PA CSR - The Business Case for Sustainability

In challenging economic times, a company’s management may be tempted to give a lower priority to sustainability. All efforts are focused on surviving a lower demand in the market and higher costs of financing.

Yet, management in difficult economic circumstances probably requires, more than in other times, creativity and unconventional thinking. It means looking for cost reductions where this was not thought to be possible. It also means finding markets that help the company to differentiate itself from the competition.

Therefore, thinking about the company’s sustainability is more than ‘only’ paying attention to the environmental and social aspects of a company’ operations. Sustainability is an integrated approach to the company’s environmental, social and its economic performance, because the three are inextricably linked to each other. Turning attention away from two of the three aspects to focus only on one aspect is like driving while only looking at the road and ignoring the road signs.

It is good to dismiss five outdated notions about sustainability.

Myth 1 : Sustainability is about a distant future, business economics is about today

Sustainability should be an integral part of a company’s short-term planning as well as its longer term strategy making. The worldwide economic crisis has made societies much more suspicious of companies. Companies that ignore social norms are losing goodwill from consumers, workers and regulators. In a recent article, The Economist stated that, perhaps surprisingly, the crisis has made consumers more critical about the sustainability standards of the companies they are buying products from.

One of the most dramatic examples of companies that have ignored the sustainability signals, are the three large American car manufacturers. They designed cars based on what they thought was a lasting abundance of oil and raw materials. They lost their competitiveness when the fuel prices soared in 2005, reflecting the growing relative scarcity of natural resources. When the crisis set in, consumers shifted to more thrifty cars in a very short time. The American car manufacturers did not have enough time to respond with new car designs. It is not the economic crisis, but their failure to deal with sustainability just a few years earlier, that has now brought them to the brink of bankruptcy.

Myth 2: Environment and social matters only cost money

Saving waste often means saving materials also. It may require some more thinking and planning but it will save money in the end.

The most impressive examples can of course be made in large companies. Japan Air Lines launched its Sky Eco 2010 program. One of the focuses of the program is improving the fleet’s fuel efficiency. Through measures such as substituting old aircrafts with more fuel-efficient aircrafts, using lighter tableware and cargo containers, reducing excessive onboard drinking water and measuring more accurately the amount of fuel needed onboard, and having less paint on the body of its aircrafts, JAL Group estimated that it achieved 76 ton of CO2 Emission Reduction per year in the whole JAL Group.

The sale of greenhouse gas emission rights can create a substantial additional cash flow for energy saving or clean energy projects. In 2008, PT Indocement Tunggal Prakarsa Tbk. became the first company in South-East Asia to receive CER certification in the UN-sanctioned carbon trading program. Indocement’s two CDM projects involved the Blended Cement Project by producing Portland Composite Cement (PCC) and the Alternative Fuel Project. Both of these projects are expected to reduce emissions of carbon by 6-7 million tons CERs between 1 January 2005 – 2012. In June 2008, the company received the first payment from the World Bank which amounted to US$ 40,303 net of the cost incurred for project preparation. Additional cash flows from greenhouse gas emission rights can easily run into the hundreds of thousands of dollars per year.

Myth 3 : Sustainability is only something for big companies, not for small companies

Sustainability is however not only something for large companies, but for companies of all sizes, and even for individual people. With relatively simple means, they can already achieve a substantial reduction in their use of paper, power and water. A simple google search for ‘reduce office waste’ or ‘green office’ will yield a large number of documents with checklists and tips that offices can use, such as www.greenlifestyle.or.id. The use of electricity and water can be reduced by campaigning for a change in behaviour of the office workers. Important for the success of such a campaign is that top management gives the right example in its own behaviour. Secondly, one of the managers in the office should be appointed ‘sustainability manager’ and plan and monitor actions to reduce waste and save costs. The economic slowdown that is expected this year, creates an opportunity for this. Instead of reducing working hours and pay, let alone laying off people, why not charge a number of people with implementing a waste and cost cutting program.

More important than the many immediate cost savings which can be achieved, is that thinking about improving environmental and social sustainability stimulates that crucial aspect of a company’s long-term survival : innovation.

One example is PT Intaran Indonesia, a company established by Yayasan Membina Api Cinta Kasih (YMACK), a local non-governmental organization based in Denpasar, Bali Indonesia, to commercially and sustainably plant and cultivate Neem trees and develop Neem-based organic fertilizers and pesticide in close cooperation with community groups in Bali, Lombok and Sumbawa. PT Intaran’s products are now sold to both overseas and domestic markets. The products are shipped overseas to Japan, the Netherlands and Australia, while domestic buyers are mainly expatriates and overseas tourists with interest in organic products, selected hotels in Bali and Jakarta and organic agricultural communities in Bali, West Nusa Tenggara, East Java, Central Java, West Java, and Jakarta. Indonesia still offers a lot of undiscovered application possibilities of its rich variety of natural materials.

Myth 4 : Sustainability is something for developed countries, developing countries cannot afford it

As developing countries are working hard to create sufficient jobs for their often underemployed populations, governments are tempted to think that their people do not care much about anything else than work and food. They also argue that industrialized countries have created much bigger environmental impacts already and that these industrialized countries now cannot deny lesser developed countries the right to grow with the same environmental impact.

In many cases, this approach is an underutilization of existing technologies and human capabilities to create companies that create both a lot of employment and use environmental resources efficiently. After the myth that sustainability costs money rather than yield money has been dispelled, it should be clear that sustainability is equally affordable for developing countries as it is for developing countries.

Or, to put it the other way around, developing countries are facing much greater costs of public health care and resettlement if they do not address the environmental threats such as pollution, flooding, and landslides. Substantial funds are available from the international donor-community to help find and implement the best solutions.

Myth 5 : Customers do not care about sustainability, they just want the lowest price

It seems difficult to imagine, especially in economically difficult times, but consumers are changing. They are feeling more responsible for their role in improving the environment and social conditions around the world. Especially companies exporting to Europe, Japan and North America have to take this aspect in the consumers’ buying behavior into account.

In a recent study made by the National Geographic and the international polling firm GlobeScan towards sustainability consumption in 14 countries (www.nationalgeographic.com/greendex) shows that the most consumers seek sustainable consumption and not only the lowest price. Perhaps surprisingly again, consumers in developing countries tend to attach even more importance to sustainability than consumers in developed countries. A research conducted in 2006 by the Management Research Division of PPM Institute of Management in Indonesia also found that while consumers consider product quality /trademark the most important factor, a company’s social responsibility is the second most important factor.

Moreover, it is increasingly the companies in the trade channel that are taking the lead. More and more buyers, particularly from primary markets such as the EU and the US, require third-party sustainable forest or legal logging verifications. The Dutch Home Cooperatives (which own a large number of homes in the Netherlands) has signed a commitment to build 100.000 homes using only FSC certified wood.

Sustainability should not be seen as a threat or burden to companies. It is an ongoing development that offers new ideas and opportunities for a company to stimulate innovation, improve relationships with local communities, increase efficiency and productivity and differentiate itself from competitors in often crowded markets. If properly addressed, it will turn out to be a blessing in disguise.

In co-operation with the University of Indonesia and United Nations University, PA CSR and INA have initiated the PA CSR Academic Chair on Corporate Social Responsibility at the University of Indonesia. At this Chair, research will be done to develop ideas on how sustainability, corporate social responsibility and corporate objectives can be brought into synergy to achieve the best results in Indonesia.

Xavier Bary – Sustainability Expert at PA CSR (XavierBary@pa-csr.com )
Elmar Bouma – Director of INA