The THREE Cases for Corporate Sustainability

Dyllick and Hockerts observed that as sustainability became a more mainstream concept for businesses, the main focus of corporate leaders and academics was on the “business case” for sustainable development, which involved demonstrating how companies could further economic sustainability by increasing their ecological and social efficiency.  Dyllick and Hockerts argued that the business case for corporate sustainability, which an important step forward, was not sufficient for companies to become truly sustainable and that it was necessary for companies to address two more cases: the “natural case”, which requires companies to deal with the reality that they can never be sustainable if they are continuously operating close to (or even beyond) the environment’s “carrying capacity”; and the “societal case”, which is important because companies harness, manage and preserve three types of capital that are not substitutable.[1]

Dyllick and Hockerts explained that companies typically begin their path toward corporate sustainability by looking for ways to make more efficient uses of their natural and social capital as a means for increasing their economic sustainability—in other words, a “business case” for sustainability.  With respect to the use of natural capital, this generally means taking steps toward better “eco-efficiency”, which “is achieved by the delivery of competitively-priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at least in line with the earth’s carrying capacity”.[2]  The most common indicators of eco-efficiency include energy, water and resource efficiency and waste or pollution intensity.[3]  While eco-efficiency is often the guiding principle for the sustainable development contributions of companies, many also pursue socio-efficiency, which focuses on the relationship between a company’s “value added” and its social impact.[4]  Socio-efficiency involves both increasing positive social impacts (e.g., corporate giving and creation of employment) and decreasing negative social impacts (e.g., reducing the amount of work accidents per value added and eliminating human rights abuses in the supply chain).[5]

Young and Tilley argued that socio-efficiency was analogous to corporate social responsibility (“CSR”), which they defined using the description offered by Holmes and Watts: “Continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.[6]  Young and Tilley cited with approval Michael’s skepticism of the benefits of CSR: “The adoption of social objectives by companies is not as new as the ‘corporate social responsibility’ label suggests. Instead, it touches the 80-year debate between capitalism and socialism. The vague and all-encompassing CSR discourse serves as a forum for advocating the interests of business, government and relatively non-accountable NGOs. . . . Yet, while the actors most loudly advocating CSR may benefit, society as a whole may be harmed”.  Young and Tilley recommended that businesses must move beyond CSR to achieve socio-effectiveness, which is described below and can be found among organizations that have a social mission and a sustained positive impact on society.[7]

The natural case for corporate sustainability is built on the premise that while eco-efficiency is valuable and important, it only leads to relative improvements (i.e., increased energy or resource efficiency per value added) and does not address the key sustainability challenge of absolute thresholds caused by the problem of non-substitutability.  For example, it is well and good for companies to reduce their emissions of pollutants; however, if the reduced emissions are released into a system that is already close to its carrying capacity then the overall objective of sustainability is in danger regardless of how eco-efficient companies become.  Dyllick and Hockerts argued that “from an environmental point of view, the main issue is therefore not eco-efficiency but eco-effectiveness”.[8]  Braungart and McDonough described and used the term “eco-effectiveness” as follows: “Long-term prosperity depends not on the efficiency of a fundamentally destructive system, but on the effectiveness of processes designed to be healthy and renewable in the first place. Eco-effectiveness celebrates the abundance and fecundity of natural systems, and structures itself around goals that target 100 percent sustaining solutions”.[9]

Dyllick and Hockerts explained how the pursuit of eco-efficiency is often at odds with eco-effectiveness.  The cited the example of how many automobile manufacturers have deployed new technologies to develop more efficient vehicles, with the ultimate goal being to reduce the cost of driving a car to the point where more consumers can afford to purchase and use a vehicle for their individual mobility needs.  While this may make life easier for large numbers of people, increasing the number of cars and miles driven each year around the globe will drive up mobility-induced CO₂ emissions dramatically and exacerbate what has already been widely acknowledged as a dramatic ecological crisis.  Dyllick and Hockerts suggested that the answer is to shift attention away from fossil fuel efficiency and focus on developing and implementing effective solar powered fuel cells as the means for powering vehicles.[10] Note also that the same logic applies to investments in public transit: while more efficient buses with expanded routes and underwritten by public funds arguably takes individual cars off the road, public transit solutions must also be eco-effective (i.e., buses should incorporate solar power fuel technologies).

Young and Tilley were also critical of the long-term utility of eco-efficiency and observed that “eco-efficiency is not in itself the panacea as some have presented it to business” and noted the conclusions of others that while eco-efficiency might be a valuable criterion by which to guide and measure corporate sustainability it was not on its own a sufficient guiding framework for business.[11]  Concerns regarding too much emphasis on eco-efficiency included the criticism that it encouraged businesses to take advantage of eco-efficiency gains by highlighting the low hanging fruit and seeking easy gains that required limited investment.[12]  Young and Tilley noted encouraging businesses to take actions that involved short payment or non-existent reengineering simply hid the environmental problems that presented the most significant challenges.  They argued that eco-efficiency simply made a “destructive system less destructive” and merely slowed what was still a seemingly inevitable destruction of ecosystems and contamination and depletion of nature.  For them, and others, the real answer for businesses was “eco-effectiveness”: businesses needed to follow regenerative, not depletive, practices in order to remove negative impacts and develop systems to restore and enhance the natural environment.  Simply put, businesses should move beyond eco-efficiency’s “less bad” to embrace a new goal of “more good” by implementing new practices such as replacing the conventional cradle-to-grave approach to product design, development and analysis with a renewing cycle of cradle-to-cradle analysis.[13]

Dyllick and Hockerts also argued that eco-effectiveness (i.e., developing and producing eco-effective products and services) is not the only criterion that needs to be considered when making the natural case for sustainability.  They point out that the impact of efficiency gains depends on consumer choice and the decisions that consumers make regarding the products and services they prefer to consume.  For example, even as automobile manufacturers were beginning to make progress toward developing and commercializing fuel efficient vehicles, consumers in the US and other developed countries were demanding sport utility vehicles, or “SUVs”, that were notorious “gas guzzlers”.  In many cases, the demand was stoked by the marketing practices of the manufacturers.  Realizing that consumption preferences and patterns are important drivers of sustainability, Dyllick and Hockerts and others have included “sufficiency” as a second criterion in the natural case for corporate sustainability.[14]  Hockerts explained that: “. . . sufficiency is primarily a criterion for sustainable consumerism, the business world has at least an indirect responsibility. Marketing and corporate advertisements have an increasing influence on consumer trends and life-style developments. Rather than fueling the demand for more unsustainable products, firms might try to channel demand towards less problematic areas”.[15]  However, Dyllick and Hockerts acknowledged that sufficiency is also an issue of individual choice rather than the sole responsibility of a particular firm.  In other words, the case for sufficiency has to be made by members of society, perhaps by sending a strong message to businesses about the types of products and services they should be developing and promoting in order to achieve the greater environmental good.

The last of the three cases for corporate sustainability, the “social case”, includes two additional criteria that go beyond the criterion of socio-efficiency associated with the business case.  The first criterion is “socio-effectiveness”, which is based on the premise that “business conduct should not be judged on a relative scale but rather in relation to the absolute positive social impact a firm could reasonably have achieved”.[16]  Dyllick and Hockerts explained this criterion by noting that while many companies pursue socio-effectiveness by working hard to serve their clients even better and at lower costs, the fact is that the customers to whom these products and services are made available are only a small part of the world population and that companies in a position to do so fail to make their products and services available to those who are truly in need (i.e., people in what Hart and Prahalad famously referred to as the “bottom of the pyramid”[17]).  Social effectiveness includes making basic services and products such as food, health and financial and communication services available to those who would not be able to purchase them if companies failed to consider anything other than pure economic sustainability.  The second criterion embedded in the social case is “ecological equity”, which means that companies must seek equitable solutions to the management and distribution of the world’s natural capital between current and future generations.[18]

Dyllick and Hockerts made it clear that they believed that companies seeking to achieve corporate sustainability must satisfy all six of the criterion among the three cases for corporate sustainability.  They acknowledged that time and context will influence which of the cases command the attention of companies and their managers at a particular moment and that the business case, with its emphasis on eco-efficiency and socio-efficiency, will likely command the most attention of corporate managers unless external factors (e.g., consumers, politicians, activists etc.) force them to consider the natural and social cases.  They also noted that the natural and social cases are more difficult to administer and monitor due to the lack of the same sort of accepted measurement tools that have been created to monitor economic performance; however, they argued that “as all companies are guided to some extent by a set of political–ethical values that are entrenched in the firm’s culture, business managers may promote corporate sustainability without making an explicit calculation of the economic costs and benefits”.[19]

Dyllick and Hockerts were not the only ones who have suggested a framework for corporate sustainability; however, many of the others models include dimensions that are quite similar.  For example, the Sustainche Farm Project focused on the sustainable development of a smallholder family farm in Northern Namibia, offered the following illustration of the dimensions of a sustainable development policy:

• Economics: Innovation; capital efficiency; risk management; margin improvement; growth enhancement and total shareholder return
• Socio-Economics: Jobs creation; skills enhancement; local economic impacts; social investments; business ethics and security
• Eco-Efficiency: Resource efficiency; product stewardship; life-cycle management and products to services
• Social: Diversity; human rights; community outreach; indigenous communities and labor relations
• Socio-Environmental: Global climate change; access to potable water; crisis management; environmental judgment; compliance with environmental regulations and health and safety
• Environmental: Clean air; reduction of water and land emissions; zero waste; elimination of releases and spills and bio-diversity

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Entrepreneurship and an excerpt from Sustainable Entrepreneurship by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s book on Entrepreneurship.

Notes

[1] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 135-136.

[2] L. DeSimone and F. Popoff, Eco-Efficiency: the Business Link to Sustainable Development (Cambridge: MIT Press, 1997), 47.

[3] H. Verfaille and R. Bidwell, Measuring Eco-Efficiency, a Guide to Reporting Company Performance (Geneva: World Business Council for Sustainable Development, 2000); and EU von Weizs¨acker, A. Lovins and H. Lovins, Factor Four – Doubling Wealth, Halving Resource Use (London: Earthscan, 1997).

[4] See, e.g., F. Figge and T. Hahn, “Sustainable value added–measuring corporate contributions to sustainability”, in Conference Proceedings on the 2001 Business Strategy and the Environment Conference in Leeds (Shipley: ERP Environment, 2001), 83; K. Hockerts, “The SusTainAbility Radar (STAR∗), a Step towards Corporate Sustainability Accounting—A Discussion Paper” (London: New Economics Foundation, 1996); and K. Hockerts, “The sustainability radar–a tool for the innovation of sustainable products and services”, Greener Management International, 25 (1999), 29.

[5] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 136.

[6] W. Young and F. Tilley, “Can Businesses move Beyond Efficiency? The Shift towards Effectiveness and Equity in the Corporate Sustainability Debate”, Business Strategy and the Environment, 15 (2006), 402, 405 (citing B. Michael, “Corporate social responsibility in international development: an overview and critique”, Corporate Social Responsibility and Environmental Management, 10(3) (2003), 115).

[7] Id. at 405 (citing B. Michael, “Corporate social responsibility in international development: an overview and critique”, Corporate Social Responsibility and Environmental Management, 10(3) (2003), 115, 126).

[8] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 136.

[9] MBCD, Eco-Effectiveness – Nature’s Design Patterns (November 2001).  See also M. Braungart, “Ein Wirtschaftssystem f ¨ ur ‘intelligente Produkte’ anstatt einer High-Tech Abfallwirtschaft”, in K. Hockerts et al. (Eds.), Kreislaufwirtschaft statt Abfallwirtschaft (Ulm: Universit¨atsverlag, 1994), 45; and M. Braungart and W. McDonough “The next industrial revolution”, The Atlantic Monthly October, 282(4) (1998), 82.

[10] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 137.

[11] W. Young and F. Tilley, “Can Businesses move Beyond Efficiency? The Shift towards Effectiveness and Equity in the Corporate Sustainability Debate”, Business Strategy and the Environment, 15 (2006), 402, 403-404 (citing R. Day, “Beyond eco-efficiency: sustainability as a driver for innovation, sustainable enterprise perspectives”, Sustainable Enterprises Perspectives (Washington DC: World Resources Institute, 1998); and R. Welford, Hijacking Environmentalism: Corporate Responses to Sustainable Development (London: Earthscan, 1997).

[12] N. Walley and B. Whitehead, “It’s not easy being green”, Harvard Business Review, 72(3) (1994), 46.

[13] W. Young and F. Tilley, “Can Businesses move Beyond Efficiency? The Shift towards Effectiveness and Equity in the Corporate Sustainability Debate”, Business Strategy and the Environment, 15 (2006), 402, 404-405.  See also H. Ellison, “From eco-efficiency to eco-effectiveness”, International Herald Tribune (April 12, 2001).

[14] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 137 (citing, e.g., E. Schumacher, Small is Beautiful (London: Abacus, 1974); T. Gladwin, J. Kennelly and T. Krause, “Shifting paradigms for sustainable development: implications for management theory and research”, Academy of Management Review, 20(4) (1995), 874; J. Diekmann, “Okologischer Strukturwandel als vergessene Komponente des Ressourcenverbrauchs, Zwischen Effizienz und Suffizienz”, O¨ kologisches Wirtschaften 3 (1999), 25; and S. Zavestovski, “Environmental concern and anti-consumerism in the self-concept: do they share the same basis?” in M. Cohen and J. Murphy (Eds.), Exploring Sustainable Consumption (Amsterdam: Pergamon, 2001), 173).

[15] K. Hockerts, Sustainability Innovations, Ecological and Social Entrepreneurship and the Management of Antagonistic Assets (Difo-Druck: Bamberg, 2003), 30.

[16] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 138.

[17] S. Hart and C. Prahalad, Strategies for the bottom of the pyramid: creating sustainable development (Unpublished draft paper, 1999).

[18] T. Dyllick and K. Hockerts, “Beyond the Business Case for Corporate Sustainability”, Business Strategy and the Environment, 11 (March 2002), 130, 138. Ecological equity is sometimes referred to as “ecological justice”. R. Gray and J. Bebbington, “Environmental accounting, managerialism and sustainability: is the planet safe in the hands of business and accounting?” in M. Freedman and B. Jaggi (Eds.), Advances in Environmental Accounting and Management Vol. 1 (Amsterdam: JAI, 2000).

[19] Id.  Dyllick and Hockerts argued that additional research should be conducted to fill in some of the gaps in defining their suggested criterion such as providing a systematic framework for both socio-efficiency and socio-effectiveness and developing business relevant criteria for issues such as ecological equity.  Id. at 139.