Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental, and Economic Impacts

Making Sustainability Work is a book that explores best practices for managing and measuring corporate social, environmental, and economic impacts. It covers topics such as leadership, strategy, organization, costing, capital investments, and performance evaluation. The book is relevant for anyone interested in sustainability, including students, professionals, and academics.

An Excerpt From
Making Sustainability W
Best Practices in Managing an
Corporate Social, Environmental, and
by Marc J. Epstein
Published by Berrett-Koehler Pu

Contents
List of cases, figures, and tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
John Elkington, SustainAbility
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Herman B. “Dutch” Leonard, Harvard Business School
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Introduction: Improving social and financial performance
corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Why it’s important. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Managing corporate sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
The Corporate Sustainability Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Background to this book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Making sustainability work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
And finally . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
1 A new framework for implementing corporate sustain. . . . .33
What is sustainability?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Identify your stakeholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Be accountable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Corporate Sustainability Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
2 Leadership and strategy for corporate sustainability. . . . . . . . . . . . . . . . .58
Board commitment to sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
CEO commitment to sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Leadership and global climate change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Developing a corporate sustainability strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Thinking globally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

The role of the corporate mission statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Voluntary standards and codes of conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Working with government regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Social investors and sustainability indices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
3 Organizing for Sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
The challenge for global corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Involve the whole organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Information flow and a seat at the table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Outsourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Philanthropy and collaboration with NGOs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
4 Costing, capital investments, and the integration of s103
The capital investment decision process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Capital budgeting in small and medium enterprises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
Costs in the decision-making process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108
Costing systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
Risk assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
5 Performance evaluation and reward systems. . . . . . . . . . . . . . . . . . . . . . . . . . .125
Performance evaluation systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126
Incentives and rewards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Strategic performance measurement systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
Shareholder value analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142
6 The foundations for measuring social, environmental
economic impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
The concept of value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145
Methodologies for measuring social and environmental impacts. . . . . . . . . . . . . . . .148
Methodologies for measuring social and environmental risks. . . . . . . . . . . . . . . . . . .156
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .162
7 Implementing a social, environmental, and economic
impact measurement system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163
Mapping the actions that drive performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164
Sustainability performance metrics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166
Engage with your stakeholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .178
6 making sustainability work

Measuring reputation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180
Measuring risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183
Measuring social and environmental impacts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .190
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .196
8 Improving corporate processes, products, and projec
corporate sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .198
Organizational learning: the new battleground?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .199
Improving sustainability performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .203
Reducing social and environmental impact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .208
Involve the supply chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .213
Internal reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .222
9 External sustainability reporting and verification. . . . . . . . . . . . . . . . . . . .223
Global Reporting Initiative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .224
Let everyone know how you’re doing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .226
External disclosure of sustainability measures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .232
Verifying sustainability performance and reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236
Internal sustainability audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .237
External sustainability audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .240
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .247
10 The benefits of sustainability for corporations and so. . . . . .249
Make sustainability work. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .250
Use the Corporate Sustainability Model to improve performance. . . . . . . . . . . . . . .255
Create opportunities for innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .257
A last word. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .260
Endnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .262
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .270
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .282
contents7

introduction
Improving socia
and financial performa
in global corporatio
Local air and water pollution in Europe, child labor in Asia, workers’ rights in Nor
America, global climate change, political upheaval in South America, and
rights in Africa. Just a few examples of the challenges that now face corporate e
tives on a daily basis. The issue of whether companies should consider th
responsibility or the impact of their activities on their stakeholders is no longer u
discussion. These issues, and many, many more like them, have become a centr
of the creation of shareholder value and the management of both global and loc
prises. The challenge has moved from “whether” to “how” to integrate corporate
environmental,and economicimpacts—corporatesustainability—intoday-to-day
management decisions when managers at all levels have significant incen
sures to increase short-term earnings. It is now about how to be more socially re
sible or sustainable and engage corporate stakeholders more effectively. It is ab
specific actions that managers can take to effectively deal with the paradox of tr
simultaneously improve corporate social and financial performance.
Developing sustainability strategies is often an important challenge for senior
utives, but implementation is usually the larger challenge. In most of the succes
implementations, CEOs are involved and are the drivers of corporate concern to
ment sustainability. But these senior managers are often challenged as to how to m
age the paradox of simultaneously improving social, environmental, and financia
formance, the three elements that make up sustainable performance. Business
and facility managers are pressured to deliver profits and their performance is ty
measured primarily on how successfully they deliver. So, there is often difficulty
ing an alignment of strategy, structure, systems, performance measures, and re
to facilitate effective implementations. It is also often difficult to obtain the resou
to effectively manage the various drivers of social and environmental performan

Sustainability has been defined as economic development that meets the need
the present generation without compromising the ability of future generations to
their own needs.1 For businesses, this includes issues of corporate social responsib
ity and citizenship along with improved management of corporate social and env
mental impacts and improved stakeholder engagement.2
Leading companies have increasingly recognized the critical importance of ma
ing and controlling corporate social and environmental performance. The impetu
implementing a corporate strategy to integrate social, environmental, and econo
impacts may be driven by internal factors, such as a management commitment
tainability as a core value or by management recognition that sustainability can
financial value for the corporation through enhanced revenues and lower costs.
however, the leading impetus for a sustainability strategy is from external press
such as government regulation, marketplace demands, competitors’ actions, or
sure from NGOs (non-governmental organizations).
Managers have now recognized the importance of stakeholder input and enga
ment and the potential impact on long-term corporate profitability. The consequ
for businesses when they do not effectively consider the impacts of their activiti
society are often substantial. Thus, effective management of stakeholder impact
relationships is critical.
Some companies have not developed any coherent sustainability strategy or e
systematic way of thinking about or managing their social and environmental im
Negative social and environmental impacts have tarnished the reputation of man
porations. However, some have recognized the social and environmental e
their actions, developed a corporate sustainability statement, and made pr
toward defining a policy that confronts the problems. These companies have dev
partial systems to deal with social and environmental problems and may have tr
ferred technologies from other parts of the company to use in implementing sus
ability. They may have set up systems for improved costing, capital budgeting, p
mance evaluations, or product design but have not developed an integrated pro
that includes sustainability in day-to-day decision-making. Some companies
developed effective reactive systems to address these issues and others have b
aggressively proactive.
It is unlikely that any company has fully integrated or achieved sustainability—
is a huge task—but numerous companies have taken important steps toward im
ing their sustainability performance and reducing their negative social and envir
mental impacts. Many of these companies are included in this book as exemplar
best practice. Rather than searching for one best company example to model, th
companies and managers that want to improve their sustainability performance
instead look to adapt and adopt the various best practices of individual sustaina
elements illustrated in this book. Through the detailed model, measures, and gu
to implementation presented here and the extensive best-practice company exa
from around the world, companies can select those practices that can be used to
implement sustainability in their own organizations to simultaneously improve co
porate social, environmental, and financial performance.
Leading companies are examining the impacts of their products, services, proc
and other activities more broadly. They are looking at a more comprehensive se
social, environmental, and economic impacts on a broader set of stakeholders. M
20 making sustainability work

introduction21
agers recognize that stakeholders have numerous impacts on company pro
employees in their desire to work for the company, customers in their desire to b
from the company, the community in its desire to permit the company a license
operate. But they have faced difficulty in managing competing stakeholder inter
and simultaneously improving both corporate social, environmental, and financia
formance. Business leaders who want to respond sensibly to activist calls for cor
responsibility should think about the issue in the same way they would any othe
ness problem.
But stakeholder management has to be more than identifying the squeakiest w
and greasing them. Sustainability cannot be managed as just a public relations s
egy to pacify stakeholder concerns. Doing so can be quite risky as stakeholders
actions and results to be consistent with rhetoric. Furthermore, it is only through
identification, measurement, and management of sustainability impacts tha
and environmental and financial performance can be improved and value create
sustainability to be valuable to both the organization and its stakeholders, it mu
integrated into the way a company does business.
The size of corporate social and environmental expenditures is increasing rapi
and the necessity of improved identification and management of these impacts
become critical. Business leaders need to make an independent assessment of t
social, economic, and environmental impacts to see where pressure is most like
come and also to see where the company is providing unpriced social, environm
and economic benefits for which it is not receiving credit. Firms should not unde
timate their ability to turn corporate social responsibility into a competitive adva
Patrick Cescau, group chief executive of Unilever, recently said, “We have come
point now where this agenda of sustainability and corporate responsibility is not
central to business strategy but will increasingly become a critical driver of busin
growth . . . how well and how quickly businesses respond to this agenda will det
mine which companies succeed and which will fail in the next few decades.”3
Why it’s important
Although this book focuses on implementation, here are the four main reasons w
tainability now demands our urgent attention:
1. Regulations. Government regulations and industry codes of conduct requi
companies must increasingly address sustainability. Noncompliance with regulat
was (and still is) costly, as regulatory noncompliance costs to companies include
G Penalties and fines
G Legal costs
G Lost productivity due to additional inspections
G Potential closure of operations
G The related effects on corporate reputation

2. Community relations. The general public and activist NGOs are bec
increasingly aware of sustainability and the impacts that corporations have on so
and the environment. Identifying the social and environmental issues that are im
tant to key stakeholders and improving stakeholder relationships can foster loya
trust. Gaining a license to operate from governments, communities, and other st
holders is of critical importance for corporations to be able to conduct business o
ongoing basis. Good performance on sustainability can garner a positive reputat
with stakeholders and improve community relations and business performance.
natively, the consequences of mismanaging sustainability and stakeholder
ships can be significant and costly in terms of reputational damage and p
impacts on the bottom line.
3. Cost and revenue imperatives. Sustainability can also create financial va
corporation through enhanced revenues and lower costs. In other words, manag
sustainability is just a good business decision. Revenues can be increased
increased sales due to improved corporate reputation. Costs can be lower
process improvements and a decrease in regulatory fines. Identifying the areas
good for the society, good for the environment, and good for the company inters
key.
4. Societal and moral obligations. Because of their impact on environment
ety, companies have a responsibility to manage sustainability. A personal conce
social and environmental impacts and their social and moral obligations has led
executives and corporations to include sustainability in their strategies.
Leadership organizations recognize the relationship between business and soc
and are redefining their economic, environmental, and social responsibilities aro
the concept of sustainability. Some corporate leaders have adopted sustainabilit
each of the reasons listed above. Yvon Chouinard, founder of Patagonia, an outd
clothing and equipment company, always wanted to put the environment first in
business. Patagonia was one of the first companies to reuse materials and it use
mail-order catalog as a platform to speak out on environmental issues such as g
cally modified foods and overfishing.4
In contrast, it is clear that General Electric’s focus on sustainability is driven by
focus on improving the bottom line. GE’s CEO, Jeffrey Immelt, has publicly stated
his company must focus on innovation and the environment in order to increase
enues and stay competitive. However, he has made it clear that this is about bu
first. The social and environmental strategies developed at GE to reduce
environmental impacts must also achieve financial goals.
Ecomagination, announced in 2005, is a major GE program to dramatically incr
the company’s business in environmental technologies. The company has pledge
increase investment in environmental technologies to $1.5 billion and sales of en
ronmental technologies to $20 billion by 2010. It has also pledged to reduce gre
house gas emissions by 1% and improve energy efficiency by 30% by 2012. Prod
included in the ecomagination initiative include a fluorescent light bulb th
70–80% of energy compared with ordinary light bulbs and a wire coating for cars
electronics that does not include any pollutants in its production. GE has already
to see the benefits of this aggressive strategy. Annual revenues from ecomagina
products are already well over $10 billion.5
22 making sustainability work

Managing corporate sustainability
Corporations have become more sensitive to social issues and stakeholder conce
and are striving to become better corporate citizens. Whether the motivation is
for society and the environment, government regulation, stakeholder pressures,
nomic profit, the result is that managers must make significant changes to more
tively manage their social, economic, and environmental impacts. The best prac
corporate sustainability performance are no longer primarily focused on compan
like Ben & Jerry’s or The Body Shop, as they were ten or twenty years ago. It is n
also some of the world’s largest corporations such as GE and Wal-Mart (along wi
many others) that are leading the way with significant financial and organ
commitments to social and environmental issues.
As companies search for ways to improve their performance, determining the
ways to thoroughly integrate these improvements into all parts of the organizati
presents challenges. These challenges are because implementing sustainability
damentally different than implementing other strategies in the organization. For
ating goals, the direct link to profit is usually clear. For innovation, though long-t
and often difficult to predict and measure, the intermediate goal is new products
the ultimate goal is increased profit. However, for sustainability, the goal is to si
neously achieve excellence in both social and environmental and financial
mance. Managing and measuring this paradox creates challenges.
It is difficult to implement the proper systems to pursue sustainability and to e
ate the impacts of sustainability on financial performance and the trade-offs tha
mately must be made. Often, it is unclear how trade-offs between financial and
ronmental or social performance should be made. There is considerable uncerta
about how shareholders will respond to these trade-offs. Moreover, the trade-off
changing—at certain times, shareholders may want the company to place substa
weight on social performance and the environment, whereas at other times they
want the company to place more weight on short-term profits.
The costs of implementing sustainability are also constantly changing. For exa
potential technology improvements may make it far cheaper to implement pollu
reduction later rather than earlier. Even when sustainability is thought to provide
cial benefits, the benefits can, at best, only be measured over long time horizon
makes it difficult to measure the impact of social and environmental performanc
to quantify the resulting benefits. The constant uncertainty about how far
toward sustainability, the constantly changing emphasis on and costs of implem
sustainability, and the long time horizons therefore make it difficult to implemen
tainability in the same way that other strategic initiatives are implemented.
For these reasons, the standard implementation approaches often fail. In orde
improve the integration of social and environmental impacts into day-to-day ma
ment decisions, companies must tie the measurement and reporting of these im
into decision-makingprocesses.Further,these impactsmust be measuredand
reported in financial terms and then integrated into the traditional investment m
So how can companiesintegratesustainabilityinto day-to-daydecision-making?
Through the combination of a clear and well-articulated and -communicated sus
ability strategy, senior management commitment to a broader set of objectives
introduction23

profit alone, and utilizing appropriate structures and systems to drive sustainabi
through the organization.
The importance of vision and communicated core values are well accepted. Bu
commitments to social and environmental concerns must be consistently commu
cated both in words and actions. Companies must exercise leadership to decide
much integration of social and environmental concerns they want and how they
to do it, align the organization, articulate the trade-offs to managers, and continu
reinforce these objectives throughout the organization. They must also choose a
egy that is consistent with mission, culture, and aligned with geography,
product, community, and other stakeholder requirements. Strategy and leadersh
minimum enablers to successful sustainability implementation.
Just as the formulation of sustainability strategy is critical, so is the execution.
agement must also make choices about how to implement the sustainability stra
and integrate economic, social, and environmental impacts into their organizatio
These impacts are sometimes managed using “soft” leadership elements such a
ple and culture along with a variety of informal systems. In their recruitment and
opment practices, companies may seek to create in their employees a passion a
mitment to sustainability. They in effect create a culture to support susta
decisions. This culture is firmly embedded in the beliefs, values, and miss
vision statements of companies that serve to inspire and motivate employees to
sustainability obligations seriously.
Sustainability impacts can also be managed through “hard” or formal impleme
tion systems like compensation, incentives, and performance evaluations. Many
panies have created performance measurement and management systems that
social and environmental indicators in addition to financial performance measure
Some are also including rewards and incentives that are based on social and env
mental performance. Companies can also change their organizational design or
ture to signal a commitment to sustainability. The right mix of soft and hard syst
depends on the nature of the impacts: the potential magnitude, the degree of un
tainty, and the time horizons involved. It also depends on customer, prod
graphic, and other characteristics.
Wal-Mart: the paradox of managing sustainability
Wal-Mart has been under much scrutiny from social activists. The compa
an enormous challenge in balancing low prices with various social concer
essence of the Wal-Mart business strategy is to offer products to the con
at the lowest price possible. But critics say that Wal-Mart achieves this by
paying its employees lower than a living wage, not providing an adequat
employee healthcare plan, and forcing local businesses to decrease their
It is also challenged by activists regarding the sourcing of its products an
impact on employees in foreign factories that manufacture its products.
these reasons, some communities have stopped Wal-Mart from entering
neighborhood.
Additionally, Wal-Mart’s environmental footprint is huge. It is the larges
private user of electricity in the United States and has the country’s seco
24 making sustainability work

largest fleet of trucks. It also has the potential to have a substantial impa
sustainability through its supply chain with over 60,000 suppliers.
Wal-Mart is making an effort to become more sustainable. CEO Lee Sco
articulated several goals: reducing solid waste by 25% over three years,
eliminating 30% of energy used in stores, doubling the efficiency of the v
fleet over ten years. It is also offering products to appeal to a larger cust
group including organic foods. Consequently, it has become the biggest
organic milk and the biggest buyer of organic cotton in the world.6 Wal-Mart is
also addressing its stakeholders. Scott has said, “We’re trying not to look
critics as annoyances . . . We’ve changed as a company. We’re getting p
idea that everyone who criticizes you has an ulterior motive and wants y
fail.”7
However, critics continue to question whether Wal-Mart will succeed in
plans and whether its intentions are credible. Some have called its effort
publicity stunts and empty promises.8 But others see this as the world’s largest
retailer making a new and important commitment to sustainability. And,
companies as large as Wal-Mart make changes in their worker and enviro
practices, they can move throughout their global supply chain. But trying
simultaneously improve sustainability performance while maintaining the
pricing that is critical to its strategy and its consumers is a considerable
challenge. This is at the center of achieving excellence in social and finan
performance and making sustainability work.
The Corporate Sustainability Model
So what can companies do to improve their sustainability performance? More sp
cally, how can executives identify, manage, and measure the drivers of improve
tainability performance and create systems and structures that improve co
social performance? How does social performance impact overall long-term corp
profitability, and how should executives communicate these impacts to general
agers, financial managers, and employees throughout their companies?
For organizations, a sustainability framework or model of social, environmenta
economic performance creates a powerful opportunity to create enduring v
multiple stakeholders. At the same time, it challenges managers to understand
complexinterrelationshipsbetweeneconomic,environmental,and social perfor-
mance. This book presents a model or framework to aid companies in ide
measuring, and integrating social and environmental impacts into corporate stra
and into management decisions to reduce those impacts and increase profitabili
explains how various inputs and processes affect sustainability performance and
holder reactions and drive long-term corporate financial performance.
The Corporate Sustainability Model describes the inputs, processes, o
outcomes necessary to implement a successful sustainability strategy. The
include:
introduction25

G The external context
G The internal context
G The business context
G Human and financial resources
Though the inputs sometimes act as constraints to improved corporate sustainab
managers have significant ability through leadership and the formulation and im
mentation of various processes including sustainability strategy, structure, actio
systems to effect corporate sustainability performance. The output of these proc
is the sustainability performance—that is, the effect of corporate activity on the
environmental, and economic fabric of society. In addition to having an effect on
ety, these activities often affect corporate financial performance.
This typically occurs through various positive and negative stakeholder (such a
tomers, employees, regulators, and consumer activists) reactions such as a
purchases, consumer protests, employee loyalty or resistance, and government
tions. These stakeholder reactions affect corporate profits and are a part of the b
case for sustainability that has been widely discussed in both academic and man
ial circles.9 The model of the drivers, actions, and measures that managers can us
implement corporate sustainability can provide guidance for future research and
agerial practice. It can help executives better manage the pressure to simultane
achieve excellence in social, environmental, and financial performance and crea
tainability programs that maximize social, environmental, and financial outcome
Background to this book
In 1996, I wrote Measuring Corporate Environmental Performance: Best Practice
ing and Managing an Effective Environmental Strategy.The book has been used exten-
sively by managers in business and government, researchers, and student
widely used by corporate executives in both small and large companies and in g
management functions at the senior and middle levels of organizations. It was a
widely used by functional managers in the social and environmental mana
functions and the finance function. Making Sustainability Work builds on this ear
work and numerous other articles and books and develops an entirely new frame
for the measurement and management of corporate social and environmental im
It is written to be accessible to corporate managers but is built on a solid academ
research foundation.
Relying on the best practices of major corporations and the latest academic re
this book covers the broad dimensions of sustainability along with the specificity
how to execute it within companies. The academic research relies on:
G My own extensive field studies with dozens of companies
G An extensive review of the many academic and managerial articles and bo
on various aspects of implementing sustainability
26 making sustainability work

G A large body of empirical work including surveys of company practices
G Archival data from various sources
G Other academic and company research, analysis, and discussions
It also includes best-practice examples and models from dozens of global compa
that are listed in the box below. The examples include companies that have prim
activities across the globe: in Europe, Asia, North America, South America, Austr
and Africa. Companies in different industries with different challenges are
examine how to formulate and execute a sustainability strategy.
Companies cited in this book
introduction27
G ABN AMRO
G adidas-Salomon
G Alcatel-Lucent
G Alcoa
G Allied Waste
G Allstate Insurance
G Amanco
G AMP Ltd
G Anglo-American
G Avon Products
G Barclays
G Baxter International
G Ben & Jerry’s
G BHP Billiton
G BP
G Bristol-Myers Squibb
G British American Tobacco
G Browning-Ferris Industries
G Cadbury Schweppes
G Canon
G CEMEX
G Chiquita Brands
International
G Citigroup
G Coca-Cola
G Colgate
G Compañía de Minas
Buenaventura
G The Co-operative Bank
G Coors Brewing
G Danone
G DeBeers
G Dell
G Diageo
G Dow Chemical
G DuPont
G Eastman Kodak
G Federal Express
G FleetBoston Financial
G Ford Motor Company
G Fortis
G Fresenius Medical Care
G Fujitsu
G General Electric
G General Mills
G General Motors
G Georgia-Pacific
G GlaxoSmithKline
G Grameen Telecom
G Grupo Nuevo
G Henkel International
G Hennes & Mauritz
G Herman Miller
G Hewlett-Packard
G The Home Depot
G Honda
G ICI Polyurethanes
G ICICI
G Imperial Chemical
Industries
G Interface
G Johnson & Johnson
G Kingfisher
G L’Oréal
G Lucent Technologies
G Marsh & McLennan
Companies
G Mattel
G McDonald’s
G Mitsubishi
G National Grid
G Nestlé
G Newmont Mining
G Niagara Mohawk Power
G Nike
G Nitto Denko
G Norcal Waste Systems
G Novartis
G Novo Nordisk
G Ontario Hydro
G Patagonia
G Perrier
G Procter & Gamble
G Royal Dutch Shell
G Sani-Terre Inc
G Santander
G Scandic Hotels
G ScottishPower
G Seiko
G Sony
G Starbucks
G Star-Kist
G Stonyfield Farms
G Timberland
G Toyota Motor Corporation
G Unilever

28 making sustainability work
The academic research and the examination of best-practice companies have
integrated into a model (the Corporate Sustainability Model, described in Chapte
and guide to best practice. The subsequent chapters offer guidance to help trans
sustainability strategies into specific policies, programs, systems, and measures
will provide direction and boundaries for decision-making and move the entire co
pany toward its sustainability and financial performance goals.
Sustainability at CEMEX
CEMEX, a leading global cement company headquartered in Mexico, has
recognized for its commitment to sustainability. Since launching its Ecoe
Program in 1994, CEMEX believes it has saved over $60 million. This ach
was primarily due to the following:
G Developing and implementing new technology
G New plant design
G Recycling and reusing materials
G Reusing wastes as alternative fuels
G Using alternative raw materials
G Selective mining techniques10
Patrimonio Hoy (PH) is a program that CEMEX developed to promote soci
economic development in Mexican communities. PH allows low-income fa
to obtain services, cement, and other building materials on credit. CEMEX
organizes the customers into groups of three families, which collectively
the debt. The program has served more than 100,000 families since 1998
net profits exceed $1.3 million.11
Identifying the impacts created by an industry can aid in the developm
implementation of a sustainability strategy. The cement industry embark
collaborative research project to identify the challenges and opportunitie
achieving sustainability. The environmental issues include:
G Depletion of nonrenewable resources (i.e. fossil fuels)
G Impacts of resource extraction on landscape and environmental qua
G Dust emissions
G Other emissions including nitrogen oxides, sulfur dioxide, and carbon
monoxide
The industry has positive and negative social impacts. Communities are
concerned about health effects, worker safety, noise, and dust. On the ot
hand, in many developing countries, cement companies are contributing
improved roads and sewers and training workers. The economic issues in
job creation and economic growth due to the development of cement fac
and financial prosperity for the company.12
G Union Carbide
G United Technologies
Corporation
G UPS
G Verizon Communications
G Wachovia Corporation
G Wal-Mart
G Warner Brothers
G Waste Management

introduction29
The cement industry will continue to face challenges. To succeed, com
this industry must monitor changes in the industry, be proactive in respo
challenges, and realize the opportunities that effective management of t
challenges can have for the company and for society.
Making sustainability work
I look at the important role of leadership and strategy in achieving success in co
rate sustainability in Chapter 2, examining the role of senior managers and corp
boards in leading and governing the sustainability activities and developing the
tainability strategy, along with the importance of senior management commitme
the various choices of strategy.
I also show how organizational design impacts the success of organizational su
tainability, looking at the choices of organizational structures and the applicabili
different organizational types. This includes centralized and decentralized sustai
ity functions, outsourced activities, and approaches to integration. One of the m
challenges to successful sustainability implementation is to fit this new strategy
existing organizational structures to simultaneously improve social, environ
and financial performance. Chapter 3 discusses various organizational design iss
that can improve sustainability.
The various management systems that can be used to execute a sustainability
egy are critical elements in any successful implementation. This includes the va
information that is needed to improve both operational and capital investment d
sions. It includes improving the financial analysis needed for better managemen
sion-making throughout the organization along with a more formal integra
social risk into the analysis. These systems provide the levers that managers ca
increase social, environmental, and financial performance. Chapter 4 looks at ca
investment, costing, and risk management systems.
I take an in-depth look at specific ways to measure and reward sustainability p
mance. In this book, the emphasis is on measuring the performance of the proce
sustainability along with measuring sustainability performance results as an ultim
goal and also as an intermediate goal to achieving financial success. I discuss ea
these along with the role of incentives and rewards in improving sustainability p
mance, which are the focus of Chapter 5. Just as effective leadership and strateg
minimum enablers for sustainability success, some of the various formal and inf
organizational systems must be used to effectively implement sustainability.
The measurement of social, environmental, and economic impacts of products
vices, processes, and other corporate activities is critical. Chapter 6 gives an ove
of the approaches that can be used to effectively measure these impacts, along
more detailed and applied examples of how to do this for inputs, processes, outp
and outcomes.
Chapter 7 gives specific guidance on how to identify and measure social, envir
mental, and economic impacts, including an extensive list of useful measures th

be used or adapted to measure the inputs, processes, outputs, and outcomes of
tainability investments. One of the biggest challenges for managers is to determ
how to measure progress in sustainability. This requires process measures (whic
ically do not exist) in addition to results measures. Guidance is provided on the d
opment of high-performance sustainability metrics to measure sustainability suc
and improve performance, as well as a framework and set of measures that can
to measure performance and payoffs of sustainability investments. The extensiv
cussion of the foundations of sustainability measurement along with the list of sa
ple measures is one of the unique features of this book.
Feedback and internal reporting are also needed to improve sustainabilit
includes the design, content, audience, distribution, and communication of susta
ability information. Chapter 8 describes how organizations can use this informati
improve organizational learning and change products, processes, services, and o
activities to be more sensitive to sustainability issues. It also includes a discussio
the feedback loops in the sustainability model and the importance for both learn
and organizational performance.
External reporting is also important for communicating sustainability performa
to stakeholders. Chapter 9 provides an overview of the existing regulations and
ance for social and environmental reporting and describes best practices. This in
a discussion of the reporting related to the Global Reporting Initiative, the choice
reporting in corporate annual reports, sustainability reports, and the web,
choices for verification of the sustainability reports.
Chapter 10 summarizes the book’s main points and provides guidance for man
with additional examples of best practices. It describes the opportunities availab
innovation when companies proactively manage sustainability. And it focuses on
significant benefits that can accrue to both corporations and society by making s
tainability work.
The development and implementation of a sustainability strategy is important
companies with either high or low social and environmental impact, companies s
and large, manufacturers and service companies, with large community affairs o
ronmental, health, and safety (EH&S) staffs, and with no full-time EH&S staff at a
The numerous examples and approaches suggested in this book are at th
moment being introduced and used successfully in a variety of companies and c
readily adapted to companies of different sizes and complexities, in different ind
tries, and with different environmental and social sensitivities.
The concepts discussed in this book are especially relevant to corporate gener
agers, sustainability managers, and financial managers who take a proactive rol
ating systems to measure and manage corporate performance. It is also imperat
financial executives understand the relationships between economic, environme
and social performance, as these complexities are increasingly key components
porate valuations, analyses, and reporting. Most organizations now have sustain
managers, who need to have the knowledge and tools to help create a strategic
and environmental management system that links to corporate value.
The approach presented here also provides an opportunity to make better reso
allocation decisions throughout the organization. It also provides an opportunity
sustainability managers to more effectively measure and report the value
through more effective management of stakeholder impacts and improvement o
30 making sustainability work

tainability performance. Through more careful analysis and measure of the payo
sustainability investments, general managers, financial managers, and sustainab
managers can more effectively justify investments. In this way, sustainability inv
ments can be integrated into the same capital investment process as other inve
and the value of these investments to improving shareholder and other stakeho
value can be seen more clearly.
Operational managers, who are on the front line of managing operations, need
understanding of the potential synergies and conflicts between operational, env
mental, and social performance, so that they can make informed decisions that
value for the organization. Many of the concepts and practices discussed in this
also have relevance for marketing managers, distribution managers, and legal m
agers, for the complexities involved in managing the impacts of an organization’
ucts, services, processes, and other activities touch on all aspects of an organiza
its constituents. R&D leaders and product and process design engineers will be i
ested in how analysis and management of social and environmental impacts pre
opportunities for innovation.
As well as senior and middle managers, academics and others interested in th
will benefit from reading this book. It is also likely that nonprofit and governmen
organizations will continue to be very interested in this topic as they also have b
increasingly sensitive to their social and environmental impacts and the evaluat
the costs and benefits of their activities.
Sustainability at Chiquita Brands International
Developing and initiating a sustainability strategy involves many steps. C
Brands International, a leading producer and distributor of bananas, beg
sustainability program by creating a Corporate Responsibility Steering
Committee consisting of senior and middle managers. The goal of the co
was to determine a way Chiquita could introduce values management in
organization. The result was Chiquita’s “Code of Conduct . . . Living by O
Values,” which established standards including social responsibility. The
includes the requirements of Social Accountability 8000 (SA8000) and a
have third-party certification to SA8000 of all facilities located in Latin Am
It also details its reporting guidelines, which includes an identification of
measures and indicators. These reports are distributed to employees and
disclosed publicly. Chiquita also established the position of Corporate
Responsibility Officer. The officer reports directly to the CEO and Board o
Directors. Prior to the creation of this position, sustainability was the
responsibility of operating managers who did not receive much oversight13
Despite these developments, Chiquita continues to face the difficulties
plague many multinational corporations. In many countries, government
of employees is not effective. Chiquita was recently fined for financially
supporting a terrorist organization to protect its employees in Colombia.
Additional lawsuits were filed against Chiquita seeking compensation for
deaths of people allegedly killed by the terrorist group.14
Many companies are globalizing into countries where current social and
environmental regulations are lax. These companies are faced with seve
introduction31

competitive pressures that question whether global standards are too co
unsafe for the operations in many countries. Deciding whether to follow a
standard or to follow common country practices or locally adapted stand
just one of the many challenges that multinational corporations encounte
trying to set a sustainability strategy.
And finally . . .
So companies know that it is critical to formulate a sustainability strategy, but ho
formulate and execute it remains a challenge. This book provides a framework a
model for implementing sustainability in large, complex, global organizations. Bu
this to happen:
G Sustainability must be an integral component of corporate strategy
G Leadership must be committed to sustainability and build additional organi
zational capacity
G Sustainability strategies should be supported with management control, pe
formance measurement, and reward systems as appropriate
G Sustainability strategies should be supported with mission, culture, and peo
ple as appropriate
G Managers must integrate sustainability into all strategic and operational de
sions. Then, additional systems and rewards can be introduced to formalize
and support
G Managing sustainability performance should be viewed not only as risk avo
ance and compliance but also as an opportunity for innovation and compet
tive advantage
32 making sustainability work

this material has been excerpt
Making Sustainability W
Best Practices in Managing an
Corporate Social, Environmental, and
by Marc J. Epstein
Published by Berrett-Koehler Pu
Copyright © 2009, All Rights R
For more information, or to purcha
please visit our website
www.bkconnection.com