Business Sustainability and Carbon Markets Business Sustainability and Carbon Markets

Class 01, 03 Class 01, 03--06 06

Prof. Sushil Kumar
Indian Institute of Management, Lucknow
Business, Society and Stakeholders
Businesses must act on global warming
and other issues to narrowa general and other issues to narrow a general
trust gap between them and the public
Addressing Consumer Concerns about Climate Change
McKinsey Quarterly, March 2008 y Q y
Consumers say that a corporations performance in
addressing the problems of the environment and climate g p
change affects not only how much they trust the company
but also whether they would buy its products
Every business should think about the role environmental
issues can and should play in strategy so that they can issues can and should play in strategy so that they can
build trust among consumers and offer products and
services that address their concerns
Executives now regard the environment as the socio- g
political issue that will attract the most attention, by far,
from the public and politicians over the next five years
Addressing Consumer Concerns about Climate Change
McKinsey Quarterly, March 2008
Why has the term, Corporate Social/
Environmental Responsibility, attained so p y
much of prominence these days?
Responsibility: A detachable burden easily shifted to the shoulders of God, Fate, Fortune,
Luck or one's neighbor. In the days of astrology it was customary to unload it upon a
star. ~Ambrose Bierce, The Devil's Dictionary, 1911
Post World War II
PEACE
FREEDOM FREEDOM
DEVELOPMENT
Responsibility: A detachable burden easily shifted to the shoulders of God, Fate, Fortune,
Luck or one's neighbor. In the days of astrology it was customary to unload it upon a
star. ~Ambrose Bierce, The Devil's Dictionary, 1911
Indicators: Growth or Development
Concerns being raised about
GDP as a measure of a GDP as a measure of a
countrys development!!! y p
A person will sometimes devote all his life to the development of one part of his body - the
wishbone. - Robert Frost
Society is concerned about.
Social Issues Social Issues
Resource consumption Resource consumption
Environmental Issues
Dove Vedanta
Social Issues Social Issues
Did Something Go Wrong?
Rash of corporate scandals p
Enron
WorldCom
Indias Enron
Global Crossing
Tyco
Martha Stewart
SATYAM
Martha Stewart
Watching Executives Climb the Courthouse Steps Watching Executives Climb the Courthouse Steps
Became a Spectator Sport in 2002
-Business Week
Efficiencyv/s Equity Efficiency v/s Equity
Equal Opportunity
Poverty
Education
Life Expectancy Life Expectancy
IMR
Happiness
Profits are like breathing. You have to have them. But who would stay alive
just to breathe? ~ Maurice Mascaranhas
Did Something Go Wrong?
Executive Compensation
Downsizing of pension programs
Sexual harassment in workplace Sexual harassment in workplace
Abuse of corporate power
Minority rights
Whistle-blowing s e bo g
Product liability
Responsibility is like a string we can only see the middle of. Both ends
are out of sight. ~William McFee, Casuals of the Sea, 1916
Environmental Issues Environmental Issues
Did Something Go Wrong?
Environmental Disasters
Bhopal Gas Tragedy, 1984
killed at least 4.000 residents
instantly
Health problems for 50,000 to
500 000 people killed around 500,000 people - killed around
15,000 more victims
Drinking water of 20,000 has
been poisoned been poisoned
Deliberate evasion of regular
safety procedures
Doctors not informed of the Doctors not informed of the
nature of the gas
Union Carbide and Dow
Chemical refuse to clean their
factory
Did Something Go Wrong?
Chernobyl Accident, 1986
W ld' t l World's worst nuclear power
accident at Chernobyl in the
former USSR (now Ukraine)
Kill d th 31 l Killed more than 31 people
immediately and 135,00 people
had to be evacuated
M ffi i l t th t ll Many unofficial sources put the toll
over 400,000
The people that have lived in the
Ch b l d i th Chernobyl area during the
accident suffer from various health
problems
Did Something Go Wrong?
Seveso: Italian dioxin crisis
The 1952 London smog disaster
Oil spills
The Love Canal chemical waste dump The Love Canal chemical waste dump
The Baia Mare cyanide spill
The European BSE crisis
Spanish waste water spill
Global Warming
&&
Greenhouse Gases
Is Earth Really Melting???
Corporate Environmental Management p g
WMP
Class-1
Except for nuclear war or a collision
with an asteroid no force has more with an asteroid, no force has more
potential to damage our planets web
of life than global warming of life than global warming
Environmental crisis: Areas of concern
Ozone hole
Biodiversity Biodiversity
Falling water table
Degradation of soils
Overuse
Erosion
Desertification Desertification
Pollution
Air
Water
Noise
Scientific American, 2006
GreenHouseGases Green House Gases
Carbon dioxide (CO
2
)
Methane (CH
4
)
Nitrous oxide (N
2
O)
Hydroflurocarbons (HFCs) Hydroflurocarbons (HFCs)
Perfluorocarbons (PFCs), and
Sulphur hexafluoride (SF ) Sulphur hexafluoride (SF
6s
)
Global Warming: Hoax or a Reality
The debate on global warming is over
Present levels of carbon
di id i 400 dioxidenearing 400
parts per million (ppm)
in the earths
atmosphere are higher atmosphereare higher
than they have been at
any time in the past
650,000 years and could 650,000 years and could
easily surpass 500 ppm
by the year 2050 without
radical intervention
Global Warming: Effects
Extreme weather
11 of the past 12 years are among the
d t i 1850 (h tt t dozen warmest since 1850 (hottest
being 2005)
Average temperatures have climbed
1.4degrees Fahrenheit (0.8 degree 1.4 degrees Fahrenheit (0.8 degree
Celsius) around the world since 1880,
much of this in recent decades
(NASA's Goddard Institute for Space
Studies) Studies)
Earlier timing of spring
Increase in number of hurricanes,
tornadoes
Increased evaporation, higher rainfall
Relocation of precipitation
IPCC: 4th Report and other studies
Global Warming: Effects
Glacier retreat and disappearance pp
Global Warming: Effects
Sea level could rise between 7 and
23 inches (18 to 59 centimeters) by
century's end, (IPCC 4
th
report )
Rises of just 4 inches (10 Rises of just 4 inches (10
centimeters) could flood many
South Seas islands and swamp
l t f S th tA i large parts of Southeast Asia
Some hundred million people live
within 3 feet (1 meter) of mean sea within 3 feet (1 meter) of mean sea
level, and much of the world's
population is concentrated in
vulnerable coastal cities vulnerable coastal cities.
Global Warming: Effects
Coral reefs, which are highly sensitive to
ll h i t t t small changes in water temperature,
suffered the worst bleachingor die-off
in response to stressever recorded in
1998, with some areas seeing bleach g
rates of 70 percent
More than a million More than a million
species face extinction
from disappearing habitat,
h i t d changing ecosystems, and
acidifying oceans
IPCC Warns
At some point in the future, warming could become
uncontrollable by creating a so-called positive feedback
effect. Rising temperatures could release additional
greenhouse gases by unlocking methane in permafrost and
undersea deposits, freeing carbon trapped in sea ice, and
causing increased evaporation of water
Emissions must start declining by the year 2015 to prevent
the worlds temperature fromrising more than 2 degrees the worlds temperature from rising more than 2 degrees
Celsius over pre-industrialized temperatures. (a scenario
that would be catastrophic)
Only .12 percent of world GDP would be needed to stave
off the harmful effects of climate change
ONLY THING WE SHOULD BE AFRAID OF IS DOING NOTHING
Resource Consumption Resource Consumption
Resource Consumption and Environmental Impact
Photo: www.japanfs.org
Magnitude of Environment Challenge
Global
Environmental
Burden
Global Population GNP Per Capita
Env. Impact Per
Unit of GNP
= x x
E l i l F i Ecological Footprints
Ecological Footprint
The global Ecological Footprint 18.0 billion global
hectares in 2007 or 2 7 global hectares per person hectares in 2007, or 2.7 global hectares per person
The productive area of the biosphere translates into 11.9
billion hectares or an average of 1.8 global hectares per
i 2007 person in 2007
The global Ecological Footprint changes with population
size, average consumption per person, and resource , g p p p ,
efficiency
The Earths biocapacity changes with the amount of
biologicallyproductive area and its average productivity biologically productive area and its average productivity
USA about 9.6 global hectares per person; UK about
5.6; India 0.8; Afghanistan <0.05
Source: Living Planet Report 2010
http://www.bakeys.com/
Source: Living Planet Report 2006
Humanitys Ecological Footprint, 1961- 2007
Source: Living Planet Report 2010
Three Ecological Footprint Scenario, 1961-2100 Three Ecological Footprint Scenario, 1961 2100
Source: Living Planet Report 2006
Ecological Footprint by Component, 1961-2007
Source: Living Planet Report 2010
Ecological Footprints Across the World
Biocapacity Across the World
Ecological Debtor and Creditor Countries
Source: Living Planet Report 2008
Ecological Footprint And Biocapacity By Region, 2005
What is the solution? What is the solution?
Source: Living Planet Report 2008
The Consequences
What is the solution?
Sustainable Development Sustainable Development
Senge and Carstedt, 2001
Sustainable Development: History
Industrial Revolution: Industrial Revolution:
Early industries relied on a seemingly endless
supply of natural capital ppy p
Factories situated themselves near natural
resources for easy access
Western view saw nature as a dangerous, brutish
force to be civilized and subdued
Cradle to grave model
Design keeping in view the worst case scenario
Sustainable Development: History
Rachels Carsons The Silent Spring (1962) Rachel s Carsons The Silent Spring (1962)
sparked the environmental revolution
Massive destruction of wildlife caused by the use of y
chemical insecticides and other biocides
Friends of Earth, Greenpeace founded
Bhopal Disaster, discovery of hole in ozone
layer, Chernobyl, pollution of Rhine
Sustainable Development: History
o Stockholm Conference on Human Environment,
1972
o World Conservation Strategy by IUCN, 1980
o World Commission on Environment and
Development, 1987
o Our Common Future (Brundtland Report)
o Sustainable Development
oMeeting the needs of the current generation without
compromisingthe ability of future generations to meet their compromising the ability of future generations to meet their
needs
The World Business Council for Sustainable
Development (WBCSD) in 1991
Sustainable Development: History
o The United Nations Conference on Environment and
Development (UNCED) in Rio de J aneiro in 1992 (Earth
Summit) Summit)
o Adoption of policies for sustainability
o Acts/laws related to environmental protection p
o ISO 14000, EU Eco-management & Audit Scheme
o Shift from end-of-the pipe pollution prevention and clean-up
technologies to more pro-active and integrated approaches technologies to more pro-active and integrated approaches
o Fairtrade etc.
o World Summit on Sustainable Development, p ,
J ohannesburg, 2002
o Nobel Prizes Wangari Mutha Maathai; M. Yunus;
IPCC & Al Gore
Sustainable Development
FOR HOWLONG
What is to be
SUSTAINED
25 Years
Now & in the Future
Forever
What is to be
DEVELOPED
PEOPLE
NATURE
Earth
Biodiversity
PEOPLE
Child survival
Life expectancy
Education y
Ecosystems Equity
Equal opportunity
LIFE SUPPORT
LINKED BY
O l ECONOMY LIFE SUPPORT
Ecosystem services
Resources
Environment
Only
Mostly
But
And
ECONOMY
Wealth
Productive services
Consumption Environment And
Or
Consumption
COMMUNITY
Cultures
SOCIETY
Institutions
Cultures
Groups
Places
Social capital
States
Regions
Source: US National Research Council
Sustainable Development
Sustainable Development
process of developing (land, cities, business, p p g ( , , ,
communities, etc.) that "meets the needs of the
present without compromising the ability of future
generations to meet their own needs generations to meet their own needs
Brundtland Report, 1987
Sustainable Development
Environmental Dimension Environmental Dimension
Emission of GHGs and Global Warming Emission of GHGs and Global Warming
Pollution of rivers and lakes Pollution of rivers and lakes Pollution of rivers and lakes Pollution of rivers and lakes
Destruction of the rainforests Destruction of the rainforests
Species facing extinction Species facing extinction
A i l i ht A i l i ht Animal rights Animal rights
Use of chemical fertilizers and pesticides Use of chemical fertilizers and pesticides
Exhaustion of non Exhaustion of non--renewable resources renewable resources
Di l f t i t & l t Di l f t i t & l t Disposal of toxic waste & nuclear waste Disposal of toxic waste & nuclear waste
Social Dimension Social Dimension
Equitable distribution Equitable distribution Equitable distribution Equitable distribution
Economic dimension Economic dimension
Profitability Profitabilityyy
Photo: www.wilbankscorp.com
Sustainable Business: Triple Bottom Line
Social goals
Sustainable Development
g
Socio-efficiency Eco-justice
Environmental goals
Economic goals
Eco-efficiency
Sustainability
Intergeneration Equity
Intragenerational Equity
International Chamber of Commerce: Business
Charter for Sustainable Development Charter for Sustainable Development
Corporate priority
Establish policies programmes and practices for conducting operations in Establish policies, programmes and practices for conducting operations in
an environmentally sound manner
Integrated management
Integrate policies programmes and practices in organizational long term Integrate policies, programmes and practices in organizational long-term
strategies
Process of improvement
S iti t t h i l d l t i tifi d t di Sensitive to technical developments, scientific understanding, consumer
needs, community expectations and legal regulations
Employee education
Ed t t i d ti t l t d t th i ti iti i Educate, train and motivate employees to conduct their activities in
environmentally responsible manner
Prior assessment
Assess environmental impacts before starting new activity/project
Source: Welford & Gouldson, 1993
International Chamber of Commerce: Business
Charter for Sustainable Development Charter for Sustainable Development
Products and services
that have no undue environmental impact that have no undue environmental impact,
are efficient in their consumption of energy & NR, and
can be recycled, reused, or disposed of safely
C t d i Customer advice
Advise and educate customers, distributors and public in the safe
use, transportation, storage and disposal of products
Facilities and operations
Develop, design and operate facilities and conduct activities
Efficient use of energy &rawmaterials Efficient use of energy & raw materials
Sustainable use of renewable resources
Minimisation of adverse environmental impact and
S f d ibl di l f id l t Safe and responsible disposal of residual wastes
International Chamber of Commerce: Business
Charter for Sustainable Development Charter for Sustainable Development
Research
Environmental impact of rawmaterials products processes emissions Environmental impact of raw materials, products, processes, emissions
and wastes and the means of minimising these
Precautionary approach
Modify manufacturing marketing or use of products or services to Modify manufacturing, marketing or use of products or services to
prevent serious or irreversible environmental degradation
Contractors and suppliers
E id d ti f th i i l b t t d li Encourage wider adoption of these principles by contactors and suppliers
Emergency preparedness
Emergency preparedness plans in conjunction with emergency services
Transfer of technology
Throughout the industrial and public sectors
International Chamber of Commerce: Business
Charter for Sustainable Development Charter for Sustainable Development
Contributing to the common effort Contributing to the common effort
Contribute to the development of public policy, govt. programmes &
educational initiatives
Openness to concerns Openness to concerns
Foster openness and dialogue with employees and public
Compliance and reporting p p g
Measure environmental performance
Conduct regular environmental audits and assessment of compliance
Provide appropriate information to various stakeholders Provide appropriate information to various stakeholders
Society: Have Some Things Changed?
Organization and its Environment
Social Economic
Political
Social Economic
Organization
Legal
Physical
Institutions
Business and Pluralistic Society
Apluralistic society is one in which there is A pluralistic society is one in which there is
wide decentralization and diversity of power
concentration
Power is not in the hands of any single institution or a Power is not in the hands of any single institution or a
small number of groups
The great thought, the great concern, the great anxiety of men is to restrict, as
much as possible, the limits of their own responsibility. ~Giosu Borsi
Business & Special-interest Society
Pluralistic society to Special-interest society Pluralistic society to Special interest society
Tens of thousands of special-interest groups
Each pursuing its own limited agenda
Have become increasingly activist, intense, and focused
on single issue
Increasingly committed to their causes Increasingly committed to their causes
Increased membership, increased revenue, and sharper
focus
Likelihood of working at cross-purposes
Has made life more complex for businesses
Social Environment Factors, Business Criticism and Corporate Response
F t i S i l E i t
Affluence
Education
Awareness
Factors in Social Environment
Rising Expectations Rights Movement
Entitlement Mentality Victimization Philosophy
Business Criticism
Increased Concern for the
Societal Environment
A Changed Social
Contract
I believe that every right implies a responsibility; every opportunity, an
obligation; every possession, a duty. ~John D. Rockefeller, Jr.
Elements in the Social Contract
Laws or Regulations
Business
Stakeholder
Groups
Laws or Regulations
Rules of the Game
p
Two-way shared understanding
of each other
(Normative Perspective)
Businesses face the Brunt
Allegations against businesses
Little concern for customers and workplace
Care nothing about the deteriorating social order
No concept of acceptable ethical behavior
Indifferent to problems of minority
No concern for the environmental degradation
When a man points a finger at someone else, he should remember that four
of his fingers are pointing at himself. ~Louis Nizer
Approach to Business
Shareholder Value to Stakeholders Value
Stakeholder Analysis Stakeholder Analysis
Stakeholder Analysis: Why?
Can help identify:
The interests of all stakeholders;
Potential conflicts or risks;
Opportunities and relationships that can be built;
Stakeholder groups that should be encouraged to participate in
different stages of the project; different stages of the project;
Appropriate strategies and approaches for stakeholder
engagement; and
Measures to reduce adverse impacts on vulnerable and
disadvantaged groups.
Stakeholder????
Stakeholder Stakeholder
Whosoever has a stake in the Business
May be affected by actions, decisions, policies, or
i f h b i fi practices of the business firm
May affect the organizations actions, decisions, policies,
ti or practices
Stake
Stake: Stake:
Simply an interest
Right to something
Legal right
Moral right
Legal claimof ownership Legal claim of ownership
St k
An interest or a share in an
undertaking and can be
Stake
undertaking and can be
categorized as:
An Interest A Right Ownership
Legal Right
Moral Right
Production View of the Firm
Managerial View of the Firm
Business as Multi-Stakeholder and Multipurpose Entity
Source: Schaltegger et al., 2003
Types of Stakeholders
Primary stakeholders Secondary stakeholders y y
Shareholders and investors
Government and regulators
Shareholders and investors
Employees and managers
Customers
Civic institutions
Social pressure groups
M di d d i
Local communities
Suppliers and other business
partners
Media and academic
commentators
Trade bodies
partners
Competitors
The Concept of Balanced Management
Stakeholder Management
Stakeholder Attributes
Legitimacy: Legitimacy:
Perceived validity or appropriateness of a stakeholders
claim to a stake
Power:
Ability or capacity to produce an effect
U Urgency
Degree to which the stakeholder claim on the business
calls for the businesss immediate attention
Key Questions
1. Who are the firms stakeholders?
Generic as well as specific subgroups
Key Questions
2. What are their stakes?
Identifying the Nature/ Legitimacy of a Group Stakes
Identifying the Power of a Groups Stakes Identifying the Power of a Groups Stakes
Identifying Specific Groups Within a Generic Group
Motivation of Stakeholders
Stakeholder Group Motivation
Shareholders &
Investors
Appraise influence of stakeholders management on
business value
Banks & Insurance
Companies
Avoid credit & liability risks relating to any adverse
event
Labor Unions & Labor Unions &
Employees
Committees
Secure better pay & working conditions, improved
social & health situations
Look for lower priced higher quality goods &
Customers
Look for lower priced, higher-quality goods &
services, encouraging or ignoring the adoption of
environmental and social standards
To adopt or neglect to adopt environmental and
Suppliers
To adopt or neglect to adopt environmental and
social quality criteria
Managers &
Executives
Seek to minimize social and environment related
business risks Executives business risks
Media Capture attention of existing & potential audiences
Source: Schaltegger et al., 2003
Stakeholder
Motivation of Stakeholders
Stakeholder
Group
Motivation
Employees Obtain healthy work conditions
M i i i h li f h h
Local Community
Maintain or improve the quality of the areas they
live in
NGOs
Act as advocates, watchdogs, and catalyst for
NGOs
social and environmental issues
Authorities & Govt.
Pursue protection & conservation using
appropriate instruments
Business &
Professional
Associations
Achieve goals set by members
Competitors
Search for opportunities that may stem from
improving environmental and social quality
Academics Strive for the application of their research results Academics Strive for the application of their research results
Key Questions
3. What opportunities and challenges do these
stakeholders present to the Firm? stakeholders present to the Firm?
Key Questions
4. What economic, legal, ethical, and
philanthropic responsibilities does the firm philanthropic responsibilities does the firm
have to stakeholders?
Stakeholder/Responsibility Matrix
Stakeholders
Economic Legal Ethical Philanthropic
Owners
Customers Customers
Employees
Community Community
Public at large
Social Activists
Other
Stakeholder Analysis Matrix
Key Questions
5. What strategies or action should
management take? management take?
What Strategies or Actions Should Firm Take?
1 Do we deal directly or indirectly with stakeholders? 1. Do we deal directly or indirectly with stakeholders?
2. Do we take the offense or the defense in dealing
ith t k h ld ? with stakeholders?
3. Do we accommodate, negotiate, manipulate or resist 3. Do we accommodate, negotiate, manipulate or resist
stakeholder overtures?
4 Do we employ a combination of the above strategies 4. Do we employ a combination of the above strategies
or pursue a singular course of action?
Diagnostic Typology of Stakeholders
Strategic Steps Toward Successful Stakeholder Management
Integrating stakeholder management into the Integrating stakeholder management into the
firms governing philosophy
St k h ld A tt St k h ld T t Stakeholder Agent to Stakeholder Trustee
Create a stakeholder-inclusive value
statement
I l t t k h ld f Implement a stakeholder performance
measurement system
Business Criticism/Social Response Cycle
Factors in the societal env Factors in the societal env.
Criticism of business
Increased concern
for social env.
A changed social
contract
Business
assumptionof CSR assumption of CSR
Social responsiveness,
Social performance,
Corporate citizenship p p
Increased concern
for social env.
A more satisfied
society
Fewer factors
leadingto Business
Higher expectations
leadingto more leading to Business
Criticism
leading to more
Criticism
What Does Your Neighbour Earn