Tuesday, August 18, 2015

Sustainability demystified

Shankar Venkateswaran, chief, Tata Sustainability Group, elaborates on the concept of sustainability and its relationship with corporate social responsibility

Multiple interpretations
Everyone is familiar with the proverbial bunch of blindfolded people feeling an elephant to figure out what it is – each provides a plausible, even correct, answer but the big picture remains elusive. Sustainability is something similar – you ask 5 corporate executives what “sustainability” means to them, the chances are you will get 10 correct, but perhaps partial, answers.
So, what is sustainability? To some, sustainability is the ability to remain in business. To others, it is about ensuring that the negative environmental impacts are managed and mitigated. A third see it as synonymous with CSR (which itself is confusing, because CSR is seen by some as philanthropic and by others as related to business).
Within the Tata group too, the understanding of sustainability has evolved over time. Community initiatives, which were largely outside the “fence”, were traditionally looked at by TCCI while environmental impacts within the fence was the remit of TQMS’s environmental sustainability team.This was the case with individual companies too and still remains the case, and the logic is derived from the fact that in India, the social issues outside the fence are so large and significant that it requires a specific focus.
The formation of the Tata Sustainability Group or TSG (which is a coming together of TCCI and the environmental sustainability team of TQMS) is perhaps a recognition that it is time to look at this as an integrated idea. And hence, this is as good a time as any for everyone in the Tatas to be on the same page on what sustainability means to us as a group. What is articulated here is a general and global understanding of sustainability which many in the group share. The purpose is to put it out there so that the idea is not lost in translation.
From sustainable development to sustainability
The starting point is the best-known definition of sustainable development that was put out by the Bruntdland Commission in 1987: “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” What this implies is that if the earth and its inhabitants are to survive, all human activity – social, economic and political – must operate within these planetary limits.
How should business translate this idea to its context? The best-known framework for this was postulated by John Elkington as what is known as the “triple bottom line”, elegantly interpreted by Shell in one of its earlier sustainability reports – people, planet, profits. What this says is that if a company wishes to stay in business (which is what some people believe is the meaning of sustainability) and protect and grow its financial bottom line, then it has to recognise that it can only do this if it manages the social and environmental responsibility of being in business simply because society provides its customers, its employees and its legitimacy to stay in business while the environment provides it its key resources.
So, sustainable development as applied to business – which is referred to as corporate sustainability or, simply, sustainability – is about recognising that its future lies in performing well not just (traditional) financially, but also how good its social and environmental bottom lines are. Or simply put, sustainability is balancing a company's financial, social and environmental performance. The investor community refers to this as ESG – environmental, social and governance. This is best illustrated by the familiar three overlapping circles diagram below with the overlapped portion being sustainability.
Outside the overlaps
This diagram begs the question – “what lies outside the overlaps?” It is of course a fair question. The brown portion of the people circle and the green portion of the planet circle represent actions that companies take that have little or nothing to do with its business – what can broadly be termed as philanthropy. The red portion of the profits circle represents the activities that a company undertakes which has no significant impact on people and the planet.
From shareholder to stakeholder value
Once a company embraces the notion of sustainability, it becomes apparent that it is no longer accountable only to its shareholders but to all its stakeholders. The reason for this is, increasingly, stakeholders are pushing these circles together and so the overlap is increasing. This is illustrated below:
This automatically implies that it must (a) map its stakeholders (b) understand what its stakeholder expects of it in terms of environmental, social and financial performance and consequently (c) build its business model that incorporates these expectations. The governance processes have a key role to play in enabling and ensuring this.
These expectations – also called sustainability issues – are typically specific to an industry sector, stakeholder and context, and an indicative list by stakeholder is given below as an illustration:
StakeholderSocial issuesEnvironmental issues
SuppliersWages and benefits
Conditions of work
Emissions, effluents and waste
Carbon footprint
Water consumption
InvestorsManaging community expectations
Social issues in the supply chain
Product safety
Environmental performance
Security of supply of natural resources
EmployeesOccupational health and safety
Freedom of association
Capacity building
Environmental conditions at the workplace
Emissions, effluents and waste
CustomersProduct safety
Product performance
Resource consumption during usage
Packaging material disposal
CommunitiesInfrastructure development
Better livelihood opportunities
Improved quality of life
Emissions, effluents and waste
Natural resources availability – water, forests

CSR and sustainability
So, are CSR and sustainability interchangeable terms? If not, how are the two related? These are very valid questions that come up very often when these ideas are discussed and more so with the enactment of the Indian Companies Act, 2013 where the term CSR makes a debut into the statute books in India.
If you read western literature, CSR and sustainability are increasingly used interchangeably. However, what often causes confusion is the “S” in CSR, which seems to suggest it is about social and not environmental issues. The Companies Act, 2013 does not help reduce this confusion because in Schedule 7 which lists some “acceptable” CSR activities, it also lists “ensuring environmental sustainability” as one of them.
Perhaps the best way to deal with this confusion is by looking at the National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business (NVGs for short) that were issued by the Ministry for Corporate Affairs, Government of India, in 2011. The NVGs consist of nine principles that constitute what is meant by responsible business and one of these – Principle 8 – reads as “Business should support inclusive growth and equitable development”. Thus, what the Companies Act appears to have done is to take this principle and make it mandatory.
Thus, as far as India is concerned, the relationship between CSR and sustainability can be summarised as follows:
  • CSR is a component of sustainability and responsible business and deals essentially with impacts relating to one of a company's stakeholders – communities.
  • CSR is essentially about what is done with the profits, while sustainability is also concerned with how the profits are made in the first place.
Beyond compliance
In the old days, many companies used to argue that as long as it was complying with all the laws of the land, it was being responsible. While that may have some merit, it is quite clear that government / regulators are just one of several stakeholders that are defining company behaviour and sustainability thinking is about going beyond current compliance to actually predicting its trajectory and getting ready for that future. Therefore, sustainability starts where compliance ends.
Role of ethics and governance 
So, where do ethics and governance fit into the sustainability framework? To begin with, much of a company's activities that impact social and environmental issues outside of law fall squarely in the ethical domain. So, the link is quite intimate.
The link between sustainability and governance is less obvious. Further, corporate governance frameworks and regulations have been around for several years in many countries and cover aspects that arguably lie outside the overlaps. Since much of sustainability goes beyond compliance, governance processes are critical to ensure that it is fully embedded by a company and hence forms an integral part of it. As the overlaps increase and the sustainability space grows, governance will only become more critical.
Written by Shankar Venkateswaran, chief, Tata Sustainability Group. The views expressed are personal.

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