Instruments of Sustainable Entrepreneurship

Legal and regulatory requirements pertaining to sustainability are proliferating and consumers and other stakeholders are demanding information about sustainability-related issues and problems that go beyond that which may be required by governments.  For larger companies with complex supply chains, this means that they must establish procedures with their suppliers to ensure that they receive consistent data and then integrate that data into performance measurement and reporting tools that meet the needs and expectations of all stakeholders.  For smaller companies, many of which are part of the aforementioned supply chains, the pressures associated with dealing with complex social and environmental issues, including the demands of their larger customers, can create great stress given their limited financial and human resources.[1]

There is a continuously growing array of techniques and procedures that are available to promote sustainable entrepreneurship and provide companies with standards and guidelines they can follow in developing, implementing and monitoring their sustainable entrepreneurship initiatives.[2]  Crais and Vereeck noted that production standards focusing on measuring product quality and performance have been around for a long time and that it is relatively easy to measure whether or not a particular product complies with a standard.  The more difficult task is assessing processes that are thought to be necessary in order for sustainable entrepreneurship to be successful.  For example, while guidelines for human resources management, eco-design and management systems are available they are often criticized for being either too complex or too general and thus difficult to put into practice.

Other faults with process-focused standards are that it is hard to interpret results and make comparisons among companies and that “international standards” do not take into account differences in management norms among industries. As a result, simplified and “unofficial” versions of standards have been developed to make them more accessible and/or more specialized (e.g., an unofficial version of ISO 14000 was created for auditing the “working environment”) and different industries have adopted their own versions.  In spite of these problems, the topics covered by standards and certification programs continues to expand and now includes not only the traditional areas of product quality, environment and management but also social accountability, information security, ethical trade, equality in the workplace and fire prevention.[3]

Sustainability reports

The rise of interest in sustainable entrepreneurship has included sharper focus on measurement and assessment of the sustainability initiatives of companies and reporting and communication of the results of those assessments to the stakeholders of those companies.  Sustainability measurement, assessment, reporting and communication have become a well-studied phenomenon and approaches vary significantly.[4]  Each company must confront and attempt to overcome several basic challenges: how to measure and assess of the degree of environmental or social responsibility orientation in the company; identifying and describing the company’s environmental and social goals and policies, describing how the company’s environmental and social programs are organized and managed; and effectively describing and communicating the environmental and social issues the company is seeking to address.[5]  In addition, measurement of results outside of the traditional economic “bottom line” (i.e., profits and losses) remains a difficult and heavily debated issue: how can companies reasonably measure how socially responsible it has been throughout its operations and how can they measure how environmentally responsible they have been in carrying out their operations?[6]

A number of larger companies have published annual sustainability reports to inform their shareholders and other stakeholders of progress that has been made with respect to pursuit of organizational goals relating to sustainability and corporate social responsibility (“CSR”).  One basic reason for reporting is to make sure that sustainability and CSR initiatives are properly managed and that persons involved understand they will be accountable for their actions.  Other good reasons for reporting include giving interested parties (i.e., stakeholders) the information they need in order to make decisions about purchasing the company’s products and/or investing in the company (the level of funding from investors focusing their interest on ethical businesses is continuously increasing) or otherwise supporting the company’s community activities; collecting information that can be used to make changes and improvements to the company’s sustainability strategies and CSR commitments; improving internal operations; managing and reducing risks; and strengthening relationships with stakeholders.  However, in order to achieve the greatest benefits from reporting companies need to carry out those activities in a rigorous and professional manner using tools and standards that are widely recognized and accepted among those interested in the results.

The scope of the company’s reporting efforts will depend on various factors including the size of the company, the focus of its sustainability activities and the financial and human resources available for investment in reporting.  When establishing plans for reporting it is useful to obtain and review copies of reports that have been done and published by comparable companies.  Reports of larger companies are generally available on their corporate websites and extensive archives of past CSR-focused reports can be accessed through various online platforms such as CorporateRegister.com, a widely recognized global online directory of corporate responsibility reports.  It is also important to have a good working understanding of well-known reporting and verification initiatives such as the Global Reporting Initiative, commonly referred to as the “GRI Guidelines”; the AccountAbility AA1000 series; the United Nations Global Compact; and the International Auditing and Assurance Standards Board ISAE 3000 standard.  Country-specific information is also available through professional organizations such as the Canadian Chartered Professional Accountants, which has published an extensive report on sustainability reporting in Canada.

Smaller businesses generally do not have the resources to engage a professional auditor to collect the information normally seen in reports published by larger companies or prepare elaborate reports on their sustainability and CSR activities; however, small businesses can post information regarding their activities on their websites, communicate information to customers, suppliers and other business partners and community members by adding new sections to the company’s brochures and pamphlets and posting pictures of activities that can be viewed by visitors to the company’s facilities, and placing information into local newspapers.[7]  In addition, staff briefings on sustainability and CSR activities should be held on a regular basis and small businesses should also invite business partners and community members to events at the company’s facilities which showcase some of the things that the company is doing with respect to sustainability.

Audits

Environmental audits evaluate the organization as a whole and environmental management practices in particular.  The focus of environmental audits is on the organization’s environmental controls systems and includes areas such as competences, responsibilities, communication and education. The purpose and goal of the audit process is to objectively obtain and evaluate audit evidence to determine whether the organization’s environmental management system conforms to the audit criteria and then communicate the results of the audit to senior management of the organization.  The International Standards Organization (“ISO”) first developed standards for environmental auditing (i.e., ISO 14010, ISO 14011 and ISO 14012) in 1996 and the current standards are set out in ISO 14001.

While standardization has been the trend with respect to environmental audits, there are few generally recognized and accepted standards for conducting a social audit.  One notable exception is AA 1000, which is a framework for assessing, designing, implementing and communicating stakeholder engagement.  Crals and Vereeck described a social audit as the process by which an organization reflects on, measures, evaluates and reports on its social impact and ethical behavior and adjusts them according to its goals and values and those of its stakeholders.[8]  According to Borgo et al. the four key elements of an effective social audit are dialogue with the stakeholders; use of quantitative and qualitative performance indicators and benchmarks; external verification; and reporting of and communication about goals, efforts and results.  A social audit process requires the implantation of a social bookkeeping system that can be used to track performance indicators and benchmarks on metrics such as absenteeism, dismissals and resignations, labor accidents and total earnings.[9]

Regardless of whether a generally-recognized audit standard is used, the recommended audit process begins with the selection of an audit team and determination of the goals and purposes of the audit by the organization.  The preferred approach is for the audit team to be independent and not related to the organization or the activities that are being audited so that the audit can be conducted in an objective manner and free of conflicts of interest.  Successful audits require cooperation from the organization, access to sufficient information about the activities that are being audited and a systematic work process.  The work process includes standard procedures for gathering information, questionnaires and checklists that can be used for collecting information and conducting interviews and a mutual understanding between the audit team and the organization as to schedule for the audit and content of final report.  Audits can be time consuming and expensive, especially when the organization does not have a previous history of working with ISO and comparable standards.

Codes

Many large and well-known global companies have adopted corporate codes of conduct, which Crals and Vereeck described as statements of principles by which a business agrees to abide voluntarily over the course of its operation and which creates and continuously evaluates benchmarks for the senior management of the business.[10]  The first codes of conduct were a reaction to criticisms and protests from activist regarding perceived problems in the way that companies related to consumers and treated the environment in which they operated.  Companies implemented principles and guidelines relating to sourcing and operational practices; however, initial efforts were often vague, a problem that eventually led to creation of uniform codes.

Management systems

Crals and Vereeck defined a management system as the organizational structure, responsibilities, procedures, processes and operational duties necessary to carry out certain goals.[11]  While well-run companies have general management systems that address overall operational, financial and strategic management, sustainable entrepreneurship requires specialized management systems for setting and pursuing goals in areas such as environmental care, quality assurance and safety.  ISO 9001, the best-known quality management standard, have been available since the early 1990s and, as mentioned above, environmental audits have been facilitated by ISO 14001 and other standards relating to environment management systems. Social Accountability International has promulgated SA 8000 to assess social management systems and measure social performance against a range of indicators including the United Declaration of Human Rights, conventions of the International Labor Organization, United Nations and national laws and industry and corporate codes.

Organizations interested in improving their practices with respect to social responsibility, including engagement with their stakeholders, may also refer to International Standard 26000 (“ISO 26000”), which was first released by the International Organization for Standardization (“ISO”) in November 2010; however, ISO 26000 is not a management system standard, does not contain requirements and thus does not facilitate certification in the manner that often occurs with other ISO standards.  Instead, ISO 26000 explains the core subjects and associated issues relating to social responsibility including organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues and community involvement and development. For each core subject, information is provided on its scope, including key issues; its relationship to social responsibility; related principles and considerations; and related actions and expectations.  For example, with respect to labor practices, one of the core subjects, organizations are reminded to integrate consideration of the following issues into their policies, organizational culture, strategies and operations: employment and employment relationships; conditions of work and social protection; social dialogue; health and safety at work; and human development and training in the workplace.

Measuring Sustainable Business Practice

Organizations must have a method for measuring the sustainability of its business practices.  Companies are used to measuring financial results; however, it is only recently that focus has turned toward the development of tools for non-financial measurement of sustainability.  Larger organizations with sufficient resources are able to apply the sophisticated and comprehensive Global Reporting Initiative (“GRI”) Standards for sustainability reporting developed by GRI; however, startups may find this to be too much trouble and instead may create their own systems that include the following common areas for measurement:

Environmental Results 

·         Energy use

·         Materials use

·         Energy efficiency results

·         Carbon emissions

·         Emissions and waste (e.g. carbon emissions, water discharged, waste by type and disposal methods)

·         Water use

·         Product improvements to minimize environmental impact

·         Results of initiatives to mitigate negative environmental impacts

 Economic Results 

·         Standard entry level wage compared to minimum wage

·         Spending on locally based suppliers

·         Financial implications for the organization’s activities due to climate change

 Social Results (including ethical and cultural) 

·         Employee time donated to voluntary causes

·         Donations and in-kind support to community groups

·         Breaches of ethical behavior

·         Breaches of regulatory and/or legal compliance

·         Customer labeling

·         Customer health and safety

·         Stakeholder trust

·         Staff perception of the organization as a good citizen (i.e., an organization that behaves ethically and acts in an environmentally and socially responsible manner)

·         Specific engagement with indigenous peoples about matters of cultural significance to them

·         Results of initiatives to mitigate negative social impacts

·         Partnerships within the organization’s supply chain that are designed to improve industry environmental and/or social outcomes

It is important for organizations to carefully assess their operations in order to identify activities that have potential sustainability impacts.  Obviously, courier drivers produce carbon emissions from their vehicles and cheap, poorly designed products are like to increase natural resource waste due to their short life cycle; however, these are rarely the only sustainability impacts for an organization.  Other prompts for identifying key impacts that can and should be the targets for the organization’s sustainability initiatives include the following:

·         Significance to key stakeholders, including representative of future generations such as children of employees living in the community in which the company operates

·         Technical information, including environmental reviews and social impact reports

·         Review of current and potential sustainable development issues and trends that are of importance or potential importance to civil society, both from a risk and opportunity perspective (e.g., changing attitudes toward climate change that have created both new costs, including taxes and expenses associated with regulatory requirements, and opportunities to commercialize new product solutions)

·         Review of international good practice and consideration of issues that are being addressed by industry leaders in sustainable development and the organization’s peers

·         Impacts and issues that are identified in standards such as the Global Reporting Initiative, SA8000 and the UN Global Compact

Source: Sustainable Business: A Handbook for Starting a Business (New Zealand Trade and Enterprise). 

Sustainability communication

Racelis explained that the chief concern of “sustainability communication” is contributing to critical awareness of, and social discourse regarding, the issues and problems that arise with respect to the relationship between humans and their environment and then relating those issues and problems to social values and norms.[12] Racelis explained that sustainability communication is a process of communication and mutual understanding that deals with both the causes of global ecological dangers that lead to severe economic, ecological, social and cultural distortions and with the potential solutions to those problems.  Accordingly to Racelis, sustainability communication is necessary in order for humans to be able to assume their responsibilities and effectively reshape their relationships with one another and with the natural world.[13]  Racelis mentioned several methods and instruments for sustainability measuring, assessment and communication including environmental management accounting, social marketing, empowerment, instruments of participation and planning, and education.[14]

Labels

According to Crals and Vereeck, labeling is a means for companies to distinguish their products from others in a specific category.[15]  In order for a product label to have value, however, the criteria must be well-defined and transparent and should be set by independent labeling authorities.  In the environmental area, companies follow ISO-type standards in order to be able to market products that have been labeled as “environmentally friendly”.

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on  Entrepreneurship and Sustainability and Entrepreneurship.

Notes

[1] A. Racelis, “Sustainable Entrepreneurship in Asia: A Proposed Theoretical Framework Based on Literature Review”, Journal of Management for Global Sustainability, 2 (2014), 6 ((for discussion of environmental management accounting and supply chain management, see R. Burritt, S. Schaltegger, M. Bennett, T. Pohjola and M. Csutora, (Eds.), Environmental management accounting and supply chain management (London: Springer, 2011)).

[2] E. Crals and L. Vereeck, “Sustainable entrepreneurship in SMEs—Theory and Practice”, http://www.inter-disciplinary.net/ptb/ejgc/ejgc3/cralsvereeck%20paper.pdf [accessed July 18, 2016], 7-8.  For further discussion of certain of the instruments described herein,, see “Governance: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).

[3] Id. at 8 (citing M. Martensson, “Management systems, certificates, labelling: how many can a small company manage?”, in European Foundation for the Improvement of Living and Working Conditions, Sustainable Development, SMEs and New Enterprises (Conference Report)  (Luxembourg: Office for Official Publications of the European Communities, 2001), 10-11).

[4] J. Godeman and G. Michelsen (Eds.), Sustainability communication: interdisciplinary perspectives and theoretical foundations (London: Springer, 2011).

[5] S. Schaltegger and M. Wagner, “Sustainable entrepreneurship and sustainability innovation: categories and interactions”, Business Strategy and the Environment, 20 (2011), 222.

[6] A. Racelis, “Sustainable Entrepreneurship in Asia: A Proposed Theoretical Framework Based on Literature Review”, Journal of Management for Global Sustainability, 2 (2014), 3.

[7] P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 72.

[8] Id. at 9.

[9] Id. (citing E. Borgo, B. Mazijn and S. Spillemaeckers, “Een integrale benadering van de ketenanalyse ten behoeve van ketenbeheer door bedrijven”, Gent: Centrum Duurzame Ontwikkeling (CDO) (2000), 46)

[10] Id. at 9.

[11] Id. at 10.

[12] A. Racelis, “Sustainable Entrepreneurship in Asia: A Proposed Theoretical Framework Based on Literature Review”, Journal of Management for Global Sustainability, 2 (2014).

[13] Id. at 5-6 (citing J. Godeman and G. Michelsen (Eds.), Sustainability communication: interdisciplinary perspectives and theoretical foundations (London: Springer, 2011)).

[14] Id. at 7.

[15] Id. at 10.

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