So, you have decided to become a sustainable organization?!
Great, but what does that mean? A little bit sustainable or truly sustainable, or something that works for you right now somewhere in between?
Kathy Miller addressed in her blog last month the challenges of an organization to implement an ambition to become a sustainable company. These are manifold and considerable and deserve significant attention. It is after all, the “implementation gap” that mostly gets in the way of a nice vision and the often-disappointing achieved reality. I very much appreciated her shifting our conversation from the individual to the organizational level, and to point out the need for coherence in an organizational culture. Her SCALA employee survey tool offers a great way for companies to understand where they stand in terms of sustainability, highlighting future challenges and opportunities to embrace.
In this blog, I would like to shed some light on the misty and foggy emerging domain of “business sustainability”. I have really come to nearly dislike this word. It means everything and nothing and trying to agree on what it really means can spoil any good conversation in a heartbeat.
- How can we safely differentiate between green washing and superficial efforts and true, deep change?
- How can a company decide where to best move to next in its sustainability journey?
- So far, there have been no lamp-posts or mile-stone markers, no differentiators…
- There is only some first emerging studies that pin-point that “sustainable” companies provide a higher financial return (both ROI and ROA) in the long term[1].
So how do we go about finding our way in this jungle of terminology, standards, and double-standards?
To help our students and closely connected companies, Thomas Dyllick of the University of St. Gallen and I have developed a Typology of Business Sustainability in 2012 that we have further developed and refined ever since (see table 1).
We have defined three specific different types of business sustainability that are evolutions from the currently dominant “business-as-usual” corporate scenario which basically follows all required legal norms and regulations. These types correspond to the evolving understanding in the community about what business sustainability is and is becoming:
- Business Sustainability 1.0: “Corporate sustainability is an approach to business that creates shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.” (SAM and PWC, 2006)
- Business Sustainability 2.0: “Business sustainability is often defined as managing the triple bottom line – a process by which firms manage their financial, social and environmental risks, obligations and opportunities. These three impacts are sometimes referred to as people, planet and profits.” (Network for Business Sustainability, 2012)
- Business Sustainability 3.0: “Truly sustainable business shifts its perspective from seeking to minimize its negative impacts to understanding how it can create a significant positive impact in critical and relevant areas for society and the planet. A Business Sustainability 3.0 firm looks first at the external environment within which it operates and it then asks itself what it can do to help resolve critical challenges that demand the resources and competencies it has at its disposal.” (Dyllick & Muff, 2013)
We have compared these three types in terms of value creation, primary corporate attitude, primary focus, strategy, market definition and positioning, products and services, governance and leadership, types of CEOs, types of companies, sustainability implementation, processes, reporting and stakeholder influences. To me, the exciting thing about this typology is to envision the three shifts that are involved in advancing from one type of Business Sustainability to the next. As illustrated in Table 1, these are:
- First shift: “The relevant concerns considered by business shift from economic concerns to three-dimensional concerns (social, environmental and economic) related to the sustainability challenges we are collectively facing.
- Second shift: The value created by business shifts from shareholder value to a broadened value proposition including all three dimensions of the triple bottom line (people, planet, profit).
- Third shift: The shift in fundamental organizational perspectives from an inside-out perspective, with a focus on the business, its activities and interests, to an outside-in perspective, with a focus on society and the sustainability challenges it is facing. This shift results in the associated redefinition of strategies being driven by sustainability challenges thus reframing the business concerns (what), as well as the associated redefinition in values created from the triple bottom-line to a positive contribution to solving sustainability challenges and the creation of value for the common good.” (Dyllick & Muff 2013)
Having analyzed many industries with students in this past year to understand what type of company fits in which typology and what kinds of examples there are for each of these types by industry. The more work we do on this, the more we are encouraged to develop an atlas of organizations as a guideline and for provide some signposts and milestones for the professional community of sustainability experts. To help the reader, here a few concrete examples:
We have defined three specific different types of business sustainability that are evolutions from the currently dominant “business-as-usual” corporate scenario which basically follows all required legal norms and regulations. These types correspond to the evolving understanding in the community about what business sustainability is and is becoming:
- Business Sustainability 1.0: “Corporate sustainability is an approach to business that creates shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.” (SAM and PWC, 2006)
- Business Sustainability 2.0: “Business sustainability is often defined as managing the triple bottom line – a process by which firms manage their financial, social and environmental risks, obligations and opportunities. These three impacts are sometimes referred to as people, planet and profits.” (Network for Business Sustainability, 2012)
- Business Sustainability 3.0: “Truly sustainable business shifts its perspective from seeking to minimize its negative impacts to understanding how it can create a significant positive impact in critical and relevant areas for society and the planet. A Business Sustainability 3.0 firm looks first at the external environment within which it operates and it then asks itself what it can do to help resolve critical challenges that demand the resources and competencies it has at its disposal.” (Dyllick & Muff, 2013)
We have compared these three types in terms of value creation, primary corporate attitude, primary focus, strategy, market definition and positioning, products and services, governance and leadership, types of CEOs, types of companies, sustainability implementation, processes, reporting and stakeholder influences. To me, the exciting thing about this typology is to envision the three shifts that are involved in advancing from one type of Business Sustainability to the next. As illustrated in Table 1, these are:
- First shift: “The relevant concerns considered by business shift from economic concerns to three-dimensional concerns (social, environmental and economic) related to the sustainability challenges we are collectively facing.
- Second shift: The value created by business shifts from shareholder value to a broadened value proposition including all three dimensions of the triple bottom line (people, planet, profit).
- Third shift: The shift in fundamental organizational perspectives from an inside-out perspective, with a focus on the business, its activities and interests, to an outside-in perspective, with a focus on society and the sustainability challenges it is facing. This shift results in the associated redefinition of strategies being driven by sustainability challenges thus reframing the business concerns (what), as well as the associated redefinition in values created from the triple bottom-line to a positive contribution to solving sustainability challenges and the creation of value for the common good.” (Dyllick & Muff 2013)
Having analyzed many industries with students in this past year to understand what type of company fits in which typology and what kinds of examples there are for each of these types by industry. The more work we do on this, the more we are encouraged to develop an atlas of organizations as a guideline and for provide some signposts and milestones for the professional community of sustainability experts. To help the reader, here a few concrete examples:
| Industry | Business-as-usual | Bus. Sust. 1.0 | Bus. Sust. 2.0 | Bus. Sust. 3.0 |
| Retailers | Aldi | Walmart | Wholefood, Coop, Migros (CH) | Salvation Army, Caritas |
| Outdoors & sport equipment | Most brands | Nike | Puma | Patagonia |
| Banking | UBS, Credit Suisse | Migrosbank (CH) | Grameen Bank, Raiffeisen CH | Alternative Bank Schweiz (CH) |
| Food producers | Most companies | P&G, Nestle | Unilever | IN-Bar (US) |
| Hotel industry | Formule1 | Holiday Inn | Marriott | The Amazon Yarapa River Lodge (BR) |
| Power generation | Mosenergo (RU) | Gas Natural Fenosa, BKW (CH) | e-on, Alpiq (CH) | Vattenfall, Solarcity |
Table 3: Examples of the different types of Business Sustainability
Each of these phases of becoming a truly sustainable business holds its unique challenge and one can easily question if a stock-quoted company can indeed make it until B.S. 3.0 or if such a vision needs to be in the DNA of a company from its foundation. If you are interested in more about this, we have studied the extensive organizational challenges and consequences in the following domains:
- a) Ownership: financing, shareholders, time-horizon and value distribution b) Governance:stakeholder engagement, measuring, transparency and reporting c) Strategy: business models, products and services d) Culture:leadership, innovation and organizational behavior
And there, in the cultural aspect, we meet of course again the important research insights of Kathy Miller and the challenges she has pointed out in terms of establishing a coherent sustainability culture.
Each of these phases of becoming a truly sustainable business holds its unique challenge and one can easily question if a stock-quoted company can indeed make it until B.S. 3.0 or if such a vision needs to be in the DNA of a company from its foundation. If you are interested in more about this, we have studied the extensive organizational challenges and consequences in the following domains:
- a) Ownership: financing, shareholders, time-horizon and value distribution b) Governance:stakeholder engagement, measuring, transparency and reporting c) Strategy: business models, products and services d) Culture:leadership, innovation and organizational behavior
And there, in the cultural aspect, we meet of course again the important research insights of Kathy Miller and the challenges she has pointed out in terms of establishing a coherent sustainability culture.
This blog uses extracts from the article “An Organizational Roadmap for Business Sustainability” by Katrin Muff and Thomas Dyllick. The article can be downloaded for free: http://ssrn.com/abstract=2442211
The foundational article “Clarifying the meaning of sustainable business – Introducing a typology from business-as-usual to true business sustainability” by Thomas Dyllick and Katrin Muff revised in 2013 is also accessible on SSRN for free: http://ssrn.com/abstract=2368735
[1] Eccles R.G., Ioannoui I. and Serafeim G. (2012): The impact of a corporate culture of sustainability on corporate behavior and performance. Working Paper 12-035, May 9, 2012. Boston: Harvard Business School.