MSM7039 Business Solutions and

Transformations

Business Operations and the Sustainable

Endeavour

Dr John Williams and Gary Samuel

The Four Pillars
of Sustainability
• The Four Pillars of Sustainability
• Economic
• Social
• Human/Cultural
• Environmental
Consider the following cases

Why did each case’s business

operations raise sustainability
concerns and which of the four
pillars applies in each of the cases?

3
Global Value
Chains
• Full range of activities that
firms and workers do to
bring a product from its
conception to its end use
and beyond
(Gereffi and Fernandez-Stark, 2011 in OECD, 2023)

• Network rather than chain

• Complexity of interactions
• Not linear flows
Source: Nutella
Sustainable Global
Value Chains (GVC)

• Globalisation & trade liberalization

• Production and consumption not co-located
• Fragmentation of production
• GVC dispersed and spans diverse economies
• Emissions transferred from advanced
economies to developing economies
• Focused on speed, costs, delivery, quality
• Need to focus on human rights, climate
change, labour practices, pollution,
deforestation etc.
• Move from linear business model to circularity
Environmental Impact Assessment
Ecological Footprint
Value Chain and
Scope 1, 2 & 3
Emissions
• Scope 1 refers to emissions that originate directly
from a company’s owned assets, such as on-site
energy or engine emissions from a company’s
vehicle fleet.
• Scope 2 encompasses indirect emissions from
purchased energy generated offsite.
• Scope 3 accounts for indirect emissions from across
a company’s value chain, both upstream and
downstream. These are the hardest to quantify, yet
they can represent up to 90% of a company’s carbon
footprint.

Insetting and Offsetting

• Insetting involves companies investing in
decarbonisation projects across their value chain and
supporting their suppliers to adopt low-carbon
practices
• Offsetting involves purchasing verified carbon
credits to offset your unavoidable scope 3 emissions.
Decarbonisation
Decarbonisation is about reducing CO 2 emissions resulting
from human activity, with eventual goal of eliminating
them. The 2015 Paris Agreement set an ambition to limit
global warming to well below 2°C above pre-industrial
levels and pursue efforts to limit it to 1.5°C - in part by
pursuing net carbon neutrality by 2050. In practice, getting
to zero net emissions requires shifting from fossil fuels to
alternative low-carbon energy sources.

Decarbonisation has become a global imperative and a

priority for governments, companies and society at large,
because it plays a very important role in limiting global
warming. Many companies across all industries (e.g., in
energy, transport, consumer products) have publicly
declared their intention to become carbon neutral by
2050.

While progress is being made at global, national, sector and

local levels, recent estimates suggest we are not on track to
meet the Paris targets, and more must be done.

(Deloitte, 2023)
Decarbonisation

• A critical part of decarbonising a company’s business

model is understanding the risks that climate change poses
to a business’s operations and, ultimately, its bottom line.
By linking climate risk to financial reporting, companies
find opportunities to cut both costs and carbon.
• Internal carbon pricing (ICP) is one such carbon-finance
mechanism that companies can adopt to assign a “climate
cost” across operations.
• ICP as "an internally developed estimated cost of carbon
emissions, which can be used as a planning tool to help
identify revenue opportunities and risks, as an incentive to
drive energy efficiencies to reduce costs, and to guide
capital investment decisions.”

https://impact.economist.com/sustainability/net-zero-and-energy/decarbonising-business-models-and-
navigating-net-zero
Decarbonisation
Decarbonisation

• Oil and gas 42% global

emissions (direct and
indirect)
• Reduction required
3.4GtCO2e by 2050
• 90% reduction in
current emissions

(McKinsey, 2020)
Decarbonisation

• Electrification and alternative

energy sources for equipment
• Generators replaced by PV

• Leak detection (methane)

• Reduce fugitive emissions
• Better equipment (maintenance)

• Carbon capture
• Economics of infrastructure
investment
• Leadership

(McKinsey, 2020)
Hydrogen

Hydrogen can help tackle various critical

energy challenges. It offers ways to
decarbonise a range of sectors – including
long-haul transport, chemicals, and iron and
steel – where it is proving difficult to
meaningfully reduce emissions. It can also
help improve air quality and strengthen
energy security.
Despite very ambitious international climate
goals, global energy-related CO2 emissions
reached an all time high in 2018. Outdoor air
pollution also remains a pressing problem,
with around 3 million people dying
prematurely each year.

https://www.iea.org/reports/the-future-of-hydrogen
While hydrogen is the most abundant element in the universe, it generally exists combined with other
molecules. Currently, commercial hydrogen is produced in an energy-intensive process almost entirely
powered by fossil fuels.

“If you had asked me four years ago what I thought about natural hydrogen, I would have told you ‘oh,
it doesn’t exist,’” said Geoffrey Ellis, a geochemist with the US Geological Survey. “Hydrogen’s out
there, we know it’s around,” he said, but scientists thought big accumulations weren’t possible. Then
he found out about Mali. Arguably, the catalyst for the current interest in white hydrogen can be
traced to this West African country.

In 1987, in the village of Bourakébougou, a driller was left with burns after a water well
unexpectedly exploded as he leaned over the edge of it while smoking a cigarette. The well was swiftly
plugged and abandoned until 2011, when it was unplugged by an oil and gas company and reportedly
found to be producing a gas that was 98% hydrogen. The hydrogen was used to power the village, and
more than a decade later, it is still producing.

When a study came out about the well in 2018, it caught the attention of the science community,
including Ellis. His initial reaction was that there had to be something wrong with the research,
“because we just know that this can’t happen.” Then the pandemic hit and he had time on his hands
to start digging. The more he read, the more he realized “we just haven’t been looking for it, we
haven’t been looking in the right places.”

The recent discoveries are exciting for Ellis, who has been working as a petroleum geochemist since
the 1980s. He witnessed the rapid growth of the shale gas industry in the US, which revolutionized the
energy market. “Now,” he said, “here we are in what I think is probably a second revolution.”

White hydrogen is “very promising,” agreed Isabelle Moretti, a scientific researcher at the University of
Pau et des Pays de l’Adour and the University of Sorbonne and a white hydrogen expert. “Now the
question is no longer about the resource… but where to find large economic reserves,” she told CNN.
Circularity
• Looking at a product’s entire life cycle,
from how it is produced to how it is
potentially discarded, and redesigning it in
ways that can last longer, be reused, or be
recycled into something else.
• According to global impact organisation
Circle Economy, detransitioning from the
linear economy could cut greenhouse-gas
(GHG) emissions by 39%, slashing the
22.8bn tonnes of annual emissions
associated with creating new products from
virgin materials.

https://impact.economist.com/sustainability/net-zero-and-energy/decarbonising-business-models-and-
navigating-net-zero
 Regenerative Models
• Food and fashion companies such as Danone UK,
Oatly, Timberland, Allbirds, Kering (which owns
Gucci, Balenciaga and other luxury brands), to
name only a few, are already employing
regenerative agriculture practices.
• These companies invest in and safeguard the
natural resources they depend on by
improving soil health, which in turn supports
continuous crop productivity.
• Healthy soil is also one of the world’s most
effective carbon sinks. By investing in
regenerative agriculture, a company is, by default,
investing in decarbonisation. The farmers and
communities growing the crops are also supported.
https://impact.economist.com/sustainability/net-zero-and-energy/decarbonising-business-models-and-
navigating-net-zero
 Carroll’s pyramid (levels of CSR)

Edward Freeman
‘stakeholder values’

Milton Friedman
‘shareholder values’
Porter and Kramer –
Creating Shared Value

• Capitalist system under siege

• Major cause of social environmental and
economic problems
• Companies prosper at expense of
community
• Legitimacy of business questioned
• Diminished trust
• Outdated approach to value creation
• Short term financial performance
Creating Shared
Value (CSV)
• In the past, companies rarely perceived
themselves as agents of social change. Yet the
connection between social progress and
business success is increasingly clear.
• If business could stimulate social progress in
every region of the globe, poverty, pollution,
and disease would decline and corporate
profits would rise. Indeed, in recent
years creating shared value—pursuing
financial success in a way that also yields
societal benefits—has become an imperative
for corporations
(Kramer and Pfitzer 2016)

https://hbr.org/2016/10/the-ecosystem-of-shared-value
Profits with
Purpose
• According to research by Deutsche Bank, which
evaluated 56 academic studies, companies with high
ratings for environmental, social, and governance (ESG)
factors have a lower cost of debt and equity; 89 percent
of the studies they reviewed show that companies with
high ESG ratings outperform the market in the medium
(three to five years) and long (five to ten years) term.
• The Carbon Disclosure Project found something similar.
Companies in its Carbon Disclosure Leadership Index
and Carbon Performance Leadership Index, which are
included based on disclosure and performance on
greenhouse-gas (GHG) emissions, record superior stock-
market returns. Companies in the Carbon Disclosure
Leadership Index substantially outperformed the FTSE
Global 5004 between 2005 and 2012. Companies in the
other index also did better

https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Profits
%20with%20purpose/Profits%20with%20Purpose.ashx
Profits with Purpose

Senior leaders will give sustainability lip

service if they do not see financial benefits.
“Sustainability metrics can seem like
random numbers and don’t do much,” one
chemical-industry executive told us. “For
our businesses, sustainability efforts have to
compete directly with other demands,
which means that financial impact is key.”
This needs to be done rigorously, reinforced
with fully costed financial data, and
delivered in the language of business.

https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Profits
%20with%20purpose/Profits%20with%20Purpose.ashx
Social Enterprise
There is strong potential for social
enterprises to promote and advance
inclusive and sustainable growth and offer
opportunities to many groups to create
economic activities with social impacts.
Social enterprises have grown in
prominence and expanded their reach
across the globe. However, their potential is
still not fully exploited. Awareness and
evidence need to be built around how legal
frameworks, tailored or not, can effectively
unlock this potential.
Social Enterprise
The number of social enterprises has increased in
recent decades. In the European Union, based on
national-level data, there are roughly 397 000 social
enterprises with variation among member
states (European Commission, 2020[1]). For example,
Belgium, Hungary, Italy and Luxembourg have over 1500
social enterprises per million inhabitants, whereas
Estonia, Greece and Malta have less than 500 (European
Commission, 2020[1]). Due to multiple definitions and
varying degrees of legal recognition for social
enterprises, the quality of data on social enterprises
differs between countries and even subnational regions.
Grameen Bank

The Grameen Bank project started in 1976 as

an action research pilot project in "Jobra"
village in Chattogram district of Bangladesh. In
1983, the pilot project was transformed into a
bank with the aim of alleviating poverty and
empowering the marginalized poor in
Bangladesh through micro-credit. The unique
feature of Grameen Bank is that no collateral is
required to get the credit from the bank.
Cultural Sustainability

UNESCO develops educational tools to help people

live as global citizens free of hate and intolerance.
UNESCO works to ensure that every child and every
citizen has access to quality education. By promoting
cultural heritage and the equal dignity of all cultures,
UNESCO strengthens the bonds between nations.
UNESCO fosters scientific programmes and policies
as platforms for development and cooperation.
UNESCO stands up for freedom of expression, as a
fundamental right and a key condition for democracy
and development. As a laboratory of ideas, UNESCO
helps countries to adopt international standards and
manages programmes that foster the free flow of
ideas and the exchange of knowledge.
Technology as the
Panacea