Technological advances have allowed for the unprecedented production of consumer goods,
urbanization has led to a decline of arable land and deforestation.
• The 1970s Club of Rome stressed that the system could not support these economic and
population growth rates.
CLUB OF ROME

Five key factors that determine and limit growth on the planet
Population growth
Food production
Non-renewable resource depletion industrial output
• Population production Meadows et al., 1972
Climate change is one of the biggest environmental risks affecting society. Beginning with the Earth Summit in
Rio de Janeiro in 1992, the United Nations Framework Convention on Climate Change (UNFCCC) is an
international environmental agreement aimed at stabilizing greenhouse gas concentrations in the
atmosphere at a level that would prevent dangerous anthropogenic interference on the climate system.
• The parties to the agreement met annually from 1995 at the Conference of the Parties
(COP) to assess progress in tackling climate change. In the 2015 Paris Agreement on
Climate Change (COP21), countries reaffirmed their goal of limiting the rise in global
average temperatures to 2°C (two degrees Celsius) compared to the pre-industrial
world.
CASE: DEEPWATER HORIZON OIL
SPILL
Oil began pouring from the Deepwater Horizon drilling platform at Macondo Prospect, operated
by British Petroleum in the Gulf of Mexico, on April 20, 2010. An explosion at a drilling rig killed
11 workers and led to the largest accidental offshore oil spill in the history of the oil industry.
• The U.S. Government estimated total evacuations at 4.9 million barrels. After several
unsuccessful attempts to control the flow, the well was declared sealed on September 19,
2010.
CASE: DEEPWATER HORIZON OIL
SPILL
A huge backlash has emerged to protect coasts, wetlands, and river mouths from the oil being
spewed using sea sweeping vessels, floating booms, controlled burns and oil dispensers.
Oil cleanup crews worked 85 miles of the Louisiana coastline until 2013. The oil was found as far
away from the Deepwater Horizon area as the waters of the Florida Panhandle and Tampa Bay,
where a mixture of oil and disperser is buried in the sand.
• Along with the negative effects from months of spilling, response and clean-up activities, it has
caused major damage to marine and wildlife habitats, as well as the fishing and tourism
industries.
CASE: DEEPWATER HORIZON OIL
SPILL
Numerous investigations have investigated the causes of the explosion and record-breaking leak. Notably,
the U.S. government's September 2011 report points to defective cement in the well, often attributing
the fault to BP as well as drilling rig operator Transocean and contractor Halliburton.
• In early 2011, a National Commission (2011) similarly blamed BP and its partners for a series of cost-
cutting decisions and an inadequate security system, but also concluded that the leak was due to
"systemic" root causes and that "no significant reforms were made." both industry practices and
government policies can repeat."
CASE 2: COLLAPSE OF RANA PLAZA
FACTORY
The collapse of Rana Plaza was a catastrophic structural failure of an eight-story commercial
building in Bangladesh on April 24, 2013. The collapse of the building killed 1,129 people, while
about 2,500 injured people were rescued alive from the building.
• It is considered the deadliest garment factory accident in history and the deadliest accidental
structural failure in the history of modern mankind.
CASE 2: COLLAPSE OF RANA PLAZA
FACTORY
The building had clothing factories, a bank, apartment buildings and several shops. After cracks
were identified in the building, shops on the lower floors and the bank were immediately closed.
Building owners ignored warnings to evacuate the building after cracks appeared in the structure
the day before the collapse. The garment workers, who earned €38 a month, were ordered to
return the next day, and the building collapsed during the rush hour.
•
The current linear production and consumption system is based on the extraction of raw
materials (take), their transformation into products (make), consumption (use) and disposal
(waste).
• Traditional business models that focus on a linear system assume the continuous
availability of unlimited and inexpensive natural resources. This is increasingly risky
because non-renewable resources such as fossil fuels, minerals and metals are
increasingly under pressure, and potentially renewable resources such as forests,
rivers and meadows are decreasing in size and their capacity to regenerate.
• The use of fossil fuels in the linear production and consumption system overburdens the
Earth system as natural sink (absorbing pollution).
• Baseline scenarios (i.e. those without mitigation) for climate change result in global
warming in 2100 from 3.7° to 4.8° Celsius
With this linear economic system, we are crossing planetary boundaries beyond which human
activities can destabilize the Earth system.
• Planetary boundaries of climate change, land system change (deforestation
and soil erosion), biodiversity loss (terrestrial and marine), and biochemical
flows (mainly nitrogen and phosphorus, due to intensive agricultural
practices) have been crossed.
SUSTAINABLE DEVELOPMENT

To guide the transition to a sustainable and inclusive economy, the United Nations has
developed the 2030 Agenda for Sustainable Development (UN, 2015).
The 17 UN Sustainable Development Goals drive action in areas critical to humanity and the
planet over the period 2015-2030. To facilitate implementation, 17 high-level goals are
specified in 169 goals.
• https://sustainabledevelopment.un.org/topics/sustainabledevelopmentgoals
THE 17 UN SUSTAINABLE DEVELOPMENT
GOALS ARE AS FOLLOWS (UN, 2015):
ECONOMIC GOALS

• Goal 8. Promote sustained, inclusive and sustainable economic growth, full and
productive employment and decent work for all
• Goal 9. Build resilient infrastructure, promote inclusive and sustainable
industrialization and foster innovation
• Goal 10. Reduce inequality within and among countries
• Goal 12. Ensure sustainable consumption and production patterns
SOCIAL GOALS

Goal 1 Ending poverty in all its forms, everywhere

Goal 2. End hunger, achieve food security and improved nutrition and promote sustainable
agriculture
Goal 3. Ensure healthy lives and promote well-being for all at all ages
• Goal 4. Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all
SOCIAL GOALS

Goal 5. Achieve gender equality and empower all women and girls
Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable
• Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access
to justice for all, and build effective, accountable and inclusive institutions at all levels
 ENVIRONMENTAL GOALS

Goal 6. Ensure the availability and sustainable management of water and sanitation for all
Goal 13. Take urgent action to combat climate change and its impacts
Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable
development
• Goal 15. Protect, restore and promote the sustainable use of terrestrial ecosystems,
sustainably manage forests, combat desertification, halt and reverse land degradation, and
halt biodiversity loss
GENERAL PURPOSE

• Goal 17. Strengthen the means of implementation and revitalize the global partnership for
sustainable development
 GLADWIN, KENNELLY & KRAUSE (1995)
DEFINE THE FIVE PRINCIPLES OF
SUSTAINABLE DEVELOPMENT:

1. Comprehensiveness: The concept of sustainable development is holistic or holistic in terms of space, time
and component parts. Sustainability, now and in the future, embraces both the environment and human
systems, both near and far;
• 2. Connectivity: sustainability requires a systematic understanding of the world's challenges as
interconnected and interconnected;
 GLADWIN, KENNELLY & KRAUSE (1995)
DEFINE THE FIVE PRINCIPLES OF
SUSTAINABLE DEVELOPMENT:
3. Fairness: Equitable distribution of resources and property rights among both current generations and future
generations;
4. Prudence: to keep life-supporting ecosystems and interrelated socio-economic systems flexible, to avoid
irreversible actions, and to keep the scale and impact of human activities within their capacity to renew and
carry;
• 5. Security: Sustainable development aims to ensure a safe, healthy, high quality of life for present and
future generations.
• Although sustainable development is a holistic concept, Norström et al. (2014) advocate
addressing trade-offs between the ambition of economic, social and environmental goals
and the feasibility of achieving them, recognizing biophysical, social and political
constraints.
Examples of interaction between systems and uncertain thresholds
Economic, social and environmental systems interact.
• A well-known example of inter-system interaction is the linear production of
consumer goods at the lowest cost, contributing to 'economic growth' while
depleting natural resources, using child labour and producing carbon emissions and
other waste.
Another example of inter-system interaction is that climate change is leading to increasingly
intense weather-related disasters such as storms, floods and droughts. Low- and middle-income
countries around the equator are particularly vulnerable to these extreme weather events, which
can damage a large part of their production capacity.
• The temporary loss in tax revenues and an increase in spending on rebuilding factories and
infrastructure could plunge vulnerable countries into a downward fiscal and macro-economic
spiral with a similar increase in poverty. Social and environmental issues are therefore
interconnected, whereby the poor in society become more dependent on ecological services
and less protected against ecological hazards.
A related example is land degradation in the form of soil erosion, salinization (exacerbation of the natural soil
salinity level), peat and wetland drainage, and forest degradation.
The resulting damage is due to agricultural crops, clean air, freshwater, climate regulation, recreational
opportunities, and fertile soils (Sutton, Anderson, Costanza and Kubiszewski, 2016).
Land degradation is also exacerbating losses in biodiversity and endangering the livelihoods of half a billion people,
many of them poor, who depend on forests and farmland.
• Declining land productivity undermines sustainable development, threatens food and water security, and
leads to reluctant human migration and even internal conflicts.
An example of an uncertain threshold combined with feedback dynamics is the melting
threshold of the Greenland ice sheet.
New research has shown that it is more vulnerable to global warming than previously
thought. Robinson, Calov and Ganopolski (2012) calculate that a global temperature
rise of 0.9°C from current levels could lead to a complete melting of the Greenland ice
sheet.
• Such melting would create more climate feedback in Earth's ecosystem, as melting
of polar ice caps could increase the pace of global warming (by reducing the
refraction of solar radiation, which is 30% from bare soil and 80% from 7% ice). %
from the sea) as well as rising sea levels. These feedback mechanisms are
examples of overflows and shocks that can happen.
An important conclusion from this chapter is that we cannot understand the sustainability of
organizations separately from the socio-ecological system in which they are located: what
are the thresholds, sustainability priorities, and feedback loops?
• We must take into account not only the socio-environmental impacts of individual
organizations but also the cumulative impacts of organizations at the system level. The
second is about sustainable development.