Corporate Sustainability

Corporate sustainability refers to a business approach that creates long-term shareholder and societal value by integrating environmental, social, and governance (ESG) factors into corporate operations and strategies. This concept emphasizes the importance of balancing economic growth with ecological stewardship and social responsibility. Companies that adopt sustainable practices often focus on reducing their carbon footprint, managing waste, and fostering ethical labor practices.

The growing awareness of climate change and social inequality has driven many organizations to reevaluate their impact on the planet and society, leading to the development of sustainability initiatives. Stakeholders, including consumers, employees, and investors, are increasingly prioritizing corporate responsibility, which can influence brand loyalty and investment decisions.

Furthermore, corporate sustainability can enhance a company's reputation and competitiveness in a market that increasingly values ethical practices. By committing to sustainable development, businesses not only contribute to a healthier planet but also create opportunities for innovation and growth. Overall, understanding corporate sustainability is crucial for anyone interested in the evolving dynamics of modern business and its role in society.

Published in: 2021

By: Elizabeth Rholetter Purdy, PhD

Subject Terms

Corporate Sustainability

Last reviewed: February 2017

Abstract

Corporate sustainability is derived from the notion that businesses must deal with economic, social, and environmental concerns without sacrificing any one at the cost of the other. Because profits are generally the focus of business endeavors, it is necessary for corporations to satisfy stakeholders while complying with government regulations and meeting the demands of consumers to protect the environment. Studies show that consciously pursuing corporate sustainability may increase profits and provide additional economic opportunities because of public demands for environmental responsibility.

Overview

Corporate sustainability involves the combined efforts of governments, businesses, academics, and consumers all over the world. The concept embraces everything from controlling emissions to green product designs to the erection of buildings that incorporate elements of nature or use solar energy. In 1953, when economist Howard Rothmann Bowen introduced the notion that businesses had a responsibility to society as a whole and that the responsibility was as important as making profits, it was considered ridiculous by many. Some members of both the business and academic communities argued that social responsibilities were already being met by complying with government regulations (Joshi & Yue, 2016).

The contemporary environmental movement was launched in the 1960s. In 1961, the Organization for Economic Cooperation and Development (OECD) was established, and in 1976, OECD released its Guidelines for Multinational Enterprises, which recognized the importance of environmentalism. By the 1980s, efforts toward corporate sustainability had gained considerable steam. The United Nations (UN) took action on corporate sustainability in 1983, establishing the World Commission on Environment and Development.

In 1987, under the leadership of UN secretary-general Javier Pérez de Cuéllar, the Brundtland Commission released a report, Our Common Future, in which sustainable development was defined for the first time. The definition embraced the concept that businesses owed a responsibility to future generations as well as to current stakeholders. In 1992, the Earth Summit in Rio de Janeiro brought together politicians, Non-Government Organizations, and business leaders to bring new international focus to the issue of corporate sustainability.

Early corporate sustainability efforts focused on saving energy and cutting down on carbon-dioxide emissions. It was not until the dawning of the twenty-first century that business began to endorsed the need for sustainability in fields that included food and energy security, biodiversity, water, climate, and human health.

In 2000, the United Nations approved the UN Global Compact, which promoted the notion of corporate sustainability in all aspects of business, including human rights and anti-corruption measures. That same year, the Global Reporting Initiative published Sustainability Reporting Guidelines, urging transparency in reporting. In 2010, the International Organization for Standardizations presented its Standard ISO 26000, detailing principles of social responsibility that included such elements as respect for law, human rights, and international norms.

Experts on corporate responsibility have paid considerable attention to the “triple bottom line.” In 1998, John Elkington suggested that the three prongs are economic prosperity, environmental quality, and social justice.

Some companies, however, have focused chiefly on making their businesses look good in environmental reports instead of making substantive changes that benefit the environment. In many parts of the world, corporate sustainability is threatened by corruption that ranges from individual companies to top government officials.

Environmental Disasters. Demands for corporate sustainability have become increasingly urgent in response to major environmental disasters that have taken place throughout the world. On July 10, 1976, an explosion at a chemical plant north of Milan, Italy, released tetrachlorodibenzo-p-dioxin (TCDD) into the atmosphere of the region. TCDD is considered one of the most toxic of all chemicals. The worst damage occurred in the area of Seveso where domestic animals and wildlife immediately died. In the aftermath, incidences of cancer and birth defects rose significantly. The damage was not controlled because the area was not evacuated after the accident.

On December 3, 1984, a gas leak at the Union Carbide pesticide plant in Bhopal, India, poured 49 tons of methyl isocyanate into the environment. Almost 4,000 people were killed outright, and thousands more had their lives cut short. In March 24, 1989, the Exxon Valdez collided with Bligh Reef in Alaska, pouring 11 million gallons of oil into the area, killing wildlife and damaging the region for decades.

On April 20, 2010, BP’s Deepwater Horizon oil rig exploded near Louisiana in the Gulf of Mexico, immediately killing 11 workers and injuring 17 others. Before it was finally capped on July 12, some 4,900,000 gallons of oil had leaked into the Gulf. Governments throughout the world responded to these and other crises by instituting new laws and regulations that promoted corporate sustainability.

Applications

The major objectives of sustainability, according to R. Hansmann, H. A. Mieg, and P. Frischknecht (2012), are ensuring that a business is able to produce sufficient income to keep itself in operation, enhancing human capital, promoting innovation, considering externalities, and improving economic prospects for future generations. Businesses around the world have taken corporate sustainability to heart, and many have become committed to producing zero waste. Other companies are searching for alternative energy sources or donating large sums to environmental charities. Examples of companies that practice corporate sustainability include Stonyfield, an organic food company, that donates 10 percent of its profits to charities working to improve the environment, and Patagonia, which offers a life-time guarantee on its outdoor products and clothing. There is substantial evidence to suggest that companies that are truly committed to corporate sustainability show increased profit margins because of their appeal to environmentally conscious customers and clients.

Biophilic Organization. Experts in corporate sustainability have developed the term “biophilic organization” to explain cross-discipline efforts to use fields such as architecture and evolutionary psychology to produce buildings that use natural environments or those that simulate the natural environment. In both cases, biophilic organizations are committed to leaving behind no ecological footprint. Biophilic design is sometimes described as “nature in the space” because the design includes such features as windowed walls, greenhouse rooms, water, animals, plants, gardens, nature-inspired building materials, and rooms exposed to the morning sun. Animals are introduced through paintings, images carved or etched into building materials and furnishings, or the use of aquariums. Potted plants are used to represent the outdoors. Yale University established the first biophilic design master’s program in 2006, bringing together experts from the fields of architecture, forestry, and ecology.

David Jones (2016) contends that biophilic organization embraces three emergent tensions: The first involves efficiency versus resilience, the second deals with organizational versus personal agendas, and the third encompasses isomorphism versus institutional change. Jones provides three distinct examples of biophilic organization that have allowed firms in different parts of the world to create businesses that use the natural environment rather than destroying it. He notes that in all three examples, businesses have rejected the traditional idea of bland windowless buildings that have been common in office buildings for decades and which would be considered a crime if used to house animals living in zoos.

Jones’ first example of a biophilic organization is one that emphasizes resilience over efficiency. The Khoo Teck Puat Hospital of Yishun, Singapore, is described as a “hospital within a garden.” The grounds provide patients, families, and staff with waterfalls, fish, butterflies, birds, and fruit trees, and the rooms all have windows with balconies and planter boxes. Researchers have discovered that the Singaporean hospital and others that use similar elements report that patients recover faster and are able to recover with lower levels of medication. At the same time, the stress levels of patients, families, and staff is significantly reduced (Jones, 2016).

A second example of biophilic design is the Chicago-based Ann and Robert H. Lurie Children’s Hospital, which employs generative design. The core idea of generative design is to allow those who use a building to shape it over time. Thus, it is designed to fill the void left by the absence of architecture. The children’s hospital has twenty-three floors and includes an interactive garden. Single-occupant rooms look like typical children’s rooms and provide toys and games and Internet access. Features are added in response to suggestions by the Child and Family Advisory Boards. Nursing services are decentralized for easy patient access. Community partnerships also produce new features for the hospital, including interactive exhibits, art reproductions, and ceiling paintings.

Jones’ final example of a biophilic organization is the Taoist Cultural Context practiced in China by Zhu Tieyu, who endorses the Wu Wei concept based on Taoism. The concept is based on the idea that businesses have a responsibility not to harm nature.

Discourse

Green Innovation. Tonmi Lampikoski and Mika Westerlund (2014) note that 70 percent of global business managers claim to be committed to corporate sustainability. One way to put that commitment into practice is through “green innovation,” a concept introduced by Claude Fussler and Peter James in 1996 to describe the search for environment-friendly policies, processes, and products. Lampikoski and Westerlund maintain that green innovation is most often carried out through a step-by-step process, but it may occur through revolutionary efforts. The former is considered evolutionary such as when one product at a time is converted to green processing or packaging. The more revolutionary method might call for revolutionizing an entire line of products simultaneously.

The step-by-step method includes what Lampikoski and Westerlund label the rationality and collaboration models. Most companies begin with the rationality model by looking for links between efficiency and savings before conducting particular experiments in green innovation. The radical model might introduce new technologies and accelerated experimentation. This model is exemplified by IBM’s Big Green project, which introduced the concept of water management, and GE’s Ecomagination project that included such efforts as partnering with other capitalist firms to examine the possibility of locating clean energy sources in space.

Lampikoski and Westerlund (2014) identify three managerial roles practiced by practitioners of green innovation: the unlocker, the connector, and the transformer. The unlocker is the initiator who specializes in creativity, introducing new ideas and setting up experiments. Connectors are able to bring all the different needs, personalities, models, and strategies together to ensure a project’s survival. Transformers specialize in combining the rational and emotional elements of a project, protecting the values and visions of a company even as green innovations turn a company in a new direction.

Government Legislation and Regulation. American companies have made great strides in corporate sustainability. Much of the responsibility for that progress is due to the passage of new legislation and regulations, but a large part is the result of government support for companies that engage in corporate sustainability. However, when compared with many other countries, the United States continues to lag behind. The European Union is working with cities in member-nations to institute sustainability. In Switzerland, the commitment to sustainability has been written into the constitution. Local governments in the United Kingdom and Germany have also made significant progress.

Daniel C. Esty and Steve Charnovitz (2012) offer ten suggestions for the United States to improve efforts toward corporate sustainability. Their first recommendation is that the government should pay increased attention to finding alternative sources of energy and set specific goals for expanding those sources. They also urge promoting the use of natural gas for use in homes and by the transportation industry because natural gas is less damaging to the environment than coal or oil. Government is advised to pay increased attention to the use of renewable energy by passing new energy regulations for utility industries. The U.S. Environmental Protection Agency goals are perceived as ineffective, and Esty and Charnovitz suggest replacing regulatory goal setting with an incentive approach.

More aggressive measures include taking away federal subsidies from energy companies and investing those funds in a federal program dedicated to research on clean energy. As a disincentive to continued unsustainable practices, Esty and Charnovitz advise a federal tax on companies that release carbon emissions. Further, eliminating all subsidies to agriculture and other unsustainable entities and establishing protectionist trade barriers would have encourage efficiences.

On international front, Esty and Charnovitz advocate enhancement of the North American Trade Agreement so that it includes an improved energy marketplace. They also recommend countries eliminate the practice of standard-setting to erect trade barriers. Their final recommendation is to approve the World Trade Organization’s Doha negotiations that deal with liberalizing trade on all environmental goods and services.

The Future. In an article for the Bulletin of the Atomic Scientists, Timothy Smith (2013) argues that sustainability efforts that focus only on a company’s buildings, operations, vehicles, and the impact of waste and emissions do not gar far enough in protecting the environment because they do not consider the supply chain. He notes that weather-related events such as Hurricane Sandy in 2012 have led to increased attention to corporate sustainability since they prove that supply chains are vulnerable to the impacts of climate change. The issue of corporate sustainability becomes even more urgent when expert predictions are considered.

By 2036, it is predicted that the world’s population will increase to eight billion people, increasing demands for clean water and food by 50 percent. At the same time, the population will consume 40 percent more oil, gas, and coal (Smith, 2013). Around 30 percent of known pollutants are generated by agricultural, mining, transportation, and gas and electric utility industries. The rest results from activities of supply chains that pollute through the manufacture and use of materials, furnishings, electronics, vehicles, vessels, and aircraft. Experts maintain that by 2030, the amount of pollutants will have quadrupled if more measures are not taken to reduce environmental damage (Smith, 2013).

In an evaluation of corporate sustainability since the mid-1970s, Joseph DesJardins (2015) contends that the concept has become essentially universal and has been embraced and integrated into all fields, including management, marketing, investing, accounting, strategy, and operations. Entire businesses have grown up for the purpose of teaching companies how to practice corporate sustainability. Corporate sustainability information is regularly reported through the Global 100, generated by a partnership between Forbes and Global Knight’s Capital, the Dow Jones Sustainability Index, and the Global Reporting Institute. The World Business Council for Sustainable Development has more than two hundred members and partners. DesJardins warns, however, that the term “corporate responsibility” is often misused, misunderstood, and incorrectly applied. He suggests that the focus should be on making substantive changes rather than on making empty claims about acting responsibly.

Thomas Dyllick and Kai Hockerts (2002) contend that in order to be meet the standards for corporate sustainability, a firm must practice eco-efficiency, socio-efficiency, eco-effectiveness, socio-effectiveness, sufficiency, and ecological equity. To meet these goals, business must establish and meet both short- and long-term goals. To do this, it is necessary to understand that finite resources place limits on their use. Dyllick and Hockerts contend that global progress has been hindered by anti-globalization efforts in much of the world and by the failure to make concentrated efforts toward alleviating poverty and inequality.

Terms & Concepts

Climate Change: Global shifting weather patterns that have been produced by human neglect and mismanagement that have damaged the ozone layer and produced atmospheric concentrations of toxins.

Doha Negotiations: Ongoing trade talks initiated by the World Trade Organization that focus on the needs of developing countries. The negotiations are focused on providing developing countries with a role in world trade while promoting sustainability and capacity-building programs.

Ecological Footprint: Traces of human activity that negatively impact the environment. For example, plastic causes major damage to the environment because it is nondegradable and leaves a permanently large ecological footprint.

Evolutionary Psychology: The field of psychology that uses evolutionary theories to explain the impact of physical and social environments on the ways in which humans think and behave.

Global Warming: Rising atmospheric temperatures that have resulted from climate change, leading to above-average temperatures in much of the world. Among the many effects of warming is the reduction of fresh water, rising sea levels, and the extinction of species.

Green Innovation: The process of creating new products or instituting new policies designed to cut down or eliminate negative environmental impacts. Examples of green innovation include pollution and waste reduction and control.

Isomorphism: In most cases, the term is used to describe things that are similar. In the context of corporate sustainability, it refers to similar processes and organizations.

Standard-Setting: Established in Article 20 of the General Agreement on Tariffs and Trade (GATT) as a method for limiting trade if it interferes with the lives and health of humans, animals, and plants. GATT specifically bans the use of standard-setting to discriminate or when it is disguised as protectionism.

Triple Bottom Line: The concept that the business community is required to consider economic, social, and environmental elements when building structures and carrying out business planning and operations.

Bibliography

Avota, S., McFadzean, E., & Peiseniece, L. (2015). Linking personal and organisational values and behavior to corporate sustainability: A conceptual model. Journal of Business Management, 10, 124–138. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=111803470&site=ehost-live

DesJardins, J. (2016). Is it time to jump off the sustainability bandwagon? Business Ethics Quarterly, 26(1), 117–135. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=113411405&site=ehost-live

Dyllick, T., & Hockerts, K. (2002). Beyond the business case for corporate sustainability. Business Strategy and the Environment, 11, 130–140. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=17072974&site=ehost-live

Esty, D. C., & Charnovitz, S. (2012). Green rules to drive innovation. Harvard Business Review, 90(3), 120–123. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=71884962&site=ehost-live

Hansmann, R., Mieg, H. A., & Frischknecht, P. (2012). Principal sustainability components: Empirical analysis of synergies between the pillars of sustainability. International Journal of Sustainable World Development and World Ecology, 19(5), 451–459.

Joshi, S., & Yue, L. (2016). What is corporate sustainability and how do firms practice it? A management accounting research perspective. Journal of Management Accounting Research, 28(2), 1–11. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=118041128&site=ehost-live

Jones, D. (2016). The “biophilic organization”: An integrative metaphor for corporate sustainability. Journal of Business Ethics, 138(3), 401–416. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=118555327&site=ehost-live

Lampikoski, T., Westerlund, M., Rajala, R., & Möeler, K. (2014). Green innovation games: Value-creation strategies for corporate sustainability. California Management Review, 57(1), 88–116. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=99931970&site=ehost-live

Smith, T. M. (2013). Climate change: Corporate sustainability in the supply chain. Bulletin of the Atomic Scientists, 69(3), 43–52.

Corporate Sustainability

On this Page

Subject Terms

Corporate Sustainability

Abstract

Overview

Applications

Discourse

Terms & Concepts

Bibliography

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