Summary containing all the relevant theory discussed during the lectures of the course Global Sustainability given in the first year of International Business Administration at the Vrije Universiteit Amsterdam. By learning this summary I personally passed the final exam.
Summary/samenvatting Sustainable Business, ISBN: 9781138087903 Global Sustainability
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International Business Administration
Global Sustainability (E_IBA1_GSUS)
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PART 1 CONCEPTS, TOOLS, AND INITIATIVES
CHAPTER 1 INTRODUCTION: KEY CONCEPTS IN SUSTAINABILITY AND BUSINESS
Sustainability is the capacity to support, maintain or endure; it can indicate both a goal and
a process. Sustainability can be maintained at a certain rate or level, as in sustainable
economic growth. It can also be upheld or defended, as in sustainable definitions of good
corporate practice. Sustainable economic growth (associated with consumption of natural
resources) and sustainable ecosystems might be mutually exclusive.
We can distinguish between different types of sustainability. Social sustainability is often
conceived in terms of sustaining the well-being of people. Environmental sustainability often
refers to sustaining nature or natural resources. The two are intricately interlinked, because
human welfare depends on the sustainability of the environment.
Civilization is exhausting the resources upon which its continued existence depends.
Sustainability became an outgrowth of an increased awareness of our connection to the
environment and the negative impacts of our actions.
While public and governmental interests started to increase in the 1980s, the main driver of
change in corporate strategy was the adoption of the Kyoto Protocol in 1997.
Kyoto Protocol – signed in Japan in 1997 to establish legally binding commitments by
industrialized states to limit their greenhouse gas emissions.
A business can be described as a commercial enterprise, company or firm involved in the
trade of products and services to customers for profit. Businesses are predominant in
capitalist economies and are usually privately owned; in socialist economies businesses are
more frequently state-owned. Businesses may also be operated as not-for-profit enterprises.
One of the factors that contributed to corporations turning toward sustainability was mounting
pressures from NGOs and changes in consumer preferences
Green-washing describes an individual or business promoting something as sustainable –
either business as a whole or an initiative, product or activity while actually continuing to
operate in socially and environmentally damaging ways. Some of the companies improve
one small part of their operation, without the needed overhaul of the entire mode of
operation.
The maxim ‘business is business’ implies that since a company’s aims are purely
commercial, sustainability will be accepted in as far as there are external pressures for doing
so.
In ecological modernization theory, it is believed that enlightened self-interest, economy, and
ecology can be favourably combined, and productive use of natural resources can be a
source of future growth and development.
Social sustainability refers to issues concerned with social equality, poverty, and problems
associated with justice. Equity considerations are primary in order to have the resources to
reduce poverty and increase well-being in developing countries.
Economic sustainability is linked to well-being in relation to financial indicators such as
GDP and is characterized by underlying economic approaches to the range of social issues
attempting to capture the values embedded in human and natural capital.
,Economic sustainability can be seen as a combination of five different capitals: natural,
social, human, financial, and manufactured.
One of the biggest threats to the environment at the moment is industrial development.
Eco-efficiency refers to the idea of doing more with less. Compared to early industrial
products, modern alternatives are able to generate more value by being produced on a much
larger scale with less impact and using less material.
Eco-effectiveness advocates for the production of goods and services by focusing on the
development of products and industrial systems that maintain or enhance the quality and
productivity of materials rather than depleting them.
The circular economy model uses the functioning of ecosystems as an exemplar for
industrial processes, emphasizing a shift towards ecologically sound products and renewable
energy
Cradle to Cradle (C2C) considers not just minimizing the damage but proposes how
contemporary waste and depletion of resources can be avoided by adhering to a cyclical
‘waste=food’ principle.
Prescriptive ethics prescribe norms and standards and typically urge moral improvements.
Descriptive ethics describe what businesspeople think is right and wrong and typically
involve the study of ethical views held, their origin and subjective justification, attempting to
clarify and analyse ethical beliefs rather than change them.
CHAPTER 2 BUSINESS ETHICS
Linking sustainability and ethics
Business ethics involves practical reasoning and reflection using theoretical models as a
guide to action but also involves being able to understand and perceive issues from the
perspective of various stakeholders such as employees, suppliers, customers, and so on.
Business ethics is an applied form of ethics that addresses principles and problems that
arise in doing business. Business ethics can refer to the action of whole organizations and to
that of groups of individuals.
We can help ourselves to some extent by identifying different categories of ethics. Non-
consequentialist ethics (absolutism) refers to eternal, universally applicable moral principles,
objective qualities, and rational determination. Non-consequentialist ethics focus on the
underlying principles of the decision makers motivation, including
- Ethics of duties
- Ethics of rights and justice
Consequentialist ethics (relativism) are subjective, and depend on the person, culture, and
circumstance. Consequentialist ethics are moral judgement based on the outcome of a
decision, including
- Egoism (outcome for decision maker)
- Utilitarianism (wider social outcomes within a community)
1) Internal initiatives include:
1. Internal reporting mechanisms and protection from reprisals
Channels to prevent corporate misconduct, including fraud, corruption, and antitrust
violations.
2. Sectorial initiatives
, Designed to share experiences and develop common standards.
3. Collective action
Promotes responsible business conduct.
4. Certification
Takes into account corporate liability in some jurisdictions.
2) Private external initiatives include:
1. Investors and shareholders
Integrity-related investor engagement with anti-corruption.
2. Customer/ client-supplier pressure
Requiring companies to prove their business integrity.
3. Peer benchmarking
A peer pressure motivation companies to develop integrity.
4. Employee representation
Within may influence the company’s integrity policy.
5. Sustainability reporting initiatives
Some companies voluntarily join sustainability reporting initiatives, such as the Global
Reporting Initiative (GRI).
3) External initiatives prompted by governments include:
1. Governmental enforcement
Addressing corporate misconduct with sanctions and remedial actions.
2. Compliance incentives
Establishment of business integrity programmes.
3. Settlement arrangements
Procedures in the event of corporate misconduct.
4. Corporate governance codes
Complementing the legal framework for business integrity.
CSR
Corporate philanthropy can be defined as the generous donation of money, goods,
personnel, and services to good causes.
CSR is the continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and their families
as well as of the local community and society at large.
Corporate citizenship has taken three forms:
- A limited form like philanthropy, i.e., undertaking charitable deeds
- An equivalent form, i.e., to CSR, involving managing stakeholder engagement but
not moving too far away from traditional business practice.
- An extended form, i.e., incorporating the liberal notions of citizenship and social,
civic, political, and increasingly, environmental rights.
Is CSR just a corporate myth?
Without clear business benefits, CSR is often hard to sustain and justify particularly to
stockholders.
CSR is therefore in everyone’s interests.
From CSR to corporate citizenship
Corporate citizenship means acting honestly and transparently and recognizing the rights
and needs of all stakeholders.
Porter and Kramer argue that companies though will need to prioritize what social issues
they engage with, and these can be categorized as follows:
, Generic social issues: important socially but are neither affected significantly by
company operations nor can influence a company’s long-term competitiveness.
Value chain impacts: are significantly affected by a company’s routine business
activities.
Social dimensions of competitive context: factors in the external environment that
significantly affect the underlying drivers of competitiveness in those locations where
the company does its business.
It is important for corporations to publicly demonstrate how doing business delivers value to
society as well as to itself.
Unfortunately, few companies rarely understand or profile their stakeholders in sufficient
depth, although in-depth understanding is a key to positive engagement. Positive
engagement requires that employees have the right skills, particularly of negotiation and
communication, to develop and maintain trust.
The Vodafone Foundation in India has identified three priority areas for its action on
corporate citizenship – the environment, the emancipation of women, and education.
Human rights
The Commission on Human Rights, at its first session early in 1947, authorized its members
to formulate what it termed ‘a preliminary draft International Bill of Human Rights’ and in 1948
the UN published the Universal Declaration on Human Rights.
Human rights – rights inherent to being human, for example the right to life, first codified by
the United Nations Declaration on Human Rights of 1948.
The first two principles of the UNGC, a UN initiative aiming to persuade businesses to adopt
socially responsible and sustainable practices, are inspired by this 1948 Universal
Declaration:
1. Businesses should support and respect the protection of internationally proclaimed
human rights.
2. Businesses should make sure they are not complicit in human rights abuses.
In many cases local communities do not have the skills, knowledge, or confidence to engage
effectively with big corporations on CSR and this raise concerns as to the best way
companies can be held accountable for their actions.
Soft law reflects social norms and social expectations of what corporations should and
should not do and increasingly these norms are informing a corporation’s social licence to do
business.
John Ruggie states several positive aspects of CSR regarding human rights and in particular:
Due diligence obligations on the part of corporations to respect human rights.
Respect plus suggesting that in certain circumstances, such as when operating in
conflict zones, it will be incumbent on corporations to do more than protect or respect
human rights.
Labour issues: poverty, pay, and working conditions
Investment in job creation and action to address the mismatch in skills and occupations is
urgently required. The problems of the advanced capitalist economies have severely affected
developing countries.
The extra need for, and costs of, medical care further compromise the basic human rights of
many households to decent food, adequate shelter, and children’s education.
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