Summary Report: Forum on Valuing Business Sustainability
Opportunities for managers to make the case for sustainability to senior management are rare. Prepare for those rare opportunities with this forum report.
Managers trying to advance sustainability rarely have the opportunity to make their case to senior management, unless they are supported by a senior champion. So what can managers do?
On January 25, 2008, sixty-five managers, academics, policy-makers, and experts gathered to discuss how to value sustainability and make a strong case for business sustainability. Discussions identified the importance of building sustainability into standard managerial accounting practices and aligning sustainability with corporate strategy.
The resulting report, Knowledge Forum on Valuing Business Sustainability, recaps these discussions and outlines research findings, which consistently reveal how good corporate social performance (CSP) is associated with modest financial gains. More importantly, researchers also point out how the risk of sudden damage from failing to uphold social and environment responsibilities can have long-lasting effects on firms.
Move away from "feeling good" to step towards the future.
Two major themes emerged from the Forum:
Sustainability must move from ‘feel-good’ discussions into the practical realm of measurement and implementation.
There is no doubt that environmental and social issues are and will be increasingly important for all stakeholders and society at large. Next steps include translating items generally considered external in the classic economic sense (e.g. a company's carbon emissions) into a hard figure on the balance sheets. These 'externalities' must be labelled, measured, recorded, and reflected in internal performance measures and financial reports.
Indications point to investors and stakeholders taking well-reasoned arguments about sustainability into account in their decision-making. The forum discussion also highlighted that systems are evolving to assist with this challenging process, in which government must undoubtedly play a large role. Corporate executives must also take leadership to shift culture, strategy, and practice, in pursuit of both financial and sustainability success, and to resist short-term pressures and allow lag-effects to expire.
Research must inform future-oriented and actionable strategies for companies, large and small.
Scenario-based case studies are just one example. This theme calls into question the current relationship of business research and practice. Academic research is rarely translated for practitioners. What is translated often takes years to filter through consultants, executive education outlets, or media to the business decision-makers who need it most.
The flow in the other direction is even more problematic. Best practices emerge from practical experiences; academic research is slow to identify these to incorporate emerging wisdom and lessons learned. Increasing the amount of useful research will require motivation on the part of researchers and corporations, to build relationships that facilitate access to data and allow for implementation of findings. Partnerships between academics and consulting firms are beginning to play a role, and the Research Network for Business Sustainability is working to address this challenge.
Research must move beyond its narrow focus of proving the link between corporate investment in sustainability and financial performance or competitive advantage. There are many areas to expand research including the value chain, life-cycle analysis, specific inter-industry and company complexities of sustainability, and the role and power of consumers, investors, and other stakeholders.
Highlights from Forum Sessions
The Challenges of Valuing Business Sustainability: An Executive Perspective
Claude Ouimet, Senior Vice President and General Manager, InterfaceFLOR Canada and Latin America
Successful sustainability business practice requires leadership and a shared commitment by everyone, from top management to factory staff, and from front-line employees to the board of directors.
Developing this commitment requires education and takes time.
Sustainability requires accounting systems that incorporate detailed environmental and business performance indicators, and control systems that are aligned with sustainability strategy.
Tools for Valuing Business Sustainability: A Systematic Review
John Peloza, Assistant Professor, Simon Fraser University and Ron Yachnin, Principal, Yachnin & Associates
Most academic literature focuses on the overall relationship between social performance and financial performance.
We need more research into the specific drivers through which social performance impacts financial performance.
Many of those who rate business performance are including sustainability items in their assessment tools.
Various financial valuation analyses–ratios, discounted cash flow, economic value-added, rules of thumb, and options pricing–can be used to put dollar values to sustainability activities.
Non-Financial Information for Valuing Business Sustainability: An Accounting Perspective
Alan Willis, President, Alan Willis & Associates
It is critical to provide the non-financial information that enables investors and other stakeholders to make their own assessment of business sustainability.
Information valuable to internal decision-making and investors should not be buried in a Sustainability Report, but highlighted in the Management Discussion and Analysis section of the company annual report.
It is a big task for any firm to understand what information it should present, given that different stakeholders have different information needs.
Valuing Business Sustainability: An Investor’s Perspective
Michael Jantzi, CEO, Sustainalytics
Mainstream investors are starting to incorporate ESG indicators into their decisions. In Canada, $503 billion in assets are managed under socially responsible investment criteria.
Fund managers are concerned about risk. Climate change has been a key driver for the integration of ESG factors into fund managers’ investment decisions.
“SRI is not transient... but is here to stay.”
Technology and Environmental Sustainability: Improving Business Performance
Robert D. Klassen, Professor, Ivey Business School
Sustainability is about asking the right questions. Managers should ask ‘why’ more than they ask ‘how much’ to spend on environmental initiatives. Doing so would create a better understanding internally and externally of how the firm is creating business value through sustainability.
Creating closed-loop supply chains forces firms to forge relationships with suppliers and re-evaluate their processes, which are much higher value-added activities than implementing extensive recycling programs.