Business Sustainability

Business Sustainability Andrea Carolina Gonzalez Estrella July 2020 1. Introduction “The future will be green, or not at all.” — Jonathan Porritt, environmentalist and author To see clearly how a company based on a sustainability strategies works is important to understand what a business sustainability is and how it blends well with the corporate social responsibility. A way to develop a new sustainable horizon is to comprehend the reasons a company should change their strategies in a way they take care of the community and the environment. The effort to change is not for a single company but is a start that can lead to a chain reaction in the society for more companies to follow the sustainable principles. Today the economies around the world are betting for the companies that looks forward and are one step ahead, working for the future generations like NatureWorks. We’ll see how they manage to change and innovate their product transforming a high contaminating product to a compostable one. Is not an easy path, but with the correct guidance, companies can transform step by step into a sustainable business. 2. Short conceptual analysis of Business Sustainability Business sustainability can be described as the process of managing an organization by taking into consideration three main aspects: economic, social and environmental. It can also be referred to as “the triple bottom line approach” (Mahajan and Bose, 2018 mentioned by Oncică and Cândea, 2016). Even though that is a simple definition, it cannot be universal because is changing continuously in response of the evolve and progress in business community. Oncică and Cândea (2016) reviewed five conceptual pillars supporting business sustainability: 1. Sustainable development is described by the Brundtland Report in 1987 as the “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This concept bring to light the main strategies a company must take up to aim sustainability suggested by the International Institute for Sustainable Development (IISD) in 1992: "For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future." (IISD, 1992, p. 2): 2. Environmental management is a system for protecting the environment integrated with all managerial functions in order to achieve economic and environmental performance. Nel and Kotzé (2008) mentioned that this term is not the management of the environment but is more the governance or managerial of strategies that develops the regulations of human activities, products and services effects on the environment. 3. Stakeholder approach relies on the group of people that are affected in a positive or negative way from the decisions and strategies that the company have. This approach gives a structure for the actions and methods a company can take to become sustainable after the relevant recognition of stakeholders. 4. Corporate social responsibility can be debated by two points of view, one as Friedman (1970) specified, the main social responsibility of a business is to enlarge its profits and in other hand Oncică and Cândea mentioned that companies have the responsibility to the society because they have an important role and operates by the public consent represented on a license to operate (Van Marrewijk, 2002). CSR can come under a multiple actions, for example when a company do voluntary ethics- based activities or when they anticipate laws that can be applied in the future and fulfilling prompt on. 5. Corporate accountability can be defined when we have to parties: the principal (shareholders) and the agent (management representative). In this relationship, with an agreement, the principal gives the trust to the agent to achieve profitability. This theory affirm that corporate accountability shouldn’t be limited to a traditional trustee model, instead present to other stakeholders as well. 3. Business sustainability and Corporate Social Responsibility A simple way to differentiate business sustainability and corporate social responsibility as Dentchev (2005, mentioned by Oncică and Cândea, 2016) addresses is that the first one is associated with sustainable strategies and focusing on environmental issues, while CSR looks mostly on social issues. There is literature evidence that predominates the strategy-oriented method on business sustainability, corporates performed with a concern about the people and the natural environment while building and maintaining a competitive advantage. (ibid. p. 32) Oncică and Cândea quotes Van Marrewijk (2002): "In general, corporate sustainability - and, unfortunately, also the contemporary understanding of CSR - refers to company activities, voluntary by definition, demonstrating the inclusion of social and environmental concerns in business operations and in interactions with stakeholders. This is the broad - some would say ‘vague’ – definition of corporate sustainability.” Oncică and Cândea uses in their book the two concepts as one, they states that business sustainability and CSR relates “to society’s sustainable development and to business long term success” but they also mentioned Porter and Kramer (2006, 2011), that business with sustainability-oriented performances are only a part of CSR because business sustainability is associate with the interest for the natural environment only. 4. How a company starts as sustainability corporation When a company decide to incorporate sustainability principles into their strategies and values, a way to make an easy transition is to identify in which phase are they and in which one they may have more troubles to adapt the organization. Oncică and Cândea have referenced a model developed by Dunphy and Beveniste (2000) and it consisted in six phases that will be able to examine the progress of the transition. Oncică and Cândea described it briefly the phases of the continuum: Phase 1 Rejection • The social and environmental duties of sustainability are disavowed. Sustainability is considered unimportant, possibly detrimental to the business. The organization actively lobbies and fights against regulations in the field. Phase 2 Non-Responsiveness • Lack of response to sustainability problems; incapacity to react. Sustainabilityrelated issues are considered irrelevant, beyond the company’s sphere of interest. Phase 3 Compliance/Risk Reduction • The minimum actions are taken, only as much as necessary to comply with legislation and regulations, or to reduce possible risks to acceptable levels. Phase 4 Efficiency • Recognizing the potential for savings by waste reduction and for increasing efficiency through educating employees and improving working conditions and labor safety. Phase 5 Strategic Sustainability • Recognizing the potential of sustainability to generate competitive advantage. The organization takes actions to incorporate sustainability into its business strategy. Phase 6: Ideological Commitment • Sustainability is internalized and institutionalized. The organization combines the features of stages 3 – 5. It becomes a promoter of sustainability, taking steps to transform the competitive context in which it operates, including initiatives for tightening regulations and modifying market structures. Dunphy and Beveniste specify that in the same company, some units can be at different phases of the continuum and at the same time can find themselves in different stages in relation to the social outlooks of sustainability and the environmental aspects. Cândea (2010) believes that the society needs sustainable business for it’s sustainable development. If we see one enterprise, even though a large one, working to become a sustainable business the impact is limited, but if more and more companies participate in renewing social and environmental solutions and keep developing the result will be a synergy that leads to “tipping points”1 (Gladwell, 2000 mentioned by Oncică and Cândea, 2016) that could lead to a regenerative of industries or maybe economies. Once the company realize the major impact they can make, it’s time to look for other companies that could beneficiate and could work together. 5. Elkington model: The chrysalis economy Elkington called a chrysalis economy the “policies and regulations designed to force companies to comply with minimum environmental standards are inadequate for encouraging the creative, socially responsible entrepreneurship needed to evolve new and more sustainable forms of wealth creation”. A sustainable global economy is the metamorphosis of the era in which emerges through the technological, economic, social and political. The current economy is characterized by a big breach between rich and poor, it is extremely destructive of natural and social capital. 2 “Tipping point” is defined by Gladwell as “...that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.” Elkington (2004) differentiates four main types of company, alongside the evolutionary path to a chrysalis economy – that are: corporate “locusts”, “caterpillars”, “butterflies” and “honeybees”, and is presented in table 5.1. Table 3.1 Chrysalis economy - Corporate types Source: Elkington (2004)/ Oncică and Cândea (2016) LOW IMPACT HIGH IMPACT on society and sustainable on society and sustainable development development BUTTERFLIES HONEYBEES CATERPILLARS LOCUSTS REGENERATING COMPANIES generate increasing benefits for both themselves and society DEGENERATING COMPANIES generate decreasing benefits for both themselves and society Locusts – these types of corporations destroy social and environmental values, damaging the fundamental for future economic growth. The main characteristics are exploitation of natural, human, social and economic resources; their business model is unmaintainable in a long term; non-capacity to anticipate negative system effects and learn from mistakes. When a company take these kinds of actions the government is forced to take actions. Caterpillars – these types are hard to recognize because their impacts are more specified. The main characteristics are generating fairly local impacts, depends of resources that are renewable over time, have the capacity to transform into a more sustainable guise, operates among companies that already metamorphose to a more sustainable business. The government in these cases, needs to provide appropriate environments for these businesses, usually old, to evolve into a sustainable business. Butterflies – these corporations are already in track to a sustainable business. These corporations have a crucial role to play in Chrysalis economies, they develop new forms of sustainable capital creation for the honeybees to imitate. Some characteristics are that already have a sustainable model, strong commitment to CSR and sustainable development, persistent sustainable activities and high visibility in the economic. Government boost these companies by identifying, supporting and celebrating them. Honeybees – these corporations are not only sustainable; their regeneration is stronger. The main characteristics are sustainable business model that is on constant innovation, rich set of ethics, manage natural resources more strategically, high capacity to learn from their and other mistakes. 6. Case study: How a non-ecological company changed toward sustainable innovation NatureWorks LLC Interviewer: Consultants COWI on behalf of the Danish Buisness Authority NatureWorks LLC is the world's largest manufacturer and supplier of biopolymers to customers in both the plastics and fibres markets. The company's products are used in the production of rigid and flexible packaging, food service ware, semi-durable products, fibres and nonwovens. NatureWorks grew out of a Cargill research project with the aim of adding value to agricultural commodities traded by Cargill. This eventually led to the establishment of a joint venture in 1997 with DOW Chemicals, known as Cargill DOW, and was later renamed NatureWorks. The company is based in the United States and today it employs 100 people and has business operations in North America, Europe, Japan, with sales additionally throughout the Asia Pacific, Mexico and South America. In 2011 PTT Global Chemicals of Thailand invested USD 150 million in the company to become a joint owner with Cargill. The business model NatureWorks' value proposition is to provide performance polymers which are manufactured from renewable resources. The innovative part of the business model is that it enables NatureWorks' customers to become more sustainable at producing what they have always produced by sourcing their raw material input from NatureWorks' lowcarbon polymers, which are produced from renewable resources such as starch from corn, instead of relying on conventional petroleum-based polymers. The long-term aspiration of NatureWorks is to base its production on agricultural waste, and the company is currently also going through a Cradle to Cradle certification process of its polymer, which is called Ingeo. The key resource in NatureWorks' business model is renewable biobased materials, such as corn or sugar cane, from which lactic acids can be produced via a patent-protected fermentation technology and used to produce polymers. The company sells its finished polymers on a price per tonne basis, which is similar to conventional petroleum-polymers. Since the 2002 start-up of its world-scale facility, as the company has increased its capacity utilisation, prices have become more and more competitive. So far, while its products are designed to be competitive on a production cost basis, NatureWorks has chosen to charge incrementally higher prices than their conventional, fossil fuel-based competitors, given its desired reinvestment economics. Also, since NatureWorks can base its production on a variety of different plants, the company can offer more stable prices on its products compared to those sold by its petroleum-based competitors. This gives NatureWorks' customers the possibility to hedge against oil price volatility. The channel to market for polymers has been developed and optimised over decades and is generally quite long. For NatureWorks to succeed it has therefore been key to break through the traditional channels. To do this, the company has developed numerous key relationships with its customers, as well as with its customers' customers throughout the downstream market. Using these relationships, a key activity for NatureWorks has been to 'pull' the products through the chain by engaging its customers' customers, while 'pushing' the products to its direct customers. To facilitate this process, the company has established account managers for a number of important downstream players. NatureWorks also works closely with its direct customers in order to motivate and create incentives for the development of new biobased products. Benefits and impacts The environmental impact of NatureWorks' business model is a significant reduction in the carbon footprint of any plastic product made from Ingeo. For example, the manufacturing of Ingeo from cradle-to-polymerfactory-gate emits 60 per cent less CO2 than PET, a conventional petroleum-based plastic, and the production process itself consumes 50 per cent less non-renewable energy as compared to PET. Targets have been set to reach 75 per cent and 55 per cent, respectively. Also, as Ingeo is sourced from plants, it essentially works to sequestrate carbon. At this point, NatureWorks is also able to turn many products made of Ingeo back into lactic acid from which new polymers can be made, and the company is therefore working on a take-back system for more durable plastic products. At the UNFCC's COP15 in Copenhagen, for example, the company worked together with a Belgian carpet producer for carpeting the conference. All carpets were taken back and depolymerised back into lactic acid. For other products, such as plastic plates and cups contaminated after use with organic residuals, composting is a better option. Financially, NatureWorks has seen a growth in product demands averaging 25-30 per cent annually over the past few years. The company's products also bring benefits to its customers; firstly in the form of price stability, as the polymers are not based on petroleum, and secondly in the form of lower environmental impact and more positive consumer image due to environmental performance. Drivers and barriers The main driver of NatureWorks' business model has been the provision of polymers whose feedstock is not petroleum-based, and which can be offered at competitive and stable prices by basing them on renewable and abundant crops. The company is just establishing its second manufacturing facility in Thailand, where production of polymers will be based on sugar cane and cassava; locally abundant renewable resources. The main barrier for NatureWorks has been to break through the distribution channel. The company realized that it would not be successful by simply offering a new material in the existing market. Instead they would have to engage both their customers and their customers' customers all the way down the value chain. They did this for each product category using a push/pull strategy; i.e. by first engaging the first movers and more innovative players in the market, and then the more conventional but larger actors. In the “first mover” category, NatureWorks went to display product samples to companies at the very end of the value chain, such as Ingeo textiles to the fashion company Versace, and Ingeo packaging to the organic retailer Wild Oats. Being brand leaders, these companies could bear the initially higher prices and were willing to take higher risks; and they would consequently start demanding biobased products from their suppliers. NatureWorks would then present the value proposition of their products to their suppliers, and so on. Having first breached the market and created attention this way, NatureWorks would adopt the same strategy in the conventional market segment, i.e. displaying their products to bigger players such as Walmart. In most cases, working with the customers' customers was a delicate matter and required the establishment of very good relations to avoid problems. Current barriers continue to be related to communication. NatureWorks is for example challenged with showing that its products do not affect the corn crop market; and ultimately that biobased polymers are not a threat to food prices; i.e. NatureWorks consumes less than one twentieth of one per cent of the global industrial corn crop, and that the starches used to produce products such as Ingeo allow the simultaneous production of feeds from the oil and protein portion of the corn crop. The establishment of a new production facility in Thailand is a step in this direction, because the polymer production will be based on locally abundant sugar canes and cassava. Another barrier is the scale on which new materials such as Ingeo are processed by manufacturers downstream of NatureWorks. While NatureWorks operates a dedicated facility and is able to achieve close to price parity, many of its customers often campaign in and out of various plastics, incurring 'switching costs' and inefficiencies when they do this. This can result in higher costs of finished consumer products, an issue which is being addressed over time, as manufacturers throughout the supply chain increase production and achieve their own improved economies of scale. The present overall lack of an infrastructure for the collection and recycling of packaging makes some potential customers hesitant to sign on to biopolymers. Misperceptions about food crop use, price, collection and reuse are barriers that time should be able to overcome. Other barriers can be found in the lack of clear government policies on biobased products; partly caused by the early stages of the biobased industry. Yet, political leadership and value commitment toward biobased products is generally needed to move early biobased industries forward, and this has so far only been the case for biobased fuels. Such a continued lack of focus and political signals will impede critical investments and the take-up of the new materials by manufacturers. In this connection, NatureWorks is lobbying for instruments such as shortterm production tax credits that can support actual production and sales of biobased products, and thus help the industry reach a competitive scale. Governments could also encourage 'consumer education', for instance through putting a biobased content label in place, just like organic labelling. Belgium is an example where such a labelling scheme is in place. ͽ In this case we can clearly appreciate how the company NatureWorks has developed among the years of investigation a new way to produce plastic, but not the conventional petroleum-based plastic, instead they created Ingeo which is sourced from plants, being able to turn many daily used products into compostable plastics. They were able to low the environmental impact and bring a more positive consumer image. Even though it was not easy, they betted to change their entire petroleum-based production into an eco-friendly company. They are working for the future generations, maybe at this moment it’s hard to change all the plastic industry, but NatureWorks are leading the next eco-plastic generation. 7. Conclusion As an easy way to understand business sustainability we can say that is a group of strategies that incorporate the three focus points: economic, social and environmental. Taking care of these tree aspects we can starts towards the pillars of business sustainability. We mentioned the chrysalis economy model and it is one of many others that a company can implement to change their strategies, the best we can do is to analyze the company, the strength, weakness and necessities as NatureWorks did. They changed their company and now they can be called a company with a business sustainability approach. 8. Bibliography Elkington, J., 2004. Chapter 1: Enter the triple bottom line. [online] https://www.johnelkington.com/archive/TBL-elkington-chapter.pdf Henriksen, K., Bjerre, M., Damgaard Grann, E., Lindahl, M., Suortti, T., Friðriksson, K., Mühlbradt, T., & Sand, H. (2012, October). Green Business Model Innovation: Business Case Study Compendium. Eco-innovera. https://www.eco- innovera.eu/publications@lwlt_338cmd=download&lwlt_338id=195 Mahajan, Ritika & Bose, Montu. (2018). Business Sustainability: Exploring the Meaning and Significance. 7. 8-13. Oncică-Sanislav, D., & Cândea, D. (2016). THE SUSTAINABLE ENTERPRISE (Vol. 9th). U.T.PRESS.