Descriptions of Corporate Sustainability

While corporate social responsibility, or CSR, is generally associated with ensuring the corporations contribute to sustainable economic development at the macro-level, the concept of corporate sustainability can be seen as primarily concerned with the survival, or sustainability, of the corporation itself, something that is necessary in order for the corporation to make the contributions to society that are expected from being a “responsible corporate citizen”.[1]  Corporate sustainability goals and programs are focused on issues that not only impact society as a whole but must also be addressed by the directors and managers of a corporation in order for it to survive and thrive: climate change; resource scarcity; demographic shifts; and regulatory and political changes.[2]

Coblentz argued that “sustainability” in the context of a corporation or any other similar type of organization, means “continuation” through the acquisition and maintenance of the elements necessary for it to carry on and constantly enhance its activities in pursuit of a defined mission.[3]  According to Colblenz, there are actually three key aspects of organizational sustainability—institutional, financial and moral:

• Institutional sustainability comes from having a mission, a process in place to develop long-term strategic plans, an annual planning process, a process for managing the operational activities included in the strategic and annual plans and, finally, processes for monitoring and evaluating the flow of work to ensure that it is contributing to the organization’s goals and objectives.
• Financial sustainability means having access to the financial resources that the organization needs in order to collect the resources—human, physical and technological—necessary for it to carry out its mission. This does not mean that the organization is self-sufficient with regard to capital (i.e., it can fund operations out of its own cash flow), but rather that it can obtain needed funds from outside sources without compromising its mission.  A financially sustainable organization also practices prudent financial management to ensure that its resources are used efficiently.
• Moral sustainability requires that organizational leaders have a clear vision of, and commitment to the mission, and communicate it effectively to all stakeholders; that all staff rally around the organizational leaders and become committed to the mission as well; that staff who are committed to the mission are rewarded by career development opportunities, adequate compensation and dynamic work environment, all of which improves morale and builds a unity of purpose and commitment that will overcome challenges; and that leadership, management and staff act ethically and are perceived as doing so.

While Coblenz’s model of organizational sustainability does not explicitly mention environmental and social issues, it does paint a picture of a deliberative process throughout an organization that operates on a vision of a mission that is clearly communicated and shared by everyone and which understands that results will take time and require steady and prudent general and financial management and a commitment to acting in an ethical manner.  Financial sustainability in the model includes engaging with investors that understand the company’s mission and do not place conditions on funding that will conflict with the mission.  For example, when the mission of the organization is to achieve environmental efficiencies that may not be realized for several years, investors will refrain from applying pressure for short-term economic returns provided that management is transparent about progress and acts in an ethical manner in its engagement and relationships with investors.

A 2017 article in The Economist described “sustainability” in the corporate context as follows:

“The term “sustainability” is often used interchangeably with CSR or viewed exclusively through an environmental lens. Thought leaders, however, generally describe it as a business strategy that creates long-term stakeholder value by addressing social, economic, and environmental opportunities and risks material to a company. It is integral to a company’s business and culture, rather than on the periphery. Optimizing waste reduction, or water or energy consumption, for example, can help a company reduce operational costs. Sustainability can drive innovation by reconceiving products and services for low-income consumers, opening new lines of business and boosting revenue in the process. Finally, being socially responsible can help a company earn license to operate in new markets, and attract and retain talent.”[4]

While the terms “CSR” and “corporate sustainability” are often used interchangeably, there are real and important distinctions between the two concepts; however, corporations can and should pursue both CSR and sustainability in order to generate the most value for all of their stakeholders:

• Avoiding environmental harm from operational activities is not only a socially responsible way to conduct business but also ensures that the corporation has sufficient natural resources available to it to survive and thrive in the future;
• Monitoring the environmental and social impact of the activities of members of the corporation’s supply chain not only protects natural and human resources it also ensures that the corporation will have reliable partners and a stable stream of inputs for its products;
• Treating employees and their families fairly and providing them with a living wage not only enhances their wellbeing but also makes it easier for the corporation to attract and retain the talent necessary to create and commercialize innovative products and services needed to maintain long-term competitiveness;
• Honest engagement with local communities and environmental and social activists promotes mutual understanding and problem solving while reducing potential distractions for directors and members of the management team; and
• Products that are developed in an environmentally and socially responsible manner not only reduce the burden on natural and human resources but also improve the corporation’s reputation and brand and reduce the risk of consumer disenchantment and product recalls.

Porter and Kramer argued that sustainability and responsible business practices are integral parts of a corporate strategy that can create “shared value” for the company, its shareholders and other key stakeholders of the company.[5]   Porter, along with others such as McWilliams and Segal, has also maintained that companies should use the CSR initiatives as part of their business strategies to promote competitive advantage and, in fact, a large percentage of Global 250 firms have explicitly identified issues such as climate change and material resource scarcity as opportunities for the development of new products and services.[6]

One threshold issue for directors with respect to embracing “corporate sustainability” is that it remains a broad topic when the time comes to putting together a framework for implementation.  For example, when the subject is environmental responsibility, issues can range from climate change to carbon footprints, water and energy.  Social responsibility can involve issues and projects relating to supply chain management, product stewardship and consumer protection and human rights.  CSR and corporate sustainability requires attention to risk management and stakeholder engagement and investment of resources in new management and information systems that can generate data needed to track performance and prepare the reports necessary to meet expectations of investors and other stakeholders with respect to transparent disclosure of the nature and effectiveness of the company’s CSR and corporate sustainability initiatives.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance. and an excerpt from Sustainability and Corporate Governance by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s book on Board Oversight of Sustainability: A Practical Guide for Directors and Their Advisors.

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[1] For further discussion of the various definitions and descriptions of corporate sustainability, see “Corporate Sustainability” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[2] RobecoSAM, Corporate Sustainability, available at sustainability-indices.com.

[3] J. Coblentz, “Organizational Sustainability: The Three Aspects that Matter” (Washington DC: Academy for Educational Development, 2002).

[4] J. Cramer-Montes, “Sustainability: A New Path to Corporate and NGO Collaborations”, The Economist (March 24, 2017), http://www.economist.com/node/10491124

[5] M. Porter and M. Kramer, “Creating Shared Value”, Harvard Business Review (January-February 2011).

[6] See M. Porter and M. Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, Harvard Business Review, 78 (December 2006); and A. McWilliams and D. Siegel, “Creating and Capturing Value: Strategic Corporate Social Responsibility, Resource-Based Theory, and Sustainable Competitive Advantage”, Journal of Management 37 (2011), 1480.