Defining Sustainability

Key Challenge

Establishing a broad definition of sustainability that helps to ensure that an organization is both socially and environmentally responsible at the same time as being economically viable.

Background

A first step in developing a sustainable path is achieving clarity on terms that are used widely but sometimes with little understanding. In embedding sustainability in an organization, it can be essential to first clarify terminology so that terms such as sustainability and CSR are well understood, even when they are used interchangeably.

The notion of sustainability is rooted in the wider concept of sustainable development. Many competing definitions of sustainable development exist, but arguably the foremost is from the Brundtland Report (and used by many organizations - see caption 1). This report also implored the present generation to take immediate action to avert the risk of irreversible ecological damage. Although the definition of sustainable development is broad, the report valuably points out that:

"sustainable development is not a fixed state of harmony, but rather a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional change are made consistent with future as well as present needs."

Sustainable development in these terms can be seen as a global aspiration. The use of the Brundtland definition by many organizations in their management and reporting on sustainable development and CSR signals a widespread consensus on the central role organizations have in ensuring future generations can meet their own needs. It evidences an acceptance that sustainable development requires the political will of governments, organizations, and communities.

This definition also requires organizations to take into account the wider and longer term consequences of decisions. This is the route to achieving long-term sustainable value for investors and stakeholders, and involves considering the impact of economic activities - things bought, investments made, waste and pollution generated - on the natural and human resources on which they depend, to avoid irreparable damage to the productive capacity of these resources. Practically, this requires organizations to take into account the consequences of economic decisions on the natural environment, on economic development, and on the social conditions in which people live and work.

The term CSR is often used interchangeably with sustainability or sustainable development. However, it can be seen as a complementary term that helps organizations define their responsibility, and to understand how sustainability can be seen as an integrated part of their strategy and operations. This is the sentiment behind the CSR definition of the European Union:

A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

Some organizations prefer the term corporate citizenship or corporate responsibility as these capture a wider footprint including ethical, economic, environmental, and social impacts and issues.

The World Business Council for Sustainable Development's three-pillar model of economic growth, ecological balance, and social progress is also a useful reference point for understanding sustainability. This reinforces the message that long-term maximization of shareholder value for public companies will undoubtedly be intertwined with their environmental, social, and economic performance. Their environmental performance relates to the natural resources consumed in delivering products and services. Social performance reflects an organization's impact on people and social issues, which include health, skills, and motivation on the people side, and human relationships and partnerships on the social side. Economic performance continues to include financial performance, but will increasingly reflect an organization's wider impact on the economy. This allows organizations and stakeholders to recognize that profitability, growth, and job creation lead to compensation and benefits for families, and tax generation for governments. The World Business Council for Sustainable Development's ten messages by which organizations should operate is at (see Caption 2).

Key Considerations

A broad approach to defining sustainability helps professional accountants in business and their organizations to think widely about their contribution to society and economies: For example, in the Economist's special report on corporate social responsibility, the article The Next Question: Does CSR work? refers to the joint Oxfam and Unilever study of the economic impact of Unilever's operations in Indonesia. This showed how the company had 'supported the equivalent of 300,000 full-time jobs across its entire business, created a total value of at least $630 million and contributed $130 million a year in taxes to the Indonesian government. The lesson for companies is that they have been far too defensive about their contribution to society.' Another example is Tata, a large family-owned company in India that provides many people with basic welfare, such as health care and schooling. An organization's economic impact can also form a key part of external reporting. For example, in its 2006 Corporate Sustainability Report, UPS describes its economic impact in terms of employee compensation and benefits, taxation, economic impact of global expansion, enabling global commerce, dividends to shareholders, and charitable contributions.

Sustainability and CSR point to the need for organizations to contribute to social and financial well-being by undertaking activities that benefit not only their shareholders, but also other stakeholders affected by organizations' operations: A key challenge for organizations is to determine how to harmonize the goals of a range of disparate stakeholders and manage their expectations. It is only by taking a strategic perspective and considering all the issues covered in Part A of this Framework that organizations can begin to deal with this challenge.