In this assignment, I will be explaining what “Corporate Sustainability” is and its relations with corporate environmental and social responsibility. I will then further discuss whether or to what extent sustainability reporting contributes to firms’ market and financial performance. I will be providing examples to support my arguments through journal articles.
What is corporate sustainability?
In the past couple of years, there has been major talks about ‘corporate sustainability’ within the business, academic and popular press. So, what is corporate sustainability? Well, corporate sustainability is a substitute to the conventional growth and profit-maximisation model. Wilson (2013) says that corporate sustainability identifies that corporate growth and profitability are vital, it is also an approach which aims to create long-term stakeholder value through the implementation of a business strategy that focuses on the social, environmental, ethical economic and cultural dimensions of a doing business. We can see that corporate sustainability primarily focuses on the social and environmental factors of a business, ensuring that those around them and those that do business with them, are taken into consideration.
There are essentially “four pillars” of corporate sustainability (CS), the first being sustainable development, which balances the need for economic growth with environmental protection and social equity. Secondly, corporate social responsibility, this deals with role of the business within society. Thirdly, stakeholder theory and corporate accountability theory (Wilson, 2013). The image below shows the evolution of corporate sustainability, what the underlying concepts are in order to attain corporate sustainability. These underlying concepts essentially what a business takes into consideration when operating. (see appendix a)
What is the relationship of ‘corporate sustainability’ with corporate environmental and social responsibility?
Corporate sustainability and Corporate social responsibility (CSR) are used and practiced by many interchangeably, however, they do not mean the same thing even though they are connected. The role of business in society has been an issue for both of scholars and practitioners for a very long time. CSR is related to complex issues such as environmental protection, human resources management, health and safety at work, relations with local communities, and relations with suppliers and consumers (Branco and Rodrigues, 2006). From this we understand that businesses depend on all these factors in order for it to operate. As well as this, the community in which the business in operating, the business has an ethical and moral responsibility towards them.
Corporate sustainability, is very fast paced and forward thinking, the future of the business is always thought about. This is very helpful as it helps a business to a improve its targets i.e. Waste reduction and it helps them reach their ethos. Whereas CSR, involves things which have already been done to help further improve it. When companies carry our CSR, they ensure that they are aiming it towards their external stake holders. (Atuluku and Uchendu, 2018). CSR is always ensuring that whatever they are doing will impact the environment positively as well as the community which it operates in. Whereas, corporate sustainability focuses both on their external and internal stakeholders
Many businesses carry out their CSR initiatives by recognising an issue in the community, and delivering something to help the matter, however these do not always associate with the objectives of the business. Both corporate sustainability and CSR improves the management of business risks and opportunities while developing long-term social and environmental sustainability. They are both vital and favourable for businesses any size or how they operate.
To what extent does sustainability reporting contribute to a firm’s market and financial performance?
There has been a huge number of studies on sustainability reporting and how it has affected or contributed towards a firm’s market and financial performance. So, the concept of sustainability reporting has evolved since the 1980s. these reports were published by firms to provide a description of the triple bottom line performance and to show the commitment of firm towards its diverse stake holders (Aggarwal, 2013).
Sustainability reporting has established itself a label for a new form of integrated reporting procedure dealing with economic, ecological and social performance (Daub, 2007). Sustainable reporting, if successful in providing information on the current situation of a company in terms of its ability to overcome its “Four Pillars” as mentioned above. Therefore, sustainable reporting must contain quantitative and qualitative information on the extent to which a company succeeds in raising eco and socio effectiveness and improving eco and socio-efficiency during a period, and integrating these aspects into sustainability management (Daub, 2007).
Many people see sustainability reporting in many ways, Sam and Robeco (2011) discussed that sustainability reporting would affect corporate financial performance by two ways, either through cash flows or by the cost of capital. N. Burhan and Rahmanti (2012) did a study and found out that sustainability reporting only influences company performance. However, social performance disclosers partially influence company performance.
KPMG describes Sustainability Reports as “reports that include quantitative and qualitative information on their financial/economic, social/ethical and environmental performance in a balanced way”. Whetman (2017) says that these reports further allow companies to provide information about the non- financial aspects of its operations, ultimately allowing companies to actively engage in a solution towards improving firm accountability, transparency, and corporate image. Sustainability reports helps businesses to further improve themselves for the future.
There are a number of companies who issue sustainability reports (Aggarwal, 2013). There are many businesses currently right now in the UK who are sustainable. Below I will be talking about some of the businesses who are sustainable, what they do as well as what they offer as a sustainable business. I will also be talking about their sustainability reports.
One of them is Deloitte. They say sustainability “is responsibility for the impact that the organization exerts on its surroundings, in business, environmental and social terms”. Deloitte have a team of qualified experts who specialise in projects which focuses on transforming companies and public institutions for sustainability purpose, including analysis, definition of strategic directions and reporting. They only provide support in specific sustainability areas: environmental management, social and stakeholder engagement as well as social and economic impact management. In 2015 they did a survey on how CSR has influenced Central European societies and economies, from this they saw that the business has played a role in solving social and economic problems in individual countries, in particular protecting the natural environment, supporting education and counteracting unemployment. They were awarded the Green Frog award for having the best sustainability reports.
Another business who is sustainable is CEMEX. CEMEX is a global cement company which has been recognised for its commitment to sustainability. They launched their Ecoeffiecny programme in 1994, where they believe it has saved over $60million. This achievement was mainly due to: recycling and reusing materials, reusing wastes as alternative fuels and developing and implementing new technology such as new plant designs. The cement industry did research project to identify the challenges and opportunities in achieving sustainability. The environmental issues include: reduction of non-renewable resources (i.e. fossil fuels), impacts of resource mining on landscape and environmental quality, dust emissions and other emissions including nitrogen oxides, sulphur dioxide, and carbon monoxide which is harmful. CEMEX has a Sustainability wheel, which shows key areas that they will target to improve ‘the world around them’. (See appendix b)
Another business who is sustainable is the co-operative bank. They were the first ever bank in the world to produce an independently verified sustainability report in 1998, and have led the way in reporting ever since. The Co-ops sustainability reports provides independent assurance about the way they implement their ethical policy each year, including the ethical screening of baking customers. On their website, they have a list of all their sustainability reports from 2006-2016. Their 2016 reports show how they have embedded their values and ethics in every part of their business and how they met their ethical policy commitments.
We can see that there are businesses who are sustainable as well as carry out sustainability reports, however, currently, there are many businesses who don’t take part in sustainability as they feel as though it does not match up to the criteria of the business. Epstein (2018) said that some businesses haven’t developed any coherent sustainability strategy or even any systematic way of thinking about or managing their social and environmental impacts.
To conclude, we can see that there are many factors of sustainability; environment and communities which the business is in, business ethics, customer relations and employees. All these factors have different impact on the financial performance of a business.