Chapter 4 Accountability for Sustainability

Overview

AccountabilityThe obligation that an organization takes on to ensure that it meets its responsibilities. is a concept in corporate governanceThe set of processes, rules, policies, laws, and institutions by which businesses are directed, administered, or controlled. that is the acknowledgement of responsibility by an organization for actions, decisions, products, and policies that it undertakes.

A customer of a business expects that a product manufactured and sold by a business has been designed, tested, and produced so that it is safe to use. An investor in a business expects that the managers of the company are working to maximize shareholder return and to not be wasteful of corporate resources. The federal government expects that a business pays its taxes properly and promptly. These are all examples of the expectations that stakeholdersAny person, group, or organization affected by an organization’s actions. For businesses, it can include owners and investors, employees, customers, suppliers, and all members of society affected by the organization. have of businesses to act in a responsible manner.

Rising stakeholder expectations are motivating organizations to consider the impacts of their actions in a broad, transparent, and systematic manner. Businesses are a major actor in modern society, and stakeholders expect that businesses be a positive contributor to societal well-being. Stakeholders want companies to be more than purveyors of a product or a service; they expect them to fulfill a more positive societal role.

Consumers are showing increasing concern for the environmental and societal impacts of the products and services they purchase.BBMG, Conscious Consumers Are Changing the Rules of Marketing. Are You Ready?, http://www.bbmg.com/pdfs/BBMG_Conscious_Consumer_White_Paper.pdf. Many investors are starting to use a company’s performance in sustainability as an indicator of business value and of management strength. A recent example of increased investor sustainability accountability expectations is when twenty-four institutional investors wrote to thirty of the world’s largest stock exchanges asking that they address inadequate sustainability reportingThe collection, analysis, and reporting of social, economic, and ecological performance indicators by an organization. by companies.United Nations Global Compact, “Investors Representing US$1.6 Trillion Call for Sustainability Disclosure from Listed Companies,” news release, February 2011, http://www.unglobalcompact.org/news/103-02-22-2011.

Organizations also need to prepare for anticipated regulation and new government measures related to environmental and social impact. Governments continue to pass legislation to change or end business practices that are harmful to the environment, consumers, or employees. Governments also provide programs and incentives to support voluntary efforts by business to improve their impacts on the community and the environment. The role of government in driving sustainability in businesses is discussed in detail in Chapter 3 "Government, Public Policy, and Sustainable Business".

The response by many businesses has been an increase in transparencyRefers to openness, communication, and accountability. For sustainable businesses, it involves ready access to important information about an organization’s economic, ecological, and social impacts. on the reporting of the economic, ecological, and social impacts of their activities. This allows for credibility and operational integrity in a company’s business activities. Businesses need to clearly communicate the positive and measurable impact that they have on all the stakeholders impacted by their operations.

Triple bottom line (TBL) reporting, also known as sustainability reporting, has emerged as the primary vehicle to communicate this information from businesses to stakeholders. This type of reporting goes beyond profit (financial) information and discloses the planet (environmental) and people (social) impact of a business. Sustainability reporting is a tool to communicate to society the actions a company is undertaking to fulfill its broad responsibilities to society.

A goal of sustainability reporting at the society level is to identify uneconomic growth. Uneconomic growthA concept from human welfare economics and is economic growth that results in a decline in the quality of life. is a concept from human welfare economics and is economic growth that results in a decline in the quality of life. Only measuring financial activity would not identify uneconomic growth, but with the inclusion of social and environmental performance, stakeholders have a better indication of the quality of economic activity.

Quite often sustainability reporting is driven not only by external stakeholder forces but by the internal core values of the companies. Some companies are founded by social entrepreneurs who want to incorporate aspects of social change or environmental stewardship into their business operations. Sustainability reporting provides a way of documenting efforts by these organizations and communicating that to customers and other stakeholders. Some companies hope that by publicly disclosing successes and failures related to their sustainability initiatives that they can provide lessons learned to help other companies become more sustainable.

Businesses are facing new risks that need to be managed and this is leading them to actively manage their sustainability profile. Resource depletion, increased toxicity, and climate change are all examples of risks that can decrease profitability through either increased cost or decreased revenue. Sustainability reporting can help a company measure and quantify its economic risk associated with different environmental or social threats that may be overlooked in traditional financial reporting. At the same time, all of these factors provide for new business opportunities, and the companies that can successfully manage their businesses from a sustainability perspective can build competitive advantage, mitigate risk, and capitalize on innovation.

Currently, larger-size companies, such as Ford, are leading efforts in sustainability reporting as they have greater financial resources available to cover the additional costs of sustainability reporting. It can be challenging for smaller companies to replicate the efforts of the largest and most resourceful companies. These larger company efforts in sustainability reporting, which are the focus of this chapter, provide examples of the types of information that could be useful for businesses of all sizes to report on and provide details about processes that business of all sizes can establish in sustainability reporting.