Sustainable Business Practices
Introduction: The Role of Business
Economic structures and policies create the context for throughput, but it is individual business operations that are responsible for the actual throughput activities in the production of goods and services. The specific technologies they use have a significant impact on the amount and types of materials that go through the production cycle of extraction, manufacture, use and waste. In the past, the impact of various technologies on the environment was not a significant issue for business planning and operation. The effects of burning coals were too obvious to ignore in the late 19th
and early 20th
centuries, but even British royalty could not exert enough authority to reduce the pollution created. Concerns for the environmental impact of business activities arouse in earnest in the latter part of the 20th
century with the evidence of chemical pollution, a variety of environmentally significant industrial accidents, opposition of indigenous peoples to logging and mining operations, and the discovery of human impacts on global systems such as the atmospheric ozone layer and climate (see Areas of Concern
The accumulating evidence of serious environmental and human health effects triggered citizen protests, and led governments to begin exerting influence on businesses to clean up their act. Environmental concerns arose for individual nations (eg. with the US establishing the Environmental Protection Agency in 1969) and within the United Nations (eg. UNESCO’s Intergovernmental Conference for Rational Use and Conservation of the Biosphere, in 1968). The evolution of environmental non-governmental organizations (NGOs) also played a significant role in convincing businesses to take greater care of the environment (eg. the Environmental Defense Fund began in 1967, and Greenpeace emerged in 1972). Pushed by these external forces, businesses in the last quarter of the 20th century began to take up environmental issues in a more serious way. This section of the website identifies some of the major trends within what is broadly known as the sustainable business development movement, and critiques these activities from a scale perspective.
Concern for environmental issues was also connected to worries about the growth of the human population. Projections of a global population of several billion raised doubts about how to provide for such numbers, and how to close the poverty gap. It become evident that affluent lifestyles would not be possible for the world’s billions, and that some radical changes were needed to both provide for humanity’s needs and protect the environment. In the early 70’s the Club of Rome published a controversial report “The Limits to Growth” (see Limits to Growth
) which concluded that economic growth could not continue without disastrous environmental and social consequences. Warnings about limits became a hot political topic but were too controversial to stimulate directly relevant government intervention. Instead the more acceptable goal of environmental protection was adopted. Later the term “sustainable development” was introduced by the UN sponsored World Commission on Environment and Development. The term has taken on many meanings depending whether the focus is on sustainability or development. Considerable care is needed in understanding how the term is used, as different uses can actually have diametrically opposed meanings.
Sustainable Business Development
Broadly speaking, sustainable business development involves the application of sustainability principles to business operations. Sustainability in this sense can mean a variety of things – ecological sustainability, social sustainability or even sustained economic growth. As such, the sustainable business movement is a component of the broader movement toward greater corporate social responsibility. Interests in this area is reflected in the growing number of business organizations exploring these issues, the large number of related websites, journal and book publications, academic programs in business schools and other faculties (e.g. engineering), standard setting organizations (such as the ISO 14001 standard for corporate environmental management systems), and government initiatives of various types. Even the financial sector is involved, by establishing standards for lending criteria regarding environmental protection and sustainable development, by developing indices for sustainable business practices (eg. Dow Jones World Sustainability Index), and developing environmentally oriented investment opportunities.
The overall impact of these efforts in terms of ecological sustainability is still small. But the presence and vigour of this movement is a vital, if not sufficient, component of the need for scale relevant policies and practices. Let us turn to the achievements in this area, and the directions needed to address scale issues.
Ecoefficiency is the term used by some businesses to describe their goal with respect to the environment. The World Business Council on Sustainable Development, an association of some of the world’s largest corporations, defines ecoefficiency as “as being achieved by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life cycle, to a level at least in line with the Earth’s estimated carrying capacity”1
. This definition is impressive in its reference to human needs and quality of life, which could be interpreted as a move away from the mere acquisition of material goods for their own sake and an emphasis on their contribution to meeting needs in the service of human well-being (see Understanding Human Happiness and Well Being
). This is also an impressive definition from a scale perspective in its reference to carrying capacity. This implies recognition of limits, the core of the scale perspective.
Businesses from different associations and various sectors have used a similar set of approaches to achieve their own version of sustainable business practices. Much of the improvements in business practices have come from new ways of thinking about meeting customer needs, and redesigning production operations with environmental concerns in mind. Such procedures as life-cycle analysis, design for environment and preventive engineering [glossary terms] have all played significant roles in assisting businesses in moving toward more sustainable operations. This trend reflects the call for prevention rather than relying solely on rehabilitation or end of pipe solutions (see Visions For A Sustainable Future
: Opportunities in Prevention). Some of the major procedures include the following.
Increased Resource Productivity
This refers to getting more goods or services from less material or energy; it is sometimes referred to as dematerialization. Knowledge flows are substituted for material flows. There are a wide range of examples where this approach has been successfully applied:
- carpet manufacturers have reduced energy, water and waste flows from 35 to 89%
- redesigning windows resulted in enhancing daylight by 600 % and reducing solar heat penetration by 400%
- steel pylons for electrical transmission lines use only one third the material required by competing concrete pylons, and they last twice as long
- making steel with electric smelting techniques uses far less materials and energy compared to more traditional basic oxygen steel production
- Dupont has developed a mission statement that involves reducing the total pounds of material used annually while increasing shareholder value per pound. This led to their moving away from material intensive industries (such as oil) to more knowledge based activities (such as agricultural products and electronics)
- Interface, and Collins and Aikens, two of the world’s largest commercial carpet manufacturers, have reduced the amount of virgin material that goes into their carpet manufacturing by as much as 40% through redesign of their operations to accept recycled carpet, which would otherwise have gone into landfills
Items Large and Small
Sustainable businesses practices are applicable to all business operations and go beyond the traditional “green businesses” of recycling and waste management. Everything from razor blades and ball-point pens are being made with less materials and resources than they were in the past. Even the ways large buildings are being designed and constructed are affected by this approach. The traditional way a large complex building was designed involved many technical professions adding their input to a set of plans that would be passed from one group to another in the right sequence. Each professional group would provide their design input and pass the plans on to the next group. Typically the method of reimbursing this design input involved compensation based on capital expenditures, therefore, the larger the air conditioning unit for example, the larger the fee. This approach creates few incentives for any group to reduce either construction or operating costs, or to make the building environmentally friendly.
An innovative total systems approach to buildings pays special attention not only to the types of materials that are used (low waste, non-polluting, local origin if possible, etc.) but also to the design process itself. By creating a design team consisting of the various professional and technical groups together with those who will use the building, and setting a goal of making it as environmentally friendly as possible, can lead to dramatic results in terms of reducing material and energy needs. When the professional compensation is based on the reduction in the building’s life-long operating costs, their expertise is redirected to saving energy and materials as much as possible. The ING Bank’s head office in Amsterdam is an example of such and approach; it is 12 times more energy efficient than its predecessor, significantly reducing operating costs, has fresher air and more agreeable space, and cost no more than a traditional building of comparable size.
One of the reasons that businesses have been attracted to increased resource productivity is that these redesign investments can save money. The less energy and materials used, the lower their operating costs. Many of the examples in this section have produced investment returns in relatively short periods. Another reason dematerialization is attractive to many businesses is that it results in less waste, another goal of sustainable business development.
- Waste from a business operation can be problematic in several ways. Disposal can be costly, more so if the waste is hazardous. If an industrial process is wasteful, it also means input costs will be higher. Many companies are beginning to view waste as a measure of inefficiency and several have set a goal of zero waste for their operations. This approach is also referred to as closed loop production, whereby output from one operation becomes input for another. Some examples:
- A Japanese beer company sends the dregs of its beer production to farmers for cattle feed, returned plastic packaging bands are recycled, bottle tops are used in construction fill, and cardboard is reprocessed into paper
- Pratt and Whitney, a major manufacturer of jet engines, used to scrape most of its costly ingots when making them into turbine blades. By asking its alloy supplier to cast them into bladelike shapes in the first place it reduced waste by 90%
- The Swedish construction firm Skanska only delivers to the site what will actually go into the building, saving not only construction materials, but also transportation costs
- Simple design changes such as making beer cans lighter has saved up to 40% of the material involved; yogurt containers have more than 60% less mass than previously; and even office buildings that once required 100,000 tons of steel can now be safely constructed with new designs with only 35,000 tons
- Dupont reduced the gauge of its polyester film, making it thinner and stronger, and is recycling used film and other polyester products by deconstructing and then reconstructing their molecules in a specially designed plant
Remanufacturing is a process several businesses are using to reduce waste and get more productivity from what they produce. Xerox, for example, developed a remanufacturing process for its copiers, using old parts and materials to make new units, generating new revenues and saving material inputs.
Transition to Renewables
Current energy technologies are creating serious environmental problems and it is possible that global energy supply will not be able to keep pace with anticipated demand. The world is beginning to experience the end of the fossil fuel era, and a transition to renewable energy sources is needed (see Climate Change
). Businesses have responded by reducing their dependence on fossil fuels and increasing their use of solar, wind and other renewable sources of energy. Several of the major oil companies are becoming producers of renewable energy. BP and Shell both have new solar and wind divisions which are growing rapidly. Research and development is contributing to solar and wind turbine technologies becoming increasingly efficient. Experience has shown that dramatic reductions in greenhouse gases and other pollutants can be achieved with simple efficiency improvements such as cogeneration, and the use of wastes from agriculture and landfills.
We are in the early stages of a transition to renewable energy sources. Businesses are preparing both by exploring the direct use of renewables, as well as by reducing their energy needs. Interface Carpeting made simple changes when designing factory layouts, such as using larger diameter, shorter and straighter pipes to reduce friction, which reduced energy needs by more than 90%. With such dramatic reductions in energy demand, it becomes feasible to consider new plant designs that incorporate on site renewable energy sources to power the operation.
Extended Producer Responsibility
In the past, when goods were manufactured which had toxic components, the toxicity was a problem for those who purchased the products, or those affected by their disposal. That has changed with acceptance of the notion that “if you produce it, you own it… forever.” This extension of the producer’s responsibility beyond the sale of the product is having profound changes on how businesses provide goods and services. With the idea of extended producer responsibility, businesses become much more interested in the design of their goods, because once the useful life of the goods is over, the goods come back to the producer. This increases the producers’ interests in designing goods that are either biodegradable or recycleable. It encourages designs which are more durable, which allow the goods to be easily disassembled, and once disassembled to be reused or composted, leaving no toxic residue to deal with. What was formerly waste and a liability now becomes an asset –a source for new product materials. This is another example of closed loop production, where attempts are made to obtain the maximum productivity from materials over repeated loops through the production cycle. Examples:
- European automobile manufactures have agreed with the European Union to take back their motor vehicles after their useful life is over
- Several countries, primarily in Europe, have enacted take-back legislation for large home appliances, office equipment and electrical and electronic equipment
- Ikea has a program to recycle more efficient fluorescent light bulbs so that the mercury they use can be recycled
- Design Tex developed a line of fabric from only 38 biologically safe chemicals, eliminating any compound that was carcinogenic, a heavy metal, a persistent toxics, an endocrine inhibitor, a mutagen or bio-accumulative; the fabric is safe for sensitive internal environments, and when no longer serviceable, the fabric may be composted
- In its European operation Dow chemical became confronted with a German law that banned the sale of CHCs, a volatile compound used in industry and one of Dow’s highest revenue generators. To avoid a loss Dow redesigned its operation so that it no longer sold the compound, but sold services which applied the compound. This allowed Dow to use its expertise in handing the compound safely, transporting it to their customer’s site, applying the compound to provide the service required, and then removing the compound. This allowed Dow to reuse the compound many times whereas in the past it had been discarded after a single use. Success with this transition from selling a product to providing a service led Dow to reorganize its operation for several product lines.
- Schindler, the world’s second largest elevator company no longer sells the elevators they produce; instead they sell “vertical lift transport services.” This shift creates incentives for them to construct more durable elevators, which are easier to maintain, and operate as efficiently as possible.
Another term which describes the closed loop process that includes both waste production and extended producer responsibility is "biomimicry".2
This approach emphasizes that nature offers many tested examples for businesses to learn about sustainability, for whatever survives in nature has undergone millions of years of trial and error, and is the most efficient solution possible. This approach can be applied to developing new products, or processes. Velcro is perhaps the most well know example of biomimicry. Many opportunities remain. We have yet to understand how a spider can produce a fiber stronger than steel without using high temperatures, toxic materials or high pressure. Abalone shells provide a lightweight but fracture-resistance crystalline coating, without high temperatures or pressures, which we cannot yet duplicate. There are also many process applications ranging from new designs for computers based on properties of DNA molecules, to filtration systems based on cell membranes, to the layered construction processes used in deer antlers now being applied in nanotechnologies.
This line of thinking has created new fields of study such as industrial ecology, in which sustainability principles are applied to how various industries are sited in relation to each other to make the most of all resources available. Several ecological industrial parks have been built where the traditional waste from one industry is used as input to another, imitating natural processes in a mature ecosystem where nothing is wasted. Physical proximity is not necessary for sustainable business associations to promote sharing of information and strategies not only among members, but also to individual businesses around the world.
Being Green by Buying Green
Green procurement programs are contributing to the popularity of green products and services. Green procurement involves identifying and giving priority to green products and services in corporate and government purchasing decisions. Governments in particular tend to be large volume purchasers and by giving preferential treatment to green products and services, assist their market penetration. Because products and services designed on sustainability principles are still new and exceptional, it can often be difficult to find those pumps, motors or fans, for example, which are most energy efficient or manufactured without using environmentally damaging processes. Green procurement programs facilitate such information gathering and ensure that the purchases made do the job.
One of the aids to public and private sector green procurement programs, as well as to individual consumers, are a variety of green certification programs. These programs generally focus on a specific industry or sector (such as forestry or fisheries, for example) and establish standards for best practices from an environmental perspective. These standards are then applied to particular companies in that sector, and if standards are met, the company or its products gets a certificate of approval attesting to its environmental practices. These certification programs were initiated by NGOs wanting to put pressure on companies to improve their environmental performance. In some cases, industries set up their own certification programs to preempt independent reviews. The number and type of green certification programs are spreading and cover such diverse areas as forestry, fisheries, tourism, restaurants, bananas, coffee, and even automobile junk yards.
The results of this movement are somewhat mixed. Competing certification programs for the same products have emerged (eg. forestry). Public pressure to have green certified lumber encouraged Home Depot, a large home renovation chain to adopt a policy of only selling lumber from the XX Council. Russia also felt the market force of forestry certification advocates and passed a law requiring its forest operations to join the XX. On the other hand, some fisheries certified by YY have collapsed, drawing into question the standards used. Attaching a “green certified” label of some sort on a product is also a cheap way to increase sales without otherwise making product changes. Environmental concerns are high in the general public and some companies have taken advantage of this concern without making any real commitment to sustainable business practices.
Green certification is an important step in moving to a more sustainable economy, but much remains to be done. More rigorous standards are needed with respect to sustainable ecological scale; and certification standards need to become the norm, either through legislation or strong social or market incentives. Currently, the onus is on the purchaser to seek out the environmentally friendly product or service; this requires an additional effort and is therefore a disincentive. But as with many aspects of sustainable business practices, these problems are typical of early stage developments of a major transition, and are best viewed as challenges to be overcome rather than solely as frustrating obstacles.
Accountability for the Environment
The sustainable business development movement is one aspect of the growing interest in corporate social responsibility. Some individual corporations have developed their own unique triple bottom line (covering financial, environmental and social performance), or supplementary environmental reporting formats. The rigor and quality of these reports is highly varied. Some are very thorough and admit to ongoing problems as well as record successes in environmental improvements. Without explicit standards, corporations can chose what they report, and the report format may change from year to year, allowing the corporation to hide certain aspects of their performance record. Some companies have joined with others in their industry or region to collectively set standards and agree on reporting formats. Several dozen groups have emerged that articulate shared standards and work collectively to provide adequate performance records.
One of the most comprehensive and rigorous is the Global Reporting Initiative, developed in 1997 by the Coalition for Environmentally Responsible Economies (CERES) and the UNEP3
. It involves a long term, multi-stakeholder process with inputs from NGOs, governments, business groups, and professional accountants. The goal is to develop corporate reporting guidelines which include reports on social and environmental performance which has at least the same rigor and comprehensiveness as the standards for corporate financial reporting.
Future Actions Needed
The sustainable business development movement is an important step toward a sustainable economy. Wide spread adoption of the approaches described above could mean significant reductions in the use of non-renewable virgin resources, a transition to renewables, elimination of toxins, and a reduction in waste. In addition, unions are supportive because more jobs are generally created as the company expands the services it provides. These examples show that reduced throughput is possible while still meeting human needs, and profits and jobs can be retained in the process.
Despite its demonstrated successes to date, the contributions of this movement have been small. As stated by the World Business Council on Sustainable Development, “The troubling news is that it is not being tried on a large enough scale, even though it makes good business sense.” There are a number of additional shortcomings that need attention.
From a scale perspective one of the most important issues is the setting of limits for environmental impacts. This is rarely done by individual business operations. When a company achieves a target of reduced emissions or improved productivity, as significant and important as this may be, it does not necessarily mean a reduction in absolute levels of emissions or material use. Back in 1865 Jevons wrote about how increased efficiencies in the coal industry actually led to more uses of coal. The same phenomena often occur with achievements in the sustainable business movement. Without first establishing the acceptable scale boundaries which all companies have to operate within, increased efficiencies and resource productivity alone will not ensure ecologically sustainable scale. As Jevons noted, such “successes” could actually make the situation worse, and increase absolute throughput and ecological impact. There is the added phenomenon that these “successes,” impressive as they are, lull us into believing we are actually solving the problem and prevent us from addressing the issue of scale. In the end, nature does not respond to “miles per gallon”, but to “gallons.”
Clearly setting scale limits is the most serious challenge to the sustainable business movement actually becoming ecologically sustainable. Apparently, only one major corporation has set a goal for itself to be sustainable in terms of its total impact on the environment. To its credit Interface Carpeting actually attempts to measure its progress to this goal. By its own admission, it is only about one third of the way there. However, relying on individual corporations to accept this goal, and move with all due speed to accomplish it, is a risky and uncertain route to ecological sustainability. Without clear scale targets, there is no way of determining whether the successes of the sustainable business movement are bringing global economic impact near these targets, or how far we remain from them.
Another difficulty regarding the sustainable business movement is that it remains a voluntary process. Those corporations committed to sustainable practices are to be congratulated and supported for their pioneering efforts. They have demonstrated what is possible and point the way to new opportunities. At the same time, we must recognize the obstacles inherent in a voluntary approach. Voluntary approaches leave both producers and consumers to sort out complex and difficult to obtain information about compliance with sustainability standards. This extra effort is an impediment to expanding the market for certified goods and services. It would be easier for corporate and individual purchasers if governments required sustainability standards to be met. This would put the onus on producers to design their operations to meet standards, and governments to ensure compliance.
Ways of Easing the Transition to Regulating Sustainability Standards
Governments could ease the transition to sustainability regulations by announcing a commitment to implement such standards over an extended multiyear timeline. This would give corporations an opportunity to plan for the changes required, with the knowledge that change was certain. A second approach would be to initially set relatively easy to achieve targets with respect to limits, and to provide significant incentives for exceeding the targets. Government support for the research and development required to make the necessary transitions would also assist, as would the removal of subsidies that currently encourage clearly unsustainable business practices.
Most important is that governments recognize the absolute necessity of achieving ecological sustainability, and carry out the many roles they have of supporting this goal (see Supportive Public Policies
). Governments establish the framework in which individual businesses operate, and this framework will either encourage sustainable or destructive business processes; it will not be neutral.
The Necessity of International Agreements
National governments cannot establish such a framework independently of each other. Sustainable scale has local and regional implications, to be sure, but these cannot be adequately addressed without first addressing scale at the global level (see Institutions for a Sustainable Future
). International agreements are needed to set scale at global limits before individual nations are allocated their share of resources or sinks. This will not be an easy task if experience with the Kyoto Protocol provides any indication of the complexities involved. Issues of national sovereignty, identity and competing interests are still prevalent. But it is difficult to envision how ecologically sustainable scale can be achieved without such international cooperation. There is no doubt we have the capacity for such cooperation in the face of serious common challenges; the question is whether we will realize this capacity in time to avert social and ecological disaster.