Over the past 15 years, business has emerged as an important player in the field of sustainable development. Concurrently, however, trust in the private sector’s ability to self-regulate and drive positive social change has
been waning. Negative consequences of trade and globalization, including rising inequality and stagnant wage levels, have increased opposition to global business, in particular, and globalization, more generally. While many firms have responded to this by adopting corporate sustainability practices and implementing sustainability management systems, the impact of these measures is not reflected in improvements to the state of the planet. On the contrary, global sustainability challenges like climate change, biodiversity loss, and pollution continue to mount, and the rollback of environmental legislation in some places, such as the United States, is not a promising sign. If, as many executives today agree, sustainability is a prerequisite for continued prosperity and competitiveness, it becomes ever more urgent to understand what kind of corporate sustainability really impacts positively on the natural environment, on society and firms themselves. In the midst of this ongoing debate surrounding the role of business in society, there is an emerging consensus that companies can and ought to contribute to sustainability by enhancing positive impacts (e.g. on livelihoods, health, and education) and reducing negative ones (e.g. resource consumption, pollution, and human rights violations). This requires both strategic sensitivity to global sustainability challenges and sound impact measurement and management at the corporate level. v
The Sustainable Development Goals (SDGs) adopted by the United Nations General Assembly in September 2015 provide a comprehensive and universally applicable framework for strategic corporate engagement with sustainability issues. This constitutes a good entry point for companies to begin tackling their sustainability impacts in a more systematic fashion at all levels and to identify new business opportunities while contributing to the solution of the grand sustainability challenges facing the world today. However, measuring and managing the contribution of business to the SDGs poses particular challenges. For firms, it requires a well-founded understanding of the wider impacts of their core business, community, and philanthropic engagement, as well as of the materiality of these impacts in a sustainability context. Assessing impacts has to consider trade-offs and ambiguities arising from the diversity of sustainability issues as well as the values and interests of different stakeholder groups. At the same time, the SDGs are an unprecedented opportunity for stakeholders to engage with business. For consultants, measuring and managing impacts is a promising area of work, as many companies lack knowledge and data beyond their corporate boundaries. And for researchers, impact measurement and management has emerged as an important new field for research, as well as an application area of their knowledge and tools. In this context, this volume serves a dual purpose: On the one hand, it critically analyzes selected impact measurement and management tools and speaks to their respective benefits and limitations. On the other hand, it aims to provide guidance on management decisions that enable high- quality impact measurement and management to support companies in demonstrating their contribution to sustainability. The analyses underlying this book are the result of three years of research conducted by an international consortium in the EU-funded research project GLOBAL VALUE—Managing Business Impacts on Development (www.global-value.eu/toolkit). This highly collaborative research project involved leading universities, civil society organizations, and corporations from Europe, Asia, and Africa. The research presented in this volume is complemented by concrete examples from corporate practice and interviews with experts from organizations deeply involved in tool development and measuring the contribution of business to sustainability. It is our hope that this volume will be of value to academics, as well as practitioners and professionals with close links to research (including
e valuation professionals, consultants, and tool developers) working in or across the fields of sustainability management, corporate sustainability, inclusive business, and sustainable development. More specifically, the work should be of relevance to readers interested in recent research on the business contribution to the SDGs, or understanding different methodological approaches and practices for measuring corporate sustainability impacts, as well as to those who want to receive an overview of this dynamic, evolving field of research. Vienna, Austria February 2019
Norma Schönherr André Martinuzzi
Funding for the research underlying this volume was provided by the European Commission under the 7th Framework Programme in the context of the GLOBAL VALUE project (contract number: 613295). We are grateful to the European Commission for making this research possible. We also wish to thank the GLOBAL VALUE project partners for three years of fruitful and very pleasant collaboration. Their expertise, creativity, and commitment have been invaluable. Our gratitude also goes to the contributing authors of this volume, who have made their original research papers available and have borne with us throughout an extensive process of review and revision. Moreover, we wish to acknowledge the tool developers and practitioners, who have provided their insights in interviews, and our case companies for providing data and investing time into collaboratively testing existing impact assessment approaches, as well as for engaging with us to develop the best practice cases presented in this book. Finally, yet importantly, we are grateful for the constructive feedback of several anonymous reviewers on the proposal and draft manuscript of this volume and to the Palgrave Macmillan editorial team for their patience and support. Any remaining errors are strictly our own. The European Commission is not responsible for use that may be made of any material arising from the GLOBAL VALUE project and this book.
1Introduction: The Sustainable Development Goals and the Future of Corporate Sustainability 1 André Martinuzzi and Norma Schönherr 2The Corporate Toolbox 19 Norma Schönherr, Lucia A. Reisch, Andrea Farsang, Armi Temmes, Adele Tharani, and André Martinuzzi 3Scoping What Matters: An Introduction to Impact Mapping 55 Florian Findler 4Measuring What Matters: Standardized Versus Customizable Impact Measurement Tools 75 Adele Tharani 5Managing What Matters: Integrating Impact Measurement into Corporate Sustainability Management 95 Armi Temmes
6Implementing Impact Measurement and Management113 Norma Schönherr, Lucia A. Reisch, Andrea Farsang, Armi Temmes, Adele Tharani, and André Martinuzzi Index129
Notes on Contributors
Andrea Farsang serves as a Senior Project Manager in Regulatory and Risk Transformation at Nordea, Denmark. Previously she worked as a post-doctoral researcher and project manager at Copenhagen Business School, Department of Intercultural Communication and Management, Denmark. Florian Findler is a teaching and research associate at the Institute for Managing Sustainability (www.sustainability.eu) at Vienna University of Economics and Business, Austria. His main research interests are CSR, impact assessment, and sustainability in higher education. André Martinuzzi is Head of the Institute for Managing Sustainability (www.sustainability.eu) and Associate Professor at Vienna University of Economics and Business, Austria. He has more than 20 years of experience in coordinating EU-wide research projects for the European Commission, as well as for international organizations and ministries. He is an expert in the fields of corporate sustainability, responsible innovation, evaluation, and knowledge brokerage. Lucia A. Reisch is Professor for Consumer Behaviour and Consumer Policy at Copenhagen Business School, Department of Intercultural Communication and Management, Denmark. Her main research focus is on behavioral economics, sustainable consumption (in particular; energy, food and health, fashion), intercultural consumer behavior, consumers and new technologies, consumer policy, and corporate sustainability. xiii
NOTES ON CONTRIBUTORS
Norma Schönherr is a project manager and research associate in the Institute for Managing Sustainability (www.sustainability.eu) at Vienna University of Economics and Business, Austria. Her areas of expertise include CSR, corporate sustainability, sustainable development, sustainability management, and responsible innovation. Armi Temmes is Professor of Practice, Corporate Sustainability, at the Department of Management Studies at Aalto University, Finland. Before entering academia, she worked in sustainability management and in executive roles in the forestry industry. Her main areas of interest include sustainability management and corporate sustainability, particularly in the energy and mobility sectors. Adele Tharani is a research associate in the Institute for Managing Sustainability (www.sustainability.eu) at Vienna University of Economics and Business, Austria. Previously she worked for the United Nations Development Programme as a CSR consultant. She specializes in corporate sustainability, impact measurement, cross-sectoral collaboration, and responsible innovation.
The evolution of strategies for corporate sustainability 3 Certified management systems according to ISO 14001 4 Global sales of organic food and global revenues from Fairtrade International products (1999–2016) in billion US dollars 5 Relative frequency of tools addressing specific Sustainable Development Goals 21 Management control—the Financial Valuation Tool (IFC) 24 Management control—the Human Rights Compliance Assessment (DIHR) 26 Reporting—the Sustainability Code (RNE) 27 Information and learning—the SDG Compass (WBCSD, GRI, UNGC)29 Information & learning—the Natural Capital Protocol (NCC) 30 Information and learning—the Global Compact SelfAssessment Tool (UNGC et al.) 32 Comprehensive tools—the B Impact Assessment (B Lab) 34 Specific tools—the Forest Industry Carbon Assessment Tool (NCASI, IFC) 35 Level of analysis—the Gender Equality Principles Assessment (GEPI)37 Level of analysis—the Sustainability Assessment of Food and Agriculture Systems (FAO) 39 Application context—the HIGG Index (SAC) 41 Application context—the LBG Model (Corporate Citizenship) 43 Implementation requirements—the Sustainable Value Calculator (Figge and Hahn 2005) 45
Implementation requirements—the Measuring Impact Framework (WBCSD)47 Pathways for corporate impacts 61 Impact example: alternatives to animal testing 64 Impact example: measures for renewable energy use 66 Impact example: the PET to PET recycling manufactory 68 Elementary impact map of Vöslauer 69 Level of standardization and customization in tested tools 80 Framework for analyzing tools for impact assessment in relation to the sustainability management system of a company. (Modified from Halme et al. 2018) 97 Using impact assessment tools for specific management purposes 108 Seven challenges related to the shift from conventional to impact oriented corporate sustainability strategies 117 Areas for future research on impact measurement and management in the context of the SDGs 125
List of Tables
Table 2.1 Levels of analysis in corporate impact measurement and management36 Table 2.2 Systematic comparison of corporate impact measurement and management tools 49 Table 4.1 Overview of standardized tools 77 Table 4.2 Recommendations on standardized tools 83 Table 4.3 An overview of customizable tools 85 Table 4.4 Recommendations on customizable tools 86 Table 4.5 An overview of hybrid approaches 87 Table 5.1 Possible choices of tools for different management purposes 100 Table 6.1 A comparison of conventional and impact oriented approaches to corporate sustainability 115 Table 6.2 Fit for purpose—features of appropriate tools for management control, reporting or learning 120
List of Boxes
Interview with Pietro Bertazzi, Head of Sustainable Development at the Global Reporting Initiative (GRI) 10 Box 2.1 Management Control: The Financial Valuation Tool (IFC) 24 Box 2.2 Management Control: The Human Rights Compliance Assessment (Danish Institute for Human Rights) 25 Box 2.3 Reporting: The Sustainability Code (RNE) 27 Box 2.4 Information and Learning: The SDG Compass (WBCSD, GRI, UNGC)28 Box 2.5 Information and Learning: The Natural Capital Protocol (NCC) 30 Box 2.6 Information and Learning: The Global Compact Self- Assessment Tool (UNGC, DI, Ministry of Business and Growth Denmark, Danish Institute for Human Rights, IFU) 31 Box 2.7 Comprehensive Tools: The B Impact Assessment (B Lab) 33 Box 2.8 Specific Tools: The Forest Industry Carbon Assessment Tool (FICAT)35 Box 2.9 Level of Analysis: The Gender Equality Principles Assessment Tool (GEPI) 37 Box 2.10 Level of Analysis: The Sustainability Assessment of Food and Agriculture Systems (SAFA) Guidelines and Tool (FAO) 38 Box 2.11 Application Context: The HIGG Index (SAC) 40 Box 2.12 Application Context: The LBG Model (Corporate Citizenship) 42 Box 2.13 Implementation Requirements: The Sustainable Value Calculator (Figge and Hahn 2005) 44 Box 2.14 Implementation Requirements: The Measuring Impact Framework (WBCSD) 46
List of Boxes
Box 4.1 Box 5.1
Interview with John Lloyd, the Associate Director, Head of LBG, Corporate Citizenship, London 88 Exemplary Questions from the B Impact Assessment 102
Introduction: The Sustainable Development Goals and the Future of Corporate Sustainability André Martinuzzi and Norma Schönherr
Business in general and multinational corporations (MNCs) in particular affect billions of people across the world through their products, operations, and value chains. Given their immense wealth and influence over people’s daily lives, the role and responsibility of business in society is a recurring topic of discourse in academia (Carroll 2015), and also in policy, civil society, and the private sector itself. This discourse has matured over the past 70 years, resulting in a comprehensive stock of literature under diverse headlines, such as corporate social responsibility (van Marrewijk 2003), business ethics (Ferrero and Sison 2014), corporate citizenship (Matten and Crane 2005), and, more recently, corporate sustainability (CS) (Montiel and Delgado-Ceballos 2014; Schaltegger 2011). Across the field, the conflicting priorities of, on the one hand, corporate aspirations, in terms of profits, growth, competitive advantage, and market shares, and, on the other hand, societal objectives, including prosperity, well-being, and sustainability, remain a recurring theme. Notwithstanding this tension, business has received increasing recognition for its potential to be a major driver of sustainable development (Blowfield 2012), and there is an emerging consensus that MNCs in particular can and ought to contribute to sustainable development in a substantial and measurable way (Kolk 2016). However, corporate strategies to fulfill this expectation have been only partially successful so far (Dyllick and Muff 2016).
A History of Corporate Sustainability in a Nutshell Corporate strategies for CS have continuously evolved over the past century, spanning a range from philanthropic engagement, via the systematic implementation of eco-efficiency and management systems, product differentiation, and innovation, to contemporary strategies that directly link core business with sustainability (see Fig. 1.1). One of the most widely established embodiments of CS is corporate philanthropy (Gautier and Pache 2015), best defined as the generous donation of money to good causes. The modern form of corporate charitable giving emerged in the first half of the twentieth century. It is not by accident that this period saw the emergence of some of the largest private charitable foundations that remain in existence today, including the Rockefeller Foundation (founded in 1913, in the United States), the Wellcome Trust (1936, United Kingdom), and the Robert Bosch Foundation (1964, Germany). Philanthropy is a highly visible way of returning some of the proceeds of business to society. As well as being of
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Fig. 1.1 The evolution of strategies for corporate sustainability
public benefit, the advantages of charitable giving are that it is easy to communicate and can make a real difference to the beneficiaries. However, it is also highly selective in terms of who benefits, and it is easily discontinued in times of austerity. In addition, philanthropy is frequently far removed from core business concerns—in the case of foundations, it may even be outsourced to another organization—and it provides very little incentive or opportunity to learn or develop innovative ways in which business itself may contribute to sustainability. If the first half of the twentieth century was the age of philanthropy, the second half was the age of efficiency. Increasingly visible environmental deterioration, two oil crises, and the seminal Limits to Growth report (Meadows 1972) defined the problem of the period as “how to do more with less”. In other words, business began to strive for eco-efficiency in addition to economic efficiency. The concept of eco-efficiency fundamentally links some measure of value added with environmental impacts of economic activities. The higher the ratio of value added to ecological impact, the more eco-efficient a product or process is (Ehrenfeld 2005). The business case for eco-efficiency is easily made: the procurement of scarce inputs, wasteful production processes, and waste disposal all engender costs to businesses. Eco-efficiency provides a win–win situation in that such costs are reduced along with detrimental environmental impacts (DeSimone and Popoff 1997). However, where such win–win situations do not materialize, for example, in the case of freely available ecosystem services (such as clean air, water, or climate regulation by forests, all of
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which are frequently available to use for free), firms do not have incentives to act to reduce resource use. In addition, because rebound effects tend to reverse initial gains in eco-efficiency, this approach has not resulted in absolute resource savings in most sectors (Herring 2006). The mid-1990s saw the rise of management systems as a systematic way of setting up targets and strategies, the assignment of dedicated roles for dealing with sustainability within companies, as well as certification systems to verify corporate environmental and social performance over time (Andrews et al. 2010). Arguably among the best-known examples are two standards established by the International Standardization Organization (ISO), namely, ISO 14001 standard for environmental management (first released in 1999; see Fig. 1.21) and ISO 5001 standard for energy management (first released in 2011).2 Another prominent example is the Eco-Management and Audit Scheme, better known as EMAS. Implemented by the European Commission in 1993 (Iraldo et al. 2009), the scheme had registered around 13,000 certified organizations and sites by March 2018.3 As management systems for environmental, social, and quality concerns matured, hundreds of thousands of companies adopted them. Management systems provide standardized and quality-assured processes for engagement with environmental and social issues. However, they tend to be viewed as bureaucratic exercises, thus failing to become part of organizational culture and practice (Boiral 2011). The rather static
Fig. 1.2 Certified management systems according to ISO 14001
1 INTRODUCTION: THE SUSTAINABLE DEVELOPMENT GOALS…
nature of management systems, once they are established, as well as the regular need for re-certification, may lead to audit fatigue. Furthermore, management systems have been shown to foster a checklist mentality (Boiral et al. 2018). This may prevent the development of innovative solutions to newly emerging sustainability issues and appropriate, timely responses to concerns outside the scope of the established system. A more innovative approach that became firmly established around the same time as management system is sustainability by product differentiation. Previously relegated to specialized third-world shops, from the late 1990s, organic, Fairtrade, and other eco-friendly or ethically traded products began to routinely appear in mainstream stores. Figure 1.34 illustrates the growth in sales and revenue of two of the most widely adopted labeling schemes for eco-friendly and ethically traded products between 1999 and 2016. Today, eco-friendly or ethically traded products are available in almost all sectors, ranging from ethical fashion, organic and fair trade foods, eco- friendly cosmetics and detergents to “green” funeral services. The business case for offering eco-friendly and ethical product alternatives lies in the potential to sell such products at a premium over their conventional counterparts. However, the actual sustainability of such product alternatives is not always clear-cut for consumers. This has led to the proliferation of labeling schemes, which aim to signal the respective sustainability- related qualities of products to consumers. A stocktaking of such labels,
Fig. 1.3 Global sales of organic food and global revenues from Fairtrade International products (1999–2016) in billion US dollars
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conducted in 2016, identified over 240 labels applicable to 80 sectors in 180 countries (ITC 2016). Although eco-friendly and ethically traded products have been successfully established in niche markets worldwide, firms have struggled to establish them in mass markets, and, therefore, they frequently fail to achieve economies of scale (Vermeulen 2015). In addition, many companies offer sustainable product lines as a supplement to conventional products, yet generally do not strive to improve the sustainability of their overall offerings to the same degree. The early 2000s saw innovation reach the core of the discourse on CS (Gallego-Álvarez et al. 2011). On the one hand, sustainability has been acknowledged as a source of innovation and new business opportunities (Bouglet et al. 2012). On the other hand, innovation is increasingly recognized as a potential lever to solve pressing sustainability challenges (Varadarajan 2017). For businesses, this approach offers the promise of creating and sustaining competitive advantage while helping to solve grand societal challenges (Adams et al. 2016). However, successful examples of sustainable innovations carried out by MNCs or at the industry level are rare. Although they could fundamentally contribute to sustainability, it is frequently difficult to achieve such innovations because innovation barriers within firms must be overcome, and buy-in from stakeholders and changes in regulatory environments are also required (Boons and Lüdeke-Freund 2013). The sharing economy has brought forth some of the most successful business models over the past decade (Stephany 2015). This economy ideally enables the commercialization of underused assets (such as spare rooms, cars, or tools that lie idle most of the time) in ways that produce economic, environmental, and social benefits, usually via tech platforms. Uber and Airbnb are some of the most prominent examples (Zervas et al. 2017). By prioritizing sharing (or rather renting) over owning, customers save money, earn supplemental income, lower carbon footprints and resource consumption, increase social capital, and build new communities. However, such technological innovations have been shown to be a double- edged sword, raising ethical concerns across the globe and doubts as to their potentially detrimental impacts on both people and the planet (Ross 2016). One concern raised in relation to the previous example of the sharing economy is that it routes the largest part of the value streams generated by driving Uber cars or renting out spare rooms via Airbnb away from local communities toward a few technology hubs in Silicon Valley and China, which own the platforms necessary for the functioning of the
1 INTRODUCTION: THE SUSTAINABLE DEVELOPMENT GOALS…
sharing economy. Such a concentration of the market, critics fear, increases regional inequality and takes away from local economies. Another concern is the erosion of workers’ rights and benefits. In the absence of an adapted regulatory system, the sharing economy involves a high risk that the costs of worker protections (such as pensions and health insurance), which in many countries are at least partially carried by business, will be pushed back toward the already strained taxpayer-funded social safety nets (Martin 2016).
Impact and the Future of Corporate Sustainability As the previous paragraphs have illustrated, CS has increasingly become more powerful and more closely connected to core business and competitiveness, but also more resource-intensive and complex (see Fig. 1.1). While philanthropic engagement only requires money and a beneficiary, product differentiation requires aware consumers willing to buy, management systems require trusted third-party certification, and innovative business models, for sustainability, require additional buy-in from wider markets and governments as well as the creation of enabling regulatory frameworks. As companies have expanded their arsenal of strategies for addressing sustainability, they have also built capacity for implementation and for navigating more comprehensive stakeholder demands, technological disruption, and an increasingly unpredictable business environment. In light of this increasing complexity and the continuously evolving discourse on the contribution of business to sustainability, impact-oriented CS has emerged since 2010 as a fundamentally new approach to CS. Impact-oriented CS first entered the big stage when the ISO published its ISO 26000 framework for sustainability in organizations. ISO 26000 establishes a new understanding of CS as “involving the responsibility of an organization for the impacts of its decisions and activities (including products, services, and processes) on society and the environment” (ibid., 2.18). Impact-oriented CS has been widely adopted by key global players, including the European Commission,5 the United Nations Global Compact,6 the World Business Council for Sustainable Development (WBCSD),7 and the Global Reporting Initiative (GRI) (see the interview in Box 1.2). The fundamental question of CS has shifted from what companies do in pursuit of sustainability toward what they ultimately achieve for sustainability. The underlying rationale of impact-oriented CS is that all companies
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have impacts on the environment and society by their very nature. Whenever activities are undertaken, inputs are processed and transformed into marketable products and services. These are brought to market, bought, used, and eventually disposed of. Each step in this value chain uses resources, generates waste, and affects stakeholders outside the company (Searcy 2016). Impact orientation expands the remit of CS to account for these impacts, including direct, indirect, positive, and negative impacts, as well as local and global impacts (Dyllick and Muff 2016). This marks a new stage in the development of CS. The fundamental challenge of impact-oriented CS is linking organizational activities undertaken along the value chain with macro-level changes in the environment, the economy, and the society. Such macro-level effects or impacts accrue outside the boundaries of the organization, sometimes far away from the physical location of an activity, and can materialize with significant time lags. Take, for instance, the example of climate change. Business has been a major contributor to rising greenhouse gas emissions, which lead to climate change. At the same time, business contributes to climate change mitigation and adaptation by using renewable energy, and developing and deploying new low carbon technologies. No single business is responsible for climate change, but all businesses will be ultimately affected by it. Understanding the phenomenon of climate change and the contribution of corporate activities is a prerequisite for tackling the issue. This requires an understanding of the complex dynamics of the social and biophysical systems in which companies are embedded as well as collaboration with a multitude of stakeholders (Whiteman et al. 2013). Measuring up to this ambition is a challenging task in the absence of integrated theoretical or managerial frameworks that guide MNCs in measuring and managing their impacts on sustainability (Starik and Kanashiro 2013). The Sustainable Development Goals (SDGs), a global agenda comprising 17 aspirational sustainability goals, may fill this gap. The SDGs define the most pertinent global sustainability challenges up to 2030. Moreover, they break down these aspirational goals into 169 actionable targets and thus provide an integrated reference framework for impact-oriented CS.
Enter the Sustainable Development Goals In the context of impact-oriented CS, the SDGs may prove beneficial in three distinct ways. First, they contain a universally applicable, yet delimited, set of sustainability issues, many of them broken down into targets