Incorporating Sustainability in Business Models

Posted in Operations & IT Articles, Total Reads: 954 , Published on 30 December 2012
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“Sustainable development is critically dependent on the activities of business throughout the world. On the one hand, businesses are the dynamos of society, providing most of the goods and services we need, innovating to create new opportunities and possibilities, and providing most of the jobs and employment in the world. On the other hand, they have been responsible for much of the pollution and depletion of natural resources in the world, and have sometimes been bad employers and bad neighbours in the communities in which they operate. The challenge for businesses in the twenty-first century is therefore to find ways of operating as good employers and good neighbours and in ways that minimise pollution and depletion of resources”: UK Sustainable Development Commission (2004)

 

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There has been a paradigm shift in last decade or so in how companies interact with the business environment around them. This has been brought about by rapid changes that have taken place in the manner stakeholders see the responsibility of the companies now.  From the perspective of looking at just shareholders’ interest, the companies had to move towards an approach that looks at how they can work towards creating value for the society in which they operate. This has been the result of the growing societal activism and tightening of regulations across the world to ensure that the social interests are being taken care of by corporate and not only the well-being of present generation but also the well-being of the generations to come is looked after.

Along with these changes in the environment around them, there has been a marked change in the response of the companies as well. From a sense and respond mode, they have become more proactive in dealing with these issues. They are trying to go beyond the conventional thinking of sustainability which is related to issues like waste reduction and energy use to tweaking their business models to build sustainable organizations.  “Everyone must be clear that business as usual is not an option. Most of us live in buildings erected long before we were born and our successors will have to live with the environmental consequences of the buildings we construct today. It is vital that we minimise harmful impacts for those who come after us” Margaret Beckett, Secretary of State for the Environment, Food and Rural Affairs said in 2003.

We look at the case of three Global companies in brief to understand what measures they have resorted to in order to meet the growing sustainability challenges of the world.

ABB

It is the first company to work on Direct Current technology which is very different from the current norms of using Alternating current in transmission. The company says that it will substantially reduce the power transmission losses which would a boon in a country like India where electricity is to be transmitted across long distances given the size of the country. The company has put a sustainability board in place and whatever decisions the company makes has to pass through the sustainability criteria. The company is also one among the very few to Environmental Product Declaration for 80 of their products which means that each of their products describe the environmental impact in each stage of their life cycle. Due to these measures, the company has been able to reduce its own energy consumption per employee by 5.5% since 2009 which leads to substantial cost savings over the long term.

GE

The company launched the ‘ecomagination’ project in the year 2005. Its focus has been to build products and services that reduce energy consumption, build new sources of clean energy and provision of clean drinking water. The company has produced more than 140 products under this initiative which include products like Kitchen ovens, Data Centres, Transformers, engines, power plants etc. The energy use of GE has come down by 18% from 2004 and water consumption has fallen by 22% since 2006 by these initiatives which the company is incorporating in its business model. The ecomagination project has yielded them revenue of $105 billion since 2005 and till 2010; the company has been able to achieve energy savings efficiency to the tune of $130 mn.

Unilever

The company has come out with its ‘Sustainable Living Plan’ with a vision to improve the quality of life for people without increasing their environmental footprint. The company’s programme focuses on three areas: health and well being, environment and enhanced livelihood. The company has set three targets which are to be achieved by 2020: a) Help more than a billion people to improve their health and overall well being, b) reduce the environmental footprint by half and c) enhance the livelihood of people in their supply chain. The company has also clearly identified the benefits that will accrue to it by using this plan of action. They say that more and more consumers are now demanding products that have been made keeping in mind the sustainability issues. Also, the big retailers have started developing their own sustainability goals and they need that their vendors help them in meeting these goals. The company’s sales right now is being dominated by more than 50% by sales from developing economies where the sustainability issues are bigger than the advanced economies and also the amount of money available to meet these challenges is very limited. So if the company is able to develop products that help in saving resources, they will be able to increase their market share. The company plans to reduce the energy consumption per person by half by 2020 and also become a zero waste company by 2017 by recycling or reusing their office waste. All these measures are going to bring about considerable cost savings for the company by reducing wastages in any form.

A study of the above three examples clearly illustrate the fact that sustainability not only make environmental sense but it also makes business sense. The companies have also as much to gain from incorporating sustainability in their business models as other stakeholders. “You would think, wouldn't you, that protecting the ultimate capital asset upon which all future income depends - in other words this fragile planet - was worth investing in, seriously and urgently. So isn't now the critical time to be developing these technologies, business models and financial instruments for environmental reasons, above all, but also for economic reasons?”  says The Prince of Wales addressing May Day network in 2008. It’s the advice for every company worth listening to.

“Sustainable development is critically dependent on the activities of business throughout the world. On the one hand, businesses are the dynamos of society, providing most of the goods and services we need, innovating to create new opportunities and possibilities, and providing most of the jobs and employment in the world. On the other hand, they have been responsible for much of the pollution and depletion of natural resources in the world, and have sometimes been bad employers and bad neighbours in the communities in which they operate. The challenge for businesses in the twenty-first century is therefore to find ways of operating as good employers and good neighbours and in ways that minimise pollution and depletion of resources”: UK Sustainable Development Commission (2004)

There has been a paradigm shift in last decade or so in how companies interact with the business environment around them. This has been brought about by rapid changes that have taken place in the manner stakeholders see the responsibility of the companies now.  From the perspective of looking at just shareholders’ interest, the companies had to move towards an approach that looks at how they can work towards creating value for the society in which they operate. This has been the result of the growing societal activism and tightening of regulations across the world to ensure that the social interests are being taken care of by corporate and not only the well-being of present generation but also the well-being of the generations to come is looked after.

Along with these changes in the environment around them, there has been a marked change in the response of the companies as well. From a sense and respond mode, they have become more proactive in dealing with these issues. They are trying to go beyond the conventional thinking of sustainability which is related to issues like waste reduction and energy use to tweaking their business models to build sustainable organizations.  “Everyone must be clear that business as usual is not an option. Most of us live in buildings erected long before we were born and our successors will have to live with the environmental consequences of the buildings we construct today. It is vital that we minimise harmful impacts for those who come after us” Margaret Beckett, Secretary of State for the Environment, Food and Rural Affairs said in 2003.

We look at the case of three Global companies in brief to understand what measures they have resorted to in order to meet the growing sustainability challenges of the world.

ABB

It is the first company to work on Direct Current technology which is very different from the current norms of using Alternating current in transmission. The company says that it will substantially reduce the power transmission losses which would a boon in a country like India where electricity is to be transmitted across long distances given the size of the country. The company has put a sustainability board in place and whatever decisions the company makes has to pass through the sustainability criteria. The company is also one among the very few to Environmental Product Declaration for 80 of their products which means that each of their products describe the environmental impact in each stage of their life cycle. Due to these measures, the company has been able to reduce its own energy consumption per employee by 5.5% since 2009 which leads to substantial cost savings over the long term.

GE

The company launched the ‘ecomagination’ project in the year 2005. Its focus has been to build products and services that reduce energy consumption, build new sources of clean energy and provision of clean drinking water. The company has produced more than 140 products under this initiative which include products like Kitchen ovens, Data Centres, Transformers, engines, power plants etc. The energy use of GE has come down by 18% from 2004 and water consumption has fallen by 22% since 2006 by these initiatives which the company is incorporating in its business model. The ecomagination project has yielded them revenue of $105 billion since 2005 and till 2010; the company has been able to achieve energy savings efficiency to the tune of $130 mn.

Unilever

The company has come out with its ‘Sustainable Living Plan’ with a vision to improve the quality of life for people without increasing their environmental footprint. The company’s programme focuses on three areas: health and well being, environment and enhanced livelihood. The company has set three targets which are to be achieved by 2020: a) Help more than a billion people to improve their health and overall well being, b) reduce the environmental footprint by half and c) enhance the livelihood of people in their supply chain. The company has also clearly identified the benefits that will accrue to it by using this plan of action. They say that more and more consumers are now demanding products that have been made keeping in mind the sustainability issues.

Also, the big retailers have started developing their own sustainability goals and they need that their vendors help them in meeting these goals. The company’s sales right now is being dominated by more than 50% by sales from developing economies where the sustainability issues are bigger than the advanced economies and also the amount of money available to meet these challenges is very limited. So if the company is able to develop products that help in saving resources, they will be able to increase their market share. The company plans to reduce the energy consumption per person by half by 2020 and also become a zero waste company by 2017 by recycling or reusing their office waste. All these measures are going to bring about considerable cost savings for the company by reducing wastages in any form.

A study of the above three examples clearly illustrate the fact that sustainability not only make environmental sense but it also makes business sense. The companies have also as much to gain from incorporating sustainability in their business models as other stakeholders. “You would think, wouldn't you, that protecting the ultimate capital asset upon which all future income depends - in other words this fragile planet - was worth investing in, seriously and urgently. So isn't now the critical time to be developing these technologies, business models and financial instruments for environmental reasons, above all, but also for economic reasons?”  says The Prince of Wales addressing May Day network in 2008. It’s the advice for every company worth listening to.

This article has been authored  by Vaibhav Khandelwal from IIM Indore.


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