Relationships between Sustainability and Economics
We’ve been discussing aspects of social impacts and sustainability in my last few articles. I’ve recently come across some excellent discussions on the interrelationship between sustainability and economics. The gist of the discussions is that there is not a trade-off between a sustainable business model or sustainable manufacturing and profit – one can minimize the impact to the environment and maximize profit at the same time.
Now, I am not an economist and I am cannot attest to the validity of all the arguments. But, the ones we will review here are logically put forward and seem, to me, reasonable. You can be the judge.
Back in September of 2009 in a posting I referred to a MIT Sloan School- Boston Consulting Group Study on business cases for sustainability.
In that report the results of a survey of corporate executives was presented listing, in order of importance, the “sustainability-related issues” that companies believe will impact their business organization. These included:
– government legislation
– consumer concern
– employee concern
– concern over environmental pollution
– depletion of resources (non-renewable and renewable, like water)
– societal pressures
– global political security
– population growth
– climate change
In fact, in the figure below, from the report, it is clear that economic/business issues are the main drivers for sustainable business plans, starting with improved brand image reputation and increased competitiveness.
A second graphic from the report, below, shows which sectors in which employing sustainability related strategies are seen to be most essential to be competitive. Not surprisingly, the “core industries” like automobiles and commodities are leading with services lagging.
So, companies are paying attention to this.
I recently read an interesting whitepaper by some folks at Enviance. This was forwarded to me by some folks at Enviance I ran into at a meeting on campus. And, one of my former PhD students (Dr. Corinne Reich-Weiser) works with them. Her work for her PhD was featured in a blog posting some time ago as part of a discussion including a “map” of spatial and temporal levels of design to manufacturing to distribution/enterprise effects – this was part of the low hanging fruit series.
The folks at Enviance sent me a paper entitled “Bridging the Gap: A financial approach to sustainability (http://www.enviance.com/resources/wp-bridging-the-gap.aspx). The paper “explores the gap between sustainability and business goals and how to bridge this gap by leveraging financially oriented analytics to make environmental issues relevant to finance and sales professionals.” This seems like a great idea to me. Putting some numbers on the link between sustainability and business. The paper begin with a description of the problem which they state as – why is sustainability “still so often dissociated from core business goals relevant to a CFO, a Head of Procurement, or a VP of Sales — addressing common roadblocks faced by sustainability professionals.” The paper then proposes a stratify to bridge the “gap” with a financial approach to sustainability. They present an example of a leading aerospace & defense manufacturer.
I am not going to summarize the whole paper here – download it and read it.
But, there are a few key items worth repeating here. They review a set of “common roadblocks” that prevent most companies from managing sustainability without having a clear picture of the things that matter environmentally and financially. These include:
1. Lack of Analytic Capabilities – challenges with having “visibility into … true environmental impacts, costs, and risks.” 2. Knowledge creates liability – thinking one is better off not knowing what their impacts are “in case it might create an obligation to act.” (wow!) 3. Too Busy to Think – understaffing and “drowning in hundreds of existing initiatives” and 4. We Already Know
If any of these sound familiar, I encourage you to read the paper.
The example, which I will not discuss here, offers some illustrations on how to address, with careful collection and analysis of pertinent data, a view of what’s important and what is not and who is responsible for it. The image below is from Figure 1 of the whitepaper.
The environmental impacts on the vertical axis of the figure displays the organizational impact on the environment expressed here in monetary terms based on an emission of some number of tons of CO2 equivalent and the price that environmental economists might assign to that on a per ton basis (for example, from a cap and trade program). The paper describes this in detail as well as environmental costs and environmental risk assessments. The categories of impacts range from CO2 through particulates, toxic metals and to carbon monoxide.
Overall a very comprehensive discussion of linking environmental performance to business costs and value – an important step in sustainable manufacturing.
Next time I’ll discuss an equally interesting topic related to this “sustainable capitalism.”
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