Business Value and Sustainability

Sustainability is garnering ever-greater levels of public attention. Issues of ecological and social sustainability are high on the legislative agendas of several governments, and media coverage of the topic has proliferated over the last decade. After two decades of fraught climate talks, during the 2015 Paris Climate Conference over 190 nations reached an agreement signalling a shift from fossil fuels to renewable energy sources. This agreement will hold governments accountable for their greenhouse gas emissions targets. Therefore, the implications of sustainability issues for business are particularly important in an era of globalization (Lee 2014). Business sustainability requires a managerial approach in order to integrate environmental, social and economic sustainability into core business activities and the value chain. In particular, the way corporations manage their value chains and supply networks has changed dramatically during the past decade. Today, organizations adopt a broader perspective in relation to their core strategies and approaches to economic, environmental and social sustainability issues in their supply networks. Increasingly, many corporations are seeking out the business cases for sustainability in their supply chains, enhancing business value through these supply chains, investigating the expectations of stakeholders, the risks their business partners face and the opportunities these partners can gain. It is important to understand the external landscape of ‘business sustainability and the supply network’ from the perspective of high sustainability demands and regulatory pressure, in order to become competitive in a globalized business environment. Despite many anecdotal cases detailing businesses’ sustainability and supply networks, several fundamental questions remain unanswered. Will the issues of sustainability change the competitive landscape and reshape corporate value chains and supply networks? If so, how? What are the impacts on the corporate bottom line of efforts to improve sustainability?

Sustainability has become an integral part of the strategy and mission of many organizations, and this translates into business practices and communication. For example, global automaker BMW published its first sustainable value report in 2014 to demonstrate the company’s sustainability strategy and the progress the company had made in integrating sustainability into its corporate processes. A series of surveys highlights the relevance of businesses implementing sustainable practices. In 2002, Ernst and Young conducted a survey of CEOs within the Global 1000 list of companies, and found that ninety-four per cent of respondents agree that a business sustainability strategy could result in financial benefits, but only eleven per cent actually implemented any such strategies in their operations. That is, executives recognize the value of sustainability strategy, but the majority fails to maximize the associated business opportunities (Ernst and Young 2002). A survey conducted by KPMG in 2008 also found that about eighty per cent of companies agreed that an understanding of how to make their businesses more sustainable within the areas of identifying and prioritizing issues, developing strategies and policies, and measuring sustainability performance was a challenge (KPMG 2008). More recently in 2010, Accenture, with the United Nations Global Compact (UNGC), surveyed 766 CEOs from over 100 countries and 25 industries, and found that most CEOs agreed that ‘sustainability is more important than ever to the future success of their businesses’ (Accenture 2010, p. 16). A recent worldwide survey of 1,946 executives undertaken by McKinsey & Company (2010) showed that more than fifty per cent consider that sustainability is a very important, or extremely important, proportion of their business practices. In particular, environmental sustainability, for example in climate change and waste reduction, has become an urgent issue for many industry sectors. A majority of respondents see sustainability as creating real value. It is agreed by seventy-six per cent of executives that sustainability contributes positively to shareholder value in the long term, while fifty per cent see short-term value creation (McKinsey & Company 2010). Similarly, MIT Sloan Management Review, in partnership with the Boston Consulting Group, has conducted a global executive sustainability survey every year for the last few years. The recent 2014 survey included responses from more than 3,795 executive and managers from 113 countries (Kiron et al. 2015). The survey reports suggest that corporate sustainability is moving steadily away from ad hoc or opportunistic efforts towards strategic and transformational initiatives that engage multiple entities. The main goals of sustainability collaborations include corporate benefits such as gathering access to resources and developing new markets. Ninety per cent of executives agree that businesses need to collaborate to address the sustainability challenges they face. Despite consensus on the importance of these collaborations, only forty seven per cent of respondents are actually engaging in sustainability collaborations and partnerships.

Most global organizations have discovered that the way to compete has moved from a ‘company vs. company’ basis to a ‘supply network vs. supply network’ basis (Christopher 2011; Beske and Seuring 2014). Because supply networks have contributed to accelerate globalization by directly connecting actors or business partners in emergent and developed economies, supply network management in a global context has altered the basis of competition—from company competition to supply chain competition. As such, this new competitive landscape suggests more challenges. As explained by von Geibler (2013), ‘Within complex global production systems, single value chain actors alone cannot manage key sustainability challenges effectively.’ (p. 39) When we ask whether there is a ‘business case for sustainability’, we see that numerous successful sustainability models have been adopted, and development by leading global organizations has become highly focused internally at the firm level. By focusing internally, organizations can only capture a limited scope of sustainability leaving aside opportunities for learning and benchmarking. What if the value chain or supply network based business cases for sustainability could be developed for the purposes of learning and knowledge sharing? From a business sustainability perspective, we argue that when a firm designs a sustainability management strategy and programme, it should not only consider the short-term outcomes of its activities (firm-centric) but also the longer-term outcomes that would lead to a wider impact beyond business boundaries (supply network-centric).

Many regions throughout the world have adopted some form of carbon market mechanism, such as carbon trading (cap and trade) or taxes. As the outcome of the Copenhagen accord, the European Commission has set the new carbon emission target at 30% by 2020, up from 20%. In the United States the Securities and Exchange Commission (SEC) recognizes the issues of ‘climate change-related risks’, and asks companies to disclose ‘material climate risks’. Even in large carbon emitting countries that have not signed or are opting out of the Kyoto accord, administrative areas are adopting market-based incentives to reduce carbon emissions from various industries. In December 2011, Canada opted out of the Kyoto protocol; however, in 2008, the Canadian province of British Columbia implemented a carbon tax, starting from $10 per tonne of carbon dioxide, then increasing gradually to the current price of $30 per tonne. It has been very effective in tackling the root cause of carbon pollution—the burning of fossil fuels. Since the tax came into effect, fuel use in British Columbia has dropped by 16 per cent while in the rest of Canada, it has risen by 3 per cent. A recent survey by Statistics Canada shows that within just six years of implementation, British Columbia’s policy has been an environmental and economic success. In 2012, the province of Quebec (Canada) announced that it had joined California’s existing carbon trading scheme by imposing a cap on energy intensive industries’ greenhouse gas emissions (e.g., mining, cement, utility and manufacturing industries).

As we discuss in this book, business sustainability requires firms to develop and to adopt an integrated supply network which is committed to sustainability in order to mitigate risks and to create business value. In particular, environmental sustainability becomes a critical factor in management of the supply chain and the supply network because of the environmental impacts created along its network. While climate change now seems inevitable, there are increasingly high levels of uncertainty about the magnitude of its impacts. One thing is very clear: climate change will have a multiplier effect on supply chain risks. For example, in the autumn of 2011, an unusually intense monsoon season in Thailand caused floods which inundated more than 1,000 factories in the central region of the country. This flood severely disrupted the global supply of computer hard drives due to the concentration of assembly plants in the region. The global computer manufacturers who are the major buyers of hard drives (for example, Acer, Hewlett Packard, and Lenovo) were forced to cut their fourth-quarter sales between 5% and 10% due to delayed delivery, assembly, production and increased prices.

This chapter introduces the concept of waste management as a path to increase eco-efficiency. While there are several forms of waste in organizations, the main focus here is on solid and liquid waste (hereafter solid waste). Waste can be found everywhere in an organization and in every industry. The general population often believe that solid waste is generated mainly by manufacturing operations or logistical activities, but the service industry also produces its fair share of waste. For example, the U.S. economy wasted $162 billion worth of food in 2010. A good part of the food wasted occurred in grocery stores and restaurants. The healthcare and hospitality industries are also well known for their significant amount of solid waste.

One of the key responsibilities of every organization is to ensure that the employees return home at the end of the working day in the same state as when they punched in to work. This focus on employee health and safety (hereafter referred to as ‘safety’) has been evolving over the years to become a fundamental aspect for many organizations, particularly in industrialized countries. It has also gained in importance for supply management with buying organizations being held accountable for the safety performance upstream in their supply chain.

In recent years several multinational organizations were affected by poor management practices upstream in the supply chain. For example, brands like Joe Fresh, Primark and Bonmarché were all in the hot seat after the collapse of Rana Plaza in Bangladesh in 2013 (Lu 2013; Wieland and Handfield 2013). Increasingly, the general population (the ultimate consumers of products and services) as well as different non-governmental organizations (NGOs) and activist groups are calling for a greater contribution from large corporations to address sustainability issues upstream in their supply chains. When large corporations fail to adequately address (i) environmental damages caused by their first- or second-tier suppliers, (ii) poor working conditions in their contract manufacturers, or (iii) child labour in the extraction or harvest of raw material, they are pitched as bad corporate citizens generating a reputational loss. Such a reputational loss translates into a reduction of goodwill from both market and non-market stakeholders. This chapter focuses on the reputational loss emerging from questionable practices—from a sustainability perspective—in the supply network (‘poor management practices’ hereafter). In fact, a study suggests that the potential negative impact from a supplier with poor management practices is on average a loss of 12% in market capitalization (Lefevre et al. 2010). Therefore, it is important for large organizations with reputational capital to establish proper management systems to minimize their exposure to poor management practices in the supply network.

This book covers a diverse set of topics from the carbon economy to safety and well-being of workers around the world. Having such a wide array of issues adds to the complexity of managing sustainability not only within an organization but also through the supply network. Despite the large variety of sustainability issues in the supply network, recurrent themes throughout the chapters point to general managerial lessons. First, top management support and commitment is foundational in creating effective practices to manage sustainability within an organization’s operations and its supply network. Toyota’s development of green products presented in Chap. 2 (e.g. the Prius) and Duke Energy’s Safety Never Sleeps programme described in Chap. 7 are both examples where top management was foundational to the sustainability efforts.