Some call it the three E’s -- equity, the environment, and the economy. Others label it the three P’s -- people, the planet, and profits. Whichever letter in the alphabet they use, companies of all sizes and shapes around the world are seriously embracing sustainability practices and processes in their core business functions.
There are many vague definitions of sustainability floating around these days. But the United Nations does perhaps the best job of putting it succinctly: sustainability, according to the UN, is about meeting “the needs of the present without compromising the ability of future generations to meet their own needs.” The Center for Sustainable Enterprise at the University of North Carolina’s Kenan-Flagler Business School is equally precise. Sustainable enterprise, in its view, “is a way of doing business that creates profit while avoiding harm to people and the planet.”
Regardless of the descriptive language, companies know that their top and bottom lines will increasingly depend on how deeply they commit to sustainability and how accurately they track, measure, and report their progress in this area. In view of this looming financial imperative, many large global enterprises, including Walmart, have already plowed significant time, energy, and resources into sustainability efforts. But so have small- and medium-size firms on Main Street. A recent study of 20,000 of these companies in Ohio, Pennsylvania, and North Carolina, for instance, found that 70 percent are adopting sustainable business practices because they increase success.
There are five main reasons companies are interested in conducting business in a sustainable manner:
- Supplier networks demand it. Companies such as Walmart, which has more than 100,000 suppliers, are now requiring that vendors collaborate on sustainability initiatives. If a business wants to continue receiving orders from big customers like this, it will follow suit on sustainability.
- Government contracts necessitate it. City, state, and federal purchasing agents are, in more and more cases, not permitted to do business with vendors who have a poor or nonexistent track record when it comes to sustainability. Over time, sustainability, diversity, and price may become the three most important variables for winning public-sector contracts.
- Customers require it. More than 80 percent of all consumers surveyed in a 2009 national poll indicated that it’s somewhat or very important that the companies they purchase from practice sustainable business.
- Potential employees insist on it. A recent study of employees between the ages of 18 and 35 in the United States, the European Union, India, and China found that 96 percent of them want to work for a company that’s committed to sustainability.
- Public policy encourages it. President Obama has said that he wants 25 percent of our nation’s energy to be renewable by 2025. And the states have been busy shaping energy policy, too. Right now, 46 states are using tax incentives to help boost renewable energy companies, 32 states offer financing or loans for companies seeking to expand their renewable energy presence, 22 states provide rebates for renewable energy activities, 29 states and the District of Columbia have established renewable portfolio standards, and 19 states have embraced energy efficiency standards.
Despite all the sustainable activity in the private sector around the world, most companies haven’t been able to fully track, measure, and report their sustainability endeavors. And many firms are still struggling with the often-complex data gathering in this arena.
That said, it’s critical that private enterprises get credit for their sustainability efforts and essential that outside investors and influencers can verify these activities, because the risks of ignoring potential sustainability liability will only grow over time.
Another crucial -- and much-needed -- component that will reinforce the growing number of private-sector sustainability programs is a global reporting standard. Right now there’s no globally accepted framework that brings together financial, environmental, social, and governance information in a clear, concise, consistent, comparable, and integrated format. As the Prince of Wales, who has spearheaded reform in this area, has said, we’re “battling to meet 21st-century challenges with, at best, 20th-century decision-making and reporting systems.”
This should soon change. The Prince’s Accounting for Sustainability Project and the Global Reporting Initiative recently announced the formation of the International Integrated Reporting Committee (IIRC), which aims to advance the creation of a globally accepted framework for sustainability accounting.
In the meantime, companies across virtually all sectors of U.S. business -- such as Suncory, Kraft, AT&T, Starbucks, and Walmart -- are actively paying attention to sustainability. For example, Walmart is trying to eliminate 20 million metric tons of greenhouse gas emissions from its global supply chain by the end of 2015. This represents one and a half times the company’s estimated global carbon footprint growth over the next five years and is the equivalent of taking more than 3.8 million cars off the road for a year. To achieve this ambitious goal, Walmart will focus on the product categories with the highest embedded carbon.
And the company is asking suppliers to join in this campaign. By 2012, for example, the giant retailer expects that all direct-import suppliers will source 95 percent of their products from factories that receive top audit ratings for environmental and social practices. Walmart has also updated its auditing system to increase transparency all along its supply chain. This will enable it to identify suppliers who need help improving their sustainability efforts.
In terms of setting standards, Walmart is developing a worldwide sustainable product index that will establish a single source of data for evaluating the sustainability of products. The company will introduce the initiative in three phases, beginning with a systematic survey of its global suppliers. As a second step, Walmart will create a consortium of universities that will collaborate with suppliers, retailers, nongovernmental organizations, and government to develop a global database of information on the life cycle of products. The final step in shaping the index will be to translate the product information into a simple rating for consumers about the sustainability of products.
The idea of sustainability is finally gaining widespread global currency among companies, and the notion of tracking, measuring, and reporting results isn’t far behind. The key, however, as Walmart is demonstrating, and as Prince Charles and others are saying, is that we must have consistent and coherent sustainability standards so that enterprises on every continent are on the same page -- both literally and figuratively.
The crafting of a singular accounting framework for sustainability is now under way, and when it’s completed and adopted around the world, our society will start to benefit immensely.
Bob Bunting is Chair of the International Services Group and former CEO of Moss Adams LLP, the nation's 11thlargest accounting and consulting firm. Mr. Bunting is also president of the International Federation of Accountants (IFAC) and serves in that capacity on the steering committee for the International Integrated Reporting Committee (IIRC).