The world is moving towards a more sustainable business practice. Investors, advocacy groups, and academics have asked corporations to take on added purpose beyond the traditional pursuit of shareholder value. Even the business leaders from Business Roundtable stated that major companies are investing in their employees and communities because they realize it is the only way to achieve long-term success.
The fundamental concept behind this shift is the Triple Bottom Line (TBL), where companies must measure not only their financial performance but also their environmental and societal performance as well. The TBL concept is not new; the term had been coined by John Elkington in the 1990s. Later in 2003, Amanco pioneered in measuring the impact of its TBL strategy, building on the idea of Balanced Scorecard (BSC) from Kaplan and Norton. The new sustainability BSC included environmental and social dimensions in addition to the basic dimensions of the initial BSC.
In a recent article, Kaplan stated that the demands for sustainability today are even higher. In summary, there are three different perspectives from three main stakeholders categories:
- Customers: The customers’ preferences in every product category shifted towards more sustainable products. Over the past five years, there is a 71% rise in online searches for sustainable goods globally in countries with either developed or emerging economies.
- Employee: Reports of unsafe working conditions at Amazon warehouses caused many criticisms. Their employees protested for fair pay and COVID protection. This example reflects the importance of social and ethical issues. Fulfilled workers are more loyal and likely to stay compared to those who only work for a weekly paycheck. Worse, incidents like this would probably affect consumers’ perception badly and hurt the company’s brand image.
- Environment and social: As more consumers demand transparency and accountability, companies must consider the environmental and social aspects in every decision they make. For example, major fashion brands are beginning to pay attention to the demand for more sustainable practices.
The stakeholders have always played an important role in the business ecosystem. But in today’s post-pandemic era, the stakeholders expect even more from companies in terms of environment (e.g., sustainability, health) and social (e.g., inclusive, ethics, social welfare) aspects. As with any crisis, there are chances to learn and make a positive difference.
This article aims to remind companies of the criticality of environment and social dimensions. Taking note of its importance, this might be the opportunity to revisit the idea of sustainability BSC. The sustainability BSC can be used as a groundwork for a future BSC that is environmentally, socially, and ethically responsible. For more on utilizing the Balanced Scorecard, The KPI Institute has developed the Certified Balanced Scorecard Management System Professional to help organizations maximize the tools’ potential.
The EFQM Model, or the European Foundation for Quality Management (EFQM) Excellence Model, is a globally recognized management framework that allows organizations to achieve success by measuring where they are on the path towards transformation. The EFQM Model helps them understand the gaps and possible solutions available and significantly improve an organization’s performance.
The excellence also recognizes the role that organizations play in supporting the goals of the United Nations. Those goals have also helped to shape the latest edition of the EFQM Model. It covers the United Nations Global Compact (ten principles for sustainable and socially responsible business) and the United Nations 17 Sustainable Development Goals, which are a call to action for all countries to promote social equity, sound governance, and prosperity while protecting the planet.
The strategic nature of the EFQM Model, combined with its focus on operational performance and results, makes it the ideal framework for testing the coherence and alignment of an organization’s ambitions with the future and referenced against its current ways of working and its responses to challenges and pain points.
The EFQM Model in 2020 has seven criteria:
- Purpose, vision, and strategy: An outstanding organization is defined by a purpose that inspires, a vision that is aspirational, and a strategy that delivers.
- Organizational culture & Leadership: Organizational culture is the specific collection of values & norms that are shared by people and groups within an organization that influence, over time, the way they behave with each other and with key stakeholders outside the organization.
- Organizational leadership relates to the organization as a whole rather than any individual or team that provides direction from the top. It is about the organization acting as a leader within its ecosystem, recognized by others as a role model, rather than from the traditional perspective of a top team managing the organization.
- Engaging stakeholders: Having decided which stakeholders are the most important to the organization, i.e., its key stakeholders, and independent of the specific groups identified, it is highly likely that there is a degree of similarity in applying the following principles when engaging with key stakeholders.
- Creating sustainable value: An outstanding organization recognizes that creating sustainable value is vital for its long-term success and financial strength.
- Driving performance and transformation: Now and in the future, an organization needs to be able to meet the following two important requirements at the same time to become and remain successful.
- Stakeholder perceptions: This criterion concentrates on results based on feedback from key stakeholders about their personal experiences of dealing with the organization – their perceptions.
- Strategic and operational performance: This criterion concentrates on results linked to the organization’s performance in terms of the ability to fulfil its purpose, deliver the strategy, and create sustainable value.
Why sustainability matters to businesses
Nowadays, an organization’s primary focus is to maintain continuous business development and the high satisfaction of its stakeholders while facing the pressure to reduce resources utilization and changes in the business ecosystem. Hence, the way organizations cope with competitiveness, data processing, and customers’ needs and taking a proactive approach in the market has become the main concerns in their strategic agenda.
By benchmarking themselves against their environment, organizations learn how to better position themselves in the market and assess their performance levels compared to their competitors and secure sustainability based on the three world-known sustainability pillars, Society, Environment, and Economic.
Ultimately, the application of a sustainability strategy enables a recalibration of improvement initiatives and strategic approaches to provide better products and services while using less resources to benefit the planet, the economy, and society.
Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social, also known informally as profits, planet, and people.
Sustainability encourages businesses to frame decisions in terms of environmental, social, and human element impact for the long-term rather than on short-term gains, such as next quarter’s earnings report. It influences them to consider more factors than the immediate profit or loss involved. Increasingly, companies have issued sustainability goals, such as commitment to zero-waste by a certain year or to reduce overall emissions by a certain percentage.
The ultimate framework of sustainability is described in the UN Sustainability Goals, which set targets to be realized by 2030. Countries have announced their Sustainability Goals and are expected to be followed by leading organizations. Those organizations would design their own Sustainability Strategic Objectives to align with those of the UN SDGs.
The UN Sustainable Development Goals Agenda is a plan of action for obtaining 17 improvement objectives on society, environment, and prosperity by 2030. The Sustainable Development Goals and targets are integrated, indivisible, global in nature, and universally applicable, taking into account different national realities, capacities, and levels of development and respecting national policies and priorities.
What is a Sustainability Best Practice Framework?
The Sustainability Accounting Standards Board (SASB)’s Materiality Map determines sustainability issues that are likely to affect the financial condition or operating performance of organizations within an industry. SASB identifies 26 sustainability-related business issues or General Issue Categories, encompassing a range of disclosure topics and their associated accounting metrics that vary by industry.
For example, the General Issue: Category of Customer Welfare encompasses both the Health and Nutrition topic in the Processed Foods industry and the Counterfeit Drugs topic in the Health Care Distributors industry.
With SASB standards, companies can benefit from greater transparency, better risk management, improved long-term performance, and stronger, more valuable services. All of these while providing investors a more accurate picture of their sustainability performance to improve their image and contribution to the SDGs.
SASB standards and tools are helping organizations because they identify a handful of ESG and sustainability topics that most directly impact the long-term value creation; implement principles-based reporting frameworks including Integrated Reporting by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD); and communicate sustainability data more efficiently and effectively to investors.
SASB can be a core part of any reporting system. Whether used alone, alongside other reporting frameworks, or as part of an integrated report, SASB standards and metrics enable companies to communicate with investors in a detailed, powerful way. SASB standards and tools enable organizations around the world to identify and manage financial-material sustainability issues and communicate these issues to investors.
Today, organizations face unique challenges, from climate change and resource constraints to urbanization and technological innovation. Although financial statements provide valuable information on tangible assets and financial capital, investors are increasingly interested in how organizations also manage sustainability issues that affect their long-term value and the global economy.
To learn more about designing an organizational, operational, or departmental strategy and running benchmarking projects, sign up for The KPI Institute’s Certified Strategy and Business Planning Professional (C-SBP) Live Online training course.