People, Planet, Profit: Environmentally and Socially Sustainable Business Strategies

Introduction

Isn’t it true that the hardest part of driving any kind of change is whether the individual—the employee, the citizen—feels the need to change at a deeply personal level? And in hindsight, when the circumstances that cry out for change are gone, when things have returned to normal—don’t we always wish we had been bolder, more ambitious, gone faster, gone further?

—Sam Palmisano [1]

Before the World Wars, a majority of businesses were local to their geography. Companies used raw materials and energy sourced locally. Laborers were from the local community. Their products were sold locally too. At that time, companies juggled a similar number of issues ranging from health and safety, maintaining their assets, generating good-quality products, using materials responsibly, conducting their business ethically, and taking care of the known environmental impact of the days. Any poor practices would result in dissent from their customers and community which would directly impact the profitability of the business.

After the World Wars, due to a need to rebuild the economy and the infrastructure destroyed during the wars, companies focused on economic growth, building wealth, and creating employment, while governments focused on rebuilding the infrastructure, social needs, and environmental issues. This practice was further solidified by Milton Friedman and The Business Roundtable. In the 1980s, Milton Friedman and his colleagues at the Chicago School of Economics promoted the concept of monetarism and shareholder primacy—a concept that influenced the thinking of many Western economies such as the United States and the United Kingdom.

Founded in 1972, The Business Roundtable is a nonprofit association consisting of the Chief Executive Officers of major U.S. companies who lobby the three U.S. legislative branches in favor of business-friendly policies [2]. In 1997, The Business Roundtable declared that the fiduciary duties of top management were to protect the interest of the stockholders. Due to the economic power of the United States and dominance of the American Dream throughout the world, this formed the principles of corporate governance and cemented the practice and behaviors of top management.

… In The Business Roundtable’s view, the paramount duty of management and boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders. The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors. It is, moreover, an unworkable notion because it would leave the board with no criterion for resolving conflicts between the interests of stockholders and of other stakeholders or among different groups of stakeholders. …

—The Business Roundtable, 1997 [3]

Despite a vast increase in economic growth and incomes, there was a corresponding decline in other elements of business operations ranging from excessive executive compensation, short termism, financial manipulations, and corporate scandals, leading to the 2008 financial crisis. Between 1860 and 1990, a period of 130 years, there were 56 major man-made Health and Safety disasters and 37 major corporate scandals. Between 1990 and 2020, in a span of 40 years, there were 54 major man-made Health and Safety disasters and 182 major corporate scandals.

There are also many and frequent cases of discrimination of all types: gender, age, skin tone, bodily features, language, national origin, physical and mental disability, race, religious beliefs, sexual orientation, family standing, social affiliation, and reprisal for whistleblowing could be found frequently in the media along with pay gap disparities and harassments. In addition to these, issues on climate change, forest fires, hurricanes and typhoons, prolonged droughts, and floods were reported more frequently in the last 20 years.

The list of major corporate scandals and ethical issues include corporate giants, stock market favorites, and family-trusted brands, such as ABN-Amro, AIG, Airbus, BAE Systems, Barings Bank, Boeing, BP, Bristol-Myers Squibb, Chevron-Texaco, Deutsche Bank, Enron, Freddie Mac, Halliburton, Hewlett-Packard, Lehman Brothers, Merrill Lynch, Monsanto, Nestlé, Olympus Corporation, Petrobras, Royal Bank of Scotland, Royal Dutch Shell, Siemens, Southwest Airlines, Swissair, Tesla, Toshiba, Tyco, Union Carbide, Volkswagen, Wells Fargo, WorldCom, Xerox, 1Malaysia Development Berhad, and 7-Eleven.

Many more major and global companies and brands, while not causing major disasters and scandals, fell short of their declared energy, environmental, and resource consumption objectives. Some of these include Shell [4], BP [4], Total [4], and ConocoPhillips [5] falling short of their net-zero pledges with Shell relying heavily on CO2 offsets rather than reducing their demand for energy [5]; Starbucks falling short of its 2008 commitment to make 25 percent of its cups reusable by 2015, lowered its target to five percent in 2011, and in 2016 further lowered its target by half to be achieved in 2022 [6]; Coca-Cola and Pepsi falling short on their single-use plastic and plastic recycling targets [7]; Nestlé, and P&G missing their 2020 deforestation goals [8]; and Costco and Netflix did not publish their CO2 emissions reduction targets despite stating at a high level their commitments to reduce their environmental impact [9]. An analysis by Transition Pathway Initiative showed only 15 percent of businesses have energy and climate commitment that is fully aligned with 1.5°C global warming and 63 percent of commitments are either nonexistent or so vague that it is impossible to decipher [10].

At the same time, 72 percent of the global population earns below the average income levels and lives in areas where the local biodiversity cannot repair itself [14]. There are also examples of companies located in the developed world whose labor practices, employment benefits, and social welfare are worse off than those in developing countries. The New York Times reported that the United States is the only advanced nation that does not have national laws covering minimum vacation time (paid or unpaid), sick days, and paid maternity and paternity leave compared to other developed nations. Among the Organization for Economic Cooperation and Development (OECD) countries, the United States also has the highest percentage of low-wage workers and the lowest minimum wage as a percentage of the median wage [11]. There is also evidence that some employees rely on customer tips to survive [12].

While businesses are very successful, many are not paying their fair share of taxes—monies that are essential to finance infrastructure, health, education, and other community services—services that also benefit them. In 2020, 55 companies on the S&P500 or Fortune 500 avoided paying a combined total of $8.5 billion in taxes through a series of complex accounting, reporting structures, and tax rebates. Nike and FedEx reportedly generated $2.8 billion and $1.2 billion in pretax income but have paid no taxes between 2018 and 2020 [13]. During the same period, Amazon reported a pretax income of $45 billion, they paid no taxes in 2018 and a total of $1.9 billion or 4 percent versus 21 percent applicable to other U.S. corporations [14].

As such, the general public and governments are increasingly demanding companies to take a broader view and accountability of their business operations and to take business ethics, health, safety, employee welfare, use of resources, protecting the environment, supplier and societal issues seriously as well as the profitability perspective.

The modern concept of sustainable development was derived from Our Common Future [15] also known as the Brundtland Report in recognition of the Chair of the World Commission on Environment and Development, Gro Harlem Brundtland. The report proposes a model for sustainable development balancing the need for economic growth, environmental protection, and social equality.

In 1994, John Elkington coined the phrase Triple Bottom Line [16]. Both concepts are generally accepted, and there is a proliferation of measurements, reporting frameworks, and certification schemes for them. Some companies are successful in this endeavor. Many are not and issues such as business ethics, health and safety, responsible use of resources, and environmental impacts are still rampant and trending in the wrong direction. As such, the concept of sustainable development and the triple bottom line are still elusive in businesses, and many still struggle to implement it.

Issues such as quality and asset management are directly related to profitability, and businesses are already proficient in it. Issues like health and safety, business ethics, and employee welfare are also much easier to implement as most are a series of Do and Don’t.

Where most businesses struggle with is in energy, water, raw material, waste footprint, and its associated environmental impact. This book focuses on one element of the triple bottom line: the responsible use of resources—raw materials, energy, water, and generation of waste. Businesses can use this as a template to integrate the other elements of triple bottom line into their operations. This can range from quality, health, safety, environmental impacts, and social welfare in the local community. When the business practices become more mature, they may want to consider integrating multiple issues and optimize all of the issues at the same time.

Yes, improvements in resource productivity will nearly always lead to a reduction in the environmental impact of a company. This book focuses on resource productivity instead of the impact of the environment for three reasons: (1) it is instilling the practice of solving the environmental impacts at source rather than an afterthought; (2) some environmental impacts are cumulative over a long time, whereas the resource productivity can be measured in situ; and (3) addressing resource productivity has an impact on the whole supply chain of the raw materials, energy, water, and waste, leading to an overall global change in the supply and demand of resources.

What Is Resource Productivity? Why Resource Productivity as a Basis for the Triple Bottom Line?

Over the last 30 years, there has been a general increase in awareness and knowledge about the impact of human beings and the impact of their activities on their surroundings and planet earth. Coupled with an increase of documentaries on the subject matter, such as David Attenborough: A Life on Our Planet, and the rise of climate change activists such as Greta Thunberg and Extinction Rebellion, issues such as energy, water, raw material and waste, and climate change are brought to the fore.

For energy, global energy consumption over the last 50 years has grown at a steady pace of 2.5 percent per annum [17]. Over the same period, the convention of referring to energy savings changed many times: from energy savings to energy conservation, energy best practice, energy efficiency, energy management, low carbon, net-zero, and so on, without any significant reductions in energy use and energy consumption. The accumulation of CO2 in the atmosphere is simultaneously making the planet’s air and oceans warmer and making the ocean water more acidic. At the same time, three trillion trees (at a rate of 50 billion trees per year) were cut down in name of farming, industrialization, and urbanization [18]; the excessive use of fertilizers and pesticides in farming leached into waterways impacting the aquatic biodiversity [19] and into human health and land-based biodiversity [20].

Cumulatively, a warmer and prolonged climate is thawing the permafrost in Siberia and melting the ice sheets in the Arctic and Antarctic. It is making the forest much easier to catch fire, particularly in the Mediterranean countries, California, and Australia. Warmer ocean slows down the ocean currents that flow from warmer part of the planet to the polar regions and vice versa, impacting the planet’s ability to regulate temperatures; and the acidification of the ocean water makes aquatic life form, particularly corals and crustaceans difficult to grow and survive. Research by Johan Rockström and his team suggests that air, ocean, virgin forest, and wildlife (both land and aquatic) are part and parcel of the way planet earth regulates and maintains stable living conditions, are interlinked, and are rapidly and assuredly tipping the scales for life on Earth as we currently know [21], [22]. Even if there is an overwhelming success to limit warming by 1.5°C above preindustrial levels by 2030, approximately five billion people could still be exposed to the climate issues described [23].

A quick survey of the current capabilities for energy efficiency shows that existing energy-saving techniques and technologies can reduce energy consumption by 73 percent [24] and with 25 to 30 percent of the savings without major capital costs and changes to business practices [25]. The Boston Consulting Group [26] further estimates that countries can achieve an 80 percent reduction from its 1990 level greenhouse gases using only proven and accepted technologies available today without harming economic growth—thus meeting the 2°C commitment to Paris Agreement. However, the use and promotion of energy-efficient technologies are only achieving just over one percent savings year on year—a fraction of its true potential [27].

For raw material and waste, many are familiar with reducing packaging waste. Sadly, many organizations in Canada, France, Belgium, Germany, Spain, the Netherlands, the United Kingdom, and the United States operate an out of sight, out of mind approach—by shipping their plastic waste to countries like China (now reduced), Turkey, Malaysia, Vietnam, Thailand, Indonesia, and the Philippines—all of which have relatively lower regulatory requirements and environmental standards. These plastic wastes are piling high or are waiting to be incinerated in the open air, causing atmospheric and effluent pollution, related health consequences, and environmental impacts [28], [29]. Research by McKinsey & Company suggests that efforts to reduce packaging waste are concentrated in three areas: emphasis on full recyclability and a higher degree of recycled content (60 percent), reduction of plastics consumption (26 percent), and repurposing plastics after their beneficial use (14 percent) [30].

When it comes to nonpackaging wastes such as end-of-life products, by-products, and graded products, the reusing, recycling, and remanufacturing rates are low [31]. Through better or improved design, a handful of leading companies were able to increase their reuse, recycle, and remanufacture rates to high numbers. Now, some manufacturers sell soaps, shampoos, and disinfectants using recycled plastics. Some airlines have also introduced new blankets made from repurposed waste plastics.

Even in low-tech industries like agriculture and farming, there is a 50 percent excess use of phosphorus-based fertilizers, 60 percent excess use of nitrogen-based fertilizers, and between 30 and 42 percent excess pesticide use [20]. Ironically, while we use excessive energy, water, fertilizers, and herbicides to grow the food, on average, 33 percent of the harvested food does not reach human or animal consumption [32]. This figure is much higher for perishable foods, such as fruits and vegetables, and lower for nonperishable, such as grains. FAO also reports higher food waste in Central and South Asia and Sub-Saharan Africa.

For water, while 75 percent of the planet is water, 97 percent of it is saltwater and 1.7 percent is in inaccessible glaciers, polar ice caps, deep underground caverns, or falls at the wrong time, at the wrong place, or the wrong speeds, leading to floods. The remaining 1.3 percent is shared between agriculture (70 percent), domestic (11 percent), and industrial (19 percent) use [33]. The increasing numbers of industries, water leakage, unregulated and uncontrolled water extraction, contamination of groundwater, poor water use practices, and rising temperatures in most of the countries are making freshwater a scarce resource.

The acidification of freshwater due to CO2 in the air and rising air temperatures has reduced the size of freshwater reserves by 80 percent, causing corals bleaching, and melting water stored as ice in the polar caps. Summer sea ice has reduced by 40 percent in 40 years, which will limit the planet to regulate its global temperature [18].

In general, the general public understands the concept of optimizing the consumption of raw materials, energy, and water and minimizing the generation of waste as resource efficiency. However, as will be described in Chapter 3, efficiency is just one of the different ways to achieve the stated resource goals. The other ways to optimize resources in a business include the concept of use, consumption, yield, and effectiveness. All five concepts offer a comprehensive way to look at optimizing and improving resources deployed. No one word or phrase captures all five concepts of using resources optimally. We use the concept of productivity to mean consuming resources as efficiently and effectively as possible to reduce or avoid waste. Resource productivity captures all of these concepts—use, consumption, yield, efficiency, and effectiveness—from a physical quantity perspective, not from an economic or financial perspective.

Some people are naturally drawn to protect the environment. Some others would continue to deny the relevance of climate change and its impact on the future sustainability of life on the planet. Regardless of what individuals and collective individuals in a business believe about climate change, conservation, and ecosystem, it is no longer acceptable for businesses to operate on a business-as-usual basis—focusing on making products or providing services without consideration of the unintended consequences. They have to juggle many facets of the business environment: sales, profitability, new markets, competition, and regulations and address the issues around environment and sustainability.

Businesses must want to take action on improving their resource productivity, mitigate environmental impact, and improve profitability. Governments are not best placed to take action due to three compounding reasons.

Firstly, the type of economics that informs Government policy making—macroeconomics—assumes that every person is rational. The rational man or woman running a business will always ensure that they are as efficient and effective when utilizing resources. Waste and inefficiencies are a cost that any rational man or woman will minimize. As such, when Governments talk about resource productivity and the related environmental impact, they are in effect talking about decarbonization, deforestation, plastic wastes, etc. As can be seen by the statistics earlier, this assumption is wrong!

Secondly, it is not the Government’s role to mandate companies to consume less, save money, and increase their profitability. Similarly, suppliers for raw material, energy, and water, waste recycling and waste management companies, equipment manufacturers, consultants, and other service providers want to be supplying their products and services. Businesses reducing their consumption detract from the supplier’s interest. Academics, R&D, professional associations, lobby groups, and the media also depend on the continued consumption for them to do their bits.

Thirdly, there are also a lot of professional lobby groups whose aim is to block, delay, modify, and water down policies that promote environmental protection and sustainability in many countries. Some of these lobby groups are allegedly funded by large coal, oil, and gas companies [34] [35] [36] (e.g., BP, Shell, ExxonMobil, Chevron, Total, Santos, Origin Energy, Sunset Power, and Whitehaven Coal), meat and dairy companies [37], and large energy-consuming companies [38] [39] [40] (e.g., Toyota, Apple, Amazon, Microsoft, Walt Disney, Intuit, United Airlines, Air-France, International Airlines Group, Lufthansa, Ryanair, Deloitte, Alphabet (Google’s parent company), Bayer, AstraZeneca, Pfizer, FedEx, Verizon, Johnson & Johnson, Dow, Goodyear, and BHP)—many of whom publicly acknowledge the importance of climate change and the need to take action. The five largest oil and gas companies (BP, Shell, ExxonMobil, Chevron, and Total) reportedly spend approximately over $200 million every year lobbying [41] climate change policies globally.

The UN’s Conference of the Parties (COP) is evidence of this innate difficulty for Governments to take effective action. From Paris (COP21, 2015), Marrakech (COP22, 2016), Bonn (COP23, 2017), Katowice (COP24, 2018), and Madrid (COP25, 2019) to Glasgow (COP26, 2021), each meeting gains commitments for the fringe issues—reducing deforestation, reducing methane emissions, phasing down coal and fossil fuels—yet passes the baton for the real deal—energy demand reduction, finance for decarbonization, and carbon capture—to the next meeting. Ahead of the Glasgow meeting, the oil and gas companies allegedly spent $81.9 million on lobbying [42]. 503 delegates from 27 countries were employed by fossil fuel companies or associated lobbying groups. Collectively, they represent the largest group compared to any other countries represented! [43]

Ultimately, improving resource productivity is for the benefit of the business, and companies have to take it upon themselves to take action. Taking action is also important because it represents 75 percent of the global economy [11]. Moving forward in a postpandemic world: Generation Zs want to work for companies with strong purpose and environment and social performance; customers want to associate with green and socially responsible businesses; financial and insurance institutions want to invest in responsible businesses. The society expectation and regulatory trend are toward a net-zero, circular economy, ethical, and transparent reporting. All in, the importance and call for environmental and social responsibilities in business will increase.

In 2015, 2016, and 2018, I surveyed what businesses were doing in terms of resource productivity, their reasons for addressing these issues, and the barriers they faced. After analyzing all 805 survey responses, more than 70 percent agree their company has a policy and a work program for resource productivity. Among all resource productivity topics, the top three priorities were consuming less energy (33 percent), consuming less raw materials and generating less waste (33 percent), and consuming less water (eight percent). Businesses focus on these areas because of a desire to reduce their operating costs (49 percent) and improve the environment and society (30 percent). The other reasons make up the remaining 21 percent.

A study by the Economist Intelligence Unit reported similar findings and is shown in Figure I.1. Discounting raising awareness among customers, purchasing carbon offsets, and promoting local community initiatives from Figure I.1 as it does not result in any physical activity to improve resource productivity: working on consuming less energy, using less raw materials (thus generating less waste), consuming less water, and supply chain initiatives make up 70 percent of the focus areas.

Figure I.1 Top focus areas of leaders and managers in a business

Source: Data adapted from [23]

All in, we are consuming natural resources 50 percent faster than our planet can regenerate to meet our current consumption needs [44]. Traditionally, each resource is optimized independently of the other. In reality, each resource on this planet is interrelated and balanced within the ecosystem. A study by S&P Dow Jones Indices for over 2,500 companies analyzed between 2009 and 2014 shows a strong correlation between energy, water, raw material, and waste in many agricultural, industrial, and service sectors. As such, activities that increase energy consumption, acidify water sources, and change land use all accelerate the accumulation of greenhouse gases in the atmosphere and push our planet further away from its ability to regenerate [22].

Although technologies and techniques are available to solve (or at least improve) the existing resource productivity situation, their adoption is a huge challenge due to a lack of leadership, vision, and follow-through action. Despite the aspirations of many governments and publicly traded companies to become more resource productive, we are slow and far from becoming so. This is not to say that all businesses are bad in resource productivity. S&P Dow Jones Indices found companies that outperform their peers consistently do so over a long time because they are willing to invest in resource productivity and sustainability. The resource productivity of laggards also consistently lags behind their peers [44].

For the significant majority in the middle, anecdotal evidence and hearsay for poor resource productivity point to multiple reasons and range from the fact that: (1) different industries have different requirements that are not replicable or have no commonalities; (2) failure in markets and government policies to expedite the diffusion of new technology; (3) low cost of resources such as raw materials, energy, and water impedes the return on investments; (4) short sightedness requiring immediate returns on investment (ROI); and (5) senior executives having no interest in it or are constantly moving its goalposts. Others claim that they have exploited most (if not all) opportunities to save; thus, there are no opportunities to use less. Other evidence points to the lip service paid by the largest corporations in the world on resource productivity,