The business case for sustainable development
By Bengt Steen
Does management for sustainable development pay off?
In the long run it is vital for all companies to have access to resources and functioning ecosystems. In the short run, there are numerous examples of how costly lack of such management may be. On a general basis correlations between managment for sustainable development and profit in companies seem to be positive, but it is sometimes disputed whether management causes prosperity or vice versa. The answer depends on a number of factors, such as type of management, type of issue, type of value and type of firm.
Finding the issues
In the overarching environmental management standard ISO 14001 a central task is to identify the environmental aspects to manage. So a first step in making business out of sustainable development is to find the relevant issues which define the sustainability performance of a company or a supply chain.
LCA is one tool which can be used to indentify environmental issues and to assess environmental performance. Environmental and health risk assessment are others. Eco-efficiency indicators may be used to consider environmental and economical aspects at the same time. Social Impact Assessment may be used to find social impacts of significance.
Evaluating their business consequences
A guiding principle in environmental policy is the polluter pays principle or as it is formulated by the EU IPP initiative (IPP stands for Integrated Product Policy): “Get the prices right”. This means that external costs caused by a product life cycle shall be internalized in the cost of the product. Studies in environmental history (EEA, 2001) show that this process of internalizing externalities is slow. It may take many decades from the discovery of an environmental effect until it means costs for companies causing such effects and business opportunities for companies that have found ways of avoiding them. A cost-benefit analysis may help in estimating the level of these future costs to a company and an analysis of how the issue is treated in the scientific literature, media and governments, may give an idea of how mature an issue is in terms of internalization (Steen et al 2006).
The interaction between sustainability activities in a company and its economy issues occurs in several ways. The degree of interaction depends on what type of firm and business it is and how mature the sustainability issue is in society.
EEA (2001), Late lessons from early warnings: the precautionary principle 1896–2000, Harremoës P, Gee D, MacGarvin M, Stirling A, Keys J, Wynne B, Vaz SG, eds. European Environmental Agency, Report No 22, Copenhagen 2001.
ISO 14001 Environmental management systems – Requirements with guidance for use, ISO 14001:2004, ISO Geneva, Switzerland.
Bengt Steen, Klas Hallberg, Ellen Riise, Lennart Swanström, “Interactions between economic and environmental performance in companies, CPM report 2006:3, Chalmers University of Technology, Gpthenburg, Sweden, Available at http://www.cpm.chalmers.se/publications.htm