Integrated Management: How Sustainability Creates Value for Any Business 978-1-78714-562-7

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INTEGRATED MANAGEMENT

“In an era when the severity of the problems of sustainability are on the rise and the will to address them seems to be on the wane, Robert Sroufe offers this valuable primer on integrated management. Within these pages, you will find practical tools to help any business leader make balanced decisions, articulate an actionable vision and set his or her organization on a long-term path towards addressing the great issues of our day. This book gives hope that we can come to terms with our sustainability challenges; indeed, if business does not address these challenges we have little hope of solving them.” Andrew Hoffman, Holcim Professor of Sustainable Enterprise, University of Michigan

“Integrated Management will be a valuable resource for any manager or student interested in learning how to apply systems thinking to company sustainability. It clearly outlines a path to real sustainability that all companies need to follow if the world is to be a fit place for us humans in the future.” Sandra Waddock, Galligan Chair of Strategy, Boston College

“In an increasingly complex world, with growing environmental and social challenges, corporate strategy and management needs to change. Tackling big, systemic problems requires working across normal lines in business. Integrated Management offers solutions to a couple of long-standing and related problems. Companies have too many functional silos, and those divisions communicate and measure success in only one language: cash, or financial capital. This book makes an important argument and helps executives manage multiple capitals beyond just the financial – human, intellectual, manufactured, social, and natural – and thus build more sustainable and successful enterprises.” Andrew Winston, Advisor to Multinationals & Author of The Big Pivot and Green to Gold

“Meeting the challenge of sustainability will require strategies and action from all segments of society: government, business, and citizens alike. Robert Sroufe advances the state of the art by focusing in particular on the need to develop the

peripheral vision for integrating the many aspects of sustainability into a more coherent and effective business strategy.” Daniel J. Fiorino, Director, Center for Environmental Policy, American University

“To succeed as a business strategy, sustainability needs to be baked-in across the enterprise, not bolted-on to one function: this is the powerful idea that animates Robert Sroufe’s important new book. Providing concrete tools for integration practitioners as well as broad theoretical context for students, Integrated Management will be a useful guide for those transforming business to meet the critical sustainability challenges of the 21st century.” Eban Goodstein, PhD, Director, Bard MBA in Sustainability

“The most sustainable companies are those that have fully integrated sustainability into their strategy, products, operations, and marketing. Drawing on best practices, this highly accessible book describes why managers should drive such integration, how to get the organization on board, and what tools and concepts can help them achieve integration.” Mike Toffel, Professor of Business Administration & Faculty Chair, Business & Environment Initiative

“For too long social and environmental sustainability and organizational growth and profitability have been seen at odds. In Robert Sroufe’s new book he shows why and how embedding sustainability in a company’s strategy and operations delivers real value for people, the planet and the bottom line. The future of business will rely on this type of integrated approach to sustainability and this book will provide practical tools to ensure your business adapts and thrives in a changing world.” James Connelly, VP, Products and Strategic Growth, International Living Future Institute

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INTEGRATED MANAGEMENT How Sustainability Creates Value For Any Business BY

ROBERT P. SROUFE Duquesne University, USA

United Kingdom North America India Malaysia China

Japan

Emerald Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2018 Copyright r 2018 Emerald Publishing Limited Reprints and permissions service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78714-562-7 (Print) ISBN: 978-1-78714-561-0 (Online) ISBN: 978-1-78714-975-5 (Epub)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

To Marybeth, Alexandra, and Isabella

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Contents

List of Figures

xiii

List of Tables

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Foreword

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Preface

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Acknowledgments

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SECTION I A DYNAMIC PERFORMANCE FRONTIER SUSTAINABILITY

BEYOND

1.

The Integration Opportunity We Need Decision-makers with a Vision for a Sustainable Future Why Now? A Dynamic Performance Frontier Integration Operationalized Trends Evidence of the Inevitable Chapter Summary Bibliography

3 6 8 10 12 15 22 23

2.

Critical Dimensions of Integration Enablers Complex Problems Systems Thinking Value Creation Change Management Integrated Reporting Evidence of Change Chapter Summary Bibliography

25 27 30 38 50 54 55 56

3.

A Customized Approach for Any Enterprise Take an Action Learning Approach Facilitation and the Strategic Planning Process

59 61 66

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Informed Decision-making Integration and Change Management Chapter Summary Bibliography

76 78 79 80

SECTION II BUILDING SHARED UNDERSTANDING 4.

5.

85 86 89 93 104

Integration Across Disciplines Value Multiple Perspectives Overcoming Obstacles Functional Integration Functional Integration Enabling Integration Opportunities Get the System in the Room The Role of Boundary Spanning Individuals Chapter Summary Bibliography

109 115 115

Value Creation for Stakeholders and Shareholders More on Materiality Shareholder Value Making the Business Case Chapter Summary Bibliography

119 120 124 140 144 145

SECTION III ASSESSING THE CURRENT REALITY (AS IS) 6.

7.

x

Design Thinking Life Cycle Assessment Invent Test Bring Integrated Management to Life What’s Your Net Zero Strategy? (0Energy 0Waste 0Water) Life Cycle Assessment A Tool Supporting Design and Goals of Zero Overview of Life Cycle Assessment Problem-based Learning (PBL) Application Why and How LCA and Design Thinking Enable Integrated Management Outcomes Your Ecological Footprint Chapter Summary Bibliography

151 152 156

Enterprise Systems Operational and Strategic Assessment Management Systems Drives, Obstacles, and Enablers

181 182 187

C onten ts

162 163 170 172 176 177 179

Aligning Operating Systems: Strategic Frameworks for Integration Standards Chapter Summary Bibliography

193 199 203 206

SECTION IV BRAINSTORMING ACTIONS TO CLOSE THE GAP (TO BE) 8.

The Changing Performance Frontier Evolution and Trends A Changing Performance Frontier Materiality Map Natural Capitalism Cradle to Cradle Industrial Ecology Environmental Product Declarations and Living Products High-performance Buildings Chapter Summary Bibliography

209 210 215 218 220 222 223 230 232

9.

Crossing the Chasm Evidence and Opportunity How Firms Integrate: Crossing the Chasm toward Sustainability Crossing the Chasm Social Cost of Carbon Dioxide Carbon Disclosure Project and GHG Protocol Global Reporting Initiative (GRI) Integrated Reporting and IIRC Impact Investing Benefits Corporation Chapter Summary Bibliography

235 236 240 242 244 247 249 253 256 258 259

10. Propositions Integration and Innovation Integration and Innovation Pushing the Performance Frontier Tools to Help Assess and Prioritize Chapter Summary Bibliography

261 262 272 274 276

SECTION V PRIORITIZATION ACTION 11. The Strategic Integrated Enterprises We Have Been Waiting for Strategic Integrated Systems Impacts of Corporations Agents of Change High-level Measurement and Alignment Options Turn Options into Actions and Priorities Goals for the Future

279 282 284 293 294

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Chapter Summary Bibliography 12. The Future What Could Be! Revisiting the Performance Frontier Challenges We Need Innovative Decision-makers and Solutions Strategies, Functions, Systems, Value Chains, and Cities are Proving Grounds for Creative Solutions A Call to Integrated Management Action Optimism Bibliography

308 309 311 315 316 319 320 326 329 331

Appendices A. Integrated Management Resources Guide Integrated Management Resources for Readers The Framework for Strategic Sustainable Development The More Comprehensive List of Resources by Topic Area Notes B.

Integrated Management Strategy Statement Appendices (Actions You Can Take) from Chapter 3 Appendix 1 Examples of economic topics to review Appendix 2 Examples of social topics to review Appendix 3 Examples of societal topics to review Appendix 4 Examples of environmental topics to review Appendix 5 Examples of Sustainability Standards/Initiatives

367 368 369 372 373 376

391

Index

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335 335 335 338 350

Content s

List of Figures

Chapter 1 Figure 1.1:

The Performance Frontier. . . . . . . . . . . . . . . .

11

Figure 1.2:

Value-creation Process. . . . . . . . . . . . . . . . . .

14

Chapter 2 Figure 2.1:

Removing Barriers to Integration. . . . . . . . . . . .

34

Figure 2.2:

Levels of Cost Benefits. . . . . . . . . . . . . . . . . .

39

Figure 2.3:

Performance Dynamic. . . . . . . . . . . . . . . . . .

41

Figure 2.4:

The Interactive Components of the Business Model. .

43

Figure 2.5:

Integration and Organizational Change toward Sustainability. . . . . . . . . . . . . . . . . . . . . . .

53

Chapter 3 Figure 3.1:

Integrated Management Planning using the ABCD Procedure. . . . . . . . . . . . . . . . . . . . . . . . .

71

Chapter 4 Figure 4.1:

Multistakeholder Decision-making. . . . . . . . . . .

87

Figure 4.2:

Functional Symptoms vs Problems. . . . . . . . . . .

88

Figure 4.3:

Integration of Sustainability is Widespread. . . . . . .

92

Figure 4.4:

Sustainability’s Integration into Companies. . . . . . .

105

Figure 4.5:

Example Management Dashboards. . . . . . . . . . .

110

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Chapter 5 Figure 5.1:

Conceptual Materiality Matrix. . . . . . . . . . . . . .

123

Figure 5.2:

Value Realization.. . . . . . . . . . . . . . . . . . . .

141

Chapter 6 Figure 6.1:

The Design Process and Outcomes. . . . . . . . . . .

155

Figure 6.2:

Sourcemap.com LCA Maps of Laptop Computer. . . .

163

Figure 6.3:

Overview of Life Cycle Elements, Emissions, and Impacts. . . . . . . . . . . . . . . . . . . . . . . . . .

164

LCA Basic Principles: The Four-phased Approach. . .

169

Figure 6.4:

Chapter 7 Figure 7.1:

Important Attributes of Management Systems Integration. . . . . . . . . . . . . . . . . . . . . . . .

188

Figure 7.2:

SWOT.. . . . . . . . . . . . . . . . . . . . . . . . . .

193

Figure 7.3:

GE McKinsey Matrix. . . . . . . . . . . . . . . . . . .

196

Figure 7.4:

Growth Share Matrix. . . . . . . . . . . . . . . . . . .

197

Figure 7.5:

Ansoff’s Matrix. . . . . . . . . . . . . . . . . . . . . .

198

Figure 7.6:

Porter’s Five Forces.. . . . . . . . . . . . . . . . . . .

198

Figure 7.7:

New Product Diffusion Curve. . . . . . . . . . . . . .

199

Figure 7.8:

Standards Review of Strategic Triangle. . . . . . . . .

202

Chapter 8 Figure 8.1:

Performance Frontier. . . . . . . . . . . . . . . . . . .

212

Figure 8.2:

SASB Materiality Map™. . . . . . . . . . . . . . . . .

213

Figure 8.3:

SASB Conceptual Framework Source. . . . . . . . . .

214

Chapter 9 Figure 9.1:

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Integrated Management Adoption Cycle. . . . . . . .

List of Figu res

237

Chapter 10 Figure 10.1: Expanded Balance Sheet. . . . . . . . . . . . . . . . .

264

Figure 10.2: Investments Integrating Financial, Environmental, and Social Cost-benefits.. . . . . . . . . . . . . . . . . . .

270

Chapter 11 Figure 11.1: The Funnel Metaphor. . . . . . . . . . . . . . . . . .

281

Figure 11.2: Forbes Rankings of Top Companies. . . . . . . . . . .

285

Figure 11.3: Newsweek Ranking of Top Companies. . . . . . . . . .

286

Figure 11.4: Corporations and Governments Revenues. . . . . . .

289

Figure 11.5: 100 Top Economies. . . . . . . . . . . . . . . . . . . .

290

Figure 11.6: Country-level Gap Frame Score and Priority Dimensions. . . . . . . . . . . . . . . . . . . . . . . .

295

Figure 11.7: Sustainable Development Goals. . . . . . . . . . . . .

297

Figure 11.8: Starbucks’ Program Alignment across the SDGs. . . .

305

Figure 11.9: Global Regions Application of SDGs. . . . . . . . . .

307

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List of Tables

Chapter 4 Table 4.1:

Integration Goals in the Balanced Scorecard. .

107

GHG Protocol Emission Definitions. . . . . . .

247

Sustainable Development Goals with Examples.

298

Chapter 9 Table 9.1:

Chapter 11 Table 11.1:

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Foreword

Every generation faces what they believe are unique and unprecedented challenges. Today, we face a myriad of generational challenges. How do we maintain economic growth? How do we make advances in medicine widely available? How do we manage our scarce resources? How do we make our workplaces more open to diversity of gender, ethnicity, and life experience? How do we leverage data analytics, cloud computing, and machine learning to improve the human condition? Corporations have a significant role to play in meeting these challenges. However, they will not make long-term investments in intellectual and human capital to develop solutions to societal problems if they focus on quarterly and annual earnings using backwards-looking metrics. Robert Sroufe has a vision that paints an exciting picture of what I hope could be a change in the way organizations are managed and the way business leaders make decisions. The concept of integrated management has begun to emerge within leading firms in different sectors. Integrated management is a tool that can help the CEO share a vision for the future, change a corporate culture, and develop a long-term strategy. Integrated management is a process that helps an organization balance the imperative to create long-term value for shareholders and society with expectations for short-term competitiveness and profitability. Integrated management is a way to consider the relationships between environmental, social, governance, and financial performance when making decisions. It drives creation of short- and medium-term metrics that are explicitly linked to the long-term vision and strategy. It ensures that sustainability is everyone’s responsibility rather than a standalone function. My work in integrated reporting has enabled me to meet with business leaders, investors, and non-governmental organizations all over the world. In doing so, I have been fortunate to observe a few of the earliest

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applications of using integrated management systems to address global challenges. While the challenges that confront our society are daunting, I am inspired by companies that understand how integrated management influences decisions and actions of management, shareowners, and other stakeholders. The leaders of these organizations know that integrated management is an essential element of governance and that it is critical for investor confidence. For the past ten years, Duquesne University, Robert Sroufe, and his faculty colleagues have provided practical guidance, challenged perceptions, and discussed environmental, social and governance (ESG) materiality in their courses. I am optimistic about the future because Duquesne University and other leading-edge MBA programs are helping future generations of business leaders learn about the coming changes in business management as environmental, social, and governance performance are fully integrated into business strategy. I encourage you to read this book. If you are a business leader, it is an important resource that provides a systems oriented, strategic approach that can be applied to any company. If you are an analyst or investor, it reinforces the necessity to ask C-level executives about their vision for the future and how they will measure progress toward their long-term objectives. If you are a member of civil society, it will help you understand how corporations can create value for current and future generations of shareholders. Pablo Piccaso once said, “everything you can imagine is real.” While it may seem like a stretch today, integrated management is great vision to pursue. As you read this book, reflect not only on the actions available to you to help make integrated management a generally accepted business practice, but also on the impact of those actions on your legacy. Michael P. Krzus Retired Partner, Grant Thornton LLP

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F o rew o r d

Preface

This book is for decision makers and lifelong students around the world who want to integrate sustainability into business strategy and management practices. We take the view that sustainability is not something that is to be done in addition to strategy; it is a part of strategy and leads to dynamic performance improvement. Motivations for writing this book came about from a need to have a resource for students, researchers, and practitioners to quickly get up to speed on the strategic opportunities sustainability provides within any business. Opportunities include recognizing a global crisis of wasteful systems, and changing business as usual. While climate change, social unrest, high costs, and GHG emissions are symptoms, lack of integrated decision making is the problem. There is no place for lack of awareness and continued waste. Instead, there are growing opportunities across business sectors and the supply chains that connect them to involve an integrated approach to value creation, lower costs, the assessment of ESG performance, and decision analysis. This approach promises new insight as to how integrated decision-making processes up and down the supply chain are possible for enterprises by leveraging evolving technical resources (e.g., artificial intelligence, big data, dashboards, and Blockchain) and cross-functional expertise to amplify the productivity of everyday systems. This book starts in Section I by suggesting there is a new vision of a performance frontier beyond using the terminology of sustainability. Integrated management provides the opportunity to rethink functions, enterprises, and systems dynamics to reduce waste, to create value. Critical drivers and enablers provide an enterprise, decision makers, and policy maker’s ways to take on complex problems. As larger systems level problems are addressed and disassembled into smaller systems within systems, every enterprise can contribute to and have a vision for their own sustainable future. With the application of a strategic

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sustainable development framework, strategic planning, and backcasting from your vision, readers will find integrated management opportunities and manage change toward success. While the first section of this book promotes awareness and a framework for strategic success, SectionII stresses the importance of building a shared understanding of the integrated management opportunity across enterprise functions. Given the importance of value creation in for-profit enterprises, and a renewed energy in understanding value creation for both shareholders and stakeholders, a review the importance of materiality in shareholder value, revenue growth, operating margins, asset efficiency, and expectations is necessary. The value creation opportunity provides a transition into Section III and the importance of assessing and benchmarking your current operating systems, processes, and strategic assessment options. Section IV then helps you to brainstorm actions to close the gap between your current practices and a future state further out on the performance frontier. A review of best-practice trends and integrated practices prove you can close the gap. Finally, a number of propositions provide a proving ground for a new measurement/management frontier of integrated performance close out this section. Section IV provides a path forward toward a new vision and change management. The final chapters, Section V, moves a reader down this path in prioritizing integrated actions and goals for any enterprise that can lead to a regenerative future. At the end of chapters, there are multiple opportunities to build on a reader’s own research and application of problem based learning in previous chapters to help find creative solutions. This iterative process of learning and application enables a reader to backcast from a selfdeveloped vision so that they can decide on their own priorities and goals. Outcomes of this action learning approach help to assessing available solutions to see how they can take any reader in the right direction toward integrated management, are flexible, and have a business case for success. Today’s solutions are social and technical. We have the technical feasibility, it’s already in place and it’s evolving. The social will to create new norms involve systems thinking and analytics to tackle one of the biggest opportunities of our time, “sustainable development.” Integrated management comes at that point in time when we realize the impacts of a decision go well beyond a single functional perspective and can be measured across functions, firms, and value chains in multidimensional ways. To succeed with integrated management, a firm must ensure that this outcome is not only present within an enterprise but is also present

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Preface

within the supply chain. As the insights, evidence based practices, action learning and concepts within this book will illustrate, the market and consumers will punish those firms that promise ESG performance but that are not able to deliver on this promise because of problems with a lack of integrated management. What we offer within this book are solutions, initiatives we would want to achieve regardless of their proven positive impacts on a single bottom line, as they are practices that benefit the environment and society in dynamic ways that for too long have been overlooked. To some extent, we are all part of integrated enterprises and our role is to make systems better by taking in new information, integrating the management of ESG performance in strategic planning, applying analytics, and enabling better outcomes. What part of this multitrillion dollar integrated management opportunity will you be part of? The intent of this book is to be a standalone read for professionals, a resource for executive education, and text for existing MBA strategic sustainability and management courses. This information in this book provides a multi perspective approach to integrated management opportunities across functions and value chains to allow understanding from a variety of disciplines and professional backgrounds. If you are a business professional wanting a 2- to 3-hour introduction to integrated management, we suggest you review Chapters 1, 2, 3, and 11 so you can more quickly be ready to put learning into action, whether at the office or in the classroom. For a more in-depth understanding of integrated management as a driver of value creation, we can’t help but recommend you read each chapter and more fully engage in the research and actionlearning process explicitly positioned at the end of each chapter. Features of this book include:

• How to strategically integrate management, ESG opportunities, and planning activities;

• Evidence-based management examples from leading multinational companies;

• Examples of innovative, cost saving integrated management trends and best-practices;

• References to appropriate tools, emerging technology; • Chapter research and action learning opportunities for the reader to take a deeper look at integration management opportunities in their own enterprise and supply chains;

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• Propositions for a new measurement/management frontier of integrated performance; and

• Application of concepts so that readers from any functional perspective will be able to see opportunities to implement and manage integrated management practices that create value. The opportunities outlined in this book are ultimately feasible by anyone with the propensity and motivation. The company examples, frameworks, methods, and action learning approach serve as a roadmap as you navigate your own way across enterprises and interconnected systems to create your own vision and action plan for the future.

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P r e fa ce

Acknowledgments

The information within this book is the product of years of work, shared learning, the showcasing of best practices, and the development of knowledge across teams and individuals to gain insight into emerging value creation opportunities. Duquesne University graduate students have all contributed to my thinking, this book, and its content through their work within an integrated curriculum as they analyze internal/ external situations; understand drivers and risks; identify problems and opportunities; evaluate return on investment from alternative courses of action; and to value both short- and long-term prosperity. The work each semester of our MBA student teams is always insightful a contributing factor to changing the performance frontier of the organizations we work with. Due to these prior efforts, readers can independently learn about, apply, and reflect on proven models and methodologies while honing their skills from any functional discipline. Those with more direct involvement in the creation of this book include Research Fellows and Research Assistants: Velika Talyarkhan, Tyler Chaffo, Joey Winkler, Candace Carter, Dhruvin Bhavsar, Kevin Dole, and Laura Jernegan. There are a multitude of colleagues from across industry and academia who allowed me to interview them, have reviewed content, helped spur thinking and directly answer my questions about what would an integrated business solution look like? These people include but are not limited to: Karl-Henrik Rob´ert, Michael Kruzs, John Elkington, Peter Senge, Hunter Lovins, Andy Hoffman, Andrew Winston, John Ehrenfeld, Chris Laszlo, Bob Willard, Bill O’Rourke, Gina Johnson, Stephen Tracey, Chris Dobbelstein, Diane Ramos, Nagaraj Sivasubramaniam, Sandra Waddock, Merlina Missimer, Tom Nist, Charles Baer, Steve Melnyk, Cecilia Bratt, John Fillo, Bill Blackburn, James Connelly, Göran Broman, Craig Stevenson, and those individuals who I am fortunate to be able to work with on research projects and as consulting project partners. I want to recognize the importance of taking a sabbatical and with that, the faculty

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and graduate students at Blekinge Tekniska Högskola in Sweden in the early stages of this book and their impact on my global mindset and thinking. I need to thank my family for supporting and enabling the development of this book. My wife for putting up with my lack on integrated involvement in daily happenings. To my daughters, I look forward to seeing you grown into the change agents I know you will be. In addition, to the readers of this book, I hope you get to realize your own vision and action plans to create the changes necessary to thrive in a sustainable society.

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Ackn owledgments

Section I A Dynamic Performance Frontier Beyond Sustainability

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1 The Integration Opportunity “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Buckminster Fuller1 There is a new movement afoot. You cannot see all that is happening, but the measurement and management of enterprises now go well beyond costs and profits. This movement changes worldviews and affects how decision-makers approach problem-solving. Innovative minds are questioning conventional thinking. People are now asking the leaders of enterprises, supply chains, cities, and entire countries an important question. Why? Why are they wasting over half of all energy produced by our energy systems? Why do we allow over 80% of all gasoline used in automobile combustion engines to be wasted, not providing movement, but instead heat and friction? Why throw away 99% of all the things we produce in nine months? Why move food 1,500 miles from farm to plate to throw away upward of 40% of it? Why do we continue to let employees work in buildings that are not healthy or high performing? Why do we continue to let functions within enterprises not communicate the full value created or destroyed by a decision, or do not summarize this value in an enterprise annual report? These questions are just the start down a path toward understanding the opportunity and value of integrated business management. As Paul Hawken has pointed out, “somewhere along the way to free-market capitalism, the United States became the most wasteful society on the planet.” An integrated approach to management will take us beyond the definitional ambiguity of sustainability to a dynamic understanding of what is valuable. By acknowledging and including the value

1. From https://www.goodreads.com/quotes/1199015-you-never-change-things-by-fighting-the-existing-reality-to

3

of environmental and social performance, decision-makers will have more data available to them for analysis and action. This is how sustainability’s integration into systems and enterprises of the future will declare a war on waste while enabling value creation. Innovators can now propose integrated solutions to global problems with a purposeful approach to accelerating progress and ending waste within any enterprise. What’s driving this change? We are experiencing a global crisis of wasteful systems. This waste is compounded by a lack of understanding of the complex relationships connecting people, enterprises, value chains, and commerce. While collapsing economies, climate change, social unrest, and pollution are symptoms, a lack of integrated solutions is to the root of the problem. It is time to declare a war on waste. There is no place for continuing the business-as-usual practices that have brought us to where we are today. Instead, there are growing opportunities across processes, functions, sectors, and the value chains that connect them to bring solutions to scale as we benefit from integration. With proven approaches to understanding the important dimensions of integration, there is now a customized approach to building a shared vision of the future, to recognize and develop new opportunities, and to take action. This is what we can do when working together within any enterprise. What is integration, and what does it look like? For the purpose of this book and your own management opportunities, integrated management is the process of including Environmental, Social, and Governance (ESG) performance in close coordination between business processes, functions, groups, organizations, and systems. In this context, decision-makers within an integrated enterprise (IntEnt) are able to operationalize dynamic goals, e.g., the UN Sustainable Development Goals (SDGs) to understand the systems in which they operate; define success based on sustainability principles; guide decision-making with strategic valuation of environmental and social guidelines; adhere to a timeline of actions that moves the enterprise toward a sustainable society; and supporting processes for planning with decision analysis tools and management techniques to monitor and guide change management. Integrated management is the goal and it comes at that point in time when decision-makers realize the impacts of a decision go well beyond a single first cost functional perspective with measurement across functions, firms, and value chains in multidimensional ways. We can have enterprise goals and decision-making aligned with societal and environmental prosperity. Integrated management is what can get us to sustainability without compromise.

4

Int egrat ed Mana gement

We can look at it this way Pick any four companies located near each other and ask a team of MBAs to optimize these organizations’ performance. A traditional business management approach from many well-known graduate schools would result in some divide-and-conquer form of optimization of each enterprise as a separate entity with lower costs, some incremental waste reduction, and increase to revenue. If any entity was publicly traded, the focus of these optimization efforts would be on short-term improvement to shareholder value. Instead, envision a future where this same team of MBAs are asked to optimize performance using a systems (industrial ecology) approach to their shared inputs and outputs enterprises, manage sustainable supply chains, to meet the needs of the current generation without compromising the needs of future generations, to find cradle to cradle opportunities, value natural capital, to retrofit existing buildings so that they are high-performance living buildings, include a social cost of carbon dioxide (SCC) in decision-making, to model and include uncertainty for long-term strategic planning, to report their goals and performance to the CDP and stakeholders using Global Reporting Initiative (GRI) standards, integrating their annual financial and sustainability reporting while mapping outcomes into the United Nation’s SDGs. This juxtaposition of business-as-usual verses and integrated approach will have a profoundly dynamic and different performance frontier beyond the way businesses have been managed to this point in time.

Every decision we make affects available resources. Integrated thinking and decision analysis leads to better outcomes and understanding of the value creation process. It is easy to say value creation is important, but harder to understand how it is part of every-day decision-making, i.e., where to allocate resources, how to get things done, and, ultimately, how to find a competitive advantage in the marketplace.2 An integrated approach to management is designed to accelerate the symbiotic relationships between management actions, value creation, and the goal of a sustainable future. Integration builds a business case for ESG practices with top management involvement in social and environmental performance,

2. A synthesis of the value creation process from Deloitte, and their value creation map

The I nt egrat ion Opportunity

5

strategic long-term initiatives, and a cross-functional understanding of outcomes. This will not be easy as the integration paradigm is still emerging. It will involve finding opportunities across functions and selling your vision using established core business language. This approach promises new insight as to how integrated decision-making processes up and down the supply chain are possible for enterprises by leveraging evolving technical resources (e.g., artificial intelligence (AI), big data, dashboards, and Blockchain) and cross-functional expertise to amplify the productivity of everyday systems. It is a catalyst for focusing on the most relevant actions and then choosing feasible ways to get them done. Enterprises are changing. Consider for a moment the following:

• There has been a race to define sustainability, yet a single definition cannot satisfy all of our competing needs to operationalize this paradigm.

• Fortune 500 companies want to tell you about the social and environmental aspects of their global operations and those of their supply chains.

• Revenue growth, operating margins, asset efficiency, and “stakeholder expectations” are all critical to value creation in ways where a decision on one of these has an impact on all other areas.

• You can now see a Life Cycle Assessment of a product online and while at the store using a smart phone app to see the environmental and social aspects of the products you may want to buy.

• Multinational firms are combining their sustainability and financial reporting into a single Integrated Report.

We Need Decision-makers with a Vision for a Sustainable Future It’s not that the language of sustainability is obsolete; it will always have a place in our lexicon and culture. What many have struggled with is how to operationalize this dynamic business paradigm and the opportunities that have for too long been hidden, but are now evident. There has been a communication gap between what some want and what others are willing to tolerate when using the word “sustainability” to influence change. As this movement evolves, goals are the elimination of waste along with the valuation and integration of ESG performance. Ironically,

6

Int egrat ed Mana gement

these have been absent in most decision analysis. When building the business case for the future, it will be multidimensional. I am afraid we have slowed progress by labeling, categorizing, and redefining sustainability to the extent that it is overwhelming. Despite the work of the environmental movement, there is continued confusion regarding this paradigm. For over four decades the message has been basically the same, human activities impact the earth in negative ways. How far has this messaging moved the needle within the management dashboard of organizations? Chris Coulter, CEO of GlobeScan was quoted saying, “It is true that there is a great deal of baggage and challenge around the term sustainability. Part of the reason for that is that we haven’t collectively done a good job in being consistent internally in our organizations or have not been forceful enough in defining sustainability properly (broad, strategic, integrated).”3 Entrenched, conventional approaches to sustainability, e.g., compliance with EH&S laws, discourage people from developing more innovative approaches to solving complex problems. We need to build a better shared understanding and vision of our common future. It is time to rethink the compartmentalized approaches to sustainability, a Triple Bottom Line (TBL) and the dynamic capabilities of ESG performance within the context of systems thinking. John Elkington, known for introducing the phrase TBL, is no longer referencing it, but instead calling for innovation and future proofing systems. The new reality for any organization is that integrated solutions are all around us. Sustainability should be the desired outcome, the end goal. If as Bob Raidt, president of Arc, suggests “Sustainability’ implies we are okay with preserving and sustaining a lot of bad decisions sprawl, inefficient and wasteful transportation systems […] the list goes on and on,”4 then we need a sharper narrative to mobilize this paradigm. We do not have sustainable companies as much as we have enterprises integrating activities that measure, manage, and report environmental and social performance while building new competitive capabilities. Lists of these more IntEnts can be found within sustainability indices, and rankings. Further evidence of integration can be found within the GRI reports of many leading multinational companies. As Peter Senge once said, “sustainability is not a problem to be solved, but a

3. Quoted within the article by Langert (2015). 4. Langert (2015).

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future to be created.”5 There is a new value proposition and we already have the ability to find integrated solutions. These solutions involve systems, i.e., manufacturing lines, business units, organizations, supply chains, and entire cities. This kind of movement calls for brave and smart leadership. There is no one solution, but instead a portfolio approach at all levels involving individuals, functions, organizations, community, and society. Integration responsibilities and opportunities include how we manage an enterprise, our homes, how we transport ourselves, our purchases, and how we engage with others within social systems. As Paul Hawkinnotes “to be effective, we require and deserve a conversation that includes possibilities and opportunity, not repetitive emphasis on our undoing.”6 This conversation within the context of this book, builds on decades of work pushing for dynamic performance valuing ESG performance for what it enables, informed decision-making. Millennials and Gen Z should be inspired by the integration opportunity, to be agents of change with a vision of sustainability as part of every enterprise. This is an exciting process in which current decision-makers and MBAs will take the reins from Baby Boomers as they design a new future. To help cut through the noise and misconceptions that surrounded sustainability in the past, we need to understand why integration is needed now and how this paradigm is part of an existing trend line into the future. This is a call to action for creative optimists.

Why Now? There is now an opportunity to powerfully enable sustainability and its intersection with value creation. Any enterprise and management team needs to leverage rigor and proven management tenets, business models and tools alongside ever-emerging new technologies to focus on developing human-centered, integrated solutions. Old paradigms, e.g., teaching finance, accounting, marketing, operations, etc., as disconnected disciplines are counter to how successful companies operate. The integration of information systems, operations, and supply chains is already happening. Other powerful examples of this value creating opportunity can be found in Bob Eccles and Mike Krzus books One Report, and The Integrated Reporting Movement find the integration of financial and sustainability reporting now required by some countries (i.e., Denmark, South Africa, China, with others

5. As quoted within the book by Moore (2013). 6. Hawken(2017).

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like the UK, France, and Germany with similar pending mandates) and being done voluntarily by leading enterprises (Danone ING, Novo Nordisk, SAP, Southwest Airlines, UBS, and Unilever to name a few). An integrated business management empowers functional groups to become best in class while better understanding tradeoffs that pull down other groups based solely on first costs. Sustainability has been, and all indications support it continuing to be, at the “top of the agenda” in the C-suite. Fortunately, the winds of change are at our back. We can now build integrated business practices on the foundation of years of growing top management support for sustainability, analysts utilizing ESG information in performance analytics, and savvy management systems. We now have the ability to track a multitude of ESG performance metrics. The take away, is that no organization will be allowed to escape the scrutiny of expanding stakeholders demanding change in performance. This means management now and in the future requires a “dynamic” win: win rather than win/lose or compromise approach to decision-making. Integrated business management is the key driver of innovation and profitability in progressive companies because it reduces risks while pursuing new opportunities, bakes checks and balances into prudent management and strategies for modern go-to-market synergy and growth. Examples include revenue earned and waste diverted through innovation such as Nike’s Flyknit line, GE’s Ecomagination, and Walmart’s billion-dollar fleet efficiency improvements. By changing the language of sustainability, managers can find new methods to identify and plan for the strategic “integration” of sustainability as a material concern for any enterprise. CEOs are convinced sustainability is important, yet many are still looking for ways to operationalize it.7 Further evidence of the need for integration incudes but is not limited to the following:

• Michael Porter and Mark Kramer, propose “creating shared value” as an alternative way to look at sustainability creating economic value in a way that also creates value for society by addressing its needs and challenges, not philanthropic, not social responsibility, or sustainability but instead the next major transformation of business thinking. It’s about expanding the total pool of economic and social value.8

• Amory Lovins has reexamined the role of commerce in society, observing that a narrow conception of capitalism has prevented

7. McKinsey Sustainability study 8. Porter and Kramer (2011).

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business from harnessing its full potential to meet society’s broader challenges.9

• Joseph Bower and Lynn Paine’s HBR article on The Error at the Heart of Corporate Leadership recognizes that maximizing shareholder value is not the #1 responsibility of boards and managers, as it has accountability problems, and unintended consequences. Instead, a company’s health, not shareholder wealth, should be the primary concern of those who manage corporations as this will make for more resilient companies and a focus on the long term.10 An integrated management approach to decision-making, systems and practices will help reveal opportunities while overcoming decades of resistance to the baggage that environmental, green and sustainability labels have carried with them.

A Dynamic Performance Frontier Financial and economic issues underlie virtually every sustainable development decision. Integration provides a lens for business, economic and financial systems, their interdependencies, and action learning opportunity for practitioners. In adopting an integrated management approach to decisionmaking, a new performance frontier will enable the emergence of sustainable development pathways that link economic prosperity with social justice and a healthy biosphere. Governments move too slowly and Adam Smith’s invisible hand has for too long ignored environmental and social performance. There is growing interest from policy makers, financial practitioners, civil society, and researchers in systemic interventions that can help mobilize resources for the transition to sustainability and integrated bottom line (IBL) performance.11 Take for example the work of Eccles and Serafeim (2011) who found from 1995 to 2010 enterprises with strong integration, i.e., higher ESG performance, outperform firms with weak integration of ESG activities.12

9. Lovins (2011). 10. Bower and Paine (2017). 11. Lovins, Hohensee, and Sheldon (2010). 12. Eccles, Ioannou, and Serafeim (2014). An earlier version of this article is available from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn3: HUL.InstRepos:dash.current.terms-of-use#OAPEccles et al. (2014), open access policy articles. Table 1 Evolution of $1 Invested in the Stock Market in Value-Weighted Portfolios.

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The performance frontier

Financial performance High

In the absence of substantial innovation, the financial performance of firms declines as their environmental, social, and governance (ESG) performance improves. To simultaneously improve both kinds of performance, they need to invent new products, processes, and business models. Major innovation Moderate innovation

Minor innovation

Low

No innovation Low

ESG Performance

High

Figure 1.1: The Performance Frontier. Source: Reprint by permission of Harvard Business Review (Exhibit) Eccles and Serafeim (2013). Copyright r 2013, by Harvard Business Publishing; all rights reserved.14 What we are finding is that integration leads to better financial performance, less waste, and a way forward for creating tangible value that is attractive to investors. “Investors want to hear about a company’s sustainability progress and are factoring that progress into their decisions to invest.”13 Due to this and other requests for information from stakeholders, executives now have to manage investor expectations while demonstrating how sustainability initiatives create value across functions and systems. Integrated business management promises to propel us toward a new performance frontier. As Eccles and Serafeim’s work shows, integration of ESG initiatives and innovation have substantial implications for financial performance (Figure 1.1). Work done by the United Nations Principles for Responsible Investment (PRI) and Environmental Program (UNEP) Finance Initiative lays the groundwork for a changing frontier. As you are

13. Unruh et al. (2016). 14. EcclesandSerafeim (2013).

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reading this, a broad network of organizations is already bringing together diverse communities of researchers, practitioners, and endusers to explore how to align global financial and economic systems. Business models, consumption and production patterns towards sustainability are changing, both conceptually and in practice. Researchers and practitioners are considering the financial and economic system as part of a larger complex socio-ecological system and that system’s goal is to stimulate codesign processes that lead to new research, engagement activities and the emergence of evidence-based solutions. Efforts include mapping and designing processes together as well as convening thought leaders and the growing community of innovators in the areas of sustainable finance, Benefits Corporations (B Corps), Life Cycle Assessment (LCA), operations, supply chains, and economic systems.

Integration Operationalized The management of complex systems is one of the most important, if not one of the most impactful, inventions of the twenty-first century. When we think about all the systems and processes that have successfully come together, enabled by computers, to develop the first rocket, jumbo jets, energy grid systems, and space exploration, integration was a key element. The ability to enable collaboration in the design and development practice of business systems is no different in its significance. To this end, it is necessary to look for value creating integration opportunities within enterprises and across functions. It is time to transform the language of sustainability into the actions of integrated business management. This will call for understanding multiple dimensions of performance across functions. The capabilities of integrated business management are built on a platform of measurement that starts with value creation and business terminology so that managers across functions can more easily understand this dynamic value proposition. A multidisciplinary approach to the performance of an enterprise is found at the intersection of sustainability and the functional units of an enterprise. New integration opportunities for environmental and social capital are within functions. Strategic Planning now includes long-term capital investment (financial, manufactured, intellectual, human, social, and natural) and a vision for dynamic business management that includes environmental, social

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and governance performance goals. Finance and Accounting can focus on earnings, margins, cash flow, risk, market valuation, return to shareholders, return on equity, and return on investment while also including the environmental and social value of the enterprise within new projects. Marketing understands customers, competitors, suppliers, brand value, product development, and risks of not keeping up with integration trends. Human Resources focuses on people, capabilities and skills, organizational structure, culture and value with next-generation employees wanting to work for enterprises known for their integration efforts.15 Public Affair’s networks involve reputation, changing societal attitudes, and even unions calling for safer, less detrimental work environments. Operations manages physical assets, intellectual assets, products and services, productivity, supply chains, and risks of labor shortages/strikes or of natural resource scarcity. Technology and information systems now make it possible to assess the 80% of an enterprises value (considered intangible) that for too long has not been included in decision-making. As you look at the financial, manufactured, intellectual, human, social, and natural capital of an enterprise, all forms of capital should be part of integrated business management and decision-making. The functions and systems that connect all forms of capital provide crossdisciplinary performance measurement and analytics capabilities like never before. We can now evaluate performance to show the preservation or diminution of all forms of capital in the value creation process (Figure 1.2). Change will not happen overnight. We have become too specialized and myopic in our view of an enterprise and its respective systems. Business functions cease to talk to each other in a common language outside of costs. We live in a connected world, yet paradoxically, we still need to better connect functional silos. Take a deeper look within and across you own organization to find integration opportunities. As you progress through the chapters of this book, find evidence of existing integration activities (e.g., raw material waste reduction, energy efficiency programs, social inclusiveness through diversity efforts in hiring, and assessment supplier policies), in the processes, products, and services around you, and build on them. On a chapter-by-chapter basis, prepare to engage colleagues and leverage drivers, enablers, and

15. Franceschini (2015).

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14 Financial

Financial

Mission and vision

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Governance Manufactured

Manufactured Risks and opportunities

Intellectual

Strategy and resource allocation

Intellectual

Business model Inputs

Business activities

Outputs

Outcomes

Human

Human

Social and relationship

Performance

Outlook

Natural

Social and relationship

Natural

External environment

Value creation (preservation, diminution) over time

Figure 1.2: Value-creation Process. Source: Used with permission from the International Integrated Reporting Council (IIRC). “The International Framework,” http://www.theirc.org/international-ir-framework/.

key performance metrics across the organization to present your ideas while enabling the integrated business management movement.

Trends

Evidence of the Inevitable

Starting with the report of the Club of Rome on “Limits to Growth” in the early 1970s, and continuing with the Brundtland Commission’s report on sustainability in the 1980s, there was early support for changing our thinking and interactions with the socio-ecological systems around us. Look at the creation in the 1990s of the World Business Council of Sustainable Development now representing 200 companies around the world with combined revenue of greater than US$ 8 trillion and over 19 million employees16 and more recently the CDP (formerly known as the Carbon Disclosure Project) with a network of investors representing $100 trillion,17 and you find there is a very tangible movement afoot. There are today many similar initiatives, such as the GRI, and public opinion has shifted public policy toward increasing standards and regulations requiring business to address environmental and social issues. There are even now stock exchanges around the world that require or encourage sustainability reporting by companies. However, business leaders and sustainability professionals are shortsighted if they wait for more regulations to arrive. A review of current trends provides evidence that decision-makers need to act now, not in the future, to develop integrated business strategies as there are many external drivers of change. Consider these other drivers:

• Carbon trading platforms include Emission Trading Scheme (ETS) legislation at the country level in the EU, Switzerland, New Zealand, Australia, South Korea, and Kazakhstan. Subnational ETSs can be found in the United States (California) and Canada, with the Kyoto protocol enabling emissions trading across countries. China now has seven CO2 trading platforms.18

16. Accessed, summer of 2017; http://www.wbcsd.org/Overview/About-us 17. Accessed, summer of 2017; https://www.cdp.net/en/info/about-us 18. World Carbon Market Database. https://www.carbonmarketdata.com/en/products/ world-ets-database/presentation

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• The EPA uses an SCC in scenario planning. The price of CO2 per ton ranges from $6 to $240 and can be used in decision analysis and scenario planning.

• Multinational firms have used shadow pricing and a cost of carbon in decision analysis and planning for years.19

As we conclude the second decade of the new millennium, the boundaries between business and the environment, and between business and civil society, have become blurred. Business leaders have begun to accept a paradigm of sustainability that calls on them, in their own self-interest, to focus on IBL value creation and a new performance frontier. More and more companies are reporting on their integrated performance using guidelines from organizations such as GRI, ISO (International Organization for Standardization) and EFQM (European Foundation for Quality Management). The shortcut taken earlier of pretending that economic value creation inevitably leads to environmental and social value creation is no longer credible, especially after the global financial meltdown of 2008. Visionary leaders are improving their companies’ competitiveness by addressing these sustainability issues proactively. Almost five decades in the making, the environmental movement has changed forever how companies do business. In the 1960s and 1970s, corporations were in a state of denial regarding their impact on the environment. A series of highly visible ecological problems created a groundswell of support for strict government regulation. In the United States, Lake Erie was dead due to pollution from manufacturing. In Europe, effluent from the auto industry meant the Rhine was on fire. In Japan, people were dying of mercury poisoning caused by manufacturing. Today many companies have begrudgingly accepted their responsibility to do no harm to the environment because of existing laws. Despite some laggards, products and production processes are becoming cleaner; and where such change is under way, the environment is on the mend. In industrialized nations, more companies are “going green” as they realize that this next wave of integration can reduce pollution, waste, supply chain risks, and increase profits simultaneously. We have come a long way. Few enterprises have fully integrated their strategic planning process. Instead, environmental strategy consists largely of piecemeal projects

19. Carbon Disclosure Project, Global Corporate Use of Carbon Pricing, September, 2014.

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aimed at controlling or preventing pollution. While conservation “is a good start, it is a tragic place to end.”20 Focusing on integration requires putting business strategies to a new test. Taking the entire planet and its systems as the context in which they do business, decision-makers must ask whether they are part of the solution in recognizing, measuring, and managing social and environmental issues; or part of the problem. When the leaders of a company think in those terms, they can begin to develop a vision of sustainability a defining logic that goes beyond today’s internal, operational focus on “greening” to a more external, strategic focus on sustainable development. To help guide organizations, the UN’s 17 SDGs provide avenues for which every organization can find ways their operations, products, or services help contribute to achieving a prosperous, inclusive, and sustainable society by 2030.21 Such a vision is necessary to guide companies through strategic planning and change management processes. Organizations are there to help with this transition:

• The United Nations has proposed 17 SDGs. UN Global Compact (UNGC) and Principles for Responsible Management Education (UNPRME) membership are on board to support the goals embedded in business school curriculum.

• The United Nations Environmental Program (UNEP) has an Integrated Governance model for sustainability.22

• Rapid growth in the number of Benefit Corporations (B Corps), which set rigorous environmental and social performance reporting standards as there are alternative business models recognizing value beyond only profit. The achievement of integration will mean development of trillions of dollars in products, services, and technologies that barely exist today. Whereas yesterday’s businesses were often oblivious to their negative impact on the environment, today’s responsible businesses strive for zero impact, and tomorrow’s businesses are learning how to make a positive impact. Living buildings and living products (i.e., those that produce more energy and water than they consume) already take us in this

20. Paraphrased from the International Living Future Institute’s Chief Scientist, Greg Norris when talking about ecological footprinting. 21. The goals are available at https://sustainabledevelopment.un.org/sdgs 22. United Nations Environment Programme UNEP (2014).

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direction.23 Increasingly, companies will be selling solutions to the world’s environmental and social problems. Envisioning tomorrow’s businesses, therefore, requires a recognition of global problems. To move beyond greening to integration, we must unravel a complex set of global interdependencies and opportunities. The challenges presented by emerging markets demand a new way of conceptualizing business opportunities. The rapid growth in emerging economies cannot be sustained in the face of mounting environmental deterioration, poverty, and resource depletion. In this century, companies will be challenged to develop clean technologies and to implement strategies that drastically reduce the environmental burden in the developing world while simultaneously increasing its wealth and standard of living. Like it or not, the responsibility for ensuring sustainable development falls largely on the shoulders of the world’s enterprises, the economic engines of the future. Clearly, public policy innovations (at the state, national, and international levels) and changes in individual consumption patterns will be needed to move toward the goal of sustainable development. But what are we waiting for? Corporations can and should lead the way in shaping public policy and driving change in consumer behavior. Some early leaders include Unilever reporting sustainability brands for this company are growing 50% faster than the rest of the business. Additionally, there are at least nine global companies that generate a billion dollars in annual revenue from products and services that have sustainability at their core (Tesla, Chipotle, Ikea, Unilever, Nike, Toyota, Natura, Whole Foods, and GE).24 Ultimately, it makes good business sense to pursue strategies for an IntEnt and sustainable world. Further evidence of change includes:

• The Conference of the Parties (COP) 21st and 22nd agreements signal importance of climate change and its impacts on the economy with global buy-in at the country level.

23. Personal contact, and based on practices promoted by James Connelly, Living Products Challenge Director, International Living Products Institute and the Living Products Hub in Pittsburgh, PA. 24. For more on Unilever’s sustainability brand growth, see https://www.marketingweek. com/2017/05/18/unilever-sustainable-brands-growth/; for the companies generating a billion dollars or more from sustainability see https://www.theguardian.com/sustainablebusiness/2016/jan/02/billion-dollar-companies-sustainability-green-giants-tesla-chipotle-ikeanike-toyota-whole-foods

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• CSR Reporting: in 2005

50% of the largest 250 firms produced a CSR report. By 2008, this increased to 80% and by 2012, 53% of S&P 500 reporting. In 2014, 99% of the S&P 500 reporting.25 The GRI claims 92% of the world’s largest corporations report sustainability performance.

• Demand for Green Banks, Green Finance, and Social Finance is growing in support of renewable energy, energy efficiency, and social benefit startups. The current economic system has placed enormous pressure on the planet while catering to the needs of only about a quarter of the people on it, but over the next decade twice that number will become consumers and producers. Traditional approaches to business could collapse (e.g., the Coca-Cola plant shutdown in India due to water scarcity, or brick and mortar retail), and enterprises will have to develop innovative solutions to thrive. That will happen when executives recognize a simple truth: Integrated business management = Innovation. It is not going to be easy. Organizations that have started this journey have gone through varied phases of change. There are different challenges at each phase and IntEnts are needed to develop new capabilities to tackle coming challenges. Some existing drivers and examples of corporate and government actions towards integrated operations also include:

• The International Integrated Reporting Council, a global coalition of investors, regulators, companies, standard organizations, accounting associations, and NGOs, that promote communication about value creation with a mission to establish integrated sustainability and financial reporting as the norm in the public and private sectors.

• Sustainability Accounting Standards Board materiality maps for industry sector environmental and social performance metrics.26

• Investing for a sustainable future report finds 70% of surveyed investors said that sustainability was central to their investment decisions.27

25. KPMG (2008 and 2010); Brown 2013. Reporting is “the set of information items that relate to a firm’s past, current and future environmental management activities and performance… [and their} financial implications” (Bethelot, Cormier, & Magnan, 2003; KPMG’s Integrated Reporting, 2010). 26. See, for example, the maps and metrics here, https://materiality.sasb.org/ 27. Unrhu, Ibid.

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What is offered within these trends and throughout this book is an evidence based approach to developing strategic integration options and a no-apologies approach to creative solutions. Initiatives we would want to achieve by measuring impacts beyond only a single bottom line. They are practices that benefit the environment and society in dynamic ways that for too long have been overlooked. We are all part of learning organizations28 and our role is to make systems better by taking in new information, applying analytics, and enabling better outcomes for any enterprise. The growing economic data show “that the expense of the problems in the world now exceeds the cost of the solutions. To put it another way, the profit that can be achieved by instituting regenerative solutions is greater that the monetary gains generated by causing the problem or conducting business-as-usual.”29 Decision-makers can now calculate their own integration potential, which makes it possible for financial decision-making to include an integrated value equivalency. There will be more on this later in the book. The key is to value these inputs and consider how this will in turn affect decision-making. It’s now possible to build on traditional financial performance while looking for Integrated Future Value, Integrated Rate of Return, and Return on Integration. What part of this multitrillion-dollar integration business management opportunity will you be part of? Understanding how to identify integration opportunities within any organization will help you go beyond the bias that comes with terms like “environmentalism” and “sustainability” to demonstrate impacts across organizational functions, business units, and value chains. Chapter 2 provides more insight regarding critical dimensions to help operationalize integration for a customized approach for any enterprise as we apply a framework for Strategic Sustainable Development (SSD), value creation, systems and design, life cycle assessment, and the business case for integration. Integration has been a key theme across the IS/IT, general management, organizational behavior, supply chain, strategy, and the environmental management literature for decades. What has been overlooked to date is an opportunity to change the language of sustainability for business management. We can now “integrate” social and environmental performance into all functions of an enterprise. The integration paradigm proposes a dynamic understanding and design of strategically aligned

28. Senge (2014). 29. Hawken (2017, p. 217).

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measurement and planning opportunities across an organization. In the following chapters, “integration”is front and center so we can get away from the biases associated with labels such as Green, Corporate Social, Environmental Responsibility, or Ethical. With a focus on reframing sustainability as an integration opportunity within strategic planning and decision analysis, there is a new performance frontier awaiting enterprises that strive for integration. By the end of this book, you will be asked to prepare a Vision and Action plan. The plan needs to describe how you will integrate business and sustainable development in your own career and enterprise. Specifically, you will be asked to think about actions regarding your:

• personal point of view on the role of business in the world for the new millennium; and

• personal action plan for using commerce as a tool to foster a more sustainable world. Objectives of the coming chapters include enabling you to:

• acquire an in-depth knowledge of the frameworks and models supporting integrated business management practices and innovation;

• think critically about topics and integrate diverse streams of knowledge;

• see products and services from a life cycle perspective; • explore value creation opportunities across functions within any enterprise; and

• uncover new strategic enterprise management opportunities. The chapters are sequenced to change the way we understand and operationalize sustainability at the intersection of Systems Thinking, SSD, Value Creation, and insights provided by your assessment of current practices. The approach taken is to provide evidence based research and insight as to the changing needs of business professionals within a synthesis of information useful to sustainability professionals, executives, academic scholars, and graduate education platforms. Sources of information in the coming chapters include primary and secondary data from scholarly works and top consultancies, with chapters providing action learning, and customizable approaches for readers to apply concepts within any enterprise.

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Chapter Summary Chapter 1 provides a foundation for integrated business management so that you can find synergies with the application of the topics covered in the coming chapters. Support for the importance of integrated management in this book is found in an evidence-based management approach with examples of how and why integration is now critical to any organization. The management systems and tools currently available to you can converge to create decisions that are better informed and guided by your own vision of a sustainable future. A strategic approach to planning and performance will enable practitioners and scholars to align organizational activities with the goal of a sustainable society with transparency in reporting IBL performance. Today’s solutions are both social and technical. We have the technical feasibility to measure and engage. The social will to create new norms calls for open minds and analytics to tackle one of the biggest opportunities of our time […] the integrated management of processes, systems, and data to enable decision-making with the goal of a sustainable society. If we look at integrated management as something inspiring change and the ability to reimagine everything we manufacture, our energy and transportation systems, cities, and economies, then we can create an innovative future reality. The challenge before us tests who we are as integrated decisionmakers and managers of enterprises that solve problems at the business unit, organizational, value chain, city, and country level. To understand this, we can research and apply information within the coming chapters to understand how to develop integrated management opportunities. We can understand how our actions affect others and to reestablish our role as open-minded, proactive agents of change. Every integrated solution requires collaboration, measurement, and strategic alliances with common goals. When taken to scale, the possibilities are endless. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What will your IntEnt achieve?

• •

22

What is your perception of management’s view of sustainability? Choose four businesses located near each other and look at their inputs, value creation processes, and outputs including waste. Where can these businesses eliminate waste and enable more sustainable practices?

Int egrate d Management

• • •

How would the term integration be received by colleagues and management when part of a new project proposal or performance measurement opportunity? Identify a leading sustainability practice by your top competitor and introduce it as an “integrated management” practice in your next management meeting. How does your management team react? Which indicators of integration are already used within your industry; e.g., how the bottling industry is moving from plastic to bio-based materials; increase of renewable energy; closed loop systems; are enterprises in your industry in sustainability rankings?

Bibliography Bower, J., & Paine, L. (2017, May June). The error at the heart of corporate leadership. Harvard Business Review, 95(3), 50 60. Eccles, R. G., Ioannou, I., & Serafeim, G. (2014, November). The impact of Corporatesustainability on organizational processes and performance. Management Science, 60(11), 2835 2857. Eccles, R. G., & Serafeim, G. (2013). The performance frontier: Innovating for a sustainable strategy. Harvard Business Review, 91(5), 50 60. Franceschini, L. (Lead author) (2015). Rising leaders on environmental sustainability and climate change: A global survey of business students. New Haven, CT: Yale Center for Business and the Environment, Global Network for Advanced Management, and World Business Council for Sustainable Development, accessed September 2017 at http://cbey.yale.edu/sites/ default/files/Rising%20Leaders%20on%20Environmental%20Sustainability% 20and%20Climate%20Change%20Nov_2015.pdf Hawken, P. (2017). Drawdown: The most comprehensive plan ever proposed to reverse global warming (p. 216). New York, NY: Penguin Press. Langert, B. (2015, November). The inside view: Should we abandon the language of sustainability? GreenBiz: Quoting CEO Chris Coulter of GlobeScan, accessed August 2018 at https://www.greenbiz.com/article/should-weabandon-language-sustainability. Lovins, A. (2011). Reinventing fire: Bold business solutions for the new energy era. White River Junction, VT: Chelsea Green Publishing. Lovins, H., Hohensee, J., & Sheldon, P. (2010). Integrated Bottom Line Concept Paper, Natural Capital Solutions; shared while working with Duquesne SMBA Program in 2012.

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Moore, B. (2013). IT sustainability for business advantage. New York, NY: Business Expert Press. Senge, P. M. (2014). The fifth discipline fieldbook: Strategies and tools for building a learning organization. New York, NY: Crown Business. United Nations Environment Programme (UNEP). (2014, June). Integrated governance: A new model of governance for sustainability (p. 6). Accessed August 2018 at http://www.unepfi.org/fileadmin/documents/UNEPFI_ IntegratedGovernance.pdf Unruh, G., Kiron, D., Kruschwitz, N., Reeves, M., Rubel, H., & zumFelde, A. M. (2016). Investing for a sustainable future. MIT Sloan Management Review, 57(4), 1 29.

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2 Critical Dimensions of Integration Enablers “For every complex problem, there is an answer that is clear, simple, and wrong” John Ehrenfeld summarizing an aphorism by H.L. Mencken1

Information in this chapter reviews the critical dimensions of integration. The chapter starts with a brief review of complex problems, and systems thinking as a different way to view both issues and opportunities. We then take a look at the role of enterprises in value creation. This chapter ends with a focus on change management and the work of creating change and a brief look at the emergence of integrated reporting. The objectives of this chapter are to:

• Highlight the importance of your vision and performance frontier; • Explore the dynamics of complex problems; • Highlight integration and organizational change toward sustainability; • Propose new goals to help turn options into actions. This chapter provides opportunities to go beyond the Chapter 1 biases of the environmental movement and sustainability of the past, towards a new vision of performance and integration. In this chapter, we can utilize systems thinking as an effective and creative enabler of new value and change management.

1. Ehrenfeld, J. summarizing a quote by H.L. Mencken, Flourishing by Design website, accessed summer, 2017 at http://www.johnehrenfeld.com/2015/12/for-every-complexproblem-ther.html

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New performance frontier and vision Critical dimensions

Systems thinking

Value creation

Complex problems Change management

The recognition of sustainability as a driver of innovation can be found in research, the development of management practices, design of products and services, as well as new business models.2 An important starting place for integrated business management is to understand the context of sustainability in revealing interrelated, value-creating activities. This value creation involves the management of resources (multiple forms of capital) and the actual processes of acquiring, measuring, and reporting those resources. Individuals, businesses, and government entities, to some extent, are all involved in these integration practices. This evolving field of practice is often separated into four buckets of resources: environmental, social, governance (ESG), and financial. These ESG resources can enable innovation across an enterprise to find dynamic relationships, which provide new opportunities within systems and across functions to measure performance in new ways. A primary assumption regarding the dimensions explored within this chapter is that integration provides an overarching opportunity for an enterprise. An integrated business management approach to thinking and decision analysis will lead to better understanding of the value creation process. It is easy to say integration is important. It is not so easy to make integration influence the decisions made every day: where to spend time and resources, how to measure and report progress, and how to ensure the sustainability of an enterprise over time. Thus, this chapter provides information that can accelerate management systems understanding, value creation, and integrate sustainable development activities as we progress toward the goal of more sustainable enterprises, and society. The primary questions addressed by this chapter include: what are complex problems; why are systems important; and how will all of this create value for any enterprise? We start with a primer on complex problems and systems thinking. We then examine critical

2. For one example of this, see Nidumolu, Prahalad, and Rangaswami (2009).

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dimensions of integration as a foundation for analysis before reviewing information valuable for decision-making and change management.

Complex Problems We cannot escape the complexity of today’s economic environment. The interdependence of relationships within systems is a critical source of complexity.3 With this in mind, we should not solve local problems and global challenges with the same narrow, single bottom line mindsets and tools used for decades. To help us navigate these complex times, systems thinking provides a lens for decision-makers, managers, and policy makers to understand complex systems and multistakeholder problemsolving. Tackling the big opportunities of climate change, food security, extreme poverty, water scarcity, and environmental degradation require a different approach to decision-making. There can be a sense of helplessness when we as individuals contemplate the scope of global problems and whether we can make a difference. Add to this the need to put out daily fires while trying to tackle big, complex issues and paralysis or inaction can take over. If, instead, we can embrace the reality of more performance information being available to us, including ESG, and financial dimensions, how can we not include this information into decision-making and strategic planning? Each of us within an enterprise can take on new challenges and lead with an integrated management approach to connecting local problems within a larger context of global challenges. This approach to decision analysis requires skills in selfinquiry, shared vision, and systems thinking.4 The messes (i.e., sets of interconnected problems) we face today have been called complex, wicked, and messy for good reasons. Today’s problems are due to a lack of integrated decision-making that in the past looked for simple solutions to symptoms of larger problems. Wicked problems are “a class of social problems which are ill-formulated, where the information is confusing, where there are many clients, and decisionmakers with conflicting values, and where ramifications in the whole system are thoroughly confusing.”5 While designers and city planners first coined the term wicked problems,6 the concept is applicable to

3. Maani (2017). 4. Maani (2017). 5. Buchanan (1992). 6. Rittel and Webber (1973).

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many of the problems that business managers and decision-makers face today. Solving wicked problems is difficult, particularly as stakeholders with different mental models need to first understand and agree on the problem. Similarly, managers from different business functions may look at and solve a perceived problem from their functional perspective, to only end up addressing the symptoms of the problem. If we ask the question “why” something is happening, and act on the answer to this question after only asking the question once, we are limited to addressing a symptom of a larger problem. If instead, we ask the question “why” up to five times, and contemplate the response to the question each time, we can then start to address the root causes of complex problems. The eventpattern-structure pyramid used in systems dynamics (an approach to systems thinking) deals with this issue directly. Creative approaches to cleaning up a mess are possible only when we understand the structure that gave rise to the problematic behaviors we observe and another axiom of systems thinking is that in social systems cause and effect are always separated in time and space so the effect we observe today may have been the consequence of decisions taken way back at a different place (corollary: the law of unintended consequences). Typically, the necessary resources and constraints required for complex problem-solving and solutions change over time, and therefore we never completely solve the problem.7 Wicked, or messy problems are situations in which there are large differences of opinion about the solution or even the question of whether there is a problem. The opportunity to try to solve complex problems arises from ill-structured contexts that make the process difficult for decision-makers and stakeholders.8 Sources of these types of problems include limited information processing capacity, entrenched mental models (powerful drivers of behavior and perceptions of reality), and the tendency of stakeholders to defend or only promote their own self-interest in decision-making situations.9 To understand how we can deal with complex and messy problems, we need to understand the context of systems. A system combines a number of different elements. Each element by itself has a limited function. When we bring these elements together in a system, they are able to produce results greater than the sum of each part that cannot be achieved by those parts outside the system. If you take your smart phone

7. Rittel and Webber (1973). 8. Maani (2017). 9. Vennix (1999).

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apart and place all of its components across a table, you no longer have an interactive mobile device with global connectivity. This is because the phone is not the sum of its parts, but the product of their interactions. Upon disconnecting the components, they each lose their properties, i.e., the camera, a system itself, cannot function without its connection to other parts, energy and memory to store the images. A systems perspective helps us understand how different elements influence each other, influence the system as a whole, and can be defined by its role in a larger system. With this perspective, it is possible to determine whether an improvement in one area negatively or positively affects another area of a system. Another axiom applies here in that a local maxima is not a global optima that is any effort to improve performance of the parts may not always lead to improvement in the performance of the system. Bill O’Rourke, the former V.P. of sustainability at Alcoa and very familiar with software solutions, answered the question of “Wat does an integrated solution look like?” with the following: “In my mind a fully integrated solution allows all pieces of the puzzle to fit and operate together simply, easily, accurately without having to construct interfaces (that are often complex and expensive). An integrated solution requires input once, then the outputs are generated simply, easily and accurately. And, perhaps the input could be automatically generated (e.g., taking a part from a bin in a warehouse could automatically generate a replenishment order).” He goes on to conclude that “corporate environmental management systems are very complex, often inaccurate, and do not integrate well with other systems (yet). Further, the automobile is an integrated solution to mobility and the driverless car will be even more integrated. A better example of an integrated system is the human body.”10 Bill gets this right at many levels and helps to reinforce the importance of understanding systems and subsystems when identifying opportunities for improvement. Given all the attention the health care industry is getting, I also asked this question of “What does an integrated solution look like?” to a medical doctor. His response, “For me, integration is an ideal that is to be aspired to. As someone who studied biology, the ideas of homeostasis, feedback loops, and feed-forward loops are just part of how I think about the world. When systems aren’t working, I assume that it’s because they are designed poorly. If the appropriate feedback/feed-

10. Based on personal communications and work with colleague Bill O’Rourke at Duquesne University, Summer, 2016.

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forward loops could be established, then systems would work better. I don’t pretend to believe that we will ever have perfect systems, and I have no delusions about any kind of grand utopia, but I do think that tweaking systems in the right way can bring about better ends. We need to use good social science in order to inform these tweaks; otherwise, we will have to deal with unintended consequences. Good social science is happening and can be useful. So integration for me means designing systems so that the incentives are aligned to produce the intended outcome.”11

Systems Thinking Systems thinking is a scientific language applied to understanding, explaining, and solving endemic organizational and societal problems.12 Consider this introduction to systems thinking as a primer. Trying to explain the full breadth and depth of this field far surpasses the scope of this book. This field has developed a large body of knowledge about systems and how they behave. The artistic appreciation of the whole and the scientific analysis of the parts at the same time is what sets this discipline apart from others.13 There is a critical need to look at the world and its complex problems, i.e., terrorism, economic development, global warming, fossil fuel consumption, environmental degradation, water and food shortages, poverty, or educating girls, and not see them as separate. The book Drawdown by Paul Hawken attempts to do this by providing 100 ways to reverse global warming that try to account for the interconnected relationships shared across a major problem involving global warming. While we may intuitively understand the connections between global warming and water shortages, access to education and poverty, it is more difficult to find the linkages between educating girls

11. My thanks to Dr. Christopher Dobbelstein, MD, Psychiatrist and our conversations about integrated systems as the health care industry is trying to deal with questionable incentive systems for doctors in fee-for-services environments, high energy consumption and waste, reactive health care, and constant issues between hospitals and insurance companies. 12. Maani (2017). 13. The book The Fifth Discipline by Peter Senge is a good practitioner-based volume to read and appreciate systems thinking, a more focused read would be Donella Meadow’s book Thinking in Systems: A Primer.

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and global warming, water shortages and poverty, and fossil fuel consumption and terrorism. Systems thinking as a management discipline is focused on an understanding of a system by examining the linkages and interactions between the components that comprise the entirety of that defined system. The systems thinking view considers the complete organization in relation to its environment. This approach provides a way of understanding, analyzing, and communicating the design and construction of an enterprise as an integrated, complex composition of many interconnected systems (social, environmental, governance, and economic) that need to work together for the whole to function successfully. An enterprise-wide system can succeed through managers collaborating in and across functions and systems. It is critical for this performance system to focus on the integration of individuals and systems, rather than a single function and its performance.14 The system’s success requires performance measurement systems with attributes that include individual and group goal-setting, development, incentives, communication, assessment, responsibility, rewards, and accountability. For a more in-depth understanding of systems thinking and systems design work with causal loop diagrams (CLDs), there are a large number of books, and seminal papers, many of which are in the endnotes to this chapter. Systems thinking should be part of planning processes and will require us to look at decision-making and problem-solving differently. Going forward, we will need to look for patterns, behaviors, and trends over time; review multiple future scenarios of what could be; look for the interactions of system components involving causality and feedback; and find ways to involve the participation of stakeholders. When taking these approaches to creating a vision of the future and strategic planning for this future, the outcomes will have material impacts to an enterprise. This integrated approach for business management has the potential to create a future free of systemic failures. To do this, we need to be able to understand and tell better stories about systems. It is important to find the interconnections and relationships among variables, yet systems thinking can take this a step further by focusing on the bigger picture and storytelling. A tool for doing this is the CLD. 14. Summarized from Chapter 12 “Leadership and Systems” in The Search for Leadership: An Organisational Perspective, Triarchy Press. Accessed, summer of 2017 at http://www.systemicleadershipinstitute.org/systemic-leadership/theories/basic-principles-of-systems-thinking-as-applied-to-management-and-leadership-2/

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A CLD is a simple way of capturing interconnected relationships instead of static performance measures, i.e., cost savings. Furthermore, the CLD is a tool that provides a scientific way to connect variables while providing an understanding of the system and how the variables fit together. This is especially important for learning organizations, value creation, and strategic planning. The variables are the basic building blocks of systems thinking. Variables are the drivers that determine the behavior of a system. One of the keys to developing systems thinking skills is identifying patterns between relationships. Understanding the relationships is the core of systems thinking, as relationships are the underlying causes of complexity. The more interdependent the elements of a system, the more complex the system. This language helps to explain dynamic problems by understanding the relationships among the components of the system. Within CLDs, a relationship link is an arrow between two variables implying a causal relationship, with the direction of the arrow showing how one variable causes or affects another. Causal relationships are statements expressing scientific facts, common knowledge, a hypothesis, experience, or mental model. The building blocks of system thinking can be extended to create meaning and stories in going from one-to-one relationships to forming CLDs to describe entire systems models. A powerful aspect of a CLD is the ability to include both quantitative and qualitative variables when modeling a system. Variables can be conditions, actions, decisions, concepts, policies, or the state of something that can be measurable like cash flow, assets (tangibles), sales, employees, GDP, the population of fish; or qualitative such as brand (intangibles, which make up > 80% of an enterprise),15 value, quality, stress, inclusion, happiness. Variables should be able to increase or decrease. The identification of variables can be easy, yet connecting them in meaningful ways is more difficult. When constructing a systems model, the goal is to tell a story, sharing one’s mental model of the system. Like most things, the story will get more concise, informative, and relay insight after multiple iterations. The first step is to convert a problem into a systems question, for example, what limits the integration of sustainability into an enterprise? Tackling this question will help you find key variables for a systems model and provides an important opportunity to invite other stakeholders into the exercise. Some may call this the development of a problem statement, but a word of caution regarding simple problem

15. Juetten (2014).

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statements, i.e., “corporate does not value sustainability.” These statements often lead people to jump to a solution without reviewing all variables affecting this statement. To help overcome quickly jumping to solutions, turn the problem into a question starting with the word “what,” i.e., what are the variables and drivers limiting integration? Posing a question expands a problem statement, thinking, and reflecting on the drivers and enablers within a systems thinking context. The ability to create a CLD with others on your management team helps to create consensus, enabling cross-functional and cross-sector integration. There are many methods for doing this and more information on how to include this in a customized approach to strategic sustainable development and planning processes is coming in Chapter 3. To start, identify the most obvious relationships from a short list of key variables and then add new variables to help complete the story of what you are modeling. The objective is not to include all possible variables, but instead develop a concise set of variables. One way to limit the scope of your system when getting started is to limit the variables to around six or seven, which is, according to empirical research, the number of things a person can remember at one time. Getting back to the proposed systems question, “what limits the integration of sustainability into an enterprise?” the World Resources Institute (WRI), after interviewing sustainability managers from leading companies found four potential variables.16 These are: (1) improved sustainability is not valued in internal capital allocation decisions; (2) the goals of corporate sustainability teams and financial teams are not well aligned; (3) enterprises lack metrics to account for external environmental costs; and (4) sustainability factors, such as climate change and water scarcity are not being fully integrated into long-term business strategy. The next step is to add polarities indicating the nature or type of relationship between variables. Increases or decreases in polarity are represented as + or with the diagram. Causal loops within the system represent reinforcing (positive) and balancing (negative) feedback. The interaction between feedback forces is the source of complexity in environmental, social, or business life. Reinforcing feedback, expressed as growth or decline, encourages change. Balancing feedback is negative and creates stability and control. For example, sustainability not valued in internal capital allocation decisions (a traditional approach within an enterprise) represents a reinforcing process and negative relationship to

16. Perera, Del Pino, and Oliveira (2013).

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integration. Additional insight comes from recognizing that delays or time lags are part of the system. Delays affect the system’s behavior and its reaction to external changes. These delays can be informational or physical within business activities such as increased risk management practices and reduced supply chain disruption, or change over time to include externalities into performance measurement. Delays confound cause and effect relationships and at a larger scale can mask change, such as what has been seen with decades of climate models and predictions with only limited populations feeling direct impacts. For context, one of four variables limiting integration involves capital allocation decisions. We can look at this through the lens of a CLD while exploring how to overcome this, see Figure 2.1. In this context, businesses who take the traditional approach to planning and investing in sustainability make some progress, but because sustainability is not integrated into strategy, nor properly measured, they continue doing business as usual. If instead, the enterprise sees opportunity in investing in sustainability projects, they can realize increased reputation. This is with some decrease in operating costs (after a delay period) as an investment any project would have this same impact on costs. When operating costs and reputation are considered in terms of total returns (creation of value that includes environmental impacts avoided and social value), then these returns can have a positive impact on perceptions and give credit to sustainability projects, after a delay period. External variables (levers) adding to the increased perception of the projects include more calls for sustainability and the integrated reporting movement. Increased perceptions of these projects along with internal changes in the use of integrated metrics (another lever), criteria for projects, and value creation that includes Inclusion of ESG criteria, metrics and values

External forces

+ +

Credit given to sustainability project

+

+ Capital allocation transparency

– Operating costs

Reporting metrics

Total returns: Value added

– + Reputation

+

Figure 2.1: Removing Barriers to Integration.

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Invest in sustainability projects

environmental and social value in turn positively impact more investing in sustainability projects. As you begin to familiarize yourself with these CLDs, it is important to consider how all four of these variables are interrelated. It can be considered that the first variable:(1) improved sustainability is “above the water line,” that is, it is not valued in internal capital allocation decisions. Investments in sustainable projects happen with visibility to the public, whereas variables for (2) through (4) are “below the water line” and are not visible to the public. All four of these variables are connected through linkages but it is necessary for variables (2) through (4) to occur in order for the investment in sustainable projects to happen. These latter variables represent the cause of many hurdles that prevent sustainable project investment. Identifying the linkages between the variables is critical in understanding how to resolve these hurdles. For example, in variable (2) the focus on short-term gains is a critical lever for companies to pull or not pull when weighing on sustainability versus financial goals. Utilizing a price of carbon is a critical level for enterprises to use in variable (3) that lead to more informed internal decision-making and connects back to variable (1) via investment in sustainable projects. A recent Carbon Disclosure Project (CDP) report indicates that 83% of the 1,681companies surveyed “recognize the physical risk of climate change” along with the financial risk directly posed to their business. However, only 1 in 10 of these companies incentivize their management to actively address all these issues. This is not surprising when you consider variable (4) and the lever for 5-YR OGSM (Objectives, Goals, Strategies and Measures). When enterprises fail to integrate climate change risk into their business-level strategy they fail to forecast for a critical area. This would be tantamount to a print media company not accurately quantifying the impact the digital age will have in their 5-YR OGSM. This lever, as all others, links back to variable (1) and indicates why the investment in sustainable projects might not occur. Ultimately, when businesses fail to consider “ESG criteria, metrics, and values” they fail to base their decision-making off of a complete picture. As a result, internal capital decisions do not allocate investment in sustainable projects. By incentivizing certain behaviors, businesses can start to maximize returns. Going through this process helps to distinguish between symptoms and problems while understanding that short-term solutions (quick fixes) are not the goal. Short duration (less than 18 months) return on investment for a capital expenditure project is not a sound long-term strategy for understanding value creation or the degradation of value. Much like increases in fossil fuel exploration and production are not good

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long-term strategies to meet growing energy demands due to unintended consequences of extraction and air pollution. Fundamental change and the ability to integrate sustainable development within enterprises and across industries is the transformative approach necessary for changing mindsets and creating a long-term focus for capital expenditures to help remove barriers to integrated business management. Decision-makers should consider the systems thinking axiom that a local maxima is not a global optima. Too often, managers view similar unrelated problems in isolation and delegate them to respective functional managers. Managers and enterprises do not engage in systems thinking combined with problem-solving because managers operate under different, sometimes conflicting, performance metrics in separate departments or functions. Short-term solutions are then proposed such as disposing of waste at the lowest cost (the local maxima), that do not take into account the value from investing in R&D processes and life cycle assessment so you can end up not creating the waste in the first place or capturing it in closed loop systems (which helps to address bigger issues and contribute to a global optima). Leverage points are key opportunities for impactful change within systems models. Meadow’s work on leverage points and places to intervene in a system describes opportunities as “places within a complex system (a corporation, an economy, a living body, a city, an ecosystem) where a small shift in one thing can produce big changes in everything.”17 A well-known example is the impact of education on reducing poverty and crime. Organizational failures show us that a focus on narrow, isolated problem-solving often results in fixing or removing the problem’s symptoms, rather than addressing the underlying causes. Systems thinking seeks to find leverage points through collaborative efforts and shared understanding of the system dynamics. Meadow’s goes on to suggest the most powerful areas of leverage are found in “examining the goals of the system and the mindset or paradigm underlying the system goals, structure, and rules.”18 Leverage points and fundamental change fall victim to short-term problem-solving and decades of resistance to things other than incremental change. Her key point was that people had little problem recognizing the leverage points it is just that they often push these leverage points in the wrong direction. Meadow’s orders the leverage points in ascending order of effectiveness

17. Meadows (1999). 18. Meadows (1999).

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and the most effective are the ones that question our mental models and work to change the goals of the system, rather than tinker with constants/ratios (such as tax rates or resource utilization rates). In the management literature, this has been characterized as first-order versus second-order change. First-order change is about addressing the slack in the system it doesn’t raise any fundamental questions about the nature of the system but merely works to eliminate inefficiencies (low-hanging fruit). The second-order change is transformational and requires questioning our assumptions about the system. This is much harder and often avoided. We can see it within many business school’s redesign efforts making minor credit hour adjustments, changing course names, or introducing one or two courses is often easily done and accepted as this doesn’t question anything we currently do. We merely do more or less of the same thing. But a major change to the way we deliver business program pedagogy with co-teaching, real problemsolving with business partners, and learning through teams across disciplines is not easy at all for many faculty and administrators to accept. Problem-solving that focuses on a single variable can be misleading because a more fundamental solution lies in finding connections between key variables that are not easily seen. As different, seemingly unrelated problems are viewed and managed by different groups in isolation, each charged with solving a piece of the problem, the interdependences amongst problems are not understood, leaving the real problem unsolved. For the sake of our integration example above, the development of a CLD and systems model can reveal several courses of action that traditional problem-solving around the symptoms of a lack of integration would not have revealed. Courses of action include, but are not limited to: managers utilizing risk reduction strategies to reduce exposure to energy price volatility and environmental impacts in supply chains; early involvement of sustainability professionals on design and project planning teams who communicate regularly with financial teams; use of a price on externalities starting with a social cost on CO2 (an example of an externality already being valued) and process improvements to reduce waste. Any one of these solutions in isolation can help solve part of the problem. The real opportunity is within creating the leverage points that include an explicit place for sustainability in strategic planning and reporting, and incorporating integrated measurement of ESG into every employee’s annual performance review. Systems thinking is about the synthesis of a problem. A CLD visually tells the story of causal relationships and key patterns from qualitative and quantitative information. It portrays the nature of dynamics of

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change and should be paired with the analysis of quantitative data and tools to make the story and further strategic planning actionable. The result is a CLD that is self-explanatory and leads to new insights. The use of systems thinking and CLDs can provide a different look at value creation, design, and the business case for integration.

Value Creation19 Integrated problem-solving can inspire innovation and create a competitive advantage for any enterprise. The application of systems thinking within an enterprise identifies value creation opportunities (where this value creation is larger than a firm’s traditional focus only on profits) enabling sustainable development that include but are not limited to productivity gains, bottom line cost savings, environmental and social performance, and top line growth. For the purpose of a planning process for integration projects, “material” topics for an organization should considered. These are “topics that have a direct or indirect impact on an enterprise’s ability to create, preserve or erode economic, environmental and social value for itself, its stakeholders and society at large.”20 Materiality is an important context for engaging people across functions with evidence of the value creation opportunities from sustainability investments.21 Khan et al. (2016) find that firms with good investment ratings on material sustainability issues significantly outperform firms with poor investments ratings on these issues. The results have strong return on investment implications for asset managers who have already committed to the integration of sustainability factors in their capital allocation decisions. Integrated management enables everyone to contribute his or her abilities and expertise to solve a complex problem while understanding which opportunities are material to the organization. Materiality helps to prioritize topics and can uncover leverage points within the system. It can even tackle the problem of how to get to a shared understanding of what a sustainable society in the future will look like and what actions will take us from our current “as is” reality to that sustainable “to be” future.

19. Information and figures from this section modified and used with permission from Sroufe and Melnyk (2017). 20. GRI, Global Reporting Initiative, G4 Guidelines (2016). And the Global Reporting Initiative, Materiality in the context of the GRI Reporting Framework. (2016). 21. Khan, Serafeim, and Yoon (2016).

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Society Value chain Enterprise Function

Figure 2.2: Levels of Cost Benefits.22 The assessment and identification of material opportunities is a technique for identifying where in the enterprise we can create value for stakeholders. When dealing with integrated business management we can measure costs and benefits in several ways (see Figure 2.2). First, we can measure it in terms of its impact on performance at a functional level. Of all the levels of analysis, this is the simplest and most direct to determine by using audit systems and controls. Here unfortunately, we typically are not interested in whether or not actions affect other functions. The goal is to improve our function’s level of performance. Local optimization, sometimes at the expense of overall improvement, is accepted and rewarded through internal incentive programs like bonuses. When we increase the scope to include the enterprise, the analysis and materiality evaluation becomes more complex. At this level, we need to consider the impact of our actions on the integrated performance of other departments in the enterprise. Similarly, we can increase the scope to include value chains and even society. As the scope increases, analysis becomes increasingly complex. However, as we do this, we also increase new opportunities to measure, and manage material practices that affect more stakeholders. Applied integration can begin within a function. It can be difficult for integration management to have a meaningful impact if only a sustainability manager, or their department, oversees this vast change management opportunity. Prior efforts at change management involving integration have come out of the environmental health, and safety (EH&S), and marketing functions. If future change management initiatives for the integration of

22. Adapted from Developing Sustainable Supply Chains to Drive Value, Second Edition by Robert P. Sroufe and Steven A. Melnyk copyright 2017 by Business Expert Press.

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sustainability were rolled out in the accounting and finance functions, how might that facilitate integrated business management? Alternatively, if taken as an enterprise-level initiative, ESG metrics applied at functional levels will reveal effects across functions and, when rolled up to the enterprise level for internal and external annual reporting, can provide new systems insights. Further opportunities for integration within value chains involve inviting other connected organizations to measure and manage ESG performance. Initiatives such as the CDP’s supply chain management disclosure program highlight work in this area, along with prior efforts by companies like Walmart’s 15 ESG question supplier assessment survey.23 The annual reporting of this ESG information internally promotes crossfunctional integration; supply chain integration; strategic alignment of material issues, and progress toward community and social understanding of how enterprises contribute to solving larger complex global problems. Cost savings and cost avoidance are typical measures of integration within many enterprise systems. Costs avoided are almost always in the future while cost savings are almost always in the present. How these potential future savings are valued (and whether or not they include environmental and social performance) will make a big difference. These are two of the three levels in a performance dynamic (Figure 2.3). At the lowest level, the base, we have cost savings. With cost savings, we address existing problems in current products and processes. Take as an example, an inefficient process. If we apply efficiency solutions to eliminate the sources of waste, the number of steps in the process is reduced and the level of waste (e.g., GHG emissions) generated by the process is lowered. We can evaluate the impact of these changes by comparing the performance of the revised process with the level observed for the old process. Cost avoidance is a higher level of performance. Here, we are not correcting past problems; we are avoiding future $36 to every ton of emissions avoided. From an operations management perspective, “A > S” (Avoidance is greater than Savings). Yet, there is a third and higher level: value maximization. A caveat to this is that value maximized from the enterprise’s point of view can be achieved by increasing customer’s willingness to pay and/or reducing costs. These maximization tactics may or may not reflect value created or

23. Walmart, Sustainability Supplier Assessment Questions, walmartstores.com/download/4055.pdf.

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Value maximization

High performance

Cost

Cost savings

Low

avoidance

Figure 2.3: Performance Dynamic.24 destroyed for the external stakeholders, instead it can be a focus on value for investors only. To achieve this level of performance, an approach different from the ones used for the prior two is necessary. We can achieve cost savings and cost avoidance without even considering issues such as who the key customer is, or the business model enabling the enterprise. However, to increase revenue, we can understand these and other issues within a larger systems perspective. To increase revenue (especially over time), we have to deal with issues such as value. When dealing with value and the firm’s business model, we have changed the focus of integrated business management from being operational or tactical to being strategic. This is a critical transition and the reason that the third level of integration, value maximization, is one in which ESG, and financial business sustainability can be looked at simultaneously.

Integrated Management Enables Value Maximization Of the interrelated levels in the performance pyramid, value maximization is the most complex. Before we discuss what this level entails, we should first establish the foundations of this approach. At the heart of

24. From Developing Sustainable Supply Chains to Drive Value, Second Edition by Robert P. Sroufe and Steven A. Melnyk copyright 2017 by Business Expert Press.

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this approach are three critical concepts: (1) value, (2) business models, and (3) integrated value maximization. Value, i.e., the customer’s assessment of the relative benefits and costs obtained by the acquisition of a specific good or service, is increasingly important in today’s economy. While value begins with the customer, this concept has a significant impact across functions and supply chains. Value is at the heart of a sea change taking place within sustainable business practices and supply chain management. In the past, supply chains were price driven (focused on cost savings) and strategically decoupled (not linked to how the firm competed in the market place). Now, supply chains are increasingly value driven and strategically integrated (linked to strategy). Value is customer specific but not all aspects of value are equally important. When a customer looks at value, how they respond and what they expect is driven by the traits of value they are dealing with. From an operations management perspective, those traits are often product or service specific and can be classified the following ways:

• Order winners cause customers to choose a product or service over a competitor’s offering. Examples include better performance, lower price, environmental or social performance certifications such as Cradle-to-Cradle, Living Product, or Fair Trade. These are traits on which operations and supply chain management systems must excel and be transparent.

• Order qualifiers are products or service traits such as availability, price, or quality that must meet a certain level for the product or service to even be considered by customers. They must perform acceptably on these traits or at least as well as a competitor’s performance. The customer may not even be aware of any level of performance in excess of the established minimum levels.

• Order losers involve poor performance on specific traits that can cause the loss of either current or future customers. An example can include customers who shop at Target instead of Walmart due to labor practices. Understanding how to provide value creates several learning opportunities. First, order winners and order qualifiers form the basis for customer expectations. Order losers result from customers’ actual experiences with an enterprise, its processes, and supply chains. They represent the gap between what the enterprise delivers and what customers expect.

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An order winner to one customer may be an order qualifier to another. As within all complex systems, these traits vary over time. An order winner today may become an order qualifier tomorrow. Being able to identify and act on order winners offers an enterprise a critical strategic advantage. While understanding the three traits of value is important in and of itself, it can be critically important when utilized within a business model.

Value proposition Critical customer

Capabilities

Business model

Figure 2.4: The Interactive Components of the Business Model.25

Business Models The business model (as illustrated in Figure 2.4) is an enterprise’s method for doing business, the framework used for creating and maintaining dynamic ESG forms of value. One key element of any business model is the profit formula: how a firm intend to create value and what is the cost structure to derive this value. This is the key element that differentiates many of the firms and it has to be aligned with the value proposition. This also needs to be aligned with the key resources and capabilities needed to build and maintain a competitive advantage. This holds true for models of sustainable business practices.26 There are numerous examples, such as the razors and blades model selling the razor at a low cost in order to increase sales of complementary blades; or Dell’s model for selling directly to the end customer with Tesla motors using this same approach for electric vehicles.

25. Adapted from Developing Sustainable Supply Chains to Drive Value, Second Edition by Robert P. Sroufe and Steven A. Melnyk copyright 2017 by Business Expert Press. 26. See, for example, Bocken, Short, Rana, and Evans (2014). Along with more traditional approaches such as Johnson, Christensen, and Kagermann (2008).

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Business models are part of business strategy, innovation, and sustainability.27 The business model, by its very nature, is highly integrative in that it brings together into a meaningful whole three elements the key customer, the value proposition, and capabilities. To this point, this chapter has focused primarily on the capabilities element. Capabilities, while important, are not enough by themselves. As capabilities change over time (due to factors such as technological innovation, capital investments, and process improvements), these changes have to be strategically evaluated in terms of how they affect the other two dimensions. Furthermore, if the enterprise targets integration initiatives as a way to attract a new key customer, it must reevaluate the appropriateness of the current value proposition and capabilities and make any necessary changes. Increasingly, managers are talking about the need for better business models for three important reasons. First, there is strong empirical evidence that demonstrates the impact of business models and the integration of sustainability on corporate performance. Second, business models are inherently dynamic. They intend to help two important categories of enterprises. For existing enterprises, it is recognized that they have to develop new and innovative business models to compete against growing competition. For new enterprises trying to get into an existing market, business models are important because they identify unique niches in the marketplace. Finally, business models attract attention because they provide a vehicle for converting new technology and innovations into economic value.28 Innovation and new technology, in turn, are important because of the potential they offer the firm and the way in which they enable integrated business management practices:29

• To serve new or existing customer segments whose needs have been neglected by existing competitors

• To serve new or existing customer segments whose needs are being poorly met by existing competitors

• To provide new ways of producing, delivering, or distributing existing (or new) products to existing (or new) customer segments

27. MIT, Sloan Management Review and Boston Consulting Group, 2013. 28. Chesbrough and Rosenbloom (2002). 29. Markides (1998).

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Key Customers The starting and ending point for any effective and efficient business system is the customer. A customer is a person or organization who consumes the products and services of a process. A customer is not necessarily the end user; it could be the store manager or the purchasing agent. Almost all enterprises deal with multiple customers having varied desires and needs that change over time. This creates the dual challenge of keeping track of changing needs and identifying which customers’ needs should be addressed and which should be ignored. Each enterprise must identify its key customers. The key customer is that group or segment that the firm has identified as being important. As Hal Mather, a manufacturing consultant, once said: the key customer is that customer segment that the firm “will profitably delight.” When there is a conflict in meeting customer needs, it is resolved in favor of the key customer.30 Customers can be key for a number of reasons. For example, a key customer may be responsible for largest current or future sales of the firm, or it may be the one with the highest prestige. In the automotive industry, Toyota is often such a customer because of its very high quality and performance standards. A supplier working with Toyota is often a top-rate supplier. Value Proposition To attract these key customers, the enterprise must formulate and implement a value proposition, or a statement of what the enterprise offers the customer that is viewed as attractive to the customer and is different from what is offered by its competitors. The value proposition is critical because it not only defines how the firm competes but also determines and shapes the types of products or services that the firm will (and will not) offer. A well-designed value proposition possesses four traits: (1) it offers a combination of features that customers find attractive and are willing to pay for; (2) it differentiates the firm from its competitors in a way that is difficult to imitate; (3) it satisfies the financial and strategic objectives of the firm; and (4) it can be reliably delivered given the operational capabilities of the enterprise and its supporting supply chain. The value proposition reflects the order winners, order qualifiers, and order losers for a key customer segment, and thus it greatly influences the competitive

30. See the book by Mather (1999).

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priorities for all the related operations across the supply chain. In making the translation from value proposition to competitive priorities, managers need to clearly specify what the management system must do well (key success factors), what it must do adequately, and what it must avoid doing (because it will jeopardize customer satisfaction and orders). The most effective business models are a blend of outcomes (cost, responsiveness, security, ESG performance, sustainability, and innovation) that are attractive to key customers (and for which these same customers are willing to pay) and that differentiates them in the minds of the customer. Achieving and delivering the desired blend of outcomes to the customer cannot be achieved by accident. It requires not only strategic planning and intent but also having the “right” operations, the “right” value chain and the “right” supplier base all moving in synch. In reviewing these outcomes, it is important to recognize that, like the elements of value, not all the outcomes are equally important. When determining which outcomes to focus, use a 1-2-3 approach.31 That is:

• One of the outcomes must be critical. This forms the core of the enterprise’s value proposition. It is that outcome that the firm will never compromise. It defines the essence of the firm and its supply chain. For a company such as Apple, a critical outcome is innovation.

• Two of the outcomes are important. While not as critical as the prior outcome, they are important in that they describe the delivery of the outcomes. The outcome above included with these two describe the essence of the enterprise’s value proposition and should include sustainability if the organization’s view of sustainability is going to be more than public relations or waste management. Two important outcomes for Apple include security and sustainability as they track and report GHG emissions for their products value chain and product life cycle. Here there is potential for ESG performance to be important.

• Three (the remaining outcomes) are necessary. We do not have to do a great job on these outcomes; we simply need to be good enough. Cost and responsiveness are necessary outcomes that fall into this last category.

31. Sroufe and Melnyk (2013).

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Capabilities The third element of delivering value is capabilities. Capabilities are unique and superior operational abilities that stem from the routines, skills, and processes that the enterprise develops and uses. Integrated business management and ESG performance can be unique capabilities of an enterprise. They can be considered a sub-set of those resources that enable the firm to take advantage of other resources owned by the firm. Usually, abilities to deliver superior performance come from investments and developmental efforts in one or more of the following areas: processes, planning systems, technology, performance measurement, reporting, people and culture, and supply chain relationships. These have to be aligned with the other elements of the business model, else an enterprise will experience poor performance. Driving effective and successful business models is the notion of “fit.” That is, the highest level of value is delivered when what the key customer expects (order winners, order losers, order qualifiers) is addressed by the value proposition and delivered by the capabilities of the enterprise.

Value Added If we focus only on value, we look at what something is worth to the key customer, independent of the costs (levels of waste or degradation of natural capital) incurred to provide this outcome. The concept of economic value added is well known to most if not all business managers, but this concept does not go far enough. To ensure that the pursuit of value is sensitive to the issues of total value generated and waste created, we can build on the concept of sustainable value added (SVA). The concept of total cost of ownership fits well with SVA. This more encompassing approach to value creation has simply been defined as value created whenever benefits exceed costs.32 If we think about this in the context of a complex problem with the systems question “what would Integrated Value Added (IntVA) look like?” A new approach can include a set of variables such as the following: Integrated Value Added =

Total Value added Amount of Financial + Environmental + Social value generated

–

Total Impacts Amount of Financial + Environmental + Social impacts

32. Figge and Hahn (2004).

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Total impacts, as used in this context, allocate costs and allows ESG performance (including externalities) to be valued. Within the context of integration, and rather than focusing only on economic waste alone, total impact includes attempting to value all social, environmental, and economic waste (our negative impact on the environment and people, relationships, suppliers, and customers). This is an example of integrated decision-making as we can assess the impacts from avoidance verses savings. An early example of this valuation comes from Puma’s release of information regarding their environmental impacts from their own operations. This includes the impacts of their tier-1 through tier-4 suppliers for water use, GHG emissions, land use, other air pollution, and solid waste with an associated cost of 145M EUR, or almost US$192,000,000.33 This transparency that includes environmental impacts is part of an Environmental Profit and Loss statement. While these valuations of environmental impact are not a full measure of the integrated value added, they are a logical step in the direction of integrated management and part of a trend toward integrated reporting and a new performance measurement frontier described in Chapter 5 of this book. We already know that “brand” is a valuable asset. The Coca-Cola brand is worth more than half the market value, and a staggering 10 times the book value of its parent company.34 If companies such as Coke, Apple, or Microsoft can put brand on their books for umpteen billion dollars, what is the enhancement from more sustainable practices worth? Accountants stress the importance of having rigorous and transparent methods for measurement and assurance. Since we know companies can value intangibles such as band, how valuable are intangibles such as social and environmental performance? When we start answering that question, firms and their supply chains then have a new opportunity to monetize the amount of value created or destroyed from their environmental and social actions. This valuation moves us toward better performance metrics as indicators of integrated management and firm performance, or what we can start thinking about as IntVA. What this approach forces on management is the twin onus of integrated management satisfying a real customer need and recognizing total value while simultaneously reducing total impacts. With this approach, we can see the limitations of prior approaches at best, they focus on efficiency, waste reduction, and pollution prevention as

33. Puma Press kit (2011). 34. Kohli and Leuthesser (2001).

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tradeoffs to cost, and they do little for value maximization. Two enablers causing management to focus on IntVA are sustainable development and value maximization the third and highest level of the performance pyramid.

Integrated Value Maximization At this level of integrated management, sustainable development is integral to the business model. That is:

• Key customers understand sustainability (ESG performance) in general and it can be either an order winner or at a minimum an order qualifier.

• The value proposition explicitly identifies sustainability and offers it as something that the customers want.

• The firm has organized its capabilities to ensure the delivery of value. This means that it focuses on both the maximization of value and the elimination of waste/pollution within enterprise systems.

• Performance measurement goes beyond the firm to include the supply chain and ultimately the society. When viewed from this perspective, it becomes clear that ESG performance can be integrated into and simultaneously contribute to business sustainability. This is the vision put forth by Paul Polman for Unilever, the world’s third largest consumer goods company. Polman is shifting the focus of Unilever with a Sustainable Living Plan that covers seven strategic imperatives and goals for 2020. The imperatives are health and hygiene, nutrition, greenhouse gases, water, waste, sustainable sourcing, and better livelihoods. It is a vision that emphasizes IntVA, one that focuses both on value creation and a reduction of total impacts. It represents a vision that seeks to ensure that the community benefits from sustainability including consumers and suppliers. It also represents a situation where ESG sustainability is viewed as not only being critical for the firm and the environment but as essential to developing and maintaining a competitive advantage. We can take this a step further with the realization of a fallacy that companies are only designing products and services to appeal to a particular market. If they are doing this only for a particular market, it should raise several troubling questions when it comes to the real integration business management opportunity involving sustainability. First,

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that sustainability only appeals to a subset of the market who are early adopters. This fallacy would also implicitly confirm that products associated with sustainability should cost more and that enterprises do this to maximize value in terms of revenue. What if companies do the right thing because it is the right thing? They can integrate sustainability into business practices to create more than a single bottom line approach to value creation. What would it take for sustainability concerns to be part of a regular set of criteria an enterprise may consider? Much like the total quality movement of the past. Not for any particular target customer’s sake, but because they can integrate a broader perspective of value maximization and improved total quality of their capabilities. When these actions are taken, integrated business management enables a new path to the future.

Change Management35 Integration calls for organizational change management beyond technical efficiency changes to raw materials and processes.36 It should include organizational systems, i.e., leadership, visions, employees, and policies.37 The good news is that there are many ways to change. The bad news is organizations that are not receptive to change invite more risk and can be at the mercy of external forces. Organizational change management involving sustainability has been looked at as top-down; and inside-out.38 A top-down approach emphasizes measurement, management, and control, while the inside-out approach is enabled by internal change and innovation. A hybrid approach to change management comes from what Rodrigo Lozano described as an “orchestrated change for corporate sustainability.”39 During a time of change, the organizational system has a transitional period before reaching a more sustainability-oriented state. No matter what approach is taken within your enterprise, this iterative process provides an opportunity to foster drivers and enablers of change and to apply strategies to overcome barriers to sustainability while enabling new reporting requirements.

35. Portions of this section summarized from Sroufe (2017). 36. Doppelt (2010). 37. Henriques and Richardson (2005),along with Benn, Dunphy, and Griffit (2014). 38. (Doppelt, 2010; Henriques & Richardson, 2005), Henriques and Richardson (2005), along with Benn, Dunphy, and Griffit (2014).. 39. Lozano (2012). Also see, Lozano (2013).

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In trying to deal with this increasing complexity of sustainability initiatives and evolving management systems, a new driver has come onto the scene. Forward thinking leaders within organizations have created a new management professional tasked with the opportunity of integration. Sustainability professionals function as change agents.40 They can influence vision, strategy, new products, processes, and supply chain integration by fostering collaboration and innovation across functions and throughout a value chain. The question for both practitioners and researchers is: how do we effectively enable complex, interrelated measurement and management requirements involving integration? In other words, how are the drives of sustainability leveraged to enable change management and the integration of sustainable development into an enterprise and performance management? Do we need a Chief Integration Officer? The literature suggests that large organizations have managers and management systems ready for capturing data involving integration practices, financial performance, and change management. Given the pace of change in technology and performance measurement, many organizations have an opportunity to better leverage emerging sustainability opportunities, integrate company-wide risks, enhance decision analysis, and enable a more dynamic approach to measuring, managing and reporting integrated performance. Some of my own work in this area builds upon prior management systems work to help explain and propose important relationships in emerging sustainability management systems. The integration paradigm shift is more than simply being efficient. Rather, it is about leverage points involving ESG sustainability and change. Integrated enterprises explicitly differentiate their practices while aligning mission, vision, and sustainability. This integration is taking place with new product and service offerings valued by stakeholders and rewarded by evaluators through rankings and indices. These developments, often treated as discrete activities, are interrelated and have reinforcing effects.41 These interrelationships help the development of theory and inform the following model (See Figure 2.5) and insights: Building on these trends and the findings from my own work with sustainability executives, I propose a new path forward in understanding the integration of sustainability within organizations, and opportunities

40. Visser and Crane (2010). Along with Hesselbarth and Schaltegger (2014). 41. Supporting prior work by Lozano et al. (2016).

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for integrated bottom line (IBL) measurement as an overarching goal. Integrated enterprises consist of a number of interrelated categories and attributes that parallel prior work by William Blackburn’s recognition of drivers, enablers, evaluators and pathways, and relationships to performance.42 These evolving environmental management systems, now utilized as integrated systems, help management professionals across functional disciplines while supporting change management and integrated reporting. The practical application for practitioners who want to see their own organizations enable integrated management will find internal and external (Drivers) exert their force on keeping an organization focused on “why” it should be moving toward strategically including sustainability in enterprise activities. (Enablers) allow organizations to understand “how” change will take place with support in the form of teams, systems, and new integrated performance measurement. (Evaluators) validate the importance of measurement and reporting, along with the assessment of an organization’s progress as reflected in rankings and stakeholder engagement. This combination of measurement, and collaboration, highlights capabilities and interrelationships among activities. Finally, (Performance) within integrated enterprises is not a traditional approach to assessment based on only financial performance. Instead, it is the ability of management to utilize resources and activities aligned with strategy, vision, and sustainable development for change management. This includes new forms of innovation from systems some have called sustainable operating systems. With systems that integrate new ESG actions, there is an effective approach to management.43 These systems go beyond EH&S of the past to enterprise management systems supporting ESG data, knowledge management, and real-time visibility of IBL performance. Some leading organizations are already pushing the bounds of this new integrated performance frontier. Predictions are that integrated business management will only continue across business functions, entire networks of organizations, value chains, and even cities. We are quickly approaching a more dynamic performance frontier where ESG impacts and benefits enhance financial valuations. From the use of CO2 shadow pricing to reporting the social cost of carbon (SCC), organizations are rethinking how they monetize assets and risks.44 Auditing and assurance organizations are preparing for

42. Blackburn (2005). 43. Hallstedt, Ny, Robèrt, and Broman (2010). 44. CDP, Carbon Disclosure Project (2014).

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Drivers Crit ical Dimensions of Integration

Why do this?

.. Internal forces . Leadership Sustainable growth

Drivers Why do this?

En ablers

. External forces . Environmental and social opportunities . Stakeholders

Enablers

Evaluators

. . .. . .. . .

How to measure success?

How to integrate? Teams Goals Financial capital Natural capital Social capital Materiality TBL paradox IS/IT EMS

. . . .. .

Stakeholder engagement KPIs LCA IBL IFV Rankings

Change management Where are the opportunities?

.. . ..

Integration Innovation Design SOS Performance across firms

Figure 2.5: Integration and Organizational Change toward Sustainability.

Vision strategy sustainability

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integrated management, predicting reporting of this approach to management to be one of the most significant changes in years.45

Integrated Reporting

Evidence of Change

Prior research has found sustainability reporting and organizational change management for sustainability have reciprocal and reinforcing relationships.46 It should be no surprise that sustainability reporting drives changes in organizations, data collection, performance metrics, strategy, reputation, stakeholders and even the next reporting cycle. While many organizations have developed their financial and sustainability reports in parallel, integrated performance reporting is an area of opportunity that extends well beyond large multinationals to any traditional organization and emerging hybrid Benefit Corporations.47 For many organizations, the infrastructure for sustainability reporting is in place and evolving. Integration efforts within organizations should consider recommended ESG metrics from the Global Reporting Initiative, along with the CDP, and the capacity for reporting both sustainability and financial information simultaneously. Some detailed information on reporting trends will be coming in Chapters 8 and 9. More recent calls for integration efforts provide frameworks for organizations to strategically move towards sustainability, that include provisions for integrating social sustainability principles of personal integrity, influence, competence, impartiality, and meaning-making.48 These changes in measurement and reporting at the enterprise level have functional level implications for management. The integration movement in reporting extends beyond changing report formats: “Corporate reports whose growing sophistication and range have been a reflection of the development of the global economy over the past two centuries are in some sense the rulebook that investors and stakeholders at large use to ‘keep score’. Change the rulebook

45. Eccles and Krzus (2014). 46. Lozano, Nummert, and Ceulemans (2016). 47. Eccles and Krzus (2010; 2014). 48. Broman and Robèrt (2017).

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and you will almost certainly change the game.”49 What kind of change can you create?

Chapter Summary Information in this chapter reviews the critical dimensions of integrated business management. We began with a review of complex problems and systems thinking, while using the example of a CLD as a story-telling tool enabling a different way to view both the issues and opportunities of complex problems. We then looked at the role of enterprises in value creation. This chapter ended with a look at integration and organizational change toward sustainability. Information in this chapter also calls for change management and review of an external force for change found in integrated reporting. After reading this chapter, you should be able to understand the importance of messy, complex problems, as well as systems thinking to help you tell better stories to find business opportunities for value creation. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

•

What complex problem can your enterprise help solve?

•

What obstacles are there to integration in your decision-making practices?

•

Where and how can a CLD help you tell a story about successful integration opportunities within businesses and among enterprises with common inputs and outputs?

•

How can you value environmental and social impact?

•

How do we translate sustainable development into practical action?

• •

Can you find the drivers, enablers, and evaluators of change management in your enterprise? Are enterprises in your industry involved in integrated reporting?

49. Main and Hespenheide (2012).

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Bibliography Benn, S., Dunphy, D., & Griffit, A. (2014). Organizational change for corporate sustainability (3rd ed.). London: Routledge. Blackburn, W. (2005). Sustainability as a business operating system. International Journal of Sustainable Business, 12(2), 1 11. Bocken, N. M. P., Short, S. W., Rana, P., & Evans, S. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of Cleaner Production, 65, 42 56. Broman, G. I., & Robèrt, K. H. (2017). A framework for strategic sustainable development. Journal of Cleaner Production, 140, 17 31. Buchanan, R. (1992). Wicked thinking in design thinking. Design Issues, 8(2), 5 21. CDP, Carbon Disclosure Project. (2014). Global corporate use of carbon pricing, Global Price on Carbon Report, September. CDP, Carbon Disclosure Project, 2016. Accessed July 2018 at www.cdproject.net Doppelt, B. (2010). Leading change toward sustainability (Updated 2nd ed.). Sheffield: Greenleaf Publishing. Eccles, R. G., & Krzus, M. P. (2010). One report: Integrated reporting for a sustainable strategy. Hoboken, NJ: John Wiley & Sons. Eccles, R. G., & Krzus, M. P. (2014). The integrated reporting movement: Meaning, momentum, motives, and materiality. Hoboken, NJ: John Wiley & Sons, Inc. Figge, F., & Hahn, T. (2004). Sustainable value added-measuring corporate contributions to sustainability beyond eco-efficiency. Ecological Economic, 48(2), 173 187. Hallstedt, S., Ny, H., Robèrt, K. H., & Broman, G. (2010). An approach to assessing sustainability integration in strategic decision systems for product development. Journal of Cleaner Production, 18(8), 703 712. Henriques, A., & Richardson, J. (2005). The triple bottom line. Does it all add up? London: Earthscan. Hesselbarth, C., & Schaltegger, S. (2014). Educating change agents for sustainability learnings from the first sustainability management master of business administration. Journal of Cleaner Production, 62, 24 36. Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 57 68. Juetten, M. (2014). Pay attention to innovation and intangibles they’re more than 80% of your business value. Forbes, October 2, accessed summer of 2017 at https://www.forbes.com/sites/maryjuetten/2014/10/02/ pay-attention-to-innovation-and-intangibles-more-than-80-of-your-businessvalue/#45e958431a67 Khan, M., Serafeim, G., & Yoon, A. (2016, November 9). Corporate sustainability: First evidence on materiality. The Accounting Review, 91(6), 1697 1724. Available at SSRN: https://ssrn.com/abstract=2575912 or http://dx.doi.org/10.2139/ssrn.2575912. Accessed on July 2018.

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Kohli, C., & Leuthesser, L. (2001). Brand equity: Capitalizing on intellectual capital, accessed March, 2018 from https://iveybusinessjournal.com/ publication/brand-equity-capitalizing-on-intellectual-capital/ Lozano, R. (2012). Orchestrating organizational changes for corporate sustainability: overcoming barriers to change. Greener Management International, 57, 43 67. Lozano, R. (2013). Are companies planning their organizational changes for corporate sustainability? An analysis of three case studies on resistance to change and their strategies to overcome it. Corporate Social Responsibility Environmental Management, 20(5), 275 295. Lozano, R., Nummert, B., & Ceulemans, K. (2016). Elucidating the relationship between sustainability reporting and organizational change management for sustainability. Journal of Cleaner Production, 125, 168 188. Maani, K. (2017). Multi-stakeholder decision making for complex problems. Hackensack, NJ: World Scientific. Main, N., & Hespenheide, E. (2012, April 25). Integrated reporting: The new big picture. Deloitte Review, 10, accessed July 2018 at www.deloitte.com` Markides, C. (1998). Strategic innovation in established companies. Sloan Management Review, 39(3), 31 42. Mather, H. (1999). How to profitably delight your customers. Institute of Operations Management. London: Routledge. Meadows, D. (1999). Leverage points. Places to intervene in a system. Hartland, VT: The Sustainability Institute. Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, 87(9), 56 64. Perera, A., Del Pino, S., & Oliveira, B. (2013). Aligning profit and environmental sustainability: stories from industry. World Resources Institute Working Paper. Washington, DC. Rittel, H., & Webber, M. (1973). Dilemmas in a general theory of planning. Policy Sciences, 4, 155 169. Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315 329. Sroufe, R. P., & Melnyk, S. A. (2013). Developing sustainable supply chains to drive value. Management issues, insights, concepts, and tools. New York, NY: Business Expert Press. Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains to drive value volumes I and II. Management issues, insights, Concepts, and tools. New York, NY: Business Expert Press. Vennix, J. (1999). Group model building: Tackling messy problems. System Dynamics Review, 15, 379 401. Visser, W., & Crane, A. (2010). Corporate sustainability and the individual: Understanding what drives sustainability professionals as change agents. Available at SSRN 1559087.

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3 A Customized Approach for Any Enterprise “Where the world is dynamic, evolving, and interconnected, we tend to make decisions using mental models that are static, narrow, and reductionist.” John Sterman1 Information in this chapter builds on the section theme of a new performance frontier and vision of what this could be. The chapter starts with a brief review of the importance of engaged, action learning and collaboration. We then focus on understanding a five-level framework for Strategic Sustainable Development, and a tool for planning that is customizable for any function, and enterprise when applied to problemsolving. This chapter then ends with a focus on informed decisionmaking, integration, and change management. The objectives of this chapter are to:

• highlight the importance of a customized approach to integration; • see sustainability issues as action learning opportunities; • apply the framework for Strategic Sustainable Development (SSD); and

• look at outcomes resulting from informed decision-making and change management. Chapter 3 reviews a customizable framework for the integration of sustainability into enterprises, problem-solving, and strategic planning. Through the application of evidence-based approaches to integration that have been in use for decades, we have a proven approach to

1. Sterman (2001).

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breaking down complex problems into strategically aligned actions and decisions.

New performance frontier and vision Customized approach

Collaboration

The SSD

Action learning

Integration

What does an enterprise strategy look like when it does not align with sustainable development? Business as usual and missed opportunities. So how can we take steps to change our current trajectory? This chapter builds the foundation for a methodology to identify impactful integration opportunities, enable management action, create stakeholder and shareholder value, and accelerate sustainable development activities as we progress toward the goal of a more sustainable society. Here we utilize integration efforts in the context of a systematic approach to developing a vision, shared understanding, baseline assessment, and an action-oriented approach to prioritizing next steps. When operationalizing integration efforts in this way, managers within any enterprise can better enable short-term and long-term activities to integrate sustainable development into value-creating systems and management planning. Environmental, social, financial, and governance activities provide a foundation of data and information valuable to decision-making and change management. We can leverage these data to inform strategic planning. Integrated management incorporates a systems perspective into an enterprise’s strategic initiatives, a process to work collaboratively across disciplines, and the ability to prioritize what you will need to do. Too often management researchers and practitioners claim that recycling, waste reduction, green purchasing, and energy-conservation programs are “sustainable,” yet in reality they are static, narrow, reductionist approaches limited to address environmental efficiency practices. So how can we get beyond this myopic approach to efficiency? The answer lies within strategic planning practices and the signaling of important performance metrics and actions within an enterprise. The information presented in this chapter provides a foundation for integration as a shared vision aligned with strategy and sustainable development opportunities within and across enterprises. To this end, it is important to note that any enterprise, whether, for profit, or not for

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profit, and its decision-makers develop their own individual approach to operationalizing this dynamic paradigm. The following section offers a review of action learning approaches for integrating sustainable development into any enterprise. We then review a primer on the Framework for SSD, and the ABCD planning approach.2 As we wrap up the chapter, there is an example strategic vision to provide context for developing integration activities within any enterprise and calls for change management.

Take an Action Learning Approach When stakeholders ask you about green, environmental, citizenship, ethical, or social initiatives what they really want to know is this: “is your company working towards sustainable development or against it?”3 What you need to help answer this question is an understanding of why and how successful enterprises engage in, and signal their approach to solving complex problems. Action learning tackles problems through a process of asking questions to clarify a problem, reflecting on and identifying possible solutions, and taking action.4 This process builds group dialog while generating innovation and systems thinking to enhance learning about integration. Therefore, this approach builds on the critical dimensions of integration in Chapter 2 while providing a proving ground for the development of innovative solutions to what are often ill-defined problems. Action learning provides a foundation for collaboration. Torp and Sage described this approach as focused learning organized around the investigation and resolution of messy, real-world problems.5 When operationalizing integration, participants are engaged problem-solvers who seek to identify root problems and the conditions needed for solutions. In the process, participants become self-directed learners. Cindy, Hmelo-Silver described the problem-solving approach to collaborative inquiry as one where participants learn through facilitated problemsolving that centered on a complex problem that does not have a single correct answer.6 In this context, participants work in collaborative

2. Broman and Robért (2017). 3. Blackburn (2005). 4. See more at the World Institute for Action Learning; https://wial.org/action-learning/ and action learning labs at MIT, http://mitsloan.mit.edu/actionlearning/ 5. Torp and Sage (2002). 6. Hmelo-Silver (2004).

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groups, with the help of a facilitator, to identify what they need to learn (i.e., what a vision of integration will look like) to be able to solve a problem along with the identification and prioritization of actions. To this end, participants engage in self-directed learning, apply their new knowledge to the problem, and reflect on what they learned and the effectiveness of the strategies employed. The characteristics of this approach7 include, but are not limited to:

• The problem is to be ill-structured and allow for free inquiry. • Participants must have responsibility for their own contributions and learning.

• Contributions and learning should be from a wide range of disciplines or subjects.

• Collaboration across disciplines is essential. • Self-directed learning is reapplied to the problem’s analysis/resolution in multiple iterations.

• Closing analysis and discussion include lessons learned from work with the problem.

• The activities carried out must be those valued in the real world. • Participant assessment must measure progress toward problembased goals.

Collaborative Action8 Based on years of application in university courses and through work with multinational enterprises, small- and medium-sized enterprises, and NGO clients, the proposed approach is just one way for an enterprise to develop and define the goals, scope, and actions aligned with strategy and a vision of integration. As we know all too well, business school pedagogy can be dominated by stand-alone functional areas, and sustainability topics are rarely integrated with essential management

7. Savery (2006).And Barrows and Tamblyn (1980). 8. Both the Collaborative Action and Following facilitation sections have been revised and reproduced with permission from the Journal of Sustainable Studies, Sroufe, R. “Operationalizing Sustainability,” Journal of Sustainable Studies, Issue 1.1

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content in these fields. However, combining integration with action learning to address emerging business challenges offers exceptional opportunities to cut across functional boundaries. Here integrated management is a catalyst for a new era in multidisciplinary collaboration that offers promise for addressing complex, ambiguous challenges (i.e., poverty alleviation, education for girls, climate change, water scarcity […]) in a dynamic global market. In the proposed approach, participants apply their own functional understanding to meet the evolving needs of their organization. This process should repeat as needed while organizations progress toward sustainability and make it part of regular planning cycles. To this end, teams should work across an enterprise to deliver innovative recommendations to top management. Here teams help management understand integration opportunities and find new opportunities themselves through the learning process. This action learning approach enables senior and middle managers from an organization to better identify and understand the hidden challenges of capitalizing on emerging opportunities for value creation through responsible management of shared resources. With the idea of acting on emerging opportunities, Senge et al., posed an interesting question: How can we get beyond benchmarking to build learning communities?9 The answer for organizations ready to take on a sustainability challenge is through integration and collaboration where participants work together to solve real problems, offering analysis and recommendations that have environmental, social, and financial value aligned with a strategic vision of the future. The process of operationalizing integration provides insight as to how an enterprise implements activities on a day-to-day and strategic planning level. This approach can be used by stakeholders internally (for employees, managers, executives) or externally (for stockholders, community, NGOs, or financial institutions that invest in the company’s operations). Operationalizing integration aligns stakeholder interests with guidance for how to address issues that arise from a company’s environmental, social, and governance activities. Building on prior work, Blackburn’s model sustainability policy, provides a foundation to organize thinking around material, organizational activities.10 This, coupled with Elkington’s Triple Bottom Line11 provides

9. Senge, Lichtenstein, Kaeufer, Bradbufy, and Carroll (2007). 10. Blackburn (2005). 11. Elkington (1997).

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a framework for an integrated approach that explicitly challenges participants to review and include actions that are material to the organization. Knowing there are competing approaches to understanding and integrating sustainability, i.e. systems innovation, value mapping, systems thinking for policy makers, and even specific templates for new product development, to name a few, we have opted for a generalizable approach. A successful approach to this exercise provides a compass that stakeholders can use to navigate everyday issues and decision-making. To understand how to operationalize sustainability, participants need to assess what organizational practices are in use within the industry. The practical importance of this process is recognizing what is material for the firm, i.e., what stakeholders deem important and what is within the control of the organization. Materiality needs further assessment to then compare and contrast the competing material needs of the organization with short-term and longterm goals, resources, and the changing competitive landscape. To understand any enterprise, it is critical to think about actions within the context of an Integrated Bottom Line (IBL) where financial, social, and environmental resources can be valued, used in planning, decision-making, and reporting. To kick-start this integrated approach, and as a foundation for the ABCD planning process detailed later in this chapter, propose the following questions and scenario to the team of participants: Imagine a sustainable world 50 or 100 years from now: (1) Describe the ways in which you hope the world will be more sustainable. How will it be different from today? (2) If the population levels off at 12 billion to 15 billion people, what systems and technologies will be necessary to provide adequate food, energy, clothing, and shelter? (3) What kinds of sustainable business practices will be part of this future? This first set of questions gets participants thinking about a vision of a sustainable world and systems that will support it. The following questions can help bring this future vision back to a grounded current reality by asking if the enterprise contributes to or negatively affects this future vision in the following ways: (1) Why is integrated management important to our industry and this organization?

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(2) How do our activities affect the economic viability of the organization and global community? (3) How do our activities affect the social wellbeing of employees and community? (4) Do our activities affect the environment in a way that replenishes or diminishes natural resources? As Peter Drucker once said, “every single social and global issue of our day is a business opportunity in disguise.”12 By contemplating and answering these questions, a participant can specify the responsibilities and actions of an organization that align with the needs of a sustainable society. A context to keep in mind is that the long-term success of the enterprise is dependent upon and aligned with the long-term success of society and the communities in which they operate. Decisions made today and tomorrow will have both short-term and long-term impacts. Without aligning those decisions with a vision of a sustainable future, the organization, and its internal functions, the people connected to it will not generate value in ways that contribute to this future reality. The range of kick off questions implies that integration is already part of enterprises and society, yet this level of understanding can be hard to grasp by many within an enterprise. For some, the ambiguity in understanding this opportunity is overwhelming and difficult to overcome. For others, the chance to offer input to a brainstorming session and visualization of the future is a welcome opportunity for reflection about innovation and how to find new business value within an organization. Successful outcomes from this process can inspire people to work for integrated enterprises, as Millennials are especially interested in working for organizations that signals its environmental and social purposes.13 The process of facilitation will be looked at next. This approach to collaboration is but one way to get individuals to look beyond their functional disciplines, to understand, be part of, and see relationships and connections with the external world in which they are dependent.

12. http://www.druckerinstitute.com/link/opportunity-in-disguise/ 13. Franceschini (2015).

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Facilitation and the Strategic Planning Process Brainstorming with a group of people is a powerful and creative technique for capturing new insights. It can create bold ideas, solve existing problems, motivate, and develop collaborative teams. It motivates because it involves participants in bigger management issues and it gets people working together. To ensure success, facilitated sessions need to have structure and follow some general rules. The brainstorming process is such that everyone must be able to see what is happening and his or her contributions acknowledged. This places a burden on the facilitator to manage the process and participants’ level of engagement, and then to manage follow up actions. When done successfully, brainstorming provides impactful results, which improve the organization’s performance, and collaboration. As experts know, the trick is to leverage the way people actually think and work in creative problem-solving situations. McKinsey calls this “brainsteering.”14 Here the goal is to identify leverage points in systems thinking. To do this, Donella Meadows noted that understanding the “mindsets” out of which the system its goals, structures, rules, delays, and parameters arises can be critical to large-scale change.15 If done purposefully and with a focused, questions-based approach, managers, and decision-makers, can more consistently get better ideas from participants. A facilitated, stepwise, process in team-based workshops will get people thinking creatively while developing lists of action items for planning and implementation. “It can also be a tool for analysis, vision creation, program design, tool development, community building, and leadership.”16 Much like the operations management literature involving the Plan, Do, Check, Act cycle,17 this methodology is best when repeated as part of regular planning cycles. It should involve people from across disciplines, especially those who do not agree with you on a regular basis, and should be part of future meetings and planning practices. This repetition builds collaboration across the organization while working on integration and facilitates buy-in regarding organizational strategy and change management.

14. Coyne and Coyne (2011). 15. Meadows (1999). 16. Robert et al. (2015). 17. Deming (1986).

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Success in any collaboration rests on the quality of the relationships that shape cooperation, trust, and joint learning.18 Trust seems like a hard thing to find these days. Going into this process knowing there is no set outcome and that the inputs of others across functions are important for good results will go a long way toward building trust and joint learning within an enterprise and its supply chain. The planning process for integration helps in framing complex issues, promoting relational collaborative inquiry, and designing actionable change initiatives. When doing so, sustainability is a lens through which we can see into the future while keeping the focus on forward-looking challenges and capabilities. Here it is important to note that the exercise of operationalizing integrated management provides practitioners with a process to understand their enterprise. For the purposes of this action learning exercise, a synopsis of a framework for strategic sustainable development and planning process is as follows.

Strategic Sustainable Development19 A framework for strategic sustainable development (FSSD) has been developed over what will soon be three decades of international collaboration among scientists and practitioners. A recent description of the FSSD, including its theoretical foundation and observed qualities in reallife applications is given by Broman and Robért (2017). A key component of the framework is a principled, operational definition of sustainability. The principles have been derived to be useful for backcasting planning and redesign, meaning they should be: necessary to avoid unnecessary restrictions, sufficient to cover all aspects of sustainability, general to allow for cooperation across disciplines and sectors, concrete to guide innovation, and non-overlapping for clarity and to facilitate development of indicators. The definition from Broman and Robért (2017) reads: In a sustainable society, nature is not subject to systematically increasing:

18. Doz and Hamel (1998); and Abrams, Cross, Lesser, and Levin (2003). 19. This section is primarily taken with only minor modifications and permission from Robert et al. in the Book, Strategic Leadership toward Sustainability published at the Blekinge Institute of Technology in Sweden. While the information from here to the above page is mostly their framework and ABCD planning process, parts of this have been modified to fit this context of this book.

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1. concentrations of substances extracted from the earth’s crust; 2. concentrations of substances produced by society; and 3. degradation by physical means; and people are not subject to structural obstacles to: 4. health, 5. influence, 6. competence, 7. impartiality, and 8. meaning making. Any vision outside of the constraints provided by these principles is not sustainable. They thus provide a frame for developing a sustainable vision of the future. This is necessary for being able to assess the current gap between business as usual practices and a sustainable future. The framework is also good for creating step-wise approaches toward the full scope of sustainability and its integration into any enterprise (for more on the step-wise approach, see the ABCD-procedure in the following text). Individual actors wanting to support society’s transition toward sustainability strive to eliminate their contributions to society’s current violation of these sustainability principles. For example, in “our organization” we plan and act to: 1. Eliminate contributions to systematically increasing concentrations in nature of substances extracted from the earth’s crust (e.g., heavy metals and fossil carbon). 2. Eliminate contributions to systematically increasing concentrations in nature of substances produced by society (e.g., dioxins and polychlorinated biphenyls (PCBs)). 3. Eliminate contributions to systematically increasing degradation of nature by physical means (e.g., overharvesting forests and paving over critical wildlife habitat). 4. Eliminate exposing people to social conditions that systematically undermine their possibilities to avoid injury and illness (e.g., unsafe working conditions and nonlivable wages).

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5. Eliminate exposing people to social conditions that systematically hinder them from participating in shaping the social systems they are part of (e.g., suppression of free speech and neglecting opinions). 6. Eliminate exposing people to social conditions that systematically hinder them from learning and developing competencies individually and together (e.g., obstacles to education and personal development). 7. Eliminate exposing people to social conditions that systematically imply partial treatment (e.g., discrimination and unfair selection to job positions). 8. Eliminate exposing people to social conditions that systematically hinder them from creating individual meaning and co-creating common meaning (e.g., suppression of cultural expression and obstacles to co-creation of purposeful conditions). How can any enterprise apply SSD in practice? Multinational corporations such as Nike, Interface, Philips, Electrolux, and IKEA (to name a few) have successfully applied SSD to their own operations. Whole communities such as Whistler British Columbia, Madison Wisconsin, and Santa Monica California have integrated SSD thinking to their planning. The application of SSD lends itself well to integrating supply chains, and applying systems thinking to improve business model alignment of critical customers, capabilities, and value propositions. The practical application of the SSD is supported by another key component of the framework, the four-step operational ABCD procedure.20 The result of running this procedure includes (A) a collective vision of the future (B) an assessment of the current situation in relation to the vision (C), an array of possible actions (D), and a strategic plan of prioritized actions. This gap analysis and strategic planning facilitate a coordinated use of various tools and concepts, such as the UN SDGs, Planetary Boundaries, Ecological Footprinting, Life Cycle Assessment (LCA), Greenhouse Gas (GHG) Protocol, Environmental Management Systems, environmental and social metrics, and others, to turn the vision into a reality. The proposed approach to engaging decision-makers and the inclusion of this type of planning exercise in business management include

20. Broman and Robért (2017).

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the essential characteristics of action learning.21 Figure 3.1 presents a generalizable, approach to operationalizing integrated management. The ABCD procedure enables an action learning foundation. It supports transparency, cooperation, and value creation. All this creates a platform for collaborative planning.22 As Senge et al. (2007) observed when investigating collaborative opportunities among corporations, “meeting the sustainability challenge will require the kind of cross-sector collaboration for which there is still no real precedent.”23 With a multidisciplinary approach to problem-solving around integrated management, the focus is on developing, understanding and applying the skills to create a vision of the future and backcast to today so we can determine what actions to take tomorrow. A high-level application of the ABCD procedure is as follows. Step A: Building a Shared Understanding and Vision. Step A allows for a science-based approach to identifying opportunities for the firm.24 We can ask a management team: Imagine a sustainable world in the future and describe the ways in which you think it will comply with the sustainability principles. For example:

• What systems and technologies will be necessary to provide adequate food, clothing, shelter, and energy and materials in general for civilization?

• What kinds of business practices will be part of this future? This gets participants thinking about a vision of a sustainable world and systems that will support it. It completes more traditional approaches to look at a specific problem at a time (e.g., climate change), or a specific type of action at a time (e.g., circular economy). To take this, a step further, participants should ask themselves how this vision of the future relates to the enterprise:

• Does this vision of the future enable the enterprise to provide products or services in new ways?

• What as an enterprise do we want to create?25 • How do we make the most of knowledge management for sustainability?

21. DeFillippi and Milter (2009). 22. Broman and Robért (2017). And the book, Robert et al. (2015). 23. Senge et al. (2007). 24. Senge et al. (2007). 25. Robert et al. (2015).

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Step A

Step B

Step C

Step D

Awareness

Baseline

Creative solutions

Decide and prioritize

Shared understanding Multiple perspectives Socioeconomic systems Mental models Learning about the FSSD Tackle ill-structured problems Vision

Integrated learning Multiple perspectives Collaborative deliberation Mutliple stakeholders Sustainability principles

Design thinking Multiple perspectives Learning through outcomes Feedback Informed decisions Revision Reanalysis and resolution

Closing analysis Multiple perspectives Ownership Strategy statement Integrated management Double/triple loop learning Materiality

Vision Strategy Sustainability

Figure 3.1: Integrated Management Planning using the ABCD Procedure. Source: Based on information from Robert et al., Strategic Leadership toward Sustainability (2015).

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The answers to these questions may not be self-evident by only going through this first step, but instead provide transitions to subsequent steps, further research, and analysis. Vision creation is iterative and the vision can be modified when going through the other steps. See Figure 3.1 for how this stepped process supports the integration of sustainability with a problem-based approach to learning and collaboration. This last question came out of my work with Dr Karl-Henrik Robèrt and a student team’s thesis project at Blekinge Institute of Technology (BTH) in Karlskrona, Sweden. Our conclusion was that knowledge management integration should take place at the level of an attractive goal (i.e., Step A). Accordingly, try to understand all that you do not yet master regarding the knowledge needed for sustainable development. This assessment is necessary to cultivate the knowledge necessary for integrated goals.26 Step B: Assessing the Current Reality. Here the team benchmarks the organization’s current contributions to unsustainability as well as assets in relation to the understanding and vision obtained in step A. This step generates a list of negative impacts and problems, representing a gap to the vision, as well as assets potentially useful for the closing of the gap. This all relates to products, services, and, for example, existing investments in efficiency and waste reduction initiatives. In this B-step, it is important to keep the context of what a negative impact can be. To this end, the sustainability principles are utilized to provide explicit guidance for individuals or any organization interested in moving toward sustainability. Step C: Brainstorming Actions to Close the Gap. Next, there is typically a chasm to cross between the vision and the current reality. Step C involves brainstorming a list of possible actions, including, for example, collaborative efforts, and investments that will help the organization to cross this chasm to a sustainable future. These actions can involve raw material substitutions, new product and service design, shifting to new energy types, developing new waste management routines, creating safe working conditions, developing closed loop systems, etc. Actions should involve both short-term and long-term opportunities to cross the chasm to the vision. In this step, participants can review the examples and the lists of topics from Appendices 1 4 26. Based on personal contacts with Karl-Henrik Robért in answering the question “what does an integrated solution look like?,” and BTH Masters Thesis team thesis on knowledge management for sustainable development, spring and summer, 2016.

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at the end of this book,27 to see what resonates with their organization and to check if they may have missed some opportunities. Building on the findings of Step C, the thinking and prioritization here provides an opportunity to develop a summary strategy statement regarding integrating sustainability into management and the key areas of alignment for the organization. A modified strategy statement example from Blackburn28 is mentioned in the following text and this can be an example of how to capture sustainability actions relevant to an organization within a relatively brief strategically aligned statement.29 Appendices 1 4 are available to help you complete your own Integrated Management Strategy Statement. The ABCD procedure is an important part of problembased learning, as the outcomes are reinforced through participant ownership of the learning process, and through repetition (i.e., doing this multiple times with different applications), leveraging double, and triple loop learning feedback cycles.30 The outcomes are not only setting in motion short-term and long-term actions, but also allow managers to review dayto-day decisions and resource allocations to help ensure they are in line with the enterprise strategy and vision of integrated management.

Outcomes: Example-Integrated Management Strategy Statement An example outcome of an ABCD procedure can be the development of a vision and strategy statement. The Vision: It is in the best interests of our enterprise and society as a whole that our managers will actively integrate decision-making as we align our long-term goals toward sustainability. To that end, we will strive to achieve the following vision of performance.31 (1) Economic success: the wise use of financial resources for:

• Company Economic Prosperity. Our business is positioned to survive and prosper economically.

27. Modified from Blackburn, W. Sustainability Handbook, along with my own work in this area with students, and the current GRI reporting guidelines. The appendices are based upon my own work, Sroufe (2016) and the UN SDGs. 28. Blackburn (2007). 29. Blackburn (2007). 30. Argyris (1997). 31. At one time, Alcoa’s vision statement was “To be the best company in the world, in the eyes of our customers, shareholders, communities and people.”

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• Community Economic Prosperity. We help our community survive and prosper economically. (2) Social responsibility: respect for our employees and people to enable:

• Respect for Stakeholders. We include material issues important to stakeholders’ decision-making, include the environment as a stakeholder, are transparent, respectful, and fair to local populations, investors, suppliers and other stakeholders outside of our organizations who may be affected by our operations. We work collaboratively with our communities to enhance the well-being of others.

• Responsible Governance. We manage our risks properly, use our economic power responsibly, include social value/impacts in decision-making, and operate our business in a way that is ethical and legal.

• Respect for Employees. We treat our employees in a respectful, fair, non-exploitative manner, especially with regard to compensation and benefits; promotion; training; open, constructive dialogue with management; involvement in decision-making; gender equity, working conditions that are safe, healthy, and noncoercive; rights of association, diversity, collective bargaining, provide a living wage, and privacy; employment-termination practices; and work-life balance.

• Diversity, Fair Hiring practices. We promote diversity and use hiring practices that are fair, responsible, non-discriminatory, and non-exploitative for our employees, board members, and suppliers.

• Fair Dealing with Customers. We are honest and fair with our customers, competing fairly for their business, respecting their privacy, and providing them safe and effective products and services under the conditions we promise. (3) Environmental responsibility: respect for life, the wise management, and use of natural resources

• Resource Conservation. We include environmental value/impacts in decision-making, and conserve our use of natural resources to the extent practicable.

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• Waste Prevention and Management. We reduce, to the extent practicable, the quantity and degree of hazard of the wastes we generate from our operations, and handle them in a safe, legal, and responsible way to minimize their environmental effects while searching for zero waste alternatives.

• Environmental Risk Control and Restoration. We minimize the risk of spills and other potentially harmful environmental incidents, restore the environment where damaged by us, and enhance it to better support biodiversity.

• Reduction of Supply Chain Impacts. We work with others in our supply chain to help reduce and control adverse environmental impacts and risks associated with our products and services, and to stop environmental impacts.

• Collaboration with Communities. We collaborate with our communities to understand material issues to then protect and improve the environment, and to the extent possible to be regenerative. Step D: Prioritization. In this step, the team analyzes the list of possible actions from the previous step. According to Broman and Robért (2017, p. 24), prioritization should be done so that early steps are “(1) flexible platforms for forthcoming steps that, taken together, are likely to support society’s transition toward sustainability and take the organization to the sustainability-framed vision, while striking a good balance between (2) the pace of progress towards the vision and (3) return on investment.” Whether an organization is publicly traded or not, value creation can be looked at as an opportunity for enhancing revenue growth, operating margin, asset efficiency and managing stakeholder expectations.32 When prioritizing actions in this way, participants can focus resources on investments that are material to the organization and can provide an IBL return sufficient to ensure the continued success of the organization. When assessing materiality, organizations typically look at what responsibilities and actions are important to stakeholders and what actions are within the control of the organization. The actions taken need to consider the influence of stakeholders along with the impact on the enterprise. This means framing a strategic

32. Lukac and Frazier (2012).

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planning process within current trends in global reporting and materiality. The guidelines for reporting the outcomes of the planning process and actions suggest an organization should identify, prioritize, validate, and review information relevant to internal and external stakeholders. For the purpose of this planning process, “material” topics for an enterprise should include those topics that have a direct or indirect impact on an organization’s ability to create, preserve or erode economic, environmental and social value for itself, its stakeholders, and society at large. As mentioned in Chapter 2, materiality is an important context for engaging people across functions and systems. It provides a virtual place and space in which everyone can contribute their abilities and expertise to solve a common problem while understanding material opportunities for the organization. In this approach, the problem is how to get to a shared understanding of what a sustainable future will look like and what actions will take us from our current “as is” reality to that integrated “to be” future.

Informed Decision-making Collaborative, cross-discipline problem-based learning ties theory to practice when conducted in a real world setting with real-world consequences. Much like any Plan, Do, Check, Act cycle, and planning initiative, there needs to be opportunities for follow up, implementation, and review of progress. The proposed process for operationalizing integration can help find short-term easily implementable actions while also setting organizational sights on long-term goals of zero waste, living buildings, 100% renewable energy, reduction of poverty, resilience to drought, or the elimination of diseases. Part of this stepped process should always include action items for immediate work, planning the next round of meetings, and integration of sustainability into regular organizational meetings and performance evaluations. Operationalizing sustainability as part of management is grounded in the issues participants work on. It involves moving beyond single-loop learning to deep reflection and examining the assumptions driving organizational decision-making. The bigger picture is about participants’ individual and collective reflection and understanding of their organization’s practices and how to challenge the status quo with new value propositions. Without this perspective, commitments to sustainable practice can remain focused on relatively simple static, narrow, and reductionist environmental and efficiency measures, or one-off projects.

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Do not underestimate the benefits of operationalizing integration with this problem-based approach on individual skill development and the capabilities of multidisciplinary teams. This five-level framework for SSD and stepped ABCD planning process enables teams to be responsible for their learning and outcomes. It provides meaningful work with multiple stakeholders facilitating collaboration and analysis of alternatives. It also supports skill development through outcomes and feedback resulting in ownership enabling double and triple-loop learning opportunities.33 Through action learning experiences such as this, participants gain an understanding of what integration can mean to them. The proposed model and approach to operationalizing integration help organizations and individuals better understand this burgeoning sustainability paradigm by enabling practical management action. This approach has real potential in the development of a new performance frontier,34 skill development, organizational learning,35 knowledge management,36 and management research. Senge et al.37 posed the question: How can we get beyond benchmarking to build learning communities? The answer for both enterprises and individuals can be found in the integration opportunity provided by sustainability. Integrated management should be an end goal and the identification of material actions to strategically move toward this goal. For academic institutions, the idea of learning communities and experiential pedagogy can be found through courses that require cross-functional content integration and non-traditional human collaboration where students work with highlevel practicing professionals to solve real problems. In these emerging communities, students and faculty will offer recommendations that have IBL consequences. Those participants who engage in first-hand learning, research, and analysis while operationalizing integration develop actionable solutions that cut across disciplines, facilitate change management, engage value chains, and align industries to move toward the goal of sustainability.

33. Argyris (1997). 34. Eccles and Serafeim (2013) 35. Torp and Sage (2002) and Hmelo-Silver (2004). 36. Gloet (2006). 37. Senge et al. (2007).

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Integration and Change Management There is now a critical opportunity for organizations to enable new valuation practices, and further mitigate company-wide risks with an integrated approach to managing and reporting overall performance. Innovated management is possible with the capabilities of management systems and technology, enhanced by proactive leaders, culture, and sustainability professionals leveraging change management and integrated performance.38 The movement toward integrated management comes in many forms. Some very notable movements in this direction include integrated reporting and the merging of financial and sustainability reports to capture sustainability-related assets and liabilities on the balance sheet.39 This integration of organizational change toward sustainability will lead to improved risk management, IBL performance, and new academic research opportunities working with sustainability professionals. My own research with sustainability professionals at leading multinational corporations provides a foundation for the insights in Chapter 4 and Integration Across Disciplines.40 “Integrated management” and “organizational change” toward sustainability are important to practitioners tackling the challenges of enabling social and ecological (socioecological) sustainability activities in their own enterprise. For scholars, further research will demonstrate the dynamic capabilities and reinforcing effects of performance measurement aligned with sustainability. Be on the lookout. Each week, you can find more in the popular press and empirical research focusing on the integration of corporate sustainability into strategic management. Understanding the progression of integrating sustainability into organizations calls for continued management action, research, and systems that redefine the bounds of an evolving performance frontier.41 This helps to align strategic objectives of an enterprise across functions and with stakeholders. The integration paradigm builds on the existing work of business leaders and researchers in developing management systems that align strategy and the goal of socioecological sustainability. In the next chapter, we will build on the insights of sustainability professionals to help understand what it means to integrate sustainability initiatives within an enterprise and across

38. Testa, Iraldo, and Frey (2009). 39. Eccles & Krzus (2010, 2014) and IIRC. 40. See Sroufe (2017). 41. Eccles and Serafeim (2013).

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functions. We do this while continuing to view performance through the lens of change management and multistakeholder decision-making. As we make incremental progress toward our common future, my own predictions are that a customized approach to integrated management in your own enterprise and increases in reporting these actions will be critical success factors for advancement of dynamic understanding of business value creation and our transition to a sustainable society.

Chapter Summary Information in this chapter reviews an action learning based and customizable approach to the integration of sustainable development within an enterprise. The framework and context for this approach is applicable when framing any business, environmental or social issue, to determine how you can act on those issues in meaningful ways. We then took a look at strategic sustainable development. This chapter ends with a focus on a proven planning process that backcasts from your vision of the future to build a shared understanding of the vision, informed decisionmaking, and change management. By taking on ill-structured problems and multiple perspectives, we can make informed decisions that put us on a path toward integration. After reading this chapter you should be able to understand how to facilitate a strategic planning process, and apply the SSD, while enabling change management. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

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What is your enterprise vision for integrated management?

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How do you translate ESG opportunities into practical action?

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When will we know what successful integrated management looks like?

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Do 360º performance evaluations include ESG measures?

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What new stories will you be able to tell about your products or process when using the SSD planning process?

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•

What examples can you find where enterprises commonly violate one of the SSD Sustainability Principles?

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What does action toward a sustainable society look like?

•

Have you included chains in your vision?

Bibliography Abrams, L. C., Cross, R., Lesser, E., & Levin, D. Z. (2003). Nurturing interpersonal trust in knowledge-sharing networks. Academy of Management Executive, 17(4), 64 77. Argyris, C. (1997). Learning and teaching: A theory of action perspective. Journal of Management Education, 21(1), 9 26. Barrows, H. S., & Tamblyn, R. M. (1980). Problem-based learning: An approach to medical education. New York: Springer. Blackburn, W. (2005). Sustainability as a business operating system. International Journal of Sustainable Business, 12(2), 1 11. Blackburn, W. (2007). The Sustainability Handbook. (Chapter 2). Washington, DC: Environmental Law Institute. Broman, G. I., & Robért, K. H. (2017). A framework for strategic sustainable development. Journal of Cleaner Production, 140, 17 31. Coyne, K., & Coyne, S. (2011). Seven steps to better brainstorming. McKinsey Quarterly. Retrieved from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/seven-steps-to-betterbrainstorming. Accessed on August 2018. DeFillippi, R., & Milter, R. (2009). Problem- and project-based learning. Sage handbook of management learning, education and development (pp. 344 363). London: Sage Publications. Deming, W. E., (1986). Out of the crisis. Cambridge, MA: MIT Center for Advanced Engineering Study. ISBN 0-911379-01-0. Doz, Y. L., & Hamel, G. (1998). Alliance advantage: The art of creating value through partnering. Boston, MA: Harvard Business School Press. Eccles, R. G., & Krzus, M. P. (2010). One report: Integrated reporting for a sustainable strategy. Hoboken, NJ: John Wiley & Sons. Eccles, R. G., & Krzus, M. P. (2014). The integrated reporting movement: Meaning, momentum, motives, and materiality. Hoboken, NJ: John Wiley & Sons. Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard Business Review, 91(5), 50 60.

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Elkington, J. (1997). Cannibals with forks. The triple bottom line of 21st century business. Oxford: Capstone Publishing. Franceschini, L. (Lead author) (2015). Rising leaders on environmental sustainability and climate change: A global survey of business students. New Haven, CT: Yale Center for Business and the Environment, Global Network for Advanced Management, and World Business Council for Sustainable Development. Retrieved from http://cbey.yale.edu/sites/default/files/ Rising%20Leaders%20on%20Environmental%20Sustainability%20and% 20Climate%20Change%20Nov_2015.pdf. Accessed on July 2017. Gloet, M. (2006). Knowledge management and the links to HRM: Developing leadership and management capabilities to support sustainability. Management Research News, 29(7), 402 413. Hmelo-Silver, C. E. (2004). Problem-based learning: What and how do students learn? Educational Psychology Review, 16(3), 235 266. International Integrated Reporting Council (IIRC). http://integratedreporting. org/ Lukac, E. G., & Frazier, D. (2012). Deloitte consulting LLP, linking strategy to value. Journal of Business Strategy, 33(4), 49 57. Meadows, D. (1999). Leverage points Places to intervene is a system. Hartland, VT: The Sustainability Institute. Robert, K. H. et al. (2015). Strategic leadership toward sustainability. Karlskrona, Sweden: BTH University. Savery, J. (2006). Overview of problem-based learning: Definitions and distinctions. Interdisciplinary Journal of Problem-based Learning, 1(1), 9 20. Senge, P., Lichtenstein, B., Kaeufer, K., Bradbufy, H., & Carroll, J. (2007). Collaborating for systemic change. Sloan Management Review, 48(2), 44 53. Sroufe, R. (2016). Operationalizing sustainability. Journal of Sustainable Studies, 1, 1 22. Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315 329. Sterman, J. (2001). System dynamics modeling: Tools for learning in a complex world. California Management Review, 43(4), 8 25. Testa, F., Iraldo, F., & Frey, M. (2009). Is an environmental management system able to influence environmental and competitive performance? The case of the Eco-Management and Audit Scheme (EMAS) in the European Union. Journal of Cleaner Production, 17(3), 1444–1452. Torp, L., & Sage, S. (2002). Problems as possibilities: Problem-based learning for K-16 education (2nd ed.). Alexandria, VA: Association for Supervision and Curriculum Development.

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Section II Building Shared Understanding

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4 Integration Across Disciplines “When we change the way we look at things, the things we look at change.” Wayne Dyer1 Information in this chapter kicks off a new section theme in building a shared understanding of integrated management. The chapter starts with a brief review of the importance of multiple perspectives. We then look across functions at the drivers, enablers, and performance evaluators of integration. This chapter ends with a look at tools, and opportunities for boundary spanning individuals. The objectives of this chapter are to:

• highlight the importance of cross functional inputs to decision making;

• see how we can overcome obstacles to integration; • review how integration is already taking place across functions; and

• look for ways to get the system in the room for proactive openminded problem-solving. Chapter 4 reviews how integrated management can be part of enterprise functions. Through the application of evidence-based approaches to integration, we find we are running out of excuses for not integrating sustainability into business management. Those who can navigate the integrated landscape will be able to uncover new opportunities previously hidden by functional silos.

1. Quote by Dr. Wayne Dyer within the book Hodgson (2010).

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Build shared understanding Value multiple perspectives

Obstacles

Functions

Boundary spanning

Tools

The information within this chapter showcases shared learning, best practices, and the development of knowledge across functions and processes to gain insight to emerging integrated management opportunities. Why integrate? Because, engagement with a broad set of stakeholders has multiplicative benefits that lead to collaboration, and is itself a form of action learning. An ideal way to do this is with a group. Group decision-making settings provide participants with opportunities for openness and the ability to learn which are two important qualities for finding robust solutions. Participants can achieve desired outcomes by knowing the different parts of a problem to be solved (the system) and how they are an interrelated part of this system. As decision makers innovate and change, engaged action-learning with groups of stakeholders is an indispensable and desired outcome of strategic planning.

Value Multiple Perspectives Engaged stakeholders, strategic planning, and integrated decisionmaking enable learning organizations.2 The SSD’s five level framework and ABCD planning process in Chapter 3 can generate a shared vision, understanding of complexity, and a propensity for collaboration across functional boundaries. What we need to do is to get the system in the room. Before doing so, consider who should participate and why, if you want the outcomes of action learning to get traction internally, the learning process should be inclusive and transparent. Identify and invite key participants. It might also be important to invite other participants as internal or external observers (Figure 4.1). Next, make sure you are addressing the right problem. Too often, we try to solve symptoms of underlying problems and waste valuable

2. Senge (2006).

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Stakeholders

Functions

SSD

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Processes

Engaged stakeholders

Systems thinking

Action learning

Figure 4.1: Multistakeholder Decision-making.

resources including everyone’s time. With a systems thinking perspective, the first critical thing to do is to identify the problem and the system in which it occurs. Identifying a problem’s symptoms and underlying causes will set the stage for participants and successful outcomes. The early involvement of your stakeholders in clarifying a real problem goes a long way in creating a shared vision, engaged decision-making and consensus when moving forward. The first step in this action learning process is to describe the problem in one sentence. When doing case analysis in our graduate courses, we call this the problem statement, we can also consider this the opportunity. The importance of this statement should not be overlooked as it can be very difficult as individuals from different functions often look at the same problem and its complexity in completely different ways. Someone from accounting may see the problem as reducing environmental impacts will cost us money and there is a lack of standards for valuing solid, liquid, or gaseous emission from an enterprise. Marketing can say we are missing an opportunity to differentiate our product’s lower ecological footprint. Financial planning does not support capital expenditure projects without short payback periods and does not value the integration of sustainability and ESG performance. What these functional perspectives identify are the symptoms of an underlying problem, i.e., “we do not value externalities and the full costs of decisions.” This business as usual approach to decision making, hinders progress toward socioecological sustainability and the vision of a future desired state, along with our understanding of business practices and functions (Figure 4.2). The reasons for our different perspectives vary, but tend to reflect functional experts using different languages, and different mindsets. Both of these obstacles influence our perception of problems and the systems context. Add to this, business schools moving more toward developing and training professionals focused on a single expertise,

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Accountingimpacts, costs Marketingdifferentiate, footprint

Environmental externalities

Desired state

Financepayback, short term

Figure 4.2: Functional Symptoms vs Problems.

and specialists become obstacles to generalists who can see a bigger system perspective. To help overcome these functional obstacles, turn the problem into a question starting with the word “what”, i.e., what are the drivers and variables that affect externalities; what are the obstacles to including ESG performance in financial analysis? Posing a question expands a problem statement, thinking, and reflection on the drivers and enablers within a systems thinking and learning context. With the problem stated as a question, it’s time to identify the drivers and enablers that pay a role in generating the underlying problem. Following general brainstorming and brainsteering (McKinsey’s approach to facilitated brainstorming) practices, organizations can integrate insights around the question and clarify different views, values qualitative data/ insights, and create consensus. The process of generating ideas as individuals and reviewing ideas as a group is important for demonstrating understanding of a problem and informs others as to how they are connected within a shared system. Outcomes from the problem identification and brainsteering become guides for the development of systems models and causal loop diagrams (CLDs). Small group development of CLDs should be shared and discussed with the larger group to help generate further insights and identify potential leverage points from this modeling and brainsteering exercise. Finding key variables in the system that generate the greatest sustainable solutions to problems is the quantum leap toward integration enabled by meaningful discussions and agreement within the group of stakeholders. It is the careful examination of the CLDs and modeling that leads to innovative solutions. The shared learning from this process helps promote buy-in and action toward change management. As Donella Meadow claims, “shifting one’s mental model is far more powerful than the usual interventions in a physical, structural, or financial

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system.”3 Tips for finding meaningful leverage points include finding root causes of problems and taking stock of variables that have the most connections within a CLD. Changes in these variables have a multiplicative effect on other variables and the system. The identification of leverage points and agreement by stakeholders as to their significance encourages action from multiple functions simultaneously. The SSD actions level and ABCD planning process outcomes can include new business models, i.e., B Corps, new projects for business units, and detailed action items for individuals. There can be several actions to take for a given leverage point. Best practices include a plando-check-act approach to implementation. Timelines, resources, goals and metrics, along with checks on internal consistency across disciplines to minimize tradeoffs are important and ensure impact. Here it becomes important to leverage existing internal controls and metrics while being cautious of adding more metrics. For example, when working with a middle manager in the automotive industry, I asked how many performance metrics he had? His response, 42. Which ones are the most important? The response, “all of them.” Trying to manage everything is not optimal; we need key performance indicators to guide the way. The key is to leverage existing metrics across functions. This intervention across functions is critical for changing the system and promoting transformational learning. Here systemic actions are different from conventional one-off solutions. They influence the system instead of fixing the symptom of a problem. Additional insights come from double loop learning when participants reflect on their original views of the problem, the proposed solutions, and actions identified through this process.4 The ability to see and explain the differences between their initial mindset and the outcomes of an integrated planning process is an important part of learning and collaboration.

Overcoming Obstacles Integration

Functional

Integration provides an opportunity to understand functions vs. processes. A business function is an organizational unit of an enterprise with specific responsibilities performing activities to enable the business to

3. Meadows (1999). 4. Argyris (2000).

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carry out its mission. The functional label applies both to the enterprise unit (Accounting, Finance, Human Resources, IS/IT, Marketing, Operations, Public Affairs) and to the type of activities it performs. A process is a set of activities which draw on one or more business functions to help carry out the organizational mission. Processes often cut across enterprise and functional lines. Processes can involve multiple organizations and business functions.5 Process examples in manufacturing include product assembly and quality assurance. Examples including invoice processing, billing, and risk management fall within the control of Finance as a business function. The challenges of successful execution of processes often involves bottlenecks, duplication of work and redundancy, lack of visibility, and issues where process technology does not interface well with existing systems. This causes communication break downs, delays, waste, and the inefficient allocation of resources. The key to overcoming these challenges is understand the major functions/ subsystems responsibilities, integration opportunities, and ways in which processes cut across functional boundaries. Integrated management is about strategic sustainable development, inspiring innovation, and creating competitive advantage both short and long term for an enterprise. Despite ongoing attempts to analyze an enterprise, many individuals and teams can be overwhelmed by the organization of data required for effectively understanding of integration issues and identifying opportunities. There are new competencies to derive from understanding and leveraging integration. These competencies are available to all functional managers and the growing number of sustainability professionals. Successful analysis and planning, requires communication and trust as the exchange of information is essential for functional managers to understand each other, share common goals, and make mutually beneficial decisions. Additional requirements for successful decision-making require visibility across an enterprise. Here, information systems, data sharing with functions and processes, balanced scorecards, and dashboards enable management to see into the dynamic workings of an enterprise. This visibility into performance allows for decision makers to see how goals align with the integrated strategy developed in Chapter 3. This visibility within enterprises is growing more expansive of both social and environmental metrics. These metrics are now included in annual reporting and solicited as part of supplier

5. Quora (2016).

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assessment programs and audits.6 Performance metrics involving sustainability are gaining prominence as stakeholders including supply chain customers are asking for disclosure of social, governance, and environmental information more than any previous time in history. The pressure to measure and disclose provides a proving ground for innovative ways to analyze the performance of a firm or a supply chain along multiple dimensions of performance. Senior officials and executives have said, “we don’t want to do CSR and sustainability in a cosmetic way, with some social and environmental initiatives in the community. We want to integrate it into our core business.” Doing this in some cosmetic way could bring about the risk of greenwashing. Alternatively, actions with impact across functional groups can make integrating ESG a reality. Let’s look at what is happening within business management and emerging sustainability functions. Our perceptions of functions other than the one we operate in are often different from the actual processes and outcomes of these subsystems. “Research in psychology, management, and economics highlights the shortcomings of the human mind and decision makers’ misperceptions of causal relationships and dynamics in complex systems.”7 Our inability to understand how to deal with ambiguity and complexity allows for the unintended consequences of decisions and actions that address symptoms and not underlying problems. There are important implications for management education and practice calling for the inclusion of systems thinking training in the business management curriculum. The same can be said for decision makers within any enterprise. To help address these shortcomings, it is important to understand the dynamic opportunities that integrating sustainable development brings to enterprise functions and processes. A quick look at where we can find integrated management reveals the following from a McKinsey global survey (Figure 4.3). What the survey results show is a relatively high level of integration within business processes with room for more. An enterprise consists of a number of interrelated functions and processes where integrated management can be further broken down into drivers, enablers, evaluators, and relationships to performance. Evolving management systems and integration opportunities help sustainability professionals while supporting change management and reporting.8 Decision makers should identify

6. Wal-Mart (2011). 7. Morecroft (1983). 8. Lozano (2008). Also see, Lozano, Nummert, and Ceulemans (2016).

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Business processes into which sustainability has been completely or mostly integrated 80 70 60 50 40 30 20 10 0

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Figure 4.3: Integration of Sustainability is Widespread. Source: Bonini, S., and Gorner, S. (2011). McKinsey Global Survey Results, The business of sustainability. Silicon Valley, CA: McKinsey and Co.; Note: exhibit 2, page 99; bars represent % of respondents with a sample size of 2,956. the Drivers behind why the organization should move toward strategic sustainability. Enablers allow organizations to understand “how” change will take place with support in the form of teams, systems, and new integrated performance measurement. Evaluators validate the importance of measurement and reporting, along with the assessment of an organization’s progress as reflected in rankings and stakeholder engagement. This combination of measurement, and collaboration, highlight capabilities and interrelationships among activities. Finally, Performance within integrated enterprises is not a traditional approach to assessment solely based on financial performance. Instead, it is the ability of management to utilize resources and activities aligned with strategy, vision, and ESG performance for change management, value creation, and new forms of innovation from systems.9 A study from the Boston Consulting Group suggests we can learn how to overcome managerial obstacles to sustainability from leading companies. The notable characteristics of leading companies integrating

9. See, Sroufe (2017), along with Iraldo, Testa, and Frey (2009).

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sustainable development include: creating a robust business case for sustainability; holistic integration of the sustainability strategy throughout the business; and understanding and articulating sustainability’s impact on their enterprise.10 The integration value proposition can generally be broken out into four major areas of shareholder value (Revenue Growth, Asset Efficiency, Operating Margins, and Expectations) that will be touched upon in the summaries below and expanded on in Chapter 5. While there have been volumes written about the major enterprise functions over the decades, a short synthesis of each helps provide a foundation for integrated management opportunities and further research of your own. For more information on available enablers (resources) for a given function, please see the information in the Compendium at the back of this book. Next is a summary of major management functional groups, their value propositions, and information attempting to prioritize their drivers, enablers, and evaluators. Looking at the interrelated and dynamic activities of functions can provide new insight to the complex workings of an enterprise.

Functional Integration Accounting is the systematic and comprehensive recording of financial transactions pertaining to an enterprise. It refers to the process of summarizing, analyzing, and reporting these transactions to oversight agencies and tax collection entities. Accounting sits at the intersection of decision-making and external reporting, making it a key integration enabler. It is often broken out into managerial and financial accounting responsibilities. Value Proposition, value and record environmental and social performance/ transactions, summarize and report on these integrated activities, replacing maximizing shareholder value with creation of long term stakeholder value. This function will directly enable integrated reporting “a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, lead to the creation of value over the short, medium, and long term.”11 Value creation opportunities broadly include and focus on asset efficiency, accounting for IntVA and operating margins.

10. Hopkins et al. (2009). With the Boston Consulting Group. 11. IIRC. The International Framework (2013).

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Opportunities

•

Assess materiality opportunities, value creation

•

Enable GRI and IIRC integrated reporting initiatives

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Integrate SASB best practices

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Help develop assessment tools for functions

•

Help find top line growth and bottom line savings, innovation

• • • •

Identify full cost accounting valuing social and environmental capital (e.g., using Trucost, Bloomberg ESG data, MSCI Global Socrates) Identify KPIs that cut across functions enabling environmental and social capital Include environmental and social performance metrics for decision-making, “what gets measured gets managed” Stay up to date on economic and market-based instruments impacting permits, liabilities, taxes, carbon trading platforms, and GHG emissions

•

Strengthen legal, governance and accounting requirements for compliance

•

Work with external auditors to verify sustainability data.

Accounting drivers Internal drivers: Decision-making Corporate values Profitability Stakeholders’ perception External drivers: FASB, SEC, GRI, SASB Auditors Annual reporting Competitors Shareholders, activism

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Enablers Carbon disclosure project Shadow pricing GRI guidelines, materiality Full or true cost accounting SASB, IIRC Social cost of carbon (SCC) Communication Company strategy IS/IT ISO standards Life cycle assessment

Int egrate d Management

Performance evaluators Sustainability reporting SASB (most detailed framework available for accounting) GRI (sustainability reporting) IIRC, ISO standards Financial analysts Emissions reduction Environmental/Social capital Integrated bottom Line (IBL) Return on integration (ROInt) UN SDGs

Finance describes the management, creation, and analysis of money, credit, investments, assets, and liabilities that make up financial systems, as well as their instruments. The biggest impact of this function is not its ecological footprint, but instead the impact of this function’s allocation of capital between different economic activities. Value Proposition, to work with accounting to create integrated value and return on investments from ESG assets and liabilities. Integrating and evaluating these factors enables understanding of risks and opportunities in the short and long term. Financial statements explain about 20% of an enterprise’s market value so more can be done to measure and explain the remaining 80%.12 Value creation opportunities broadly include and focus on asset efficiency and operating margins while valuing externalities. Opportunities

•

Adjusted hurdle rates for projects, and include externalities, ESG performance

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Allocation of long-term capital, long-term performance metrics

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Assurance of enterprise financial sustainability

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Business continuity

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Cash flow analysis, finding attractive sustainability initiatives

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Carbon credits

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IBL, Integrated Future Value, Return on Investment, Social Return on Investment Review of capital expenditures, integrate ESG criteria

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Meeting CFO’s obligations to governance standards

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Risk management

•

Social finance

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Understand external rankings, indices, and awards tracking new forms of performance

12. Gould (2017).

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Finance drivers

Internal drivers: Profitability, business case Corporate values, leadership CFO Stakeholders’ perception External drivers: Competitors Analysts Stakeholders Creditors Regulations

Enablers

Integration of departments Long–term valuation Risk management Communication, training Integrated reporting, KPIs SCC Social finance Microfinance Shadow pricing UNEP-FI; UN PRI Responsible investment program

Performance evaluators EBITDA Emissions reduction ROInt Sustainability reporting Budgets ESG risk assessment Environmental impacts Social impacts Environmental capital Social capital IntFV

Human Resources is responsible for finding, screening, recruiting, and training job applicants, as well as administering employee-benefit programs. As Enterprises reorganize to remain competitive, human resources plays a key role in helping deal with a fast-changing environment and the greater demand for motivated employees. Value Proposition, to leverage human capital, culture, learning, and a capacity for innovation providing the infrastructure necessary for integration. HR plays a key role in creating a culture that enables and rewards integration. Value creation opportunities broadly include and focus on asset efficiency and expectations. Opportunities

• •

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Constant contact with all functions in an enterprise Enabling social sustainability, i.e., health, influence, competence, impartiality, and meaning-making

Int egrate d Management

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Inclusion of sustainability in job descriptions, recruitment, orientation, and annual reviews

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Tracking social performance and HR through GRI indicators

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Nondiscrimination, diversity programs

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Social contract with employees, paying a living wage

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Training, employee development, accreditation and certification programs

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Encourage use of mass transit, biking, telecommuting

HR drivers Internal drivers: Corporate values Leadership Shared values Employee development Trust External drivers: Attract employees Job market Stakeholders

Enablers Culture Company strategy Top management Employee engagement Talent management Balanced scorecard Goal setting, KPIs Employee job descriptions Collaboration IS/IT, communication Social sustainability

Performance evaluators Employee perf review Rankings, indices Employee satisfaction Reporting, GRI, SASB Employee sick days Turnover, retention, KPIs Gender equality Health and safety UN SDGs

IS/IT is a set of data, computing devices and management methods that supports routine company operation and business decision making. management information systems (MIS) is a specific subset of IS. The goal of an MIS infrastructure is to support management and assist in making informed and strategic decisions. For example, MIS might help a business implement a new performance dashboard, or social media strategy. Value Proposition, support financial and Environmental Social Governance (ESG) management systems for real time performance measurement, productivity, collaboration, dash boarding, and reporting of integrated performance.

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Value creation opportunities broadly include and focus on access to the right data over time including energy and water, dashboards, revenue through e-commerce, asset efficiency, operating margins, and support expectations. Opportunities

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Adaptive and resilient systems, automate processes

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Customer Relations Management (CRM), e-commerce

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Develop and maintain systems for monitoring and reporting

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Environmental Management Systems (EMS)

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Enterprise Resource Planning (ERP) system assessment and support

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Enterprise social networking, e.g., informal chains of command

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Knowledge management

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Management dashboards

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Simplification, streamline processes

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Security and privacy protection

IS/IT drivers

Internal drivers: Corporate vision, Strategy Speed Application development Environmental impact Profitability, cost savings External drivers: Changing technology Competitors Standards Supply chain management Regulations

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Enablers

Performance dashboards cloud computing Internet of Things (IoT) Communication Demand for more data Corporate strategy Automation Integrating functions KPIs Part of sustainability team Supply chain integration Technological advances

Int egrate d Management

Performance evaluators Productivity Ecological footprint Energy consumption GHG emissions Emissions reduction Sustainability reporting, GRI Cost effectiveness Social costs Supply chain visibility

Marketing includes activities of a company associated with buying and selling a product or service, advertising, and delivering products to people. This function has the power to influence profitable and positive change in consumer behavior through identification, anticipation, and satisfaction of customers with sustainably developed products and services. Value Proposition, accurate and reliable information for customers and end consumers over a product or service’s entire life cycle, utilizing best available packaging materials, and educating customer on how to use products until returning them into the circular economy. Value creation opportunities broadly include and focus on revenue growth, operating margins, and expectations. Opportunities

• • •

Identify new markets and products. Market research investigations, find customers looking for sustainably developed products and services. Messaging to external customers and internally to business units, teams and individuals.

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Product/service differentiation using sustainability to build brand strength.

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Product and service transparency.

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Effective packaging.

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Product labeling, certifications, honest claims, no greenwashing.

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Research and Development (R&D).

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Solicit customer/stakeholder feedback for materiality reporting.

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Understand influencers and social media strategy.

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Valuation of environmental and social benefits in pricing, full life cycle costs.

Marketing drivers

Internal drivers: Corporate vision, mission Access to data Differentiation

Enablers

Stakeholder engagement Company strategy Carbon disclosure project

Performance evaluators Brand value Certifications, C2C, FSC Rankings, indices

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Ecological footprint integration strategy Pollution prevention External drivers: Educated consumers Brand reputation stakeholders’ perception competitors Market trends Sustainability trends

Communication Traceability Customers, retention Social media Design for sustainability Labels and packaging Goals, KPIs Management systems NGOs Risk management

Sustainability reporting, GRI Integrated reporting NGOs Emissions reduction Sales Social media engagement Consumer surveys UN SDGs

Operations refers to the management of business practices to create the highest level of efficiency possible within an organization. It is concerned with converting materials and labor into goods and services as effectively as possible to create value for an enterprise. The overall management responsibilities includes supply chain management, procurement, contributing to new product development, and manufacturing. Operations management teams attempt to balance full costs with revenue to achieve efficient net operating profits. Value Proposition, the efficient and effective creation of products and services without violating SSD sustainability principles. Value creation opportunities broadly include and focus on asset efficiency and operating margins. Opportunities

• •

Adoption of ISO 14000, 20400, 26000, and 50000 standards. Manufacturing site management that does not increased substances extracted from the earth, concentrations produced by society, and degradation of nature by physical means.

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Goals of zero waste.

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Automation.

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Consider life cycle assessment (LCA) of products, materials, and transportation. Design innovative products, e.g., regenerative, and living products. Development of closed loop systems, including recycling, refurbish, upcycling. Integrate sustainability KPSs in procurement, production, supplier audits, and supply chain.

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Manufacturing maintenance.

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Operations included in risk management evaluations.

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Preventing defects, waste, and taking responsibility for externalities caused by products/services.

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R&D.

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Traceability, and visibility into supply chain.

Operations drivers

Internal drivers: Innovation Leadership, COO Design Quality Energy consumption Ecological footprint Profitability Logistics Procurement Waste elimination External drivers: Access to natural resources

Enablers

Data, KPIs, goal setting Leadership and culture Preventative maintenance Operational excellence team Supply chain transparency Supplier assessment Utility bills Carbon disclosure project Continuous improvement TQM Circular economy Cradle 2 Cradle (C2C) Energy management systems EPA SmartWay Global reporting initiative Life cycle assessment Shadow pricing

Performance evaluators Emissions reduction GRI reporting Rankings ISO 14000, 20400, 26000, 50000 Carbon credits Certifications Energy utilization intensity Business continuity Environmental capital Life cycle assessment Social capital

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Regulations, polluter pays Customer awareness Carbon markets NGOs Supply chain

SCC Sust. supply chain mgt. Zero waste strategy ISO standards

Supplier performance UN SDGs

Public Relations is the art of managing the spread of information about an individual or company is disseminated to the public, and attempting to frame that information that is transparent, credible and inspires trust in the enterprise. Value Proposition, enterprise transparency into a balanced portfolio of performance metrics and facilitation of multi stakeholder engagement collaboration. Value creation opportunities broadly include and focus on expectations. Opportunities

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Articulate Integration Strategy Statement to internal and external stakeholders Tell the story of your journey, what’s working and not working along the way

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Be transparent about motives

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Building trust with NGOs and stakeholders

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Enable internal stakeholders to be champions for the enterprise

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Reporting sustainability actions

•

Social media

•

Stakeholder engagement

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Included in development of mission and vision

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PR drivers

Internal drivers: Leadership Stakeholders’ perception Corporate values, vision Ethics Profitability External drivers: Risks of unsustainability Competitors Social legitimacy License to operate Regulations

Enablers

Integrated reporting Customer demand Stakeholder engagement PR communications team Transparency benchmarking competition IBL

Performance evaluators Brand value Sustainability reporting Integrated reporting Rankings, indices Customers Negative publicity General council UN SDGs

As the functional integration summaries show, managers have complex responsibilities. Integrated management opportunities should not come disguised as new, complex performance metrics, but instead as an opportunity to leverage existing metrics in new ways, and to understand the workings of other functions. Information from a study by Yves Morieux in the Harvard Business Review (HBR) shows that companies, on average, are now setting six times as many performance metrics as they did in 1955.13 The same year as the creation of the Fortune 500’s performance metrics. Back then, CEOs typically relied on four to seven performance metrics. Today, it ranges from 25 to 40. Paradoxically, many metrics can be in opposition to each other across an enterprise. The study points out the irony in companies wanting to satisfy custo-

13. Morieux (2011).

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mers who demand low prices and high quality; when customizing offerings for specific markets and standardizing them for the greatest operating return; or having simultaneous goals to innovate and be efficient. They go on to show that over 15 years of data collection, the number of “procedures, vertical layers, interface structures, coordination bodies, and decision approvals needed in firms has increased by anywhere from 50% to 350%.” Keeping this in mind, integrated management should also mean simplification. Yet, it may be hard to see simplification in the tables mentioned earlier. The HBR study goes on to provide a path to smarter, streamlined enterprises. Six rules help guide problem-solving in order to reach this smarter, simplified performance based future: (1) improve your understanding of what co-workers do; (2) reinforce the people who are integrators; (3) expand the amount of power available; (4) increase the need for reciprocity; (5) make employees feel the shadow of the future; and (6) put the blame on the uncooperative. These rules help to create a culture of collaboration and integrated behavior. This empowers people to be systems thinkers, and to solve complex problems while valuing multiple perspectives. While metrics may be on the rise, so is integration. Take a look at this study from Sloan Management Review’s collaboration and leadership for sustainability report (Figure 4.4). An important outcome of this survey is the integrated business case for sustainability. The results show the number of companies without a sustainability business case and value proposition has declined over time. By 2014, over three quarters of the 3,800 managers and the companies they work in have created a business case for sustainability. Other insights include the increased use of operational and personal KPIs along with increasing responsibilities for sustainability.

Enabling Integration Opportunities Often, successful models for measurement of enterprise integration are part of management culture and vocabulary. Kaplan and Norton’s Balanced Scorecard (BSC) is an example of this. The BSC provides a good way to integrate metrics across functions. This tool for goal setting and guiding business performance has been around for decades. It is a strategic planning and management system used by organizations. It helps communicate what you are trying to accomplish, align day-to-day work to strategy, prioritize projects, and measure and monitor progress

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0 Link sustainability performance with financial incentives

10

20

30

40

Chief Sustainability Officer Separate function for sustainability Responsible person per business unit

11 12 13 14

Years 2011-2014

Personal KPIs related to sustainability Operational KPIs related to sustainability Clear responsibility for sustainability Sustainability reporting

50 –2% +1% +1% +2% +6% +6% +6% +15%

Figure 4.4: Sustainability’s Integration into Companies. Regarding sustainability in your organization, does your organization have: (please choose all that apply) Source: Kiron et al. (2015).14

14. MIT Sloan Management Review, The Boston Consulting Group, and United Nations Global Compact; Kiron et al. (2015). Figure 3, p. 6.

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toward enterprise strategy.15 With four organizing quadrants of stakeholders, finance, processes, and human capital, it provides a framework for organizing integration goal setting and metric opportunities for existing functional activities and when proposing new activities. Originally developed as a framework for measuring organizational performance using a more balanced set of metrics, it helps to get away from using short-term financial performance the only measure of success. This approach is still relative today as most performance measurement focuses on financials, but this is changing with the increased use of GRI reporting and a new focus on long-term capital.16 By reviewing multiple measures of stakeholder satisfaction, financial performance, business process efficiency, and organizational capacity for knowledge and innovation, you get an understanding of dynamic performance. The full process of applying this tool takes participants through strategic objectives, strategy mapping, setting performance metrics and targets, and the development of strategic initiatives.17 It connects the dots between strategy, vision, operational objectives, and activities to help managers reach their goals. Some example metrics for integrated goal setting are within Table 4.1. Functional integration should be part of regular planning cycles that engage stakeholders, review metrics, and examine processes to find integration opportunities with the largest systemic impacts. This will facilitate systems thinking leverage points; align vision, mission, strategy and actions for teams and functions. It can include a review of management strategies, test for unintended consequences, feedback loops, and lags in outcomes. Functional integration opportunities will come from the review of intermediate outcomes, failures, success, and an opportunity for adjustments. Repeating the plan-do-check-act cycle, review of balanced performance metrics and even emerging management dashboards to see metrics in real time, leads to increased learning, integration, and performance over time. A systems thinking leverage point for decision makers can be found within MIS and opportunities for dashboards. The IS/IT function is a key enabler of data management, sharing, and visibility across functions. KPIs for environmental performance dashboards can include energy,

15. The Balanced Scorecard Institute, http://www.balancedscorecard.org/BSC-Basics/ About-the-Balanced-Scorecard 16. Barton and Wiseman (2014). 17. Kaplan and Norton (1996).

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Table 4.1: Integration Goals in the Balanced Scorecard. Stakeholders (customer and stakeholders the enterprise serves)

• Customer satisfaction • Press recognition of

Finance (financial performance and use of financial resources)

• Top line growth (income and

sustainability actions • Number of sustainability partnerships • NGO collaboration, materiality • Perception of enterprise ethics • Public disclosure of environmental and social sustainability metrics tracked over time • Percent hired locally • Recognition in Sustainability rankings and indices

Internal Processes (efficiency and quality related to key business processes)

sales) from integrated products and services • Investments in integration, ROInt • Income from closed loop systems • Income from waste • Cost of energy, water, sewer, and waste • Progress toward IBL • Materiality map • Cash flow analysis includes environmental and social impacts/value created, social cost of carbon dioxide Organizational Capacity (human capital, culture, learning and capacity for innovation)

• GHG emissions • Auditing and commissioning • Consumption of energy, materials, and water

• Percentage of renewable, recycled, reclaimed, or local materials • Percentage of sustainability audited suppliers • Percentage of contracts or leases containing sustainability metrics • Environmental and social sustainability (ESG) included in accounting systems

• Job satisfaction • Productivity, sick days, healthcare • Retention rates • Recruitment of new employees based on sustainability reputation • Percentage of employees in high performance buildings • Number of personal performance metrics integrating environmental and social sustainability in job description • Accreditation and certifications

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• Square footage of high

• Hours of sustainability,

performance buildings occupied by employees • Use of energy efficient products and supplies

systems and design thinking training • Mobility: use of mass transit, fuel efficient vehicles, biking, telecommuting • Capacity mapped into UN SDGs

water, GHG emissions, waste, modes of transportation and costs. Project management KPIs can include an overall impact on IBL performance, project goals progress toward social and environmental sustainability, along with economic sustainability. See Figure 4.3, when we make environmental and social data available in real time these tools help organizations get a view of their business at a glance. As data volumes increase, so to have dashboards. Decision makers rely on them to help make sense of their data. Effective dashboards have important underlying data, automated data feeds, and a complete picture of the enterprise. With plans to use this tool for decision-making, it’s important to have actionable metrics, and to display the data in a useful way that can include considering its organization and a customized approach to fit your needs. The user interface should also consider the delivery of the information via PCs, tablets and phones; use of alerts, and abilities to push information to users. Kanban systems on production floors deliver information through simple signaling such as colored lights and even this approach should be considered when developing your own interface with integrated systems. A red light or flashing icon quickly grabs a user’s attention. Today’s technology enables real time response rates and can alert management of the need to take action. Examples of optimizing corporate sustainability for energy management (eBay), emissions (Bayer Material Science), electricity demand response (Alcoa), and asset optimization (NiSource) are growing.18 There is also an ability to align metrics and dashboards with the UN sustainable development goals. Companies such as Target roll performance metrics up into annual reports highlighting their materiality

18. Optimizing Corporate Sustainability with Real-time Data, A GTM Research Whitepaper. Accessed July 20, 2017 at http://cdn.osisoft.com/corp/en/docs/whitepapers/WP_ Optimizing_Corporate_Sustainability.pdf. Also see Kumaraguru and Morris (2014).

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process, stakeholder engagement, progress (both positive and negative), and alignment with the UN SDGs at the very front of their annual Corporate Social Responsibility Report (Figure 4.5).

Get the System in the Room The Role of Boundary Spanning Individuals Multi stakeholder engagement, systems thinking, and integration are a path toward a new performance frontier. To collaborate and learn across functional boundaries is paramount in a changing economy. In reviewing the functions and processes above, we have so far overlooked two other enterprise stakeholders important to the integration movement and who have the responsibility of trying to get the system in the room. These are sustainability professionals and board of Directors. We should recognize that we can all act as chief integration officers (CIOs). Integration is everyone’s job! As boundary spanning managers, we all have the opportunity to make ourselves more valuable to an enterprise as individuals within innovation systems who have, or adopt, the role of linking the organization’s internal systems (i.e., functions) with external sources of information. Ironically, there is a growing group of change agents in corporations with boundary spanning “sustainability” in their title. The most visible, and the first of the two stakeholders we need to focus on are Chief Sustainability Officers (CSO). In a number of multinational corporations (MNCs), sustainability is in the C suite with direct reporting to the CEO. Do not think that the CSO position lets you off the hook, or it is someone else’s responsibility. There may not yet be a sustainability functional group within enterprises, and maybe there shouldn’t be if it becomes so integrated that it is a part of our day to day operations. We can learn from CSOs while looking for integration opportunities across functions. Some of my own research involves sitting down with the global heads of sustainability within corporations to find out how and why they integrate sustainability into their organizations. The development of a CSO position in an enterprise signals the importance of measuring and managing integrated performance. “Companies are monitoring the impact they’re having environmentally and on society, and the appointment of the CSO reflects an underlying need for companies to not only monitor but also improve their performance.”19

19. Miller and Serafeim (2014).

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Figure 4.5: Example Management Dashboards. Source: Used with permission from The Sustainability Dashboard Tools, LLC; and used with permission from Suchitra Tautela Joshi working with the enterprise Green Project Management (GPM Global). Grounded in EH&S and environmental issues, they are expanding their efforts to; improving employee satisfaction, productivity, and training, while also generating top line growth from products and services that address environmental and social issues. A study by Serafeim and Miller

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surveying 66 CSOs and decision makers with similar responsibilities in 27 industries,20 found integration in three stages: 1. Compliance: In this initial phase, companies often start with activities related to complying with regulations. Activities are not strategic or centralized. In addition to compliance, employees may volunteer to work on recycling projects or green teams. Most companies at this stage have not created a formal CSO position. 2. Efficiency: Here, companies become strategic regarding sustainability by finding ways to achieve efficiencies that will save corporate dollars, such as cutting energy and water use or reducing waste generation and carbon emissions. “These things are an easy sell,” Serafeim says. “They’re a good thing to do and the obvious thing to do.” At this stage, more companies are likely to hire or appoint an official corporate sustainability officer, who works with the CEO. The CSO builds a business case for making changes that improve the company’s bottom line, while also enhancing the company’s reputation. “The CSO is really driving the execution of the sustainability strategy,” Serafeim says. Many companies end up staying in this phase missing an opportunity to move on to the final stage, innovation. 3. Innovation: A select number of companies shift to this innovative stage through the integrated management of sustainability within the business in ways that can transform the company. These market driven strategies include maximizing long-term profitability, and sustainability efforts often address bigger problems in society, including such issues as climate change, water management, education, and obesity. Here, the CSO’s responsibility is to help develop a sustainability strategy, plan for change management, unify subcultures, while also delegating sustainability responsibilities to departments. While at the Efficiency stage, the CSO concentrates responsibilities, at the Innovation stage she/he delegates decision-making while pushing accountability to the functions and business units. Making it to this last stage helps managers across functions envision new markets, opportunities, and customer needs. Many don’t make it to the innovation stage because they focus only on short-term goals like the

20. These three stages are summarized from Miller and Serafeim (2014).

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cost savings they achieve from reduced energy use, rather than taking risks with visionary sustainability plans. Nike and Dow Chemical are examples of companies that have made it to the innovation stage. After Nike faced accusations about violations of human rights by subcontractors, it made drastic changes to operate more responsibly throughout its supply chain. Dow used its capabilities to develop components for solar panels and materials for cars that make them safer and efficient. Internally, Dow has invested under $2 billion over the past two decades to rethink natural-resource management, and in return have saved upwards of $9.8 billion attributable to reduced water waste and energy consumption.21 “Dow is using its science background to address fundamental issues and problems we’re having,” Serafeim says. “That’s a whole different level of sustainability strategy. And it’s trying to understand how those environmental, social, and governance issues create value in the long term.” The Serafeim and Miller study and my own fieldwork provide suggestions for success22:

• Leaders need to be boundary spanners working with other functions to influence culture, motivation, and change management. A customized change management strategy may be necessary for individual locations with public affairs assessing stakeholders, materiality, and reputation, while operations manages environmental impacts, as these activities help to enable integrated management and positive impacts on performance.

• The integration of ESG performance into decision-making and value creation starts with an operationalized definition of sustainability. The definition is next expanded upon with goals, and ESG measurement, which in turn positively affects change management, organizational performance, and progress toward UN SDGs.

• Sustainability needs to have a set on the executive team. The presence of a CSO keeps sustainability on the agenda. Leadership with access to dashboards and the ability to evaluate ESG performance,

21. From McKinsey (2011). 22. The insights summarized here are from the Serafeim and Miller study. (Miller & Serafeim, 2014) and are combined with some of my own field study and interview insights found in (Sroufe, 2017) on how global leaders of sustainability from large multinational companies define and operationalize sustainability indicatives.

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and understand stakeholders, while synthesizing auditing to generate reports at this level enables integrated enterprises.

• As a vision for sustainability and goals become ambitious, leadership should work more closely with functions of the business where sustainability will produce value. These functions will vary from company to company. My interviews with sustainability professionals found them cultivating a positive capacity toward ESG growth. Enabled by leadership, a long-term perspective, and the reduction of environmental impacts supports integrated management within organizations.

• Serafeim found that mangers in other functions have a tradeoff mentality when it comes to sustainability. “People don’t understand that if you do things strategically, you can create significant value for the firm. The CSO is in the best position to change this perception, but she/he needs to have the data and the tight business case to communicate that.”

• Finally, focus on a manageable set of strategic opportunities, i.e., KPIs. ESG goals are a moving target and will change over the short and medium terms. Sustainable operating systems integrate data across functions while alignments with UN SDGs provide alignment opportunities for strategic, long-term performance objectives. “The way to think about the CSO is it’s the person who is the change agent,” Serafeim says. “It’s the person who sees how the future is developing, how social expectations are changing, how regulations and the business environment are changing in the future. The CSO is the ambassador with the vision, the person who decides what needs to change when it comes to how the company is interacting with the communities and the broader societal context in which it operates.” The other important, yet often overlooked stakeholder is the Board of Directors. The integration of sustainable development seemingly has taken a long time to climb the hierarchy of organizations to have a seat at the board level. Even though sustainability has become a top management agenda item, Boards have yet to engage in sustainability efforts.23 This is a real leadership problem according to Integrated Governance: A 23. Paine, L. (2014) “Sustainability in the Boardroom,” Harvard Business Review, JulyAugust.

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New Model of Governance for Sustainability, a comprehensive report on sustainability and governance by the United Nations Environmental Programme Finance Initiative (UNEP FI).24 Integrated governance is “the system by which companies are directed and controlled, in which sustainability issues are integrated in a way that ensures value creation for the company and beneficial results for all stakeholders in the long term.” It combines bringing sustainability oversight in the boardroom together with addressing some of the identified current governance weaknesses that prevent boards from operating in the most effective manner. As companies increasingly recognize the need to develop a sustainable strategy, where sustainable development issues are integrated into the core of the business model, a need is created for a governance model that is also able to supervise the formulation and execution of such a strategy. Findings from the report go on to reveal boards should have a sustainability committee. In other words, in the case of integrating sustainability issues into existing committee’s charters, the directors should have the required skills and expertise or be given the tools to develop it. Findings published by Lynn Paine in HBR support these calls for change in seeking directors with sustainability knowledge and expertise, having a sustainability committee as a sounding board and constructive critic, a driver of accountability, stimulus of innovation, and resource for the full Board.25 Directors that lack the necessary experience or background can have negative effects on the function of the board and future performance of the enterprise. Before we transition to the next chapter, keep this in quote in mind, “Sustainability is the primary moral and economic imperative of the twenty-first century. It is one of the most important sources of both opportunities and risks for businesses. Nature, society and business are interconnected in complex ways that should be understood by decision makers. Most importantly, current incremental changes towards sustainability are not sufficient we need a fundamental shift in the way companies and directors act and organize themselves.” Mervyn King26 As we progress toward fundamental shifts in integrated management, systems thinking and value creation, it is my prediction that future research on integrated enterprises will confirm, that they outperform

24. United Nations Environment Programme (UNEP) (2014). 25. Paine (2014). 26. Chairman of the International Integrated Reporting Council, Institute of Directors in Southern Africa. “The King Code of Governance for South Africa,” http://c.ymcdn.com/ sites/www.iodsa.co.za/resource/collection/94445006-4F18-4335-B7FB-7F5A8B23FB3F/ King_Code_of_Governance_for_SA_2009_Updated_June_2012.pdf

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industry rivals with weak integration. A key aspect of this shift in management and performance will be to what extent integrated management is found across functions and systems.

Chapter Summary Chapter 4 reviews how integrated management is already within enterprise functions. Through the application of evidence-based approaches to integrated management by function, we find we are running out of excuses for not integrating sustainability into capital allocation decisions, goal setting, and strategy. Those who can navigate the integration landscape will be able to uncover new value creation opportunities previously hidden by functional silos. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

•

What processes do you contribute to and how do they intersect other functions?

•

Are there existing ESG KPIs at either an enterprise or personal level?

•

What function within your enterprise is a good candidate for a leverage point?

•

What would a balanced scorecard look like for your enterprise?

•

Who has responsibilities for ESG initiatives within your enterprise?

• •

Research how sustainability is already integrated within your function or discipline? Develop a dashboard for your current job, how can it be used to integrate sustainability?

Bibliography Argyris, C. (2000). Double-loop learning. Hoboken, NJ: Wiley Encyclopedia of Management.

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Barton, D., & Wiseman, M. (2014). Focusing capital on the long term. Harvard Business Review, 92(1/2), 44 51. Gould, S. (2 Feb. 2017). Integrated reporting longs for finance professionals. | IFAC, IFAC. Retrieved from www.ifac.org/global-knowledge-gateway/ businessreporting/discussion/integrated-reporting-longs-finance. Accessed August 2018. Hodgson, R. (2010). It’s no secret: A universal guide to happiness. Bloomington, IN: iUniverse. Hopkins, M. S., Townend, A., Khayat, Z., Balagopal, B., Reeves, M., &Berns, M. (2009). The business of sustainability: What it means to managers now. MIT Sloan Management Review, 51(1), 20. IIRC. The International Framework. (December 2013). Retrieved from integratedreporting.org/wp-content/uploads/2013/12/13-12-08-THEINTERNATIONAL-IR-FRAMEWORK-2-1.pdf. Accessed on February 7, 2018. Iraldo, F., Testa, F., & Frey, M. (2009). Is an environmental management system able to influence environmental and competitive performance? The case of the eco-management and audit scheme (EMAS) in the European Union. The Journal of Cleaner Production, 17(3), 1444 1452. Kaplan, R., & Norton, D. (1996, January February). Using the balanced scorecard as a strategic management system, Harvard Business Review, 85(7/8), 150 161. Kiron, D., Kruschwitz, N., Haanaes, K., Reeves, M., Fuisz-Kehrbach, S. K., & Kell, G. (2015). Joining forces: Collaboration and leadership for sustainability. MIT Sloan Management Review, 56(3), 1 31. Kumaraguru, S., & Morris, K. C. (2014). Integrating real-time analytics and continuous performance management in smart manufacturing systems. IFIP International Conference on Advances in Production Management Systems. Springer, Berlin, Heidelberg. Lozano, R. (2008). A holistic perspective on corporate sustainability drivers. London: University of Leeds. Lozano, R., Nummert, B., & Ceulemans, K. (2016). Elucidating the relationship between sustainability reporting and organizational change management for sustainability. The Journal of Cleaner Production, 125, 168 188. McKinsey. (2011). The business of sustainability: McKinsey Global Survey Results. McKinsey. October. Accessed February 13, 2018. https://www. mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-business-of-sustainability-mckinsey-global-surveyresults Meadows, D. (1999). Leverage points: Places to intervene in a system. Hartland, VT: The Sustainability Institute. Miller, K. P., & Serafeim, G. (March 20, 2014). Chief sustainability officers: Who are they and what do they do? Chapter 8 in Leading Sustainable Change. Oxford: Oxford University Press. Available at SSRN: https://ssrn. com/abstract=2411976 or http://dx.doi.org/10.2139/ssrn.2411976

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Morecroft, J. (1983). Systems dynamics: Portraying bounded rationality. OMEGA, 11(2), 131 142. Morieux, Y. (2011). Smart rules: Six ways to get people to solve problems without you. Harvard Business Review, 89(9), 78 86. Paine, L. S. (2014). Sustainability in the boardroom. Harvard Business Review, 92(7/8), 86 94. Quora. (2016). What is the difference between business function and business process? Response from Michael Cohen, former Partner of Booz Allen Hamilton, updated November16, 2016. Senge, P. (2006). The fifth discipline. New York, NY: Doubleday a Division of Random House Inc. Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315 329. United Nations Environment Programme (UNEP). (June 2014). Integrated governance: A new model of governance for sustainability. p. 6. http:// www.unepfi.org/fileadmin/documents/UNEPFI_IntegratedGovernance. pdf

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5 Value Creation for Stakeholders and Shareholders “Despite our management schools, thousands of books written about business, and despite multitudes of economists who tinker with the trimtabs of a world economy[…] our understanding of business what makes for healthy commerce, what the role of such commerce should be within society is stuck at a primitive level.” Paul Hawken, The Ecology of Commerce; New York, NY: Harper Collins, 1993, p 1. Information in this chapter builds on critical dimensions of integration, a customized approach, and functional integration opportunities from prior chapters with an explicit focus on shareholder value creation. Shareholder value involves revenue growth, operating margin, asset efficiency, and expectations. Value creation is available to all types of organizations, including small and medium enterprises (SMEs), nongovernmental organizations (NGOs), and government enterprises. Understanding value creation requires a deeper lookinto the functional domain of financial management. The objectives of this chapter are to:

• Explore elements of materiality in more depth; • Review major categories of shareholder value; and • Review the business case for integrating sustainable development within enterprises, value chains, and society. Build shared understanding Value creation Revenue

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Value creation is a generalizable approach to recognizing the importance of strategic decisions made by management and the ability to make investments as well as generate a return on the invested capital. It can increase as a direct result of management’s ability to increase sales, earnings, and free cash flow. Integrated value is the result of evolving business practices such as ethics, environmental management, and sustainability, and is not meant to replace existing concepts but instead build on them, weaving them together to improve their effectiveness.1 Value creation is key as many executives can shut down if you start a conversation with ESG data. Know your audience. Instead, translate ESG practices into established core business language (i.e., performance improvement, revenue, operational excellence, waste and cost reduction, operating margins, EBITDA, and asset efficiency). This will attract everyone’s attention. There is more than enough evidence to support the short-term business case for ESG practices. Leveraging best practices provides a foundation for longerterm options. The creation of value over the long term for publicly traded firms increases share price and an enterprise can pay larger dividends to shareholders. Further, increases in shareholder value increase the amount of stockholder equity on a balance sheet, where assets less liabilities equal stockholder equity. This includes retained earnings, or the sum of net income less cash dividends since inception. Knowing your audience and how to work across functions provides the opportunity leverage established core business language to sell your ideas and projects. Other direct impacts to value come from increasing earning from a lean amount of assets that produce less waste and risk, a high rate of inventory turns through effective supply chain management and no disruption of supplies and accounts receivables providing sufficient cash flows. In this changing global landscape, our ability to provide the business case for integrated reporting in the form of sustainable development, annual reporting of ESG information and the materiality of these practices is grounded in the financial domain which already has an established language.2

More on Materiality For the purpose of planning for integration projects, “material” topics for an organization should include those “topics that have a direct or indirect impact on an enterprise’s ability to create, preserve, or erode

1. Visser (2017). 2. Eccles and Krzus (2014).

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economic, environmental and social value for itself, its stakeholders and society at large.”3 Materiality is a firm-specific social construct and an important context for action learning and decision-making across functions.4 Investing in sustainability issues that are material to an enterprise are important as enterprises that do this outperform industry peers with lesser amounts of investments.5 Integrated management provides the opportunity in which everyone can contribute her or his abilities and expertise to solve a complex problem while understanding material opportunities for the organization. Materiality helps to prioritize topics and can uncover systems thinking leverage points for new initiatives. It can even tackle the problem of how to get to a shared understanding of what a sustainable future will look like and what actions will take us from our current “as is” reality to that sustainable “to be” future. Materiality is a technique for identifying where in the enterprise we can create value for stakeholders and stockholders. The focus on and inclusion of stakeholder interests is important for strategic planning, social responsibility, and performance.6 Materiality assessments help find integration opportunities to improve functional, firm, and value chain performance. It helps assess what issues are most important to stakeholders and what actions within the control of the enterprise will address these important issues. When dealing with integrated management, we can measure costs and benefits. First, we can measure it in terms of its impact on performance at a functional level. Of all the levels of analysis, this is the simplest and most direct to determine by using IS/ IT and Accounting audit systems and controls. Here unfortunately, we typically have not been interested in whether our actions affect other functions. The goal is to improve our function’s level of performance. Local optimization, sometimes at the expense of overall improvement, is accepted and rewarded through internal incentive programs like bonuses.7 When we increase the scope to include the enterprise, the analysis and materiality evaluation get more complex. At this level, we can consider the impact of our actions on the integrated performance of other functions in the enterprise. Similarly, we can increase the scope to include value chains, the community, even society.

3. GRI, Global Reporting Initiative, G4 Guidelines (2016). And the Global Reporting Initiative, Materiality in the context of the GRI Reporting Framework. (2016). 4. Eccles and Krzus (2014). 5. Khan, Serafeim, and Yoon (2016). 6. See Harrison and Freeman (1999). 7. Morieux (2011).

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The assessment of what issues are “relevant and material” is enterprise specific.8 A strategic planning team, accountants, or marketing executives can define their own materiality thresholds within the guidelines of evolving international standards such as the Global Reporting Initiative (GRI) and IIRC and SASB. Typically, two-axis visual models represent GRI options and applies well to the IIRC approaches to the assessment of sustainable development opportunities.9 The Y-axis is the “importance to stakeholders” for vertical positioning of issues or concerns. Providing opportunities for organizations to consider organizational strategy can help with these issues. The X-axis is the “importance to business” assessment and horizontal positioning of issues in relationship to potential impacts on the organization. This can reflect the capabilities the organization has more control of and provide an opportunity to consider impacts on the six IIRC framework capitals along with value creation. Issues that show up in the lower left can be considered non-material, while those out to the right have higher relative reporting priority and higher materiality (Figure 5.1). Here an enterprise can focus on integrated management opportunities for natural capital, such as water, forest, and minerals; human capital, such as skills, capabilities, and experiences of people; and financial capital, such as funds from investors and lenders or from the reinvestment of funds obtained from operations. Firms use these resources during the value creation process to develop additional resources. These additional resources include physical capital, such as factory equipment; intellectual capital, resulting from employee efforts that generate intangible assets; and social capital, deriving from the relationship between a firm and society which secures its license to operate. Issues can be ranked according to their ability to deliver on strategy and create value. The process would include and assess stakeholder perspectives when ranking the issues. Utilizing larger or smaller spheres, you can include the enterprise’s ability to influence the issue. Color coding can be associated with materiality topics, or arrows can be used to represent movement and changes in value creation from one period of time to another.

8. International Integrated Reporting Council. “Materiality background paper for ,” pp 2 8; https://integratedreporting.org/wp-content/uploads/2013/03/IR-BackgroundPaper-Materiality.pdf 9. Allison-Hope and Morgan (2013).

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High

Importance to stakeholders

Customers markets level of concern

Low

Importance to business

High

Forms of capital: financial, human, intellectual, natural, physical, and social

Figure 5.1. Conceptual Materiality Matrix.

More detailed examples of a materiality matrix can be found in annual corporate sustainability reports and on the web from companies such as Bayer, Dexus, Ernst & Young (EY) financial services industry assessment, Johnson & Johnson, MEC, PG&E, and UPS. When working with a consultant familiar with materiality mapping, she claims the development of a materiality matrix helps to identify important trends, externalities, and solutions. When asked what an integrated solution looks like, Velika Talyarkhan, EY Assistant Manager, Clean Energy and Sustainability Services puts it this way, “An integrated solution is one that eliminates negative externalities altogether. This is achieved by addressing all functions’ and relevant stakeholders’ concerns at critical decision-making opportunities. Developing an integrated culture requires functional teams to have a workable understanding of how they affect the other functions within the organization. Management must provide support by eliminating conflicting goals between functional teams. Integration does not mean getting rid of specialized skills in favor of generalized knowledge, but instead requires the involvement of certain actors who can work as boundary spanners to help specialists understand their contribution to the wider organization.” Business executives and boundary spanners, often face a dynamic challenge (involving competing expectations of six different stakeholder

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groups. Executives face challenges in appeasing stakeholder groups with potentially conflicting/competing expectations. On the one hand, they need to demonstrate to the market in commonly understood terms that their enterprise is creating value for shareholders and addressing important issues. On the other hand, their effectiveness hinges on identifying and acting upon differentiated ways of serving customers faster, better, and cheaper compared to competitors. Executives face this challenge very much in the public eye and investors want to see how their capital expenditures provide a return on investment. Lenders want to know how their funds will be utilized and returned. Analysts want to assess one company against others. Customers want a reason to buy products or services, and assurances that their needs will be met. Employees want to know they will continue to have interesting work that pays the bills. The Board wants to know the enterprise is prudently run while competing aggressively. These dual challenges come with risks. If the company cannot differentiate itself from competitors, it may not be able to attract customers, and will cease to be in business. While leaders understand the importance of sustainable development, they often have difficulty translating it into action. The MIT Sloan Management Review and Boston Consulting Group (BCG) study, “Sustainability’s Next Frontier,” found that while nearly two-thirds of business respondents felt sustainability issues were important, only 10% of companies fully tackled them. A key differentiator in their success was linking sustainability and business strategy.10

Shareholder Value Another BCG study suggests that leading companies can show us how to overcome managerial obstacles to integrating sustainability. Some of the notable characteristics these leaders have in common include: creating a robust business case for sustainability, holistically integrating their sustainability strategy throughout the business, and understanding and articulating sustainability’s impact on their organization.11 It is within the context of articulating strategy, integrating sustainable development,

10. Friedlander (2016). also see Sustainabilitiy’s next frontier, http://sloanreview.mit.edu/ projects/sustainabilitys-next-frontier/ 11. Berns et al. (2009b).

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and understanding shareholder value that we can take a more detailed look at value creation. A good way of doing this is with a detailed example of a value map from Deloitte.12 What follows is a breakout of the important categories of shareholder value and how the integration of sustainable development can simultaneously add value to enterprise value creation. Value creation Revenue growth

Operating margin

Asset efficiency

Expectations

The shareholder value map enables decision-makers to link strategy with shareholder value creation within the four main categories of revenue growth, asset efficiency, operating margins, and expectations. In unpacking this simplified representation of value creating opportunities, we can look at how, within each component, decision-makers, and managers can integrate sustainable development and the direct benefits from these actions. The total value of a company is another way to look at shareholder value. In this way: [Shareholder Value = Business Value Debt]. Here, the Business Value estimate relies on the present value of forecasted cash flows (informed by the cost of capital and the weighted average of the costs of debt and equity). The cost of debt is typically the interest rates on the debt. When viewing the enterprise though this lens, shareholder value increases by increasing net cash flow or reducing the cost of capital. Direct effects on cash flow increases through revenue growth and reduction of expenses. Revenue growth

Volume

Price realization

Revenue growth is directly linked to shareholder value creation when an enterprise is able to keep the cost of capital and operating costs in

12. Deloitte’s Shareholder Value Map, accessed, July 21, 2017 at http://public.deloitte.com/ media/0268/enterprise_value_map_2_0.pdf

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check. Revenue increases in two ways: through an increase in the volume of sales or price realization. The emerging reality is that innovators have been able to leverage sustainable development and increase revenues while at the same time reducing costs. Examples include breakthrough technologies like NIKE Flyknit, which dramatically reduces waste compared with traditional footwear manufacturing, and ColorDry, which eliminates water and process chemicals from dyeing while also reducing energy consumption, increasing productivity, and improving quality. These game-changing innovations have helped fuel NIKE’s sustainable growth.13 A broader trend to watch is within a report by the BCG. They found almost one third of the respondents say their sustainability activities are contributing to profitability. They show the sustainability movement was nearing a tipping point, i.e., they found increasing trends of companies deriving financial benefits from sustainable business practices.14 Similarly, KPMG found 31% of respondents said the biggest benefit of adopting sustainability would be increased profitability; 48% of executives believe implementing sustainability strategies would boost the bottom line in some way, either by cutting costs (27%) or increasing profitability (21%). The benefits often flow to the bottom line, as the elimination of waste and associated externalities cut costs. Enterprises also boost revenues by creating markets for new environmentally responsible products and services. In both cases, sustainability strategies trigger promising innovations and opportunities to push financial analysis into a new performance frontier.15 If we look at discounted cash flow analysis, i.e., Net Present Value (NPV) and add to this performance metrics valuing externalities, natural and social capital can be included in decision-making and revenue growth. An enterprise can now consider the GHG emissions (a measure of waste) of a particular investment. A less wasteful investment would end up increasing the cash flows of the enterprise in the form of valuing emissions savings. The Walt Disney Company does this, assigning a value of $10 $20 per ton of GHG emissions to projects. Allowing cost savings to be retained by the business unit investing in emission reducing actions incentivizes business units to select the lowest emitting projects. They also have a goal of zero net direct GHG emissions. Over 500 multinational companies (MNCs),

13. Nike.(2016). 14. BCG and MIT Sloan Management Review (2012). 15. KPMG (2012).

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including Google, Walmart, Decon Energy, and Microsoft to name a few, are using an internal price on GHG emissions as reported by the CDP (formerly the Carbon Disclosure Project).16 CDP reports that: 732 companies are considering whether an internal carbon price can assist the business’s strategic approach or operations, or how their business should use a price on carbon. A total of 517 companies are already utilizing an internal price as an accounting and risk management tool. Of these, 147 companies are taking this approach a step further to actually embed the price as part of a strategy to achieve an established climate target; 37 companies are reporting tangible results against targets. Within a year, the CDP reports these numbers have jumped to over 1,200 companies using a price on carbon.

Volume Acquiring, retaining, and growing customers along with leveraging incomegenerating assets are important to volume. Over the past 10 years, environmental issues have steadily encroached (legally and when seen only as a cost) on businesses’ capacity to create value for customers, shareholders, and other stakeholders. Globalized workforces and supply chains have created environmental/social pressures and business liabilities. The rise of new world powers, notably China and India, has intensified competition for natural resources (especially oil and coal) and added a geopolitical dimension to sustainability. “Externalities” such as GHG emissions and water use are fast becoming material meaning that investors consider them central to a firm’s performance and stakeholders expect companies to share information about them. Magnifying these forces are escalating public and governmental concern about climate change, industrial pollution, food safety, and natural resource depletion, among other issues. As Peter Drucker has said, “every single social and global issue of our day is a business opportunity in disguise.”17 Opportunities to improve revenue growth come in the form of the Marketing function by way of acquiring new customers, retaining and growing current customers, and the enterprise as a whole effectively

16. CDP, Embedding a carbon price into business strategy, September 2016, CDP North America (2016); Use of internal carbon price by companies as incentive and strategic planning tool, December 2013. Accessed July 22, 2017 at https://big.assets.huffingtonpost.com/ 22Nov2013-CDP-InternalCarbonPriceReprt.pdf 17. From the Drucker Institute: http://www.druckerinstitute.com/link/opportunity-indisguise/

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utilizing income-generating assets. To this end, consumers in many countries are seeking sustainably developed products and services or leaning on companies to improve the sustainability of traditional products to help stop or reverse unsustainable trends.18 Millennials want to buy products from integrated companies and explicitly look for sustainability as part of their shopping priorities. A caveat here is revenue growth cannot only be about consumption. We live in a take-make-waste society that throws away 99% of all products within six months of their creation and purchase.19 Instead, new options such as Living Products certified by the International Living Futures Institute now produce more energy and water per unit of product produced that it takes to make the products.20 Essentially, these products are creating “volume” opportunities, new markets with an added bonus, the greater the volume, the more good they do for the environment and society.

Price Realization Price competitiveness is the ultimate sustainability metric.21 Tesla is a good example of a product demanding a premium price realization from a new market. Market research documents that consumers, especially Millennials, overwhelmingly want to buy smarter, healthier, and greener products. However, they do not want to pay more for sustainably developed products. Here again the marketing function’s understanding of competitive pricing, demand and supply management along with price optimization are sustainability’s path to mass-market adoption. The revenue growth that occurs when more sustainable products win on price can be exponential. For example, when the price of electricity generated by rooftop solar systems installed in Hawaii dropped below the price of utilitysupplied electricity, the number of solar power building permits leapt by 75% in just one year. This same state was one of the earliest to announce goals of 100% renewable energy within thirty years. Within the energy industry, we have seen prices of natural gas achieve price competitiveness with coal in power plant generation. It created a historic shift by

18. BCG and MIT Sloan Management Review (2011). 19. See more on this with “The Story of Stuff” video, http://storyofstuff.org/movies/storyof-stuff/; and check out their research and sources at http://storyofstuff.org/wp-content/ uploads/movies/scripts/Story%20of%20Stuff.pdf 20. See the Living Products Challenge at ILFI, accessed July 21, 2017 at https://livingfuture.org/lpc/ 21. Roth (2012b).

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electric utilities from coal to natural gas and it has almost 50% lower emissions.22 If the natural gas industry was transparent about the amounts of natural gas emissions from extraction, and added this data to financial planning and benefits they want to claim from reduced emissions when generating electricity, then we could have an integrated and full value assessment of the complex problem of utility emissions. There is a growing price competitiveness combined with the increasing costs for unsustainable practices and products. Think about the costs of operating older consumer electronics products, versus newer energy star products, or incandescent light bulbs versus LEDs that use 80% less energy and last 25 times longer. This price competitiveness has already generated a $1 trillion in global annual revenue market for more sustainable goods and services since 2012.23 The estimates are now reaching an annual $10 trillion of global sustainability-related revenues as of 2017. These trends indicate a need for supply and demand management, e.g., differentiated products and services, innovation, improvements in supply chain management, and brand awareness. Achieving pricing realization in these ways will help to grow revenues. Operating margin Selling, general, and administrative

Cost of goods sold

Income taxes

Operating margin is a percentage figure usually given as operating income for some period divided by revenue for the same period. Operating income is revenue less operating expenses for a given period, such as a quarter or year. Operating margin is the percentage of revenue that a company generates that can be used to pay the company’s investors (both equity investors and debt investors) and taxes. It is a key measure in analyzing a stock’s value. Other things being equal, the higher the operating margin, the better. In terms of shareholder value, operating margin determines the payment towards shareholders in terms of interest or a dividend. Thus, higher operating margins leads to more shareholder value creation.

22. Roth (2012c). 23. Roth (2012a).

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Selling, General, and Administrative (SG&A) Marketing plays a large role in improving customer interaction efficiency through the integrated efforts of advertising, sales, customer service, support, and order fulfillment, and billing. Opportunities in skill development with Human Resources can improve staff understanding of sustainable development and product differentiation. Investments in IS/ IT provide better customer information, direct sales to customers, analytics, and opportunities for efficiency in service, fulfillment, and billing processes and tools. Improving corporate/shared services efficiency falls under SG&A and gets to the heart of integration. Here we can find opportunities typically hidden but with integration becoming more apparent across improvements and synergy within departments spanning IT, telecom and networking, real estate, human resources, procurement, business management, and financial management. The IS/IT and Finance functions have a critical role in implementing integrated applications and consolidated services across organizational boundaries including ERP systems and sustainable operating systems (SOS). HR can consolidate and improve upon practices and retention, recruit new employees who want to be part of an integrated environment and include sustainability in job descriptions. Procurement can help by standardizing product components, managing globally, and refining vendor strategies to include the integration of sustainable development to improve performance, management methods, and tools. Overall business management options include but are not limited to consolidation of planning, management and reporting, alignment of business unit strategies with strategic sustainability vision of the enterprise, along with improving alignment of organizational structure and governance, and capital budgeting plans with priorities for integrating sustainable development. Finally, the Finance function’s management objectives can help to consolidate planning, management, and reporting; consolidate financial accounting and analysis; align financial strategies with strategic sustainable development while strengthening enterprisewide financial reporting standards and dashboards. The growth of the integrated reporting movement is not a fad as more country-level trading platforms are requiring this type of reporting.24 Through the inclusion of externalities, natural and social capital can be integrated into cash flow analysis, bottom lines, returns on investment and a business case for

24. Eccles and Krzus (2015). Ibid.

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integration. This new business case is multidisciplinary cutting across shared services and efficiencies. What impact will it have if you include GHG emissions in your operating costs and total product costs? How would valuing natural and social capital change decisions in the short, medium, and long term? Think about these questions now as we will come back to them later in the chapter.

Cost of Goods Sold (COGS) The Operations and Accounting functions are a good starting place for improvements in the operating margins and COGS. As Peter Bakker, president of the World Business Council on Sustainable Development, said, “accountants will save the world.”25 Working together these functions can find improvements in product development, materials and production, while extending long-standing total quality efforts and actions that bring about waste reduction that include externalities. Add to this the opportunity to design innovative products with life cycle assessment (LCA) information and waste reduction efforts are amplified. Consumers, retailers, and brands are quickly realizing that innovative solutions are ones that have financial, social, and environmental benefits. Forwardthinking product design firms already know this. The benefits of a slight reduction in the environmental impact of a single product that sells in the millions can quickly surpass the benefit of the recycling and composting programs within a manufacturer’s own offices. Given current trends of streaming videos, doing this using Energy Star appliances within your home consumes 25 30% less energy than traditional electronics. Then multiply this by Nielsen estimates that there are more than 118 million homes with TVs in the United States.26 The greater the number of certified consumer electronics purchased in this market, the greater the cost savings for consumers in lower energy bills, less environmental externalities, and realized operating margin improvements from simultaneous production efficiencies. These improvements in eco-efficiency by the thousands of these certified

25. Quote from Peter Bakker, president of the World Business Council on Sustainable Development, comments at the United Nations Conference on Sustainable Development, aka Rio + 20, 2012. 26. The EPA’s Energy Star website, Ask an Expert video series, with an estimated 30 watt saving per streamed movie, accessed July 22, 2017 at https://www.energystar.gov/products/electronics an Nielson TV estimates from http://www.nielsen.com/us/en/insights/ news/2016/nielsen-estimates-118-4-million-tv-homes-in-the-us–for-the-2016-17-season.html

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products and their manufacturers are a step in the right direction for integration that reduce material use in products and production. The supply chain management and logistics industry is another place to look for scalable impacts on COGS. With the volume of goods delivered each day, even tiny efficiency gains can translate into significant savings. Take UPS, which operates a fleet of over 108,000 vehicles, and over 8000 alternative fuel and electric vehicles across more than 200 countries. They delivered an average of 19 million packages each day to generate revenues of US$51 billion.27 “If I can take a second out of handling those every day, that’s thirty million dollars a year,” says Bob Stoffel, the firm’s retired Senior Vice President for engineering, strategy, supply chain distribution, and sustainability. The improved use of planning technology alone enables UPS to trim 20 million miles a year from its deliveries, by enabling optimization of collection and delivery routes.28

Income Taxes The third area of opportunity to impact operating margins is income taxes and improved efficiency. Here tax opportunities and issues should be part of business planning processes along with emphasis on lowering a company’s effective tax rate. If waste in the form of GHG emissions and externalities were to become a “carbon tax” will you be ready for this? By how much can you improve operating margins through effective integration involving design, production, and logistics? Asset efficiency Property, plant and equipment

Inventory

Receivables and payables

To understand Asset Efficiency, look at the asset turnover ratio. This ratio is an efficiency measure of a company’s ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales, so a higher ratio is more favorable. When comparing two

27. UPS Fact Sheet (2016). 28. KPMG (2012).

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companies, higher turnover ratios mean one company is using its assets more effectively than the other. Lower ratios are symptoms of problems suggesting that the company can improve asset effectiveness by addressing underlying management or production problems. The integration of asset management and sustainable development is possible due to the overlap of core concepts inherent in both frameworks. A key element, although there are many, of both approaches is the focus on lifecycle (planning, design, construction, operation, maintenance, repair and replacement, disposal). In outlining several of the traditional core components, the focus is on improving property plant and equipment, inventory efficiency, and receivables and payables processes. For example, a primary objective of sustainability is to minimize the use of natural resources. Efforts are made in planning, design, construction, operations, and maintenance to reduce the use of those resources that are mined, extracted, or produced such as water, energy, materials, etc. (potentially violating Sustainability Principles 1 3). Asset management aims to minimize lifecycle costs by extending the life of an asset, and thus reduce the use of materials and consumables. This results in improved reliability and reduced cost throughout all the lifecycle phases. Integration and asset management drive optimum lifecycle decisions that maximize shareholder wealth by minimizing the long-term use of scarce resources. There are also benefits of driving resource efficiency out of the Company and towards suppliers and customers. Unilever, for example is producing laundry products that use cold water and less water in rinsing, generating considerable water and energy savings for the people to whom it sells laundry products.29

Property Plant and Equipment (PP&E) Operations, Maintenance and Finance functions intersect here as real estate, office buildings, manufacturing plants, equipment, and systems decisions enable integration. The theoretical basis for the integration of sustainable development considerations into the property valuation process began in 1990s.30 Property and construction in the Organization of Economic Cooperation and Development (OECD) countries alone accounted for 24 40% of total energy use, 30% of raw energy use, and 30 40% of solid waste generation. The sector holds the largest single

29. BCG and MIT Sloan Management Review (2011). 30. Harrison and Seiler (2011) and Lorenz and Luetzkendorf (2011).

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share of global environmental degradation and impairment of quality of life.31 The Intergovernmental Panel on Climate Change (IPCC, 2007) confirmed that buildings represent the best opportunity to make significant reductions in greenhouse gas emissions while maintaining economic growth; and estimated that by 2020, CO2-emissions from building energy use can be reduced by 29% at no extra cost. In a 2006 study, Lorenz emphasized that actors within the property market, including property researchers, are slowest in responding to challenges imposed by sustainable development. Furthermore, efforts in achieving success in future would be dependent on progress that can be made in integrating sustainability issues into property valuation theory and practice.32 If we look at discounted cash flows that consider environmental capital and social capital, when building upon the way property, plants, and equipment are currently dealt with, i.e., on the balance sheet, we can find decisionmaking favoring equipment that is more environmentally efficient. The resulting decrease in GHG emissions lead to an increase in an enterprise’s ability to decrease costs.

Inventory Improved inventory efficiency can come in many forms as finished goods, work in process and raw materials, e.g., just-in-time production, or supply chain manager’s tendency to look for efficiency to meet performance goals. Here the Operations function can work toward low inventory models, consolidate inventory, focus on high turn products, or even emphasize a customized approach to products like Dell’s build to order model. Design for manufacturing efficiency can include integration through not allowing non-hazardous materials or violations of environmental sustainability principles within the framework for SSD in Chapter 3. Supply chain management and logistics sustainability is a theme that has been gaining momentum over the last decade. It has reached the attention of the executive board in companies globally. IKEA provides an example of integrating sustainable development in inventory management. One of the Company’s projects involves wooden pallet phase-out and a switch to paper pallets. The goal was to reduce costs and minimize IKEA’s impact on the environment. In general, paper pallets provide

31. OECD (2003) and Lorenz (2006) 32. Abayomi Ibiyemi (2015).

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many advantages: they are lighter, recyclable, do not require fumigation, and are more flexible, typically allowing for more product to be shipped on each load. Along the same lines, IKEA also introduced loading ledges to its supply chain. The result? IKEA won an innovation award for these loading ledges. In contrast to wooden pallets, the IKEA system and OptiLedge, uses Poly Propylene which is recyclable and easier to deal with at their end of life cycle, making them a more environmentally friendly option.33 Since implementing the loading ledges and paper pallets, IKEA has been transporting less “air” and more product. This has reduced transportation costs significantly, as they were able to improve their “fill rate.” The switch to paper pallets has also reduced IKEA’s footprint on the environment, cutting its CO2 emissions by 75,000 tons per year. A further benefit resulting from the company’s commitment to sustainability includes a reduction of overall supply chain costs in the form of reduced fuel and labor requirements. An increased quality perception in stores due to a cleaner and neater appearance has also been observed. Furthermore, IKEA has noted an increase in availability at the store level due to more volume per sales location.34 Other companies focusing on supply chains include Walmart asking suppliers to complete Sustainability Supplier Assessment evaluations. Starbucks has organized summits to bring together representatives from its value chain in order to improve the life cycle value of its disposable cups. P&G has a sustainability scorecard and rating process to assess suppliers’ performance on water use, waste management, and GHG emissions which has led to new innovations in the supply chain.35

Receivables and Payables This third leg of asset efficiency, enabled by IS/IT and MIS functions focuses on the coordination and improvement of these processes across business units, improving incentives, and managing credit risks. On a balance sheet, businesses want to see higher Accounts/Receivable and lower Accounts/Payable as the former is considered an asset and the latter a liability. Integration opportunities here comes in the form of going to a “zero return” environment, and net operating working capital.

33. Weaver (2014). 34. Weaver, Ibid. and IKEA “we’re creating positive changes” http://www.ikea.com/ms/ en_EG/this-is-ikea/people-and-planet/energy-and-resources/index.html 35. BCG and MIT Sloan Management Review (2012).

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Here J.P.Morgan has helped companies such as AXA Life Insurance and EcoLabs send and receive information electronically with no paper retuned to obtain reduced transaction costs, lower indirect business costs, time savings, and transparency.36 Net operating working capital can also be reviewed. This is equal to cash, accounts receivables, and inventories less accounts payable and accruals. Currently, the traditional approach to this metric does not include either natural or human capital in its calculations. By not taking these forms of capital into account, companies ignore the lack of efficiency in their use of natural of human resources when assessing their performance.

Expectations

Company strengths

External factors

Expectations round out the major areas to focus on when increasing shareholder and stakeholder value. Setting, managing, and improving expectations is a systems thinking leverage point in which customers are important drivers of change. The Natural Marketing Institute (NMI) has found that knowing that a company is mindful of its impact on the environment and society makes consumers 58% more likely to buy their products or services. A subculture of “Cultural Creatives” has been emerging for the past 40 years and is now in the mainstream leading this sustainable revolution. This demographic according to the NMI is roughly 68 million adult Americans who make purchasing decisions based on their personal, social and environmental values. They find consumers are willing to spend up to 20% more on environmental sound products and services. According to the BBMG Conscious Consumer Report, nearly nine in ten Americans say the words “conscious consumer” describe them well and are more likely to buy from companies that manufacture energy efficient products (90%), promote health and 36. Morgan Treasury Services, Best Practices, “Turning Receivables Operations Green” accessed July 23, 2017 at https://www.jpmorgan.com/cm/BlobServer/Turning_ Receivables_Operations_Green.pdf?blobkey=id&blobwhere=1158647100305&blobheader= application/pdf&blobheadername1=Cache-Control&blobheadervalue1=private&blobcol= urldata&blobtable=MungoBlobs

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safety benefits (88%), support fair labor and trade practices (87%), and commit to environmentally friendly practices (87%), if products are of equal quality and price.37

Company Strengths Internal forces, leadership, and growth from integration actions are drivers of change. There are many places across all functions and within an enterprise to integrate sustainable development. Topping the list are management and governance, i.e., governance, planning, program delivery, and business performance management. Execution capabilities for integration include operational excellence, partnerships and collaboration, relationship strengths, agility, and flexibility, along with the management of strategic assets. An MIT Sloan report reveals important factors, which lead to companies failing in their efforts to develop a business case for integration (called sustainability in the report). The survey uncovered a number of challenges that trip up companies. The first challenge is forecasting and planning beyond the one-to-five-year time horizon typical of most investment frameworks. The second challenge is gauging the systemwide effects of sustainability investments. Companies find it difficult enough to identify, measure, and control all of the tangible facets of their business systems. As a result, they often do not even attempt to model intangibles or externalities such as the environmental and societal costs and benefits of their current and potential business activities. This hinders their ability to get a true sense of the value of investments in sustainability. The third major challenge is planning amid high uncertainty. Factors contributing to uncertainty include potential changes in regulation and customer preferences. The fourth major obstacle cited is measuring, tracking, and reporting sustainability efforts. Some of these barriers will accompany any major change effort in corporate strategy and operations. However, they are intensified in the case of integrating sustainable development, given the topic’s unique economic and strategic challenges and companies’ limited experience with it.38 These challenges parallel the opportunity for governance to improve integrated communication between the board, management, shareholders, and the public. For business planning to

37. Eco Efficiency (2016). 38. Berns et al. (2009a).

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increase the use of environmental and social capital the opportunities to do this can be found in the alignment of customer, product, advertising, sales, service, support, and fulfillment strategies. Program delivery can increase emphasis on enterprise-wide program planning and collaborative delivery. Finally, business performance management can increase emphasis on including environmental and social capital in continuous proactive performance measurement, KPIs, and determining performance metric targets. Improvements in execution capabilities enable company strengths. For the integration of sustainability into management to succeed, it must be part of the ongoing processes of an enterprise and the ongoing behaviors of its people. Opportunities include operational excellence and a culture that recognizes the importance of sustainable development as part of process improvement and innovation as key competencies. Collaborative benefits include cross-enterprise collaborative competencies and increased operational integration with partners. An increased focus on stakeholder relationships along with identification of important groups and priorities are key to managing relationships and strategies. Agile and flexible governance models, organizational structure, and goals of product, service, and process innovation will help find innovative solutions to society’s future problems. Finally, leverage strategic assets for strong/unique partner relationships, good will, and unique information resources to identify and align assets with strategic sustainable development. We can find examples of these types of actions in Deloitte as they recognize that sustainability is consistent with their long-held values, a significant part of their ingrained culture; and they are seeking to make sustainability a natural part of their everyday actions. The way the Company creates awareness, provides direction, and encourages engagement is as important as the desired outcome to “walk the talk” not only in doing what they say but also in how they do it. Seeking operational excellence, partnerships, and establishing competencies, they have leveraged sustainability to improve execution capabilities. Execution of environmental initiatives and objectives reinforces their message; helps to recruit new employees, and often serves as an exercise in innovation as they strive to do things in new, more environmentally responsible ways. Over a one year period a major factor in the greening of Deloitte has been their internal operations programs focusing on high performance Offices, Green Real Estate, Green Meetings, Green Travel, Sustainable Supply Chain, and Green IT.39

39. Deloitte (2007).

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External Factors These factors are many and continuously changing. The external drivers of change mentioned in Chapter 3 include environmental and social opportunities and stakeholders. In EY report on ‘The Top 10 Business Risks for Global Companies’ between 2012 and 2015 they found increased opportunities in one primary area, “leveraging Corporate Social Responsibility and public confidence.” With other opportunities remaining the same over the three year span they collected data which includes investing in cleantech; operational agility from investing in processes, tools and training for greater productivity; IS/IT; improving global operations; and improving the execution of strategy across business functions. Opportunities for customer reach include innovation in products, services and operations, new marketing channels, and emerging market demand growth.40 All of these findings support the integration opportunity to set and manage expectations across functions within an enterprise, and externally with both shareholders and stakeholders. Another way to look at this, “sustainability strategies must ensure the company’s viability (‘we need to do it to be able to function’), legitimacy (‘the company needs to help the environment and society to secure a license to operate’), and competitiveness (‘we can meet or beat the competition’) […] In other words, the “sustainability market” may not know or may not care about the improvements in sustainability performance. But even if this is the case, investments to improve social and environmental performance may nonetheless be necessary to ensure the firm’s viability and legitimacy.”41 Creating value and the business case for integrated management means driving up revenue and reducing costs and risks, while building intangible value. While eco-efficiency from waste reduction, asset efficiency, and even lower insurance costs can come from the integration of sustainable development, risks and intangibles are more difficult to pin down. Risks are now better managed in supply chain reliability than

40. EY, Global Report, Business Pulse, Top 10 Risks and Opportunities in 2013 and Beyond, accessed July 22, 2017 at http://www.ey.com/gl/en/services/advisory/business-pulse– top-10-risks-and-opportunities 41. Jager and Sathe (2014). Chapter 1, page 8.

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they were years ago. Lower volatility in commodity prices, and resilience in general are outcomes of the integration movement. One of the most important opportunities for improvement is within “intangibles” such as product differentiation, customer loyalty along with talent attraction and retention. PWC and SAP have measured the retention of sustainabilityminded employees and it has saved them hundreds of millions of dollars. Taking on the challenge of integration has shown improvements in business innovation, license to operate, and for some, first mover advantage.42 Evidence that sustainability affects value creation can be found in more than 1,500 worldwide executives and managers who considered themselves experts in sustainability, who say they have found a compelling business case for sustainability-related investments with tangible and intangible costs and benefits (see Figure 5.2).43

Making the Business Case A United Nations survey found 93% of businesses consider sustainability important to future success.44 Yet, practitioners need convincing of the benefits of spending money and time on integration activities. To this end, the Triple Pundit provides links to 81 articles on the benefits and financial ROI of sustainability and Natural Capitalism Solutions has summarized over 40 empirical studies about the benefits and paybacks of sustainability.45 This is just the start as there is an exponential growth in academic research on the links of sustainability to performance in accounting, finance, HR, IS/IT, Operations, and marketing. The growing economic data show “that the expense of the problems in the world now exceeds the cost of the solutions. To put it another way, the profit that can be achieved by instituting regenerative solutions is greater that the monetary gains generated by causing the problem or conducting business-as-usual” (Paul Hawken, Drawdown, p 217). The

42. Whiteboard Session, The Business Case for Sustainability, by Andrew Winston, within The Comprehensive Business Case for Sustainability, Harvard Business Review, accessed July 22, 2017 at https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability 43. Hopkins et al. (2009). Figure 2 modified from this study. 44. UNGC a New Era of Sustainability, accessed July 23, 2017 at https://www.unglobalcompact.org/docs/news_events/8.1/UNGC_Accenture_CEO_Study_2010.pdf 45. See The Business Case for Sustainability, accessed July 22, 2017 at http://www.triplepundit.com/topic/business-case-for-sustainability/ additionally see Natural Capitalism Solutions Sustainability Pays, summaries of over 40 empirical studies https://www.natcapsolutions.org/businesscasereports.pdf

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Figure 5.2. Value Realization. challenge before us is testing who we are as integration decision-makers and managers of enterprises that solve functional, organizational, value chain, city, and country scale problems. To work together, we must understand how our actions affect others in a transactional and cultural sense and to establish our role as change agents. Every integrated solution requires collaboration and a return on investment. A colleague from Google responded to my question of what would a sustainable solution look like in the following way, “Integration is a key component to solutions these days. All the app stores provide an obvious example. Android, IoS, Windows, Amazon, Nest, Xbox and countless others all have developed app stores specifically because the device or service by itself is great, but the real value, for all involved, is derived from the ability to work across technologies. Without this type of integration there is no way that iPhones could sell for $1k USD or that there would be billions of dollars generated from the IoS and Android app stores.”46 Measuring the impact of integrated management is critical to sustainable development and future business practices. Within the Fortune 500, well over 100 have officers at the V.P. level or higher focused on

46. From conversations with Charles Baer, Google Solutions Architect, Google Cloud, 2018.

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sustainability. Without this person in place, understanding how to get started can sometimes be daunting. To help you integrate sustainable development, you need to avoid actions that will impair your ability to be fiscally resilient. Suggestions from work by Dhiraj Rajaram published in the Harvard Business Review suggest the following47: (1) Take a close look at your supply chain. (Collect baseline measurements on energy, material, and natural resource usage usually from your utility and procurement processes), (2) Establish some short-term goals (with baseline data, select an initial project with opportunities to be replicated elsewhere such as energy conservation. For every kWh saved, it can be converted into a GHG equivalent and assigned a Social Cost of Carbon (SCC)48, […] (3) Expand the initiative (start in one location as a proof of concept; build the SCC into traditional NPV and ROI calculations. This integrated approach results in an assessment of Integrated Future Value (IntFV) and Return on Integration (ROInt). These measures provide a shift in mindset away from traditional present values to looking for future value. ROInt and considers environmental and social costs. Then as you experience success in measuring and meeting integration goals, roll this out to additional locations, processes, and functions), […] (4) Communicate your vision (share results internally, then build support for larger initiatives, and build collaborative partnerships with vendors, suppliers, and customers to help with future actions), […] (5) Engage the entire supply chain (when you can demonstrate a vision and success in the ROInt, expand impacts through inviting supply chain members, improve supplier selection criteria to include environmental criteria and a SCC).

47. Rajaram (2011). 48. EPA and other federal agencies use estimates of the social cost of carbon (SC-CO2) to value the climate impacts of rulemakings. The SC-CO2 is a measure, in dollars, of the longterm damage done by a ton of carbon dioxide (CO2) emissions in a given year. This dollar figure also represents the value of damages avoided for a small emission reduction (i.e., the benefit of a CO2 reduction).

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The EPA and other federal agencies use estimates of the SCC to value the climate impacts of rulemakings. The SCC is a measure, in dollars, of the long-term damage done by a ton of carbon dioxide (CO2) emissions in a given year. This dollar figure also represents the value of damages avoided for an emission reduction (i.e., the benefit of a CO2 reduction) with values used by corporations, international trading platforms, and economic modeling ranging from a minimum of $6 per ton to $240 per ton. A review of Bob Willard’s work in this area uncovers very tangible performance improvements of innovative firms aligning mission and sustainability performance metrics. Based on years of working with an array of companies, Willard suggests that if a typical company were to use best-practice sustainability approaches already used by real companies, it could improve its profit by at least 51% to 81%within three to five years, while avoiding a potential 16% to 36% erosion of profits if it did nothing.49 This business case is organized around seven bottom-line benefits that align with current evidence regarding the most significant sustainability-related contributors to profit. For example, a large manufacturer can:

• Increase revenue by 9% • Reduce energy expenses by 75% • Reduce waste expenses by 20% • Reduce materials and water expenses by 10% • Increase employee productivity by 2% • Reduce hiring and attrition expenses by 25% • Reduce strategic and operational risks by 36%. The work of the World Economic Forum (WEF) and the BCG on “sustainability champions” and other surveys underscores the increasing interest of companies in strategies that incorporate sustainability for competitiveness. The BCG/MIT Sloan Management Review report “Sustainability nears a tipping point,” provides some insight as to where the business case for integrating sustainable development is going. With 4000 managers from 113 countries responding to the survey; 70% said

49. Willard (2012).

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their company had placed sustainability permanently on their management agenda; 67% said this was a competitive necessity; and 33% said their sustainability initiatives were contributing to profitability.50 Understanding a value creation, i.e., a shareholder value map, and where to take action within or across functions is a comprehensive tool for linking value creation with strategy of an enterprise. Through the modification of this tool, you can find proven approaches to shareholder value creation linked to the integration of strategic sustainable development. Integrated management means effectively addressing material issues within business functions and is critical to an enterprise’s viability. Integration enables companies to understand internally, and where relevant communicate externally, how they create value and to manage performance on critical issues. Simply put, an integrated enterprise is constantly looking for innovative ways to create value and thrive while contributing to a sustainable future. A parting thought on what to look for in sustainable solutions comes from Michael Krzus, coauthor of The Integrated Reporting Movement. “Part of the solution is the idea companies get to understand that some of it is cross-functional. This means we can stop thinking about things separately,” and goes on to suggest McKinsey’s approach to this is found in long-term capitalism, which emphasizes a focus on shareholder value creation separate from the idea of short-term value. It’s the creation of value for future generations, material impacts, and supply chains. Michael goes on to say “You cannot create value unless you step back and look at the bigger picture. The IIRC calls this integrated thinking and we find ESG and financial performance are not four (E, S,G, F) separate buckets.”51

Chapter Summary Information in this chapter focuses on shareholder value creation. Value creation involves revenue growth, operating margins, asset efficiency, and expectations. This value is available to all types of organizations, including SMEs, NGOs, and government enterprises. Understanding value creation requires an understanding of the functional domain of

50. The World Economic Forum in collaboration with the Boston Consulting group, (2011). Redefining the future of Growth: The New Sustainability Champions. 51. Thanks to Mike for our email correspondence and conversations regarding integrated reporting and integrated bottom lines. This quote is from a phone conversation and his presentation on June 9, 2017 at Duquesne University.

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financial management. After reading this chapter, you should be able to understand the importance of integrated managements across systems involved in value creation; see opportunities for integration and organizational change toward sustainability; and propose a new business case for your integration objectives. The key is to go beyond the first cost of a new project or capital expenditure, to assess the integration of ESG and financial performance. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

• • • • • • • •

Find a materiality matrix from a company in your industry; what does it tell you? Construct a matrix for your own enterprise, how is it different? What issues have the greatest impacts? Create your own shareholder value map and break out the major level categories? Where in each of these categories can a function take action to integrate? What shadow prices and Social Cost of Carbon are in use by MNCs? What happens if GHG emissions are included in operating costs and total product costs? How would valuing natural and social capital change decisions in the short, medium, or long term? What project can you choose to help build the business case for integration?

Bibliography Abayomi Ibiyemi, Y. M. (2015). Framework for integrating sustainability issues into valuation of non-market industrial real estates. Journal of Environment and Sustainable Development, 170 190.

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Allison-Hope, D., & Morgan, G. (2013). Navigating the materiality muddle. Retrieved from https://www.bsr.org/en/our-insights/blog-view/navigatingthe-materiality-muddle. Accessed on August 3, 2013 BCG and MIT Sloan Management Review. (2011). Sustainability: The embracers seize advantage. MIT Sloan. BCG and MIT Sloan Management Review. (2012). Sustainability nears a tipping point. Cambridge, MA: MIT Sloan. Berns, M. B. et al. (2009a). Sustainability and competitive advantage. MIT Sloan Management Review. Retrieved from https://www.bcg.com/documents/ file32201.pdf. Accessed on August 2018. Berns, M., et al. (2009b). The business of sustainability. Boston, MA: BCG. Deloitte. (2007). Corporate responsibility inauguralreport. Deloitte. Eccles, R. G., & Krzus, M. P. (2014). The integrated reporting movement: Meaning, momentum, motives, and materiality. New York, NY: John Wiley & Sons. Eco Efficiency. (2016). Benefits of becoming a sustainable business. Retrieved from http://www.eco-officiency.com/benefits_becoming_sustainable_business. html. Accessed on March 2017. Friedlander, J. (2016). MIT Sloan. Retrieved from http://sloanreview.mit.edu/ article/five-steps-to-strategic-sustainability-and-abundance/. Accessed on March 2017. Harrison, J., & Freeman, R., (1999). Stakeholders, social responsibility, and performance: Empirical evidence and theoretical perspectives. Academy of Management Journal, 45(5), 479 485. Hopkins, M. S., Townend, A., Khayat, Z., Balagopal, B., Reeves, M., & Berns, M. (2009). The business of sustainability: What it means to managers now. MIT Sloan Management Review, 51(1), 20. Jager, U., & Sathe, V. (2014). Strategy and competitiveness in Latin American markets. Cheltenham: Edward Elgar. Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. The Accounting Review, 91(6), 1697 1724. Available at SSRN: https://ssrn.com/abstract=2575912ordoi:10.2139/ssrn.2575912. Accessed on November 2017. KPMG. (2012). Corporate sustainability: A progress report. UK: KPMG. Morieux, Y. (2011). Smart rules: Six ways to get people to solve problems without you. Harvard Business Review, 89(9), 78 86. Nike. (2016). Nike responsibility. Retrieved from http://www.nikeresponsibility. com/innovations/nike-colordry. Accessed on March 2017. Rajaram, D. (2011). Making the business case for sustainability. Harvard Business Review. Retrieved from https://hbr.org/2011/05/making-the-business-case-for-s. Accessed on August 2018. Roth, B. (2012a). 5 Megatrends fueling today’s $1 Trillion Sustainable Economy, Earth 2017 Sustainable Strategies, accessed July 22, 2017 at http://www.earth2017.com/5-megatrends-fueling-todays-1-trillion-sustainableeconomy/

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Roth, B. (2012b). Price: The ultimate sustainability metric. Sustainable Brands, accessed July 21, 2017 at http://www.sustainablebrands.com/ news_and_views/new-metrics/price-ultimate-sustainability-metric Roth, B. (2012c). Walmart: “You Shouldn’t Have to Pay More for Sustainability.” Triple Pundit. UPS Fact Sheet. (2016). Accessed July 22, 2017 at https://pressroom.ups. com/pressroom/ContentDetailsViewer.page?ConceptType=FactSheets& id=1426321563187-193 Visser, W. (2017). Integrated value: What it is, what it is not and why it’s important. Huffington Post, 9/30/2017 accessed February, 2018 at https:// www.huffingtonpost.com/entry/integrated-value-what-it-is-what-its-notand-why_us_59cffdc3e4b0f58902e5ccbf Weaver, D. (2014). IKEA in Action: Logistics and supply chain sustainability. Inventory & Supply Chain Optimization, And see OptiLedge lean shipping platforms. Retrieved from http://optiledge.com/index.php. Accessed on March 2017. Willard, B. (2012). The new sustainability advantage: Seven business case benefits of a triple bottom line. New Society Publishers.

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Section III Assessing the Current Reality (As Is)

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6 Design Thinking Life Cycle Assessment “A designer is an emerging synthesis of artist, inventor, mechanic, objective economist and evolutionary strategist.” ―Buckminster Fuller1 Within this chapter, we will take a design-based approach to integration, goals, and supporting tools to assess our current reality and to develop a vision for an integrated future. Design thinking and LCA enable a multidisciplinary approach to the integration of sustainability content to reinvent products, processes, and systems. Stepping back from typical functional responsibilities to think about design and the life cycle of a product or service is a systems thinking opportunity. Companies like IBM, Infosys, Fidelity, and Intuit are using Design Thinking to change products and processes, and you should too. When applied to decision-making involving products and even supply chains you can have a grounded understanding of customers’ needs and the integration opportunities to improve products and services throughout their life cycles. The objectives of this chapter are to:

• provide a conceptual framework for integrating Design, Zero Waste, and LCA into innovative business practices;

• posit the nature of the relationship between project design elements, sustainability, and the development of systems thinking competencies; and

• examine the influence of Design LCA on problem-based learning.

1. From https://quotesondesign.com/buckminster-fuller/

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Building on the foundation of systems thinking with the use of LCA as a decision support tool will allow you to explore manufacturing practices and challenges within an integrated context. When applied within your enterprise, problem-based learning lends itself well to developing knowledge, comprehension, application, analysis, synthesis, and evaluation skills.2 The thematic information within this section of the book looks at assessing your current reality. The other themes within this chapter review the context of the design challenge, systems thinking, and an introduction to LCA, project application and challenges, before summarizing opportunities and conclusions.

Assessing the current reality Design thinking

Net zero

Invent to Life

Test

Life cycle analysis

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Phased approach

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Designers have traditionally focused on improving the look or functionality of a product. Businesses were among the first to embrace Design Thinking. We can all use this tool for addressing complex problems. Tim Brown, the President and CEO of IDEO has said that “Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” It unlocks capacities we all have, but that are typically overlooked in traditional problem-solving processes.3 Design thinking refers to the methods for investigating ill-defined problems, acquiring information, analyzing, and proposing solutions in the planning and design fields. It involves an ability to understand the context of a problem, creativity in the generation of insights, and rationality

2. (Bloom, 1956; Pappas, Pierrakos, & Nagal,2013). 3. Brown and Wyatt (2010). Portions of this design thinking section of the chapter revised with permission from Sroufe and Melnyk (2017).

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to fit solutions to a human-centered context. Design thinking has become an increasingly important part of engineering practices, as well as business and management. Its broader use in creative thinking and action learning is having an increasing influence on contemporary education across disciplines. Design-based businesses are everywhere. Airbnb was created using design thinking as we are currently in an age of design as companies like GE, IBM, and Netflix are using it. PepsiCo has even appointed a Chief Design Officer. In this respect, design thinking is an applied approach to systems thinking that will help you disrupt markets, by understanding, and solving complex problems. The design process is what puts design thinking into action. It is a structured ethnographic approach to generating and improving ideas. Its phased approach helps to navigate the development from identifying a design challenge to finding and developing a solution. As a humancentered approach, it relies on your ability to be intuitive, to interpret what you observe, and to develop ideas that are emotionally meaningful to the customers you are designing for. The process consists of discovery, interpretation, ideation, experimentation, and evolution as implementation. The process is iterative with advantages coming to those who prototype quickly and can test their ideas multiple times during implementation. This may seem counter to more linear, project management approaches with goals set around milestones and sequential flows of work. The process catalyst, or discovery, is the recognition of a problem or opportunity and search for solutions. The goal, scope, or bounds of the design challenge often come in the form of a brief. In this stage, a project team works from a set of constraints as a framework for their problemsolving, benchmarking, and understanding of progress toward innovation. The constraints can be: using materials that do not violate the SSD sustainability principles 1 through 8, price, market segment, or technological manufacturing processes available at the time of the project. Constraints could even build on the same systems thinking question we asked in Chapter 2, “what limits the integration of sustainability into an enterprise?” It is from this starting point that designers go out to observe customers, or those who are dealing with the problem/opportunity. A methodology and toolkit for human-centered design is available at www.hcdtoolkit.com. Observation and working alongside those dealing with the problem builds understanding of the phenomenon and skills to think differently about innovative solutions. Ideation involves generating, developing and testing many ideas. After conducting primary (field based) and secondary (web searching and

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databases) research, the team can take its new knowledge and understanding of the problem and synthesize this with analysis and critical thinking skills to propose new innovative solutions. When ideating, you and your team should try to find new insights about human behavior and explore multiple options for the phenomenon studied. As was mentioned in Chapter 2 and Systems Thinking, it is important to have multidisciplinary groups of people engaged in this process. Building on a foundation of the discovery phase and question of “what limits the integration of sustainability into an enterprise?” you can use the value creation map from Chapter 5 (see page 125) as a starting place to look for and engage in primary and secondary data collection. The opportunity for collaboration across disciplines will only enhance the probability of achieving a truly innovative idea that challenges traditional norms while finding impactful leverage points to intervene in a system.4 Participants need to have a depth of skills relevant to the phenomenon and empathy for others and other disciplines, along with curiosity, action learning, and the ability to generate ideas and experiment. It is here that brainstorming and brainsteering takes place. The generation of hundreds of ideas on post-it notes can take up entire walls of meeting rooms. Visual renderings of insights and concepts are encouraged to better flesh out ideas and think through explaining ideas to others. The team should come up with as many ideas as possible. The rule is to defer judgment on all ideas; no one should play devil’s advocate. These ideas can then be grouped and reviewed with desirability, viability, and feasibility in mind. Implementation takes the project into reality and makes you think about how it affects people’s lives. Here, through experimentation and evolution, the best ideas become an action plan for a product or service solution. A critical part of the implementation process is prototyping. By taking something from concept to actual product/service, the team can find implementation obstacles and unintended consequences of their solutions. Prototyping leads to an actual product or service and when finished, a communication strategy and storytelling to inform stakeholders and differentiate a new value proposition. The end goals of the process should be: innovative products, processes, and services found at the confluence of viability, desirability, feasibility, and sustainability. For those utilizing design thinking, this

4. Meadows (1999).

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Discovery

Desirable, viable, feasible...

Ideation

Innovation

Implementation

Figure 6.1: The Design Process and Outcomes. approach translates into new, innovative avenues for growth grounded in business viability and human desirability (Figure 6.1). There is momentum to expand awareness about design beyond designers and related professions by teaching design thinking in both industry and higher education. The premise is that by knowing about the process and the methods that designers use to ideate, and by understanding how designers approach problems to try to solve them, individuals, businesses managers, and business students coming into the workforce will be able to better connect with and invigorate their ideation processes in order to take integration to a higher level. The goal is to create a competitive advantage in today’s global economy and a future sustainable society. When asking an IDEO facilitator “what does an integrated solution look like?”, she said the following: “The design thinking methodology ideally leads to usercentered, innovative solutions to “real” business problems, and I added “real” or maybe I should use the term “legitimate” because upfront research and a focus on observation and insight lead to user empathy and a more robust understanding of a refined problem/opportunity. Design Thinking tends to lead to more integrated solutions […] if, by integrated solution, a business is seeking a solution that has evolved from research and collaboration, deeply considers the audience(s) impacted/addressed with empathy and from a variety of perspectives, one that moves beyond conventional thinking/simple logic to one that is more enlightened, imaginative, multifaceted […] Integrated solutions can be transformational in nature and multi-dimensional […] considering and even reimagining roles, systems, environments, processes, structures […] where desirability, viability, and feasibility

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converge […] rather than a quick fix that addresses only a component/singular issue.”5 Integrated enterprises with innovative approaches to value creation across functions and waste elimination will be necessary for sustainable development. If we were to put this in the form of a discovery brief, the context and constraints for a new design challenge could be, “how do we get to zero waste, zero human rights infractions, zero negative impacts…?”

What’s Your Net Zero Strategy? (0Energy 0Waste 0Water) Conserving water, reducing energy use, and eliminating solid waste can improve the environment, save money, and help communities be more resilient. Businesses and researchers are already helping by developing and implementing Net Zero (NZ) strategies, approaches to decisionmaking, and technologies. But, can we really get to zero impact? NZ means consuming only as much energy as produced, achieving a sustainable balance between water availability and demand, and eliminating solid waste sent to landfills. This fosters economic growth and simultaneously promotes a healthy society. John Elkington provides a deep dive into this opportunity in his book The Zeronaughts, which explores pioneers who are working on game-changing ideas to get us to zero impacts and sustainable capitalism. Elkington argues that the capitalistic systems that have gotten us to where we are today lack imagination. Zeronaughts, “aim to get our competitive juices flowing with a ‘Race to Zero’ framing of their initiatives whether it applies to toxics, greenhouse gases, or poverty. They start from an assumption that there is a fundamental design fault in capitalism both in its prevailing paradigm and in the linked mindsets, behaviors, economic formula, business models, and technologies.”6 A zeronaught is:

• An inventor, innovator, entrepreneur, intrapreneur, investor, manager, or educator who promotes wealth creation while driving adverse environmental, social, and economic impacts toward zero.

5. From Dr. Dorene Celletti, Assistant professor of Marketing, Duquesne University School of Business. IDEO facilitator. 6. Kahn (2012).

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• Someone who finds, investigates, and develops breakthrough, footprint-shrinking solutions for the growing tensions between demography, consumerist lifestyles, and sustainability.

• A political leader or policymaker who helps to create the regulatory frameworks and incentives needed to drive related “1-Earth” solutions to scale.7 These are solutions that recognize that our consumption requires more than one earth, and that we need solutions enabling us to live within our planetary means.

Successful NZ projects and research to date include but are not limited to, water reuse, control of contaminated waste water, green infrastructure, water conservation, sustainable materials, and systems-based models for sustainable decision-making.8 So how do we get to zero? As Elkington points out, there are new groups of entrepreneurs, businesses leaders, governments, and universities taking actions that will wage a war on waste, redesign capitalism, engage in the fight against climate change, and reduce our exposure to pollution and toxic substances. NZ and Net Positive (NP) producing more than you consume strategies emphasize taking a systems-approach to reduce water, energy, and waste footprints in buildings, processes, supply chains, systems, and communities. These NZ/NP strategies provide long-term solutions for sustainability and resilience by meeting the IBL objectives. NZ/NP strategies start with a focus on clean air and water and reducing or eliminating waste sent to landfill, while ensuring that the long-term viability of resources is not only maintained but also improved. At their core, NZ/NP strategies represent “sustainability in action” and have multiplicative impacts on the social and economic value creation. NZ means consuming only as much energy as is produced, achieving a sustainable balance between water availability and demand, and eliminating solid waste sent to landfills. Achieving NZ means the following:

• NZ Water means limiting the consumption of water and returning it back to the same watershed so as not to deplete the resources of that region in quantity or quality over the course of the year.

7. See Earth Overshoot Day. The day each year when we will have used more from nature than our planet can renew in a whole year. 1-Earth is the concept of living within the ability of only one earth to provide all that we need to survive. Retrieved from http://www.overshootday.org/. Accessed on September 1 2017. 8. EPA Net Zero Projects, https://www.epa.gov/water-research/net-zero-projects

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• NZ Energy means producing, from renewable resources, as much energy on site as is used over the course of a year. Achieving NP Energy means producing, from renewable resources, more energy on site than is used over the course of a year.

• NZ Waste means reducing, reusing, and recovering waste streams to convert them to valuable resources with zero solid waste sent to landfills over the course of the year. To help in these efforts, the EPA’s mission for achieving zero waste is to assist communities and the military in achieving their sustainability and resiliency goals of NZ and NP Energy, NZ Waste, and NZ Water in ways that protect human health and the environment while generating societal and economic benefits. They can do this by integrating and advancing the science and demonstration of NZ/NP strategies, approaches, and technologies for a wide spectrum of partners, including the Department of Defense, municipalities, water utilities, developers, and communities.

Building Integrated Opportunities Amid growing concerns about rising energy prices, energy independence, and the impact of climate change, there is good reason to focus on the built environment, i.e., buildings for NZ projects. Buildings tend to be the primary consumer of energy in the United States.9 This underscores the importance of targeting building energy use as a key to decreasing a nation’s energy consumption. The building sector, owners and occupants, can significantly reduce energy consumption, costs, and the Social Cost of Carbon impacts by integrating NZ design and retrofitting. This means integrating energy-efficient strategies into the design, construction, and operation of new buildings and undertaking retrofits to improve the efficiency of existing buildings. This approach can further reduce dependence on fossil fuel derived energy by increasing use of onsite and off-site renewable energy sources.10 The concept of a Net Zero Energy Building (NZEB), one that produces as much energy as it uses over the course of a year, is already a reality.

9. As shown in annual Renewable Energy Data reports from the Department of Energy. Accessed Sept 1, 2017 at https://energy.gov/eere/analysis/downloads/renewable-energydata-book 10. Whole Building Design Guide, Introduction to Net Zero Energy Buildings. Accessed August 31, 2017 at https://www.wbdg.org/resources/net-zero-energy-buildings

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There are a number of highly efficient buildings that meet the criteria to be called “Net Zero.” As a result of advances in construction technologies, renewable energy systems, and academic research, creating NZEB is feasible and also found in Living Buildings.11 Look for one near you, as there are hundreds of registered Living Building projects in over 20 countries. While writing this book in my own NP home, we are producing more renewable energy than needed. The extra goes to charging an e-vehicle. NZ projects have a strong business case behind them and often a higher payback than holding your money in a savings or money market account. Buildings are a great place to find integrated management opportunities as we spend 90% of our time inside them. Take a closer look at where you work, live, and play to make them healthier and more productive spaces. NZEB integrates exemplary building design to minimize energy needs, with renewable energy generation and systems that meet these reduced energy needs. The Department of Energy (DOE) and the National Renewable Energy Laboratory (NREL) have led much of the work on NZEBs. NREL presents several definitions for NZ energy, while encouraging building designers, owners, and operators to select the metric that best fits their own project. NREL suggests four ways to define and measure NZ energy as NZ: Site Energy, Source Energy, Energy Costs, and Energy Emissions.12

• Site Energy refers to the energy consumed and generated at a site (e.g., a building), regardless of where or how that energy originated. In a NZ site energy building, for every unit of energy the building consumes over a year it must generate a unit of energy.

• Source Energy refers to primary energy needed to extract and deliver energy to a site, including the energy that may be lost or wasted in the process of generation, transmission and distribution. For example, a coal-burning power plant may generate 1 Joule of electricity for every 3 Joules of energy in the coal consumed. If natural gas is used at a site, for every 20 Joules consumed, 1 Joule may be needed to extract and distribute the gas to the site. Metrics for

11. See the Living Building Challenge, buildings that produce more energy and water than they consume. Accessed Sept 1, 2017 at https://living-future.org/lbc/ Also see the FAQs for how many living buildings there are and where they are located. https://living-future. org/contact-us/faq/ 12. Torcellini, Pless, Deru, and Crawley (2006).

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NZ source EB account for these factors, though exact metrics can vary depending on site and utility factors.

• NZ Energy Cost is perhaps the simplest metric to use: it means that the building has an energy utility bill of $0 over the course of a year. In some cases, building owners or operators may take advantage of selling Renewable Energy Credits (RECs) from on-site renewable generation. In my NP home (with a PV solar system on the roof), we pay a connection fee to our electricity provider as we have a grid tied system, but our annual electricity usage is zero and we produce enough extra to charge an e-vehicle.

• Many conventional energy sources result in emissions of carbon dioxide, nitrogen oxides, sulfur dioxide, etc. A NZ Energy Emissions building either uses no energy, which results in emissions or offsets the emissions by exporting emissions-free energy (typically from on-site renewable energy systems). The momentum toward a high performance, NZ/NP future is already in place with companies such as Pepsi Co launching a near NZ manufacturing facility in 2011.13 Government systems are also integrating these initiatives. The Energy Independence and Security Act of 2007 (EISA) requires that Federal buildings in the United States reduce fossil fuel-generated energy consumption by 100% by 2030. Add to this Executive Order (EO) 13514, in 2009 requiring all new Federal buildings that are entering the planning process in 2020 or thereafter be “designed to achieve zero-net-energy by 2030”. In addition, the EO requires at least 15% of existing buildings (over 5000 gross square feet) meet the Guiding Principles for Federal Leadership in High Performance and Sustainable Buildings with annual progress towards 100% conformance.” These EOs are important economically as the Federal government is the largest owner of buildings in the United States and build off of best practices in the building sector already underway for years. Two milestones for NZEBs have also been defined by the DOE for residential and commercial buildings. The priority is to create integrated systems solutions that will enable: marketable NZ Energy 13. Frito-Lay Unveils “Near Net Zero” Manufacturing Facility. Retrieved from http:// www.pepsico.com/live/pressrelease/frito-lay-unveils-near-net-zero-manufacturing-facility10052011. Accessed from Accessed September 1, 2017

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Homes by the year 2020; and Commercial NZEB at low incremental cost by the year 2025. These objectives align with the EISA as mentioned above, calling for a 100% reduction in fossil-fuel energy use (relative to 2003 levels) for new Federal buildings and major renovations by 2030. Policymakers are also embracing NZEBs as a key strategy for meeting energy and carbon goals. The California Public Utilities Commission, for example, has an energy action plan to achieve NZ energy for all new residential construction by 2020 and NZ for all new commercial construction by 2030. This action plan will provide direction for future development of California’s Title 24 building energy codes, as well as incentives for NZ buildings. NZEB goals were also announced by the European Parliament in a 2009 press release, with all European Union Member States committing that all newly constructed buildings will produce as much energy as they consume on-site by the end of 2018.14 Evidence of NZEBs taking off can also be found in the American Institute of Architects (AIA’s) 2030 Challenge.15 The challenge calls for incrementally reducing energy use, starting with a 50% reduction over existing buildings’ energy use and increasing savings up to 2030 when new buildings will be carbon neutral. This is a global movement with urban cities having multiple districts (the buildings within downtown areas of cities) included in the challenge along with universities’ facilities/buildings. Adopted over ten years ago by 80,000 members of the AIA, and the US Conference of Mayors, it has made a significant impact. The objectives are to “achieve the dramatic reduction in global fossil fuel consumption and GHG emissions of the built environment by changing the way cities, communities, infrastructure, and buildings, are operated, planned, designed, and constructed. And to advance the regional development of just and sustainable, resilient, carbon-neutral built environments that can manage the impacts of climate change, protect and enhance natural resources and wildlife habitats, provide clean air and water, generate local low-cost renewable energy, and advance more livable buildings and communities.”

14. Crawley, Pless, and Torcellini (2009). 15. Architecture 2030, The 2030 Challenge, accessed on September 1, 2017. Retrieved from http://architecture2030.org/about/

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Life Cycle Assessment A Tool Supporting Design and Goals of Zero Enabling our ability to design, measure, and manage toward goals of zero is LCA.16 The level of detail LCA brings to the table can be empowering, yet also overwhelming as we can now look at products, services, and whole value chains like never before. You can now find the 100-year global warming potential of a paperclip and software packages that link publicly available databases.17 Some Original Equipment Manufacturers and customers are asking for extremely detailed product information. For example, the living building [challenge?] registration process requires you to disclose product information down to the elemental 100 parts per million. In addition, some ‘red list’ chemicals are not permitted to be used in living buildings.18 With ever increasing amounts of data available due to LCA, new levels of process and systems mapping is now available. Freeware sites such as Sourcemap.com allow users to post LCA maps of products. You and anyone else in the world with a computer or smart phone can access the site and see where things come from, environmental product declarations information, and drill down into LCA information. You, and even the customers who purchase the products, can see what a product is made of, where the materials come from, and the amount of waste, i.e., GHG emissions and CO2 from each part of extraction, manufacturing, transportation, use, and disposal or recycling of its life cycle19 (Figure 6.2). Decision-makers can now use this transparency and level of detail from LCA design and set goals with upstream and downstream partners for design projects and goal setting opportunities. With new information regarding the carbon footprint and stages of a product’s life cycle attention can turn from waste elimination to innovation and competitive advantage.

16. Portions of this LCA section of the chapter are reproduced and modified with permission from Sroufe and Melnyk (2017). 17. GaBi Paperclip Tutorial, Handbook for Life Cycle Assessment Using GaBi Software, accessed on September 1, 2017. Retrieved from http://www.gabi-software.com/fileadmin/ Marketing_Material_GaBi/GaBi_Paper_Clip_Tutorial_Handbook_5.pdf 18. ILFI’s Red List of chemicals. Accessed on September 1, 2017. Retrieved from https://living-future.org/declare/declare-about/red-list/ 19. The map can be found at https://spircemap.com/view/744

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Figure 6.2: Sourcemap.com LCA Maps of Laptop Computer. Source: Reproduced with permission from Sourcemap.com. Both maps added by Leo.

Overview of Life Cycle Assessment Life Cycle Assessment, as defined by the Environmental Protection Agency’s National Risk Management Laboratory, is a technique “to assess the environmental aspects and potential impacts associated with a product, process, or service.” LCA is a tool to help measure and track a product’s resource use and impacts from cradle to grave, from raw material extraction to end-of-life processes such as garbage dumps or cradleto-cradle opportunities such as recycling and recovery. (See Figure 6.3 for a conceptual overview of life cycle phases, representation of the

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Global warming, ozone depletion, summer smog, acidification, eutrophication, human-toxicity, ecotoxicity, land use, resource consumption (materials and energy carriers)

Impact assessment

Life cycle inventory

Output Input

Grave

Output Input

Gate

Output Input

Gate

Output Input

Gate

Output Input

Gate

Cradle

Emissions wastes

Life cycle elements

Resources

Life cycle phases Raw material extraction

Production of intermediaries

Production of main products

Utilization

Recycling, recovery, deposition...

Figure 6.3: Overview of Life Cycle Elements, Emissions, and Impacts. Source: Modified with permission from thePE International Handbook for Life Cycle Assessment using the GaBi Education Software Package, depicting the roll up of life cycle phases into process inputs/outputs and environmental impacts. emissions, and examples of impact assessment categories.) This tool is essential for managing sustainability risks, waste reduction, and discovering opportunities to create environmentally and socially driven value from cradle (raw material extraction) to grave (deposition), or within gate-to-gate processes. If materials are part of closed loop systems, this is where the phrase cradle-to-cradle comes from. LCA fits well with the established approach to a macro level of analysis involving systems thinking. A systems approach to analysis focuses on the way that a system’s constituent parts interrelate and how systems work over time and within the context of larger systems.20 Conducting an LCA is one way to understand at a more detailed level, the interconnected supply chain, production, and delivery systems of products and services. Taking the time to conduct an LCA is essential to learn about subsystems, crossdiscipline collaboration, and the environmental impacts of your products. It can thematically align tools and frameworks such as the Framework for SSD, natural capitalism, and Integrated Bottom Line opportunities.

20. Meadows (2008).

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As technology has evolved to enable IBL performance measurement, LCA technology and life cycle management (LCM) have evolved to help practitioners understand environmental performance and thus obtain strategic ascendancy for integration. Managers know that if they wish to be more effective and relevant in the twenty-first century they need to spend time thinking about and integrating new forms of technology and insight. Managers of some well-known multinational companies such as Walmart and P&G, while signaling their own approach to sustainability, have been asking suppliers for new categories of performance data. These business to business (B2B) customers now want data on: energy and climate (how are you reducing energy costs and greenhouse gas emissions); material efficiency (reducing waste and enhancing quality); natural resource impacts (producing high quality, responsibly sourced materials); and performance metrics on people and the community (i.e., how are you ensuring responsible and ethical production of your products and processes).21 Conducting an LCA is one way to understand the interconnection of parts of a system involving products while improving systems consistent with sustainability goals. By evaluating processes throughout a supply chain that include material extraction, transportation, manufacturing processes that include material and energy, more transportation, and even the use of the product, business managers gain a better systems understanding of the inputs and outputs associated with a single unit of product. With the help of software drawing from public and proprietary databases, an LCA rolls this input/output data up into impacts on the environment such as global warming potential measured as CO2, acidification, resource consumption and human toxicity measures that can even be broken down into elemental chemicals. This tool is essential for identifying and managing sustainability risks and waste reduction, what-if scenarios for alternative materials or transportation options, and it facilitates discovery of opportunities to create environmentally and even socially driven value. LCM is the application of life cycle thinking to modern business practices. LCM aims to manage the total life cycle of an organization’s products and services to accomplish more sustainable consumption and production. LCM is an integrated framework of concepts and techniques to address environmental, economic, technological, and social aspects of products, services, and organizations. To support LCM, the International

21. Walmart Supplier Sustainability Supplier Survey. (2013).

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Organization of Standardization’s, ISO 14001 standards for Environmental Management Systems (EMS), provides guidelines on how to develop formal support systems. Research has shown that EMS affects product design, waste reduction, and recycling in a positive way.22 The benefits from these systems include proactive environmental management, resource and cost efficiency, enhanced reputation, and improved communication.23 An EMS provides a foundation for the use of LCA and a phased approach to the assessment that parallels Deming’s PlanDo-Check-Act cycle. LCA-specific standards include ISO 14040 and 14044. These standards describe the primary principles and the phased approaches for LCA represented in Figure 6.2: Phase 1: A definition of the goal and scope of the assessment (ISO 14040):

• This first phase involves a review of the purpose of an LCA with a focus on defining goals, scope, and bounds of the assessment. It is the most important for setting the parameters of the assessment and answering questions such as “What is the purpose of the LCA, decision criteria, functional unit of the assessment and system boundaries?” For example, the purpose might be to determine how to improve the environmental performance of a coffee maker used twice a day at half capacity (five cups), based on total energy consumed and CO2 emissions over a five-year life cycle. The analysis may cover all phases: production, use, and end of life stages.

• In practice: This stage is the most important for yourself or any team to understand the system boundaries and implications for focus within the value chain, e.g., cradle to gate (resource extraction through manufacturing), gate to gate (one process to another process), or gate to grave (from use to disposal). Phase 2: The life cycle inventory analysis phase:

• For this phase, it is helpful to make a process tree or flow chart to classify events in the product’s life cycle, then determine the mass and energy inputs and outputs, collect relevant data, make

22. King and Lenox (2002), Sroufe (2003) and Terlaak (2007). 23. Curkovic and Sroufe (2011) and Delmas and Montiel (2009).

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assumptions for missing data, and establish material and energy balances for each stage and event.

• In practice: This step in the assessment has deep roots in operations and supply chain management and makes for easily transferable discussions between process level practices and the broader involvement of supply chains in the subsequent weeks. If a complete manufacturing process is not already captured within the software, yourself or your team should try to determine all mass and energy inputs and outputs while collecting other relevant data. This data collection allows insight into a products value chain and complexity. If needed, you can make assumptions for missing data, but be sure to note and keep track of these assumptions. With the help of LCA software, establishing material and energy balance(s) for each stage and process is made simpler as the processes, material information, and energy utilization for manufacturing processes are embedded within menus of the software. By following a product from extraction to end of life, you will be developing flow charts and supply chain maps. This flow charting exercise provides participants with valuable information regarding location of raw materials, manufacturing, visibility into supply chains, available modes of transportation, along with consumer usage and end of life issues if products go to landfills. Phase 3: The life cycle impact assessment phase:

• The third phase is important for determining the impact categories and loads, for assigning impact indicators with categories and for weighting the importance of the categories.

• In practice: This aspect of the analysis is best facilitated by software. The level of detailed information from the application of the software can be supported by yourself or a team’s secondary data research and review, but this can be difficult and time consuming. The difficulty lies in having dozens of impact factors and then converting mass and energy inputs into 100-year global warming potential, ozone depletion, resource depletion, photochemical smog, acidification, human health impacts, terrestrial toxicity, eutrophication, etc. as the software is better suited to automatically do this for the user. The use of software allows for impact assessment simultaneously across multiple impact factors using metric system measurement for all

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processes. The LCA relies on an underlying methodology for the United States developed by the EPA called the Tool for the Reduction and Assessment of Chemical and Other Chemical Impacts. Thus, the software draws from known methodologies and databases for the impact categories: acidification, smog formation, eutrophication, human cancer, human non-cancer, and human criteria effects, etc., with probabilistic analyses allowing the determination of an appropriate level of sophistication and spatial resolution necessary for impact modeling across several categories. Phase 4: The life cycle interpretation phase, reporting and critical review of the assessment, limitations, and relationships between the four primary assessment phases (ISO 14044).

• This final phase focuses attention on identifying multidisciplinary opportunities for improvement, including evaluation of the original goal definition, targeting of life cycle processes/events with large impacts, and determining what resources are required and what risks are involved? This is also where “what if” scenarios can be used to seek alternative materials, modes of transportation, or energy sources to see how the impact assessment will change with these alternatives.

• In practice: This is where you can identify areas and opportunities for improving product design. Start by evaluating the original goal of the assessment (Phase 1) while targeting life cycle processes with large potential impacts, i.e., large amounts of lowhazard materials or small amounts of high-hazard materials. You can even model changes in location (manufactured in the United States vs China) and distances to customers, changes in modes of transportation, and different energy inputs (renewables vs. fossil fuels) based on geographic locations are automatically updated by the software (Figure 6.4). LCAs are valuable for a variety of users and range of purposes. According to the ISO standards (14040 and 14044), an LCA can assist in:

• Value chain management

Identifying opportunities to improve the environmental aspects of products at various points in their life cycle while optimizing efficiencies from raw material acquisition to product end of life;

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Phase 1: Goal and scope of the LCA

Phase 4:

Phase 2:

Interpretation, reporting, critical review

Life cycle inventory analysis

Phase 3 : Life cycle impact assessment

Figure 6.4: LCA Basic Principles: The Four-phased Approach.

• Decision-making

Decision-making in industry, governmental or non-governmental organizations (e.g., strategic planning, crossfunctional collaboration, priority setting, product, and process design and redesign);

• Sustainability and CSR reporting

Selection of relevant indicators of environmental performance, including measurement techniques; and

• Marketing management

Guidance for product development, distribution, pricing, and promotion, including environmental claims, eco-labeling schemes or Environmental Product Declarations (EPD).

LCA benefits include quantifying the environmental impacts at each step of a product’s life cycle and thus helps to sustainably design products and supply chains so that they have the least negative environmental and social impact.24 An LCA will be beneficial to describe inputs and outputs in terms that are measurable, build a baseline for comparison, and help provide the information necessary for future product declarations (ISO 14062) and marketing. The earlier sustainability considerations are incorporated into the design and concept development of a product,

24. Ehrenfeld (2008).

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the easier it will be to identify and target the improvements that increase value creation and reduce waste.25

Problem-based Learning (PBL) Application Learning by doing is typically the best way to figure out how an LCA can benefit you and your enterprise. For this, I propose a PBL approach and assignment. Start by choosing two comparable products (if possible, one from your own enterprise, and one from a competitor). The objective is to identify the key environmental issues that relate to its design, manufacturing, and supply chain. To do this, start by developing a process flow diagram and life cycle analysis of the product. You should utilize International Organization of Standardization guidelines and if possible, LCA software to: (1) identify the LCA stages and potential environmental risks, (2) provide a ranking and prioritization of emission risks including the amount of CO2 per unit of product. (3) Describe the current state-of-the art in terms of product or manufacturing design and supply chain management and (4) identify which companies appear to be leaders and which appear to be laggards. The application of an LCA mapping and process flow understanding of a product provides crossfunctional learning opportunities while providing a new level of insight into operations and supply chains. The objectives of this exercise include enabling you to: acquire an in-depth knowledge of the technology and models supporting sustainable business practices and innovation; think critically about the integration of sustainability; combine different streams of knowledge; understand LCA; develop qualitative/quantitative analysis of business management situations; and develop general management perspectives and skills. LCA tools have typically been dominated by engineers in the design phase, yet left to operations managers to implement. This experiential learning exercise demonstrates the real challenge of an LCA learning curve is its enabling technology. By looking for secondary data sources, information within your own organization and if possible, the use of LCA software, you will attain a new level of understanding of an existing product. Other insights can include how to integrate systems thinking, manage projects, and understand environmental performance

25. Chapas, Brandt, Kulis, and Crawford (2010), Braungart, McDonough, and Bollinger (2007).

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metrics while utilizing a software tool that helps make sense of big data. The LCA exercise provides a PBL experience for anyone to go beyond technical details and understand the product design in the context of the society, including aspects of consumer behavior and preferences, manufacturing decisions, product labeling, marketing and distribution, ethical considerations in design, and the public policy aspects such as regulations. This type of exercise (with or without software) has been used by engineering educators as a successful form of pedagogy.26 The exercise facilitates learning regarding open-ended problems, and the collection and use of real world data. It gives you experience in setting priorities in data collection, making reasonable estimates, identifying uncertainties, and building useful models to guide design. The exercise requires examination of a wide range of concepts, including systems thinking, setting problem boundaries, dealing with data and performance uncertainty, assessing environmental, health and safety risks, and applying stakeholder and communication theory.27 It provides an opportunity to contemplate the impact of design decisions, including material selection, internal process management, and modes of transportation. The intent of this challenge is to learn how products are manufactured and enabled by supply chains while using publicly available sources of information to find new insight. This learning includes how to develop flow diagrams and input/output diagrams, recognize product inputs, locate state-of-the-art manufacturers (leaders and laggards in industries), and identify innovative supply chain management practices. The goal is to identify, rank order, and defend the environmental impacts and risks of a chosen product (including GHG emissions and CO2 output). The purpose of the LCA exercise is to promote thinking about proposed changes to the product. Changes can include feed stocks (e.g., petroleum verses wood), and what risks will be involved (supply chain risk and timing issues from sourcing products made in China along with the social impacts on communities where raw materials are extracted or manufactured), and how much transportation impacts overall environmental impacts. Companies such as Puma have found 94% of their environmental impacts are from Tier 1 through 4 suppliers and Walmart has found their supply chain impacts are over 90%.28

26. Nair (1998) and Sroufe (2013). 27. Freeman (1984). 28. Sroufe and Melnyk (2013).

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Without using software, my own graduate students have been able to uncover enough information to enable product comparisons and improvements. Debriefs of the exercise found participants excited about what they had been able to find about a given product and the associated improvement opportunities. The debriefs also showed what information tends to be proprietary, and the highlight difficulties of finding some material and process level details, e.g., the mass and energy inputs per unit of product and resulting data on the environmental impacts. Participants also discovered the burgeoning availability of software programs and tools for more detailed assessment. If you can get access to software, training, or others within your organization familiar with LCA, the software will provide much more process level details for both inputs and outputs. The software functionality offers insight to internal processes employed by manufacturers that is not usually available on the web but is embedded within the software databases.

Why and How LCA and Design Thinking Enable Integrated Management Outcomes LCA, as a successful process and a tool, relies on multidisciplinary collaboration. This collaboration provides a new opportunity to both practitioners and academic instructors to integrate this tool into business decision-making. This multidisciplinary approach is not new to operations managers. The operations function has evolved over time to support and work with Environmental Health & Safety professionals. This collaboration includes but is not limited to waste management, lean and quality management, total quality environmental management initiatives, and the oversight of green supply chain management. Opportunities for further collaboration include the measurement of sustainability initiatives with B2B customers asking for energy and climate data such as GHG emissions, material efficiency, natural resource impacts, and responsible interactions with people and communities. As new sustainability professionals work across-functions, new tools such as LCA will help supply chain managers and designers identify and capitalize on opportunities to improve systems, products, and processes. As you review your product comparison, include others in the discussion of your or your team’s work. There is typically a rich interaction regarding impact categories and how the data was found on the

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products along with the implications of their product based on the location of the manufacturing plant (China, the EU, or the United States). Furthermore, discussion regarding what other functional areas are or will be impacted by the current product and proposed changes would serve to improve the system as a whole. These topics for discussion can include:

• Product and process design Impacts on internal stakeholders: Engineers, lawyers, EHS, reporting requirements, marketing

• Natural capitalism Explicit consideration of environmental risks/opportunities, are there any hazardous materials?

• Material approval process Centralize information and screening of chemicals, green purchasing programs

• Procurement Know your supplier and their environmental record Audit, select, and develop

• Accounting/purchase order and tracking Potential role of accounting department underappreciated Possible centralization of information on risks, integrated bottom line

• Transportation Location, mode, distance to customers Does ownership matter? CO2 emissions

• Receiving/loading dock/transfer to storage Adequate precautions including containment

• Storage and internal distribution Permit process and monitoring, Environmental Protection Agency Acts to comply with

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• Production lines Worker safety and health issues Emissions, toxic release inventory reporting, the natural step Hazardous waste disposal Cost savings from pollution prevention, or use of less hazardous materials and processes

• Storage/warehousing/distribution Worker safety and health issues with toxics Location Emissions, handling, equipment needs

• Wholesale/retail sales Environmental product declarations, other eco-labels, marketing claims, etc.

• Market research/manufacturing decision Are there any green marketing opportunities? Differentiation

• Product usage Future liability, returns management Energy consumption, costs to operate Firm reputation/marketing issues

• Disposal/end of life Recycling potential, cradle to cradle Superfund liability, the natural step Take-back laws, extended Producer

• Responsibility Closed loop supply chains, Cradle to Cradle Multidisciplinary insights come from recognizing that LCA data and sustainability opportunities span all functional areas of business including accounting, engineering/design, manufacturing operations, finance, marketing andmarket research, human resource management, strategy,

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government affairs, public policy, and media relations. This integration stresses the importance of good design and early decision-making in the design process as these decisions affect others throughout the supply chain. Specific insights from facilitating this exercise in the past include but are not limited to the following:

• Waste reduction and sustainability initiatives can be enabled through understanding process level information from an LCAs cross-functional impacts within a firm.

• Innovation and new approaches to product design, manufacturing, and transport will differentiate firms on sustainability performance metrics.

• A reduction of hazardous materials and substitution of nonhazardous materials can put firms out in front of compliance with regulations.

• Firms who are industry laggards and only focused on regulatory compliance will have higher subsequent risks. A focus of only complying with and not exceeding regulations can mean a company is only one environmental accident away from catastrophe, (e.g., the Union Carbide in Bhopal India is an extreme example of how one accident can be disastrous on many levels).

• Scenarios for changing manufacturing locations, supply chain mode of transportation, and product materials all have resulting environmental impacts that can be quantified and used for decision-making that also involve costs, quality, time, flexibility, and service.

• A shadow price on carbon emissions or Social Cost of Carbon can

help firms with internal scenario planning.29This type of “what if” planning could help shift manufacturing away from remote locations such as China while creating opportunities for distributed manufacturing closer to customers.

• We need effective managers to oversee systems and teams consisting of engineers, designers, financial personnel, accountants, purchasing, and supply chain personnel in order to fully understand processes, eliminate waste, create change, and find new competitive advantage.

29. Carbon Disclosure Project (CDP). (2014).

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Within the context of PBL, the LCA exercise allows for the development of: Knowledge, as you gain the ability to describe, identify, and recognize the LCA primary principles applicable to the project with or without the use of software. Comprehension as you can discuss and explain the LCA process and outcomes with or without the use of software. Application when you apply and assess publicly available information without software to get to a basic understanding of the LCA process, flow charts, and opportunities to improve processes and products. Software enhances application by enabling you to change and choose alternative locations, modes of transportation, materials, and energy grid mix to find a more dynamic insight within a relatively short timeframe; Analysis, as you classify, research, and compare product alternatives. Or, if using a single product, compare manufacturing and supply chain options alongside new performance metrics including GHG emissions such as carbon, environmental impacts, and waste. This analysis is feasible without software, but you will have a more rigorous approach with the use of software. Synthesis with the ability to integrate information available from the LCA process to better design and improve existing products. This same synthesis enables you to make more informed decisions when applied to a new product design process and supply chain management. Furthermore, synthesis creates new opportunities to be involved in cross-functional projects leveraging LCA as a decision support tool. Evaluation, with the ability to assess, prioritize, and justify new forms of sustainable performance measures on a product level, including the ability to proactively support “what if” scenarios regarding environmental product disclosures and insight to environmental profit and loss statements. LCA is poised as a decision support tool for operations, supply chain, and sustainability professionals and is ready for further use in a business school curriculum. The LCA project is flexible enough to be developed on a small scale with a non-software approach outlined in this chapter. Feasibility will need to be assessed as to the development of the project and application of LCA software.

Your Ecological Footprint If performing an LCA on a project seems like something far removed from you and your functional perspective, we can make the LCA concept grounded at a more person level. To extend this line of questioning and an understanding of what life cycle impacts can be, we can take an

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ecological look at your lifestyle. In doing so we can also pull in current trends in economic outputs, development, resource use, climate change, population, and other areas to think about what they can tell us about the challenges of creating a sustainable society. As preparation for understanding these challenges at a personal level and systems level, here is one more exercise for you. Go to the website of the Global Footprint Network, http://www.footprintnetwork.org/and read the information about the ecological footprint and how it works. Then assess your footprint using the series of screens and questions to do so. Do this assessment twice. The first time, base your answers on your current lifestyle, food, housing, energy sources, waste, and transportation, in whatever way you are currently living. If you are a student, you probably live in a smaller house/apartment, drive less, and fly less than you likely will later in your career. The second time you do this assessment, recalculate your footprint with estimates of the size of house and other inputs that you think might correspond to the lifestyle to which you aspire when your student loans are paid off, e.g., when you make partner or after your startup goes public, or realize your vision and action plan in the final chapter of this book. Then, compare and contrast the results. How many earths are required to support your needs? If everyone lived like you, we would need how many earths? What’s your personal earth overshoot day? There is also a link to the question “why can’t I get my footprint score within the means of one planet?” click on it and reflect on what this exercise can tell you. The results include needs for food, shelter, mobility, goods, services, and supporting land types, along with your carbon footprint and associated solutions enabling a different path forward. Finally, keep in mind that every enterprise has its own footprint that can be assessed, quantified, and managed in innovative ways. Integrated management will help reduce negative impacts and promote regenerative, resilient practices, and reduce waste and costs, while creating value on a path to a future sustainable society.

Chapter Summary In this chapter, we have shown that Design Thinking and new goals of Net Zero can bring about innovative products and processes. The LCA exercise provides significant learning in the determination of the carbon footprint of a product in all three stages: production, use, and end-of-life disposal. The four-phased approach in conducting an LCA, especially with the use of software, can impart significant carbon ecological

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foot printing information, as well as computational, and managerial skills. The intelligence to minimize and manage such footprints using alternate materials and processes is built into the integration opportunity. Framed within a systems thinking context, you can benefit from involvement in a four-phased approach to conducting research and identifying and analyzing sustainability dilemmas (infractions of the eight sustainability principles as part of SSD in Chapter 3) associated with products. This learning allows you and or your team to see trends and drivers of sustainability. Working in interdisciplinary teams produces learning outcomes everyone can get excited about (knowledge, comprehension, application, analysis, synthesis, and evaluation).Management benefits from understanding new performance metrics in terms of GHG emissions and learning how CO2 emissions are generated based on the materials, processes, and supply chain characteristics. Finally, the Design Thinking opportunities, achieving NZ/NP goals, NZEBs, and LCA project developed in this study is but one model for learning about your products and enterprise. Periodically reflect on your ecological footprint and ways to improve it at home, in transit, and at work. The successful design and delivery of sustainability opportunities provides decision-makers with new insights for framing and dealing with complex sustainability issues. This relational, collaborative inquiry is what will differentiate boundary spanning individuals and leaders from laggards. It is my hope that the information presented in this chapter will be helpful to those looking for the integrated management opportunities found in Design, Zeronaughts, LCA, and an ecological footprint as tools to advance integrated management across functions. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

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Where can you find and apply Design Thinking to your processes or products? How will a human-centered approach to design be different from past design efforts? Are there NZ/NP, or Living Buildings near you, or utilized in your industry?

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• • • •

How can you make your home NZ/NP, NZEB? Invite a cross-functional team within your enterprise to do an LCA mapping exercise of a product with you, what will you find? Where are your product or service’s major impacts, opportunities for improvement? With insights from this chapter, where across functions and within the value map in Chapter 5 can you push for change?

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Meadows, D. (1999). Leverage points. Places to intervene in a system. Hartland, VT: The Sustainability Institute. Meadows, D. (2008). Thinking in systems - A primer (Earthscan). United Kingdom. Nair, I. (1998). Life cycle analysis and green design: a context for teaching design, environment, and ethics. Journal of Engineering Education, 87(4), 489 494. Pappas, E., Pierrakos, O., & Nagal, R. (2013). Using bloom’s taxonomy to teach sustainability in multiple contexts. Journal of Cleaner Production, 48, 54 64. Sroufe, R. (2003). Effects of environmental management systems on environmental management practices and operations. Production and Operations Management, 12(3), 416 432. Sroufe, R. (2013). Life cycle assessment within MBA courses: A tool for integrating sustainability. Operations Management Education Review, 7, 95 130. Sroufe, R., & Melnyk, S. (2013). Developing sustainable supply chains to drive value: Management issues, insights, concepts, and tools. New York, NY: Business Expert Press. Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains to drive value volumes I and II. Management issues, insights, concepts, and tools. New York, NY: Business Expert Press. Terlaak, A. (2007). Order without law? The role of certified management standards in shaping socially desired firm behaviors. Academy of Management Review, 32, 968 985. Torcellini, P., Pless, S., Deru, M., & Crawley, D. (June, 2006). Zero energy buildings: A critical look at the definition, national renewable energy laboratory. Conference Paper NREL/CP-550-39833. Pacific Grove, CA. Retrieved from https://living-future.org/contact-us/faq/. Accessed on September 1, 2017. Walmart Supplier Sustainability Supplier Survey. (2013). Walmart supplier sustainability assessment: 15 questions for suppliers. Retrieved from http://az204679.vo.msecnd.net/media/documents/r_3863.pdf. Accessed on June 1, 2013.

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7 Enterprise Systems Operational and Strategic Assessment “We can’t impose our will on a system. We can listen to what the system tells us, and discover how its properties and our values can work together to bring forth something much better than could ever be produced by our will alone.” Donella H. Meadows1 Within this chapter we start with an enterprise level understanding of the integration of environmental performance into management systems and SOS. This is followed by the drivers, enablers, and performance benefits provide by social, economic, and natural capital. After reading this chapter, you should be able to assess any enterprise in the context of understanding its operating systems. Examples and tools are reviewed to enable this assessment. We then look at obstacles as opportunities with an eye toward future actions to help close the gap between your current “as is” state and a future “to be” state. The information in this chapter provides the operational insights necessary for your understanding of business systems and success. The objectives of this chapter are to:

• highlight the importance of management systems; • provide an assessment based approach to uncovering strategic opportunities for value creation;

• help you quickly find and apply important assessment tools, and standards; and

1. From Meadows (2008).

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• be ready for obstacles and best in practice approaches to developing strategic integration opportunities within any enterprise. Building on the foundation of prior chapters, both Chapter 6 and this chapter help assess the current reality for your individual function and entire enterprise, and extend this assessment opportunity to the value chain. We can and should view assessment practices, strategic planning, and the outcomes of your action learning as building a foundation for success in uncovering value creation through integrated management of sustainability within enterprise systems. Chapter 7 Management systems Drivers

Enablers

Standards Assessment toolkit

Management Systems If you think your enterprise does not have a management system for sustainability, you are most likely wrong. Whether it is a formal, International Organization for Standardization (ISO) registered system, or informal process for waste removal, every enterprise has some sort of EMS. In addition, if you consider human resources systems, every enterprise is already involved in measuring and managing environmental and social performance. When designed with integrated management in mind, management systems, functional processes, and supply chain design are integral to an enterprise accomplishing its sustainability goals. Cross-functional utilization and choosing to collaborate with suppliers that have policies supporting an organization’s mission and vision are at the heart of effectively implementing a fully integrated strategy. Trends in management systems integration have shown a move away from goods and services with no associated metrics for environmental or social performance. Instead, management systems foster a marketplace that embraces a dynamic range of performance now reflected in global reporting initiative reporting and even integrated reporting of financial and sustainability annual reports.

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The question for many companies is how to develop internal controls that meet the evolving environmental and social needs of their own processes and the needs of their supply chain as a whole. The more companies enable sustainability to create value while also purchasing from sustainable suppliers, the greater the integration of sustainable practices throughout a value chain. For example, Walmart launched project Gigaton to reduce emissions in their supply chain. With the goal of a Gigaton reduction, this is the equivalent of taking 211 million passenger vehicles of US roads for one year. Such activity stimulates business functions, business units, and the value chain to take proactive measures that will increase their chances of working with responsible, economically viable organizations. A registered EMS is one way firms can signal their move toward integrated management while including supply chains. Management system design will require enterprises to develop processes and supporting infrastructure to differentiate their actions and integration strategy. Such a systematic approach to sustainability and management is at the heart of a formal assessment process such as ISO 14001 for EMSs, 50001 for energy management systems, and 26000 for social responsibility. The standards are designed to achieve the integration of operating systems and business management. They also enable enterprises and their value chains to take a proactive approach towards managing environmental and social issues that have evolved into SOS.2 Estimates of EMS certifications issued worldwide are more than 300,000. There are companies in over 171 countries that have endorsed the ISO 14001 standard. By the end of 2016, there were over 8400 registered sites in North America alone.3 In the past, Ford Motor Company, General Motors, and Chrysler have told all of their suppliers with manufacturing facilities to become ISO 14001 certified. This requirement has affected thousands of production and non-production suppliers.4 Over a decade ago, former President Clinton signed an executive order that declared all federal facilities are to have fully implemented EMSs. It has also become an order qualifier in the European Union, with China actually having the most registered sites at over 137,000. ISO 14001 is becoming an internationally accepted systems standard.

2. Blackburn (2015). 3. ISO 14000 family Environmental Management, and the ISO survey of certifications data set. Retrieved from https://www.iso.org/iso-14001-environmental-management.html. Accessed on December 20, 2017 4. Curkovic and Sroufe (2011).

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A major reason for the increasing acceptance of EMSs involves the benefits associated with the standard and certification process. The benefits relate to the direct advantages of an effective EMS and sustainability strategy combined with the measurement and management of the environmental performance of business processes. The benefits include, but are not limited to the following:

• improved environmental performance; • improved internal management methods; • improved stakeholder satisfaction; • avoiding a potential non-tariff trade obstacles; • competitive advantage in certain markets; • fewer regulatory inspections; • reduced overhead costs; • probable reduction in regulatory noncompliance and associated fines;

• improved access to capital and reduced capital costs; • reductions in insurance costs; • direct and indirect impacts on enterprise performance; and • improved company image.5 Additional benefits include an increased capacity to go beyond waste reduction and ad-hoc approaches to more integrated approaches to measuring and managing performance. ISO 14001 was published in1996 and provides the basic framework for the establishment of an EMS. The ISO defines an EMS as that part of the overall management system, which includes organizational structure, planning activities, responsibilities, practices, procedures, processes, and resources for developing implementing, achieving, reviewing and maintaining an environmental policy. The five requirements of ISO 14001 include: formation of a corporate environmental policy and commitment to an EMS, development of a plan for implementation, implementation and operation of the EMS, monitoring and possible corrective action,

5. Curkovic and Sroufe (2011) and Melnyk, Sroufe, and Calantone (2003).

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and top management review and continuous improvement.6 Basically, the enterprise must say what it is going to do, how it is going to do it, who is going to do it, and by when it is going to get done. More concretely, management must designate responsibility for achieving objectives and targets at each relevant function and level of the organization, provide the means for fulfilling the objectives, and designate a time frame within which they will be achieved. Managers should recognize that individual businesses no longer compete as solely autonomous entities, but rather as systems within systems. The environmental and social impact of one enterprise goes far beyond the manufacturing of a product or providing a service. This means that other value chain members play an important part in a product’s/service’s life cycle, image of the customer facing enterprise and overall performance. The ISO standards for EMSs, energy, and social responsibility are a step in the right direction toward better measurement, communication and a supply base network structure that when properly aligned, becomes a more impactful strategy than any single enterprise can develop on their own. Those companies who see certification as a game, or a plaque to put on the wall to keep business will not obtain the integrated benefits found in more proactive plants where effort is put into performance and supply chain alignment. My own research has found that enterprises that have installed a registered EMS have better external coordination and integration of management information.7 Those managers who can leverage systems and supply chain alignment of sustainability standards will be part of integrated supply chains. We found supply chain managers wanting to improve the integration of sustainability within their supply base should seek out suppliers that are able to translate standards into internal efficiency improvements. Suppliers with a lesser amount of integration, or who do not use ISO standards as a catalyst for change, will only do what is necessary for compliance. This will increase the need for risk management and fail to achieve full integration, and should therefore not be sought out by supply chain managers. Since the inception of EMS standards, large OEMs have been placing pressure on their suppliers to have their suppliers also adopt these standards. Customers seeking enterprises and suppliers with certified systems should also be involved in education, coaching, mentoring,

6. Curkovic, Sroufe, and Melnyk (2005) and Albuquerque, Bronnenberg, and Corbett (2007). 7. Curkovic and Sroufe (2011).

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and collaboration towards goals of sustainable development and collaborative management systems. Supplier also need industry networks so that they can learn about which metrics to use, waste reduction opportunities, and potential operational improvements. Interviews with managers revealed the need for coaching and mentoring of a sustainability strategy internally and externally. To this end, supply chain design needs to be initiated by these “larger” organizations (which are often important customers and OEMs). Thus, there appears to be a large opportunity to better integrate long-term planning for operating systems, and supply chain design thinking with ISO certification. When successful, it involves internal teams, mentoring of important suppliers, and alignment of evolving enterprise strategies that include sustainable development performance metrics within management systems and value chains. ISO standards provide a foundation for supply chain design because certification itself does not require information exchange, mentoring programs, or visiting suppliers to assist them to improve environmental performance. The managers and suppliers in our research studies suggest that operating systems and supply chain design requires a range of activities that go beyond certification in order to support a sustainability strategy. Several managers said that at a bare minimum, this will include addressing one’s own accreditation to an EMS standard as well as assessing a supplier’s integrated performance by addressing their own accreditation to the same standard. Managers suggested that industry associations, standards, and sustainability networks help to lead the way in designing management systems and supply chains aligned with future goals and strategies. Several key activities that should be included when integrating suppliers into your sustainability strategy include8: (1) seek information on environmental aspects of policies, processes, and systems; (2) impose specific performance requirements upon suppliers; (3) cease to purchase from suppliers who fail to meet criteria set; (4) cease to purchase from suppliers who fail to provide information requested; (5) create outreach activities to share experiences and best practices with suppliers;

8. Curkovic and Sroufe (2011).

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(6) create ABCD planning process for sustainability and product technology to align with supplier capabilities; and (7) model potential future supply/demand imbalances in critical input materials such as energy, water, packaging, chemicals, etc. The evolution of EMSs into SOS is yet another reason for managers and researchers to understand current systems, gaps in an enterprise’s current state of operations and future goals for integrating sustainability. Any enterprise that does not understand its own management systems will be overlooking the opportunities that integration provides. Next, we review some tools for strategically assessing your “as is” state. This will help you look at your own enterprise as we review the drivers at the drivers, enablers, and benefits of integration.

Drives, Obstacles, and Enablers Operating Systems Integration Over the past two decades, there has been an exponentially increasing amount of published research regarding sustainability in both practitioner and academic circles. Authors in the field of business management have increasingly come to recognize the pivotal role an which operations management professional plays in bringing to fruition an organization’s sustainability vision. Yet, this information overwhelms many enterprises as they struggle or are at times paralyzed by all that is happening to implement even basic sustainability initiatives. To help escape analysis paralysis, we turned to the literature in order to identify trends, which both explain the current state of sustainability’s integration into management practices, as well as highlight positive steps, which could be taken to enable a quicker transition. We reviewed over 200 of the most pertinent articles taken from both journals and special publications.9 A summary of this work provides a framework illustrating the internal and external focus necessary in order to successfully achieve the significant benefits of integrated systems management. To realize these benefits of integrating sustainability, internal sustainability champions will have to (1) identify and articulate the organization’s

9. Builds on the work of Sroufe and Nirenberg (2014), and information from this section modified and used with permission from Sroufe and Melnyk (2017).

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drivers, (2) mitigate existing and potential obstacles, and (3) embrace the enablers for this process. To start, ask yourself what are your enterprise’s operating system drivers, obstacles, and enablers for the integrated management of sustainability within strategic planning? (Figure 7.1). Within the context of these categories, we next summarize and draw lessons learned from evidence based research spanning multiple decades. Drivers are those actions providing motivation for integrated operating systems. The main drivers tend to be external to the organization itself, and the farther back in time we go, the more reactive they are in nature. The most commonly cited external drivers are: (1) the reactive need for regulatory compliance, (2) proactive considerations to avoid environmental and social impacts, and (3) reactive replies to customer and competitive pressure with the latter growing in more recent years. Not surprisingly, of the drivers internal to the organization, by far the one most commonly cited is that of cost savings. However, it is interesting to note that the next three most prevalent internal drivers are pressure from employees, commitment of the founder, and championing from senior management. This points to the fact that although ideally there is alignment across the organization for the need to implement new practices, it is possible to successfully approach this in either topdown or bottom-up fashion. Obstacles are typically anything that interferes with or prevents action and progress. Within this area, the most cited obstacles to implementation of sustainability within management practices pertains to internal

Drivers

Internal Obstacles

Enablers

• External: regulations, environmental and social impacts, customers and competition • Internal: cost savings, employees, founders, senior management

• Competing objectives • Culture • Short-term performance • Resistance to change • Expertise • Measurement and transparency

• Links to enterprise strategy • Proactive • Top management • Long-term performance • Reporting

Vision strategy integration

Figure 7.1. Important Attributes of Management Systems Integration.

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organizational issues including objectives, culture, short-termism, resistance to change, and top management. The presence of competing and incompatible corporate objectives within various functions gets more complex when pushed out to supply chain participants. For integration to be effective, the various participants must agree that environmental and social performance is important. This agreement must not only be at a strategic level; it must also be at a cultural level. There should be a “gut” feeling among everyone in the firm that sustainable is not only strategically and economically the best option, it is also the “right” option. In a past discussion with supply chain managers, it was noted that the first and major determinant of the success of a supply chain relationship is that of the similarity of corporate cultures. If you see the integrated management of sustainability as critical but your supplier is more interested in financial costs, while not including environmental and social value, then you will not achieve your desired value proposition. The importance of this consistency in culture (especially when dealing with key internal functions and external partners) cannot be overlooked. It demands the formation of crossfunctional integration teams, in many enterprises this is the green team, yet keep in mind their “green” label/focus tends to be on environmental performance and reducing negative impacts. These cross-functional teams need to look for new forms of value creation and ensure that they visit potential partners directly to evaluate their corporate culture and their core values (with special attention being paid to environmental and social sustainability performance as part of the core values). Incentive systems that focus on short-term profits is an ongoing obstacle and something that Paul Polman and Unilever are moving away from. What is interesting about Polman’s approach is that he discourages the use of quarterly reports. The reason focusing on such results can divert attention from sustainability to, in most cases, cost. When this occurs, it can send confusing messages to the rest of the organization and out to the value chain. The message to others sustainability is important only as long as it does not get in the way of profits. Culture and Resistance to Change Are Critical Factors to Consider In many cases, when we integrate sustainability, we are effectively introducing a significant shift in strategy. If the firm has been successful with a previous strategy (most often cost based), the corporate culture that develops over time institutionalizes the practices and approaches that made the firm successful with prior strategies. As the corporate culture spreads through on-the-job socialization, it often creates a force for

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stability. Such a force is important during periods of change. However, we must recognize that culture can also act as a source of resistance when the change being introduced is both fairly significant and different. Under such conditions, to overcome the resistance offered by corporate culture requires that we must first discredit the current ways of doing things. Unless this is first done, then people will fall back to the patterns of behavior supported by the existing corporate culture. Suffice it to say that discrediting the current ways of doing things (especially when the firm has been successful over the long term with these approaches) is not easy to do. In reviewing systems thinking, we know that the most difficult thing to do is to find and act upon levers of change that transcend mindsets. Lack of Top Management Support Any strategic initiative such as sustainability requires a strong message from the top that: (1) this initiative is important to the firm; (2) the initiative is one that the firm is committed to; and (3) you should be prepared to support this initiative or else you leave either voluntarily (through resignation) or involuntarily (through termination). For top management support to be effective, it must be visible to everyone involved; it must be active in nature where top management is seen as actively involved in the initiative and it must involve both rewards and punishment. That is, top management must be ready to reward those who work to support the implementation and attainment of the new objectives. More importantly, top management must be seen as being prepared to act when there is credible evidence that some people especially those people who are seen as either opinion leaders or who occupy important positions within the firm are resisting the new initiative. As a top manager put it to one of the authors, top management must be prepared to carry out a few “public executions” terminations that become widely known throughout the firm. Concerns Over Credibility/Consistency This issue specifically refers to the supply chain. Here, we are looking at a simple issue it is impossible to credibly ask your support chain partners to do something that you, as an enterprise, are not willing to undertake. You cannot ask the supply chain to pursue integration objectives when your firm is not doing so. McCormick and Company, Unilever, Steelcase, and Herman Miller can ask for sustainability from their supply chain because they themselves are leaders in their industry in pursuing and embracing sustainability internally.

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Sustainability Not Having a Strategic Role Within the Organization Finally, if the integration of sustainability is seen as being strategically decoupled and driven by concerns of reducing price, improving quality, or ensuring on-time delivery, we cannot expect to see the operations embrace integration. To internal functions and external partners, sustainability is something that will not affect them because at the end of the day, they are asked to deliver on the same outcomes they have worked toward in the past: price, delivery, quality. Other commonly cited obstacles include but are not limited to: cost, both in terms of time and resources; an acknowledged skills and expertise gap on the part of employees; and issues around measurement and reporting, such as the lack of consistent standards and the difficulty in understanding and applying consistent assessment tools and measures. The overarching theme from the literature indicates that integration will require an organization-wide paradigm shift from established ways of doing business and that the leaders in this area have already undertaken initiatives over the last two decades to enable this shift. Enablers supply the means, knowledge, or opportunity for operational integration and measuring system implementation. This area of integration practices has received a considerable amount of attention over the years. Important internal enablers for you and your cross-functional management team to focus on starts with (1) linking the integration of sustainability initiatives to overall enterprise strategy; (2) making sustainability a strategic activity within the enterprise; (3) gaining and maintaining top management support; and (4) adopting a proactive approach together with a long-term perspective toward both the business itself as well as toward opportunities of sustainability, performance measurement and reporting. Important external enablers include opportunities to increase the following to support integrated management initiatives: cooperative, trusting, and transparent communication across functions and with suppliers; establishing effective supplier evaluation systems, including both rewards and penalties; use of cross-functional teams for collaboration in the areas of innovation and process improvement; design; and increasing cross-functional education in the area of sustainability.

What Are the Benefits of Integrated Management and Extensions to Supply Chain Systems? Paradoxically, the benefits of SOS and integration form the fundamental reason for undertaking the sustainability challenge. It is not surprising

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that both direct and indirect financial benefits get the most attention. The most commonly found benefits in order of importance include:(1) a reduction of costs, including a product’s whole life costs and the organization’s overall operating costs; (2) increased competitive advantage; (3) increased profits; (4) decreased damage to the environment and human health; (5) increased levels of innovation; (6) the potential to gain new customer market segments; and (7) risk mitigation. Transforming supplier business models is the corporate strategy of the future. Why? Because much of your firm’s impacts are likely to be in your supply chain. It makes sense to integrate the value chain as early as possible. Today lots of large companies, including 99% of the Fortune 500, report in some way on their sustainability initiatives with some reporting well over a hundred pages of specific goals and targets. Many even have holistic “plans” with ambitious 2020 and 2050 targets across their business. However, for many businesses, making these plans happen, and making them have an impact internationally, is going to be dependent on integration and change management when dealing with how suppliers operate. This is now becoming obvious. If you want to solve global sustainability challenges, you have to go back to the way business used to be done, while also prioritizing technology, operating systems, training, and human/resource efficiency. Longer-term contracts, financing mechanisms valuing environmental and social impacts, and technical training, with less cost cutting to meet quarterly numbers are all key areas to start. Companies that lead the way on integration have been pioneering cross-functional, longer-term, and more in-depth supplier collaboration for years. For them, this is not new. These companies include DuPont (use of LCA for product innovation), GE (EcoInnovation leveraging design thinking), Unilever (connecting customers to supply chains and smallholder farmers), Apple (100% renewable energy powered operations in the United States), or the auto industry (requiring EMS certification of its supply base). Additionally, this can be seen with Cadbury, before being acquired by Kraft, when developing long-term supplier partnerships with cocoa-producing villages with a supply base in Ghana. Given the growing importance of operating systems, drivers, obstacles, enablers, and benefits of integration, the question you may be asking is: How do I understand the current state of my own enterprise’s systems and those of a supply chain? To help answer this question, we need to shift our focus to some of the most used business management tools and assessment frameworks. They have all been used for some

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time and bring different perspectives to the forefront of an enterprise assessment to help find integrated management opportunities.

Aligning Operating Systems: Strategic Frameworks for Integration Here we can start with a basic assessment tool, and then expand on this initial assessment tool with other models and frameworks. It should be noted that the assessment tools can be applied to both operations and supply chain systems. A SWOT analysis is a simple, yet versatile strategic planning tool to help identify the strengths and weaknesses, as well as any opportunities and threats, that may exist in a specific business situation. It can be an effective starting point for integration assessment and team discussions. This assessment should not be a one-and-done exercise, but instead, it is an opportunity to benchmark and understand current practice and find gaps between your current state “as is” and a future “to be” state, to help enable strategic planning for the future (Figure 7.2). The easiest way to start compiling information for each quadrant in the aforementioned matrix is by answering a series of questions. Strengths: Think about the attributes of yourself and your enterprise that will help you achieve your objective. Questions to consider include:

• What do you do well, better than your competitors? • What expert or specialized knowledge do you have? • Where are you already integrating environmental or social sustainability in your enterprise?

Strength

Weakness SWOT

Opportunity

Threat

Figure 7.2. SWOT.

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Weaknesses: Think about the attributes of yourself and your enterprise that could hurt your progress in achieving your objective. Questions to consider include:

• In what areas do you need to improve, what resources do you lack?

• What parts of your business are not very sustainable? • Where do you need further education and/or experience? Opportunities: Think about the external conditions that will help you achieve your objective. Questions to consider include:

• What are the business goals and strategy you are currently working toward?

• How can you include social and environmental performance for your existing customers?

• How can systems thinking and design thinking enhance your products or services? Threats: Think about the external conditions that could negatively affect your enterprise’s performance. Questions to consider include:

• What obstacles do you face? • What are your competitors reporting as their sustainability strengths?

• What’s going on in the economy and your industry? One of the most important parts of your assessment is using the data you compiled to identify new strategies and goals for your business. Once you understand how to compile information from a SWOT analysis, you need to find ways to use it strategically and to continuously update it. SWOT analysis is a starting point for other assessment tools and frameworks that can be used on a regular basis to find new integration opportunities and improve your decision making process. The process of performing this analysis should utilize systems thinking from Chapter 2 to help find both cross-functional and big picture understanding of your current state of operations. Understanding the factors affecting integration opportunities puts you in a better position for action learning and the management of change. This understanding can help you:

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• identify the issues or problems you intend to change; • set integration objectives and goals; • create an action plan; • identify core competencies; • focus on the future given its past and present condition; • build on your strengths; • uncover opportunities to maximize; and • inform strategic planning as well as marketing. Finally, during your assessment and planning, you should look for other assessment tools and frameworks to help extend your analysis and thinking. While there is a host of possibilities, we will briefly focus on the most used in business management. These include, but are not limited to PESTLE, the GE-McKinsey 9 Cell Matrix, BCG Growth Share Matrix, Ansoff Matrix-Growth Strategies, Porter’s Five Forces, and New Product Diffusion Curve. PESTLE Political, Economic, Social Technological, Legal, and Environmental Analysis in conceptualizing marketing principles. This tool is used to track the business environment, find trends, or help to plan the launch of a new product, service, or project. There are certain questions that one needs to ask while conducting this assessment:

• What is the political situation of the country and how can it affect the industry?

• What are the prevalent economic factors? • How much importance does culture have in the market and what are its determinants?

• What technological innovations are trending and can affect the market structure?

• Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry?

• What are the environmental concerns, e.g., climate change for the industry?

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More than just understanding the market, this framework informs strategic management that not only defines what a company should do, but also accounts for an organization’s integration goals and strategies. The importance of each factor may differ between industries, but it is imperative to any strategy a company wants to develop. PESTLE analysis is imperative because as it forms a much more comprehensive version of a SWOT assessment.

GE-McKinsey 9 Cell Matrix Portfolio screening tool looks at industry attractiveness versus business unit strength to provide a systematic approach for the decentralized corporation to determine where best to invest its cash; also useful for determining growth opportunities (Figure 7.3).

Boston Consulting Group Growth Share Matrix It is useful for companies that are large enough to be organized into strategic business units, and for allocating resources relative to growth and profit versus competition. There is a key assumption in this model to Protect position

Invest to build • Challenge for leadership • Builds electively on strengths • Reinforce vulnerable assets

Medium

Build selectively • Invest in most attractive segments • Build up ability to counter competition • Emphasize profitability by increased productivity

Protect position and refocus High

Industry Attractiveness

Low

• Invest to grow at maximum rate possible • Concentrate on maintain strength

• Manage for current earnings • Concentrate on attractive segments • Defend strengths

Build selectively • Specialize around limited strengths • Seek ways to overcome weaknesses • Withdraw if indications of sustainable growth are lacking

Selectivity/manage for Expand or harvest • Look for ways to expand earnings without high risk; otherwise minimize investments and rationalize operations

• Protect existing program • Concentrate investments in segments where profitability is good & risks are relatively low

Manage for earnings • Protect position in most profitable segments • Upgrade product line • Minimize investment

High

Divest • Sell at time that will maximize cash value • Cut fixed costs and avoid investment meanwhile

Medium Competitive Strength of Business Unit

Figure 7.3. GE McKinsey Matrix.

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Low

High

Question marks

Cash cows

Dogs

Low

Relative market share (cash usage)

Stars

Figure 7.4. Growth Share Matrix. consider. It has a focus on profitability and assumes a high market share = profitability. This may not always be the case and should be checked. The matrix displays the various business units on a graph of the market growth rate versus market share relative to competitors (Figure 7.4).

Ansoff’s Matrix Is useful for growth strategies for new and existing products and markets. Marketing strategy aims to communicate to customers the added value of products and services. This considers the right mix of design, function, image, or service to improve customer awareness of the business’ products and ultimately to encourage them to buy. Ansoff’s Matrix is an important tool for helping develop an appropriate marketing strategy. This model looks at the options for developing a marketing strategy and helps to assess the levels of risk involved with each option (Figure 7.5).

Porter’s Five Forces Industry analysis format for developing competitive advantage. This tool was created by Harvard Business School professor Michael Porter to analyze an industry’s attractiveness and likely profitability. Since its publication in 1979, it has become one of the most popular and highly regarded business strategy tools. Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could affect the business environment. He identified five forces that make up the competitive environment, and which can erode your profitability. These are (Figure 7.6):

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Market driven SAFEST

Existing markets

New markets

Product driven

Existing markets

New products

Market penetration Trying to take a greater share of an existing market with an existing product. This could involve product re-launch or increasing brand awareness.

Product development Using the base of existing products to grow. For example, once a range has been established, new types of product can be developed within that range –such as introducing Wilko own brand point and other product lines.

Market development Finding or creating new markets by targeting new parts of the market or by expansion into different markets.

Product diversification Seeking to create or develop new products, lines or product ranges for new markets.

MOST RISKY

Figure 7.5. Ansoff’s Matrix.

Threat of new entry

Competitive rivalry

• Time and cost of entry • Specialist knowledge • Economies of scale • Cost advantages • Technology protection • Barriers to entry

Supplier power

• Number of competitors • Quality differences • Other differences • Switching costs • Customer loyalty

Competitive rivalry

Supplier power

Buyer power

Buyer power

• Number of suppliers • Size of suppliers • Uniqueness of service • Your ability to substitute • Cost of changing

• Number of customers • Size of each order • Differences between competitors • Price sensitivity • Ability to substitute • Cost of changing

Threat of substitution • Substitute performance • Cost of change

Figure 7.6. Porter’s Five Forces.

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Early majority pragmatists

Early adopters, visionaries

Innovators, enthusiasts

Late majority conservatives

Laggards, skeptics

Figure 7.7. New Product Diffusion Curve.

New Product Diffusion Curve Differentiates five new product adoption groups. Also called the adoption of innovation over time, this tool seeks to explain why and at what rate new ideas and technology spread. There are four main elements to help spread the product or technology: in the innovation itself, communication channels, time, and social systems (Figure 7.7). A review of the aforementioned assessment tools provides a toolkit for finding integration opportunities and closing gaps between your own enterprise and competitors, as well as gaps between your current state and desired future state. These frameworks are useful for uncovering higher-level strategic opportunities, understanding operating system needs, and aligning supply chains. What complements this assessment and planning process are performance metrics and standards. Next, is a review of relevant sustainability standards to help you quickly get to performance metrics and guidelines. These standards, the compendium of information at the end of this book, and trends discussed in the next chapter will help provide an integration roadmap for any enterprise.

Standards To this point, we have discussed the need to understand the current state of your operations, drivers, obstacles, enablers, and benefits of integration along with assessment tools and frameworks. We now turn to standards and goals. In this section, we identify the sustainability standards already in use. The reality is that the number of standards related to sustainability is growing all the time. Some of the most commonly cited sustainability standards are presented in the back of this book

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(see Appendix 5). As seen in the from the Appendix, these standards cover a wide range of sustainability-related opportunities for assessment, review, and measurement. This list of standards includes the following: Social Standards

• Accountability,

Assurance AA1000 standards

and

Stakeholder

Engagement:

• SA 8000 for Social Accountability • Fairtrade • Human Rights • Impact Investing • Integrated Reporting • International Integrated Reporting Council Framework • Organic foods • Rainforest Alliance • Responsible Care • SCC • Sustainable Forest Products • UTZ certification for sustainable farming and agriculture • UL880 Sustainability for manufacturing organizations Environmental Standards:

• Carbon Disclosure • Carbon Offsets • Conflict Minerals • C2C • Electronic Product Environmental Assessment Tool • Energy Star • GHG Reduction • EPA’s GHG Reporting Program • GHG Protocol 200

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• ISO 09001 Quality Management • ISO 14000 family of environmental management standards • ISO 14001 EMS • ISO 14020-14024 Environmental Labeling • ISO 14040-14044 LCA • IAO 14064 GHG Emission Quantification and Reporting • ISO 20400 Sustainable Procurement • ISO 26000 CSR • ISO 50001 Energy Management Systems • LEED Certification, Leadership in Energy and Environmental Design for Buildings

• Passive House • Renewable Fuel Standards • UN Sustainable Supply Chains • Well Building Standard This overview of available standards demonstrates that you do not have to invent practices and performance measures from thin air - there are many to choose from. The available standards are starting blocks for you to take off from, evaluate as part of an enterprise assessment, and look for within industries and supply chains as signals of integration. These standards support and help further develop operating systems and can be the operating manuals for “how to” integrate, measure, and manage new initiatives, processes, and value chains. When understanding current practices and how to leverage assessment tools for future action, knowing how your enterprise strategy aligns with established sustainability standards can help to frame conversations and inform decision-making. As we conclude, we should review multiple ways to take a step back from your own enterprise and look at its operations and strategy objectively. Doing so will help frame conversation with others across systems, i.e., functions and value chains to enable you to sell your ideas and operations management systems improvements to others. A final step in shaping your understanding of your own enterprise is to review what standards are already in place within the larger business

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Figure 7.8. Standards Review of Strategic Triangle.

systems in which you operate. To do so, consider conducting a review of sustainability standards (Figure 7.8). Review your enterprise web site, annual reports, and sustainability reports to gain an understanding of the firm’s 4Cs (Company, Customer, Competition, Collaborators).While doing so, look for where sustainability standards enable operational and strategic business systems within this strategic triangle of value creation. (1) COMPANY/PRODUCT/SERVICE (a) What business/industry/sector is this enterprise in? (b) What products/services does it produce and/or market? (c) What sustainability standards enable operations? (d) How does this enterprise generate revenue? (e) What are the keys to profitability in this industry? (2) CUSTOMERS/MARKETS (a) What customers (companies) purchase products directly, or indirectly? (b) Do customers require environmental or sustainability product labels/standards? (c) Through what channels does the enterprise do business? (d) How is their global business dispersed by geographic market? (e) What sustainability standards apply to this supply and value chain?

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(f) How do enterprises products/services bring value to target customers, consumers, and geographies? (g) How does this enterprise communicate (market) its products? (3) COMPETITION (a) With whom does the enterprise compete? (b) What industry sustainability standards are in use? (c) How does the enterprise differentiate itself? (d) How is enterprise perceived relative to its competition? (e) How do competitors promote their sustainability story? (4) COLLABORATORS (a) What government agencies, NGOs, supply chain members, and members of the informal economy are critical collaborators/partners enabling integration? (b) What sustainability standards are available for collaborative partnerships? Adding to your assessment toolkit, we have now extended the prior sections assessment frameworks to include available sustainability standards. You should be able to identify where and how standards are already shaping systems integration. Standards can be both drivers and enablers of change within an industry. Insight as to what standards are available to you and your enterprise will help you understand your current reality for your individual function and entire enterprise, while extending this assessment opportunity to the value chain. These assessment practices, strategic planning, and the outcomes of your action learning help to build a foundation for success in uncovering value creation through the integrated management of sustainability within enterprise systems.

Chapter Summary The objectives of this chapter are to provide insights as to the importance of EMS and their evolution into SOS. A review of the management research literature provides new insights as to the importance of and wide spread use of EMSs. We then looked at an assessment-based approach to uncovering opportunities for value creation with multiple

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tools and frameworks. The goal was to help you quickly find and apply important assessment tools, standards, and goals to your own organization. We also took a look at the obstacles and best in practice approaches to framing integrated management opportunities within any enterprise so you can overcome obstacles and look for new value creating practices. Building on the foundation of prior chapters, and now this chapter, you have the ability to help assess the current reality for your individual function and entire enterprise, as well as extend this assessment opportunity to the value chain. We can and should view enterprise systems as a foundation for uncovering value creation through the integrated management of sustainability. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt? After tackling the Chapter 7 questions, we move to section IV, brainstorming actions to close the gap between now and a future “to be” state, beginning with Chapter 8 on the Changing Performance Frontier.

What Will Your Integrated Enterprise (IntEnt) Achieve?

• • • • • •

Can you find a formal or an informal EMS within your enterprise? What drivers and enablers support further efforts for integrated management of material ESG initiatives? Review the assessment tools/frameworks, apply one to your enterprise with a focus on a strategic assessment of sustainability? How do you compare to your industry peers? Utilize the strategic sustainability assessment checklist, to identify the system boundaries, success, strategy, actions, and tools to enable new integration initiatives? What sustainability standards do enterprises within your industry utilize?

Enterprise Strategic Sustainability Assessment Checklist (1) Situation Analysis and Purpose

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Preface the purpose, scope, and limitation of the organization’s sustainability efforts: J Describe the “System” the organization’s industry, drivers, competition, or operational issues J Identify the goals and key operational and supply chain issues J Apply the Assessment Toolkit from this chapter to help develop vision of success and strategic initiatives J Provide any needed background or rationale on the process examined J Define “Success” how it will be measured (metrics), … focus on Sustainability Principles (1 8); alignment with UN Sustainable Development Goals (SDGs) reviewed in Chapter 11

(2) Conclusion(s) Succinctly state conclusions and implications of research and analysis (an Executive Summary)

(3) Research and Analysis This section should be a fact-based analysis of the “Strategic” alignment of recommendations, including subsections such as those listed below, but detail and data should be in the appendix: J Significant findings from literature search and benchmarking (MSCI, Trucost, Bloomberg The Corporate Knights databases and rankings) J Documentation of available “Actions” J Apply ABCD planning process (Chapter 3) J Materiality Matrix, outlining what should be measured and why J Identify the business case for the organization J Results of any statistical and financial analyses J Implementation plan of action including forecasted impact on cost benefit categories

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J Structural needs of the organization, “Baseline” and “Vision” J Recommend training and communication opportunities (4) Indicated Action Outline your recommendations to achieve the goals for the plan. Include short- and long-term action steps, a timetable, and a budget (overall costs and benefits), identify enabling sustainability assessment “Tools” and standards to help guide the process. J Long-term (10-year?) strategy including three suggested time frames (short, medium, and longterm) for operational improvements

Bibliography Albuquerque, P., Bronnenberg, B., & Corbett, C. (2007). A spatiotemporal analysis of the global diffusion of ISO 9000 and ISO 14000 certification. Management Science, 53(3), 451 468. Blackburn, W. (2015). The sustainability handbook (2nd ed.). Washington, DC: Environmental Law Press. Curkovic, S., Sroufe, R., & Melnyk, S. A. (2005). Identifying the factors which affect the decision to attain ISO 14001. Journal of Energy, 30(8), 1387 1407. Curkovic, S., & Sroufe, R. P. (2011). Using ISO 14001 to promote a sustainable supply chain strategy. Business Strategy and the Environment, 20(2), 71 93. Meadows, D. H. (2008). Thinking in systems: A primer. White River Junction, VT: Chelsea Green Publishing. Melnyk, S. A., Sroufe, R. P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21(3), 329 351. Sroufe, R., & Nirenberg, I. (2014). Sustainable supply chain management: A literature review and social network analysis. Academy of Management National Conference, August 4, Philadelphia, PA. Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains to drive value volumes I and II. Management issues, insights, concepts, and tools. New York, NY: Business Expert Press.

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Section IV Brainstorming Actions to Close the Gap (To Be)

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8 The Changing Performance Frontier Evolution and Trends “A useful rule of thumb: If you can’t communicate the vision to someone in five minutes or less and get a reaction that signifies both understanding and interest, you are not yet done” John P Kotter1 Information in this chapter provides a review of best practices and the changing landscape for integrating sustainability into an enterprise and across functions (i.e., systems within systems). Here we will review emerging trends and the new performance frontier introduced in Chapter 1. This chapter builds off the strategic integration frameworks and enterprise strategic sustainability assessment in Chapter 7. Why? To provide proof that you can identify and close the integration gap (can also be called a chasm) through available strategic planning tools and frameworks. The best practices and topics in this chapter will help you compare and contrast your enterprise to provide new insights as to what you can do when developing your own vision of integration. These practices can act as benchmarks, proving the integrated management of sustainability is already happening across industries. We will also review how valuing natural capital provides closed loop and product level insights. We then review how buildings can be a key focal area for change. After reviewing best practices and actions in this chapter, a new performance frontier will be self-evident, and within reach.

1. From Kotter (1995).

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The objectives of this chapter are to:

• Explore business strategies and practices that create financial, environmental and social value;

• Provide evidence of existing integrated management trends; • Research important integrated practices summarized as briefs; and • Enable systems thinking and actions for a future “to be” desired state of practice. Building on Section III in assessing the current reality, Section IV and this chapter provide actions to close the gap for your individual function, or entire enterprise. As we progress and learn more about trends and best practices, these practices become the opportunities for your enterprise to further develop a strategy and planning process for integrated management. Brainstorming actions to close the gap Changing performance frontier

Trends

Practices

SASB

Buildings

A Changing Performance Frontier Materiality Map In the previous chapter, we provided insight into relevant assessment frameworks, tools, and performance metrics (i.e., standards). In doing so, we are continuing to develop the roadmap for integration while foreshadowing a performance revolution. The practices reviewed in this chapter help guide measurement and process improvement. While we cannot cover all trends in one chapter, we will start to review the most disruptive and important trends in this chapter and continue this review in Chapter 9. The information presented here is a summary of trends to help customize your own opportunities for integrated change management. As Eccles and Serafeim (2013) were able to show, in the absence of innovation, the performance of enterprises declines as their environmental, social, and governance performance improves. To simultaneously improve overall performance of an enterprise, we will need to invent

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new products, processes, and business models. Next, we introduce trends and proven practices to complement your assessment objectives to close the gap between your “as is” state and desired “to be” future state of innovation and integration. Michael Porter proposed the performance (also called the productivity) frontier is the sum of all existing best practices at any given time or the maximum value that a company can create at a given cost using the best available technologies, skills, management techniques, and purchased inputs.2 For the purposes of integrating sustainability we can envision this frontier as having economic value creation and/or destruction on one axis and natural and social value creation and/or destruction on a second axis.3 In reality, the figure would show natural, social, and economic value creation as three separate axes with the frontier as a curved, three-dimensional surface. To keep this manageable, we combine the environmental and social dimensions into one axis. If an enterprise is creating both economic and environmental/social value it will be out on the frontier to the upper right in quadrant 1. If instead economic value is created while environmental/social value is destroyed, it is in quadrant 2. Destruction of both economic and environmental/social value would cause it to head toward quadrant 3. Finally, a firm could be destroying economic value while creating environmental/social value, locating the firm in quadrant 4. It is important to note that tradeoffs are typically experienced at the frontier. However, this also means that as the performance frontier is pushed out to the upper right by emerging trends, technology, and best practices, an enterprise located inside the performance frontier can avoid tradeoffs. How? If it is located somewhere to the bottom left side of the frontier, tradeoffs can be avoided by enabling actions to try and catch up with changing performance norms. Closing the gap between your current location and moving out to the right to a new position of the frontier can be done without tradeoffs. An important note here is that these evolving norms and actions taken to fill the gap should be “material” to the firm and thus help to close a strategic gap from a current state to that of a future state (Figure 8.1). The leading place to find evolving performance norms for material impacts across industries is the nonprofit organization, SASB http:// www.sasb.org/, first mentioned in Chapter 1. This organization has been creating “materiality maps” for 88 industries in 10 broad sectors of

2. Adopted from Porter (1996). 3. Adapted from Chapter 1, Jäger and Sathe (2015).

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Figure 8.1. Performance Frontier. the economy. Their aim is to help enterprises and their management accountants determine which of their ESG issues are likely to have the biggest impact on their financial performance.4 These materiality maps are now expanding a new performance frontier. Whether an issue materially affects a company’s ability to create long-term value depends on both; the sector the firm operates in and its particular strategy. Thus, carbon emissions are more material for a coal-fired utility than for a bank while human rights are more material for an enterprise utilizing supply chains and labor in developing countries than for one using skilled workers in the EU or United States. The map, utilizing evidence-based research, identifies likely materiality issues. Updates to the map are made periodically as issues and industries evolve. If you go to the map at https://materiality.sasb.org, you can click on highlighted cells at the sector level to drill down into the industry level information and view suggested accounting metrics for individual ESG issues (Figure 8.2). What all this means for leaders, to paraphrase Peter Drucker’s earlier quote that “every global environmental and social problem is a business opportunity in disguise,” is this: turn these ESG material issues into integrated value creation opportunities. Business leaders can do this by changing your awareness, by using technological innovation, and by bypassing or filling in enterprise gaps between your “as is” and “to be” state. SASB standards development processes provides assurance of a robust approach across different industries. Their conceptual framework aligns the basic concepts, principles, definitions, and objectives that

4. As Robert Eccles, who is chairman of SASB, and George Serafeim, who is a member of their standards council, explain in Eccles and Serafeim (2013).

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Health care

Financials

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Click to expand

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Non-renewable resources Click to expand

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Environment GHG emissions Air quality Energy management Fuel management Water and wastewater management Waste and hazardous materials management Biodiversity impacts

Social capital Human rights and community relations Access and affordability Customer welfare Data security and customer privacy Fair disclosure and labeling Fair marketing and advertising

Human capital Labor relations Fair labor practices Employee health, safety and wellbeing Diversity and inclusion Compensation and benefits Recruitment, development and retention

Evolutio n and Trends

Business model and innovation Lifecycle impacts of products and services Environmental, social impacts on assets & operations Product packaging Product quality and safety

Leadership and governance Systemic risk management Accident and safety management Business ethics and transparency of payments Competitive behavior Regulatory capture and political influence Materials sourcing Supply chain management

© 2017 SASBTM Materiality MapTM

Figure 8.2. SASB Materiality Map™. Source: Used with permission from: r The SASB Foundation, all rights reserved. https://materiality.sasb.org/

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Objectives material decision-useful cost-effective

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Figure 8.3. SASB Conceptual Framework Source: Used with Permission from SASB. Source: Used with permission from r The SASB Foundation, all rights reserved https://www.sasb.org/approach/conceptual-framework-2/ guide the organization in its approach to setting new standards for sustainability measurement and management accounting (Figure 8.3). With the focus of this book geared toward enterprise management, your familiarity with the standards and review of SASB’s materiality maps can help build your own “integrated roadmap” to develop strategies that improve IBLs. It will also be helpful to review other important practices to help generate ideas about what you can do differently in your enterprise. Initiatives can start with what Stuart Hart calls “greening,” or what some call “low-hanging fruit.” The same assessment frameworks (SWOT, PESTLE, GE-McKinsey 9 Cell Matrix, Ansoff, and Porter’s 5 Forces from Chapter 7 assessment toolkit) help increase understanding and identification of low-hanging operational and large-scale strategic opportunities. Managers should be able to pick these fruits without trade-offs in the early stages of brainstorming and ABCD implementation, before they reach more difficult decisions and resource constraints when they are out closer to the performance frontier. According to Hart’s Harvard Business Review article, “greening” reduces waste, energy consumption, and the environmental footprint

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while also increasing profit. This is possible because the enterprise has not yet reached the bounds of a sustainability frontier, thus trade-offs are not necessary.5 “Beyond greening” refers to disruptive innovation and the use of clean technology, including at the BOP, to push the sustainability frontier outward and allow for trade off-free solutions. Similarly, the integrated management of sustainability in this context refers to including environmental and social value into the company’s core business with no trade off in price or quality. Thus, we arrive at one of the objectives of this chapter: To explore strategies, measures of success and actions (elements of the SSD 5 level framework) that increase profits, create social value, and are better for the environment. In short, we examine strategies that improve an IBL approach to value creation. However, we also try to take a manager’s everyday constraints into account through the tools and frameworks applied in Chapter 7. In Chapter 8, we can go beyond “business as usual” to explore disruptive trends and a changing performance frontier. These trends will shed new light on how integrated management practices can provide solutions for you now, and into the future. To do this, we next briefly review several important trends shaping the integrated performance frontier. The following “briefs” can help you brainstorm and explore new opportunities for action within your enterprise. The order of the topics is such that we look at valuing natural capital and trends enabling closed loop systems, followed by increased transparency into products and buildings, before looking what Elon Musk called “untaxed externalities” of CO2 valuation, trends in reporting, investing, hybrid corporations, and long-term goals for the future.

Natural Capitalism Natural Capitalism, “the natural resources and ecological systems that provide vital life support systems,” can be broken into four major shifts in business systems and practices which, when used as synergistic strategies, achieve the overall goal of recognizing and valuing the natural environment.6 The first element of change is to dramatically increase productivity of the natural resources. At its simplest, increases in productivity mean obtaining the same amount of utility or work from a product or

5. Hart (1997). 6. Hawken, Lovins, and Lovins (1999).

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process while using less material or energy. Through advancing technology, we should be able to stretch our natural capital usage by 5, 10, or even 100 times the number of products coming from the same unit or raw materials.7 A driving force for this approach is the reduction and elimination of take-make-waste systems that waste upwards of 99% of all manufactured goods within six months (see the Story of Stuff).8 Or, consider that for every gallon of gas we put into a combustion engine vehicle, 80% is wasted as heat and friction. Dramatically increasing productivity can mean a new focus on whole-system design while also adopting new technologies to incorporate in existing systems. The struggle with the latter is simply not being unaware of what new technologies exist in the market. For example, electric vehicles get the equivalent of >100 MPG as compared to combustion engine vehicles. The second concept is shifting to biologically inspired production models. In other words, redesigning industrial systems based on biological limits (i.e., applying the SSD and five-level framework from Chapter 3). This is the idea of not just reducing but taking a “no compromises” approach to removing waste and toxicity altogether through a closed loop system, also known as a C2C system. Every output of manufacturing should be either turned into composting, recycled for further production, or reused.9 One example of this are disposable coffee cups, which in most cases are only used once. A total of 60 billion coffee cups end up in landfills each year. The reason they are non-recyclable is that there is a very thin plastic liner covering the paper cup to prevent it from getting soggy. Companies such as Starbucks, McDonalds, and KFC have vowed to step up their efforts to find a solution to this problem. Starbucks has partnered with a company called FrugalPac that has created a cup with a plastic lining that gets caught in the recycling plant’s filters allowing the paper cup to go through and be reused up to seven times. Starbucks started using this product in their stores in the United Kingdom in 2016.10 The third shift in business practices a company can make when trying to understand and apply natural capitalism is moving to a solutions based business model and switching the focus of the enterprise. In the traditional business model companies tend to rely on the making and selling of

7. Hawken, Lovins, and Lovins (2007). 8. The Story of Stuff; https://storyofstuff.org/movies/story-of-stuff/ 9. The Story of Stuff; https://storyofstuff.org/movies/story-of-stuff/ 10. Kottasova (2016).

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goods in order to make a profit.11 When considering integrating the idea of natural capitalism into any business model, companies can change this emphasis as the delivery of value to a customer as a flow of services. In doing so, the idea of making and selling goods shifts toward the importance of providing people with the actual value of services that the good delivers. You are no longer selling a car to someone but instead selling the service of mobility. This change builds on the idea of consumer satisfaction, continuous improvement of overall performance, quality, and utility of a business model. An example of a company that has incorporated the third step of the new business model into its practices toward natural capitalism is Interface. Interface was originally a carpet company that would tear up and lay down carpet in offices every year. Instead of being wasteful and disposing of pounds of carpet, Interface decided to change its business model from one that sold and fit the carpets, to a model where it leased floor services and inspected and cleaned them on a monthly basis. The company found that by changing a business model its consumption of materials went down by about 80% because it could replace small sections, subsequently replacing and recycling them at any given time, versus replacing the entirety of the carpets and wasting raw material resources. The final shift in the approach toward natural capitalism involves reinvesting in natural capital. “We must reinvest in restoring, sustaining, and expanding the most important form of capital our own natural habitat and biological resource base.”12 Risks to an enterprise can come directly and indirectly if we fail to reinvest in natural capital and protect the ecosystem services that allow industrial systems to flow and produce products, services and value. Detrimental ecosystem impacts lead to increased costs of raw materials and risks to companies, which can affect revenues and bottom lines. Amazingly, many companies are just now beginning to realize the importance of sustaining environmental capital, as this has been overlooked for almost two centuries of industrial development. When there is no valuing of or regard for natural capital (and externalities such as GHG emissions), we can “see” these problems. For example, a hundred years ago, Pittsburgh’s air quality and particulate matter were bad enough that businessmen had an extra shirt to wear for the second half of a day. More recently, smog in some cities in China has led to shutting down car travel and shutting down manufacturing. This

11. Hawken et al. (2007). 12. Hawken et al. (2007).

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has even happened in Paris. Some cities are now listed as top places for bad air quality or water scarcity. An example of this fourth shift in practices relates to John Todd’s “Living Machines.” This approach turns wastewater into clean water mimicking natural systems, leading to a reduction in costs, while minimizing negative environmental impacts and can have water leaving a facility cleaner than when it came in. Recent examples can be found in biophilia benches that help scrub the air now in use in cities like London, and biophilia walls used inside offices to cut down on urban air quality problems. Actions for a path toward a natural capital focused economy involve adding value to natural resources, not just extracting value from nature. Business can start acting as an integrated part of the natural world, not disconnected from it.13 Business as usual will eventually lead to the overshoot and collapse of many of earth’s resources that we rely on for our way of life (think about this in the context of your ecological footprint in Chapter 6). In population dynamics and ecology, overshoot occurs when a population temporarily exceeds the long-term carrying capacity of its environment. The consequence of overshoot is called a collapse, a crash, or a die-off in which there is a decline in population density.14 However, by making proactive changes in valuing ecosystem services, it is possible to achieve an economy and society that meets human needs while living within earth’s limits. Closed loop systems, as part of circular economies provide new opportunities for enabling natural capitalism and are included in the next brief.

Cradle to Cradle The C2C model was initially an extension of research conducted by Even Walter R. Stahel, an innovator and Swiss architect, on the circular economy, which represented a sustainable solution to product responsibility. “Stahel insisted that a sustainable solution was to use durable goods in a loop from cradle back to cradle” (The Product-Life Institute).15 Michael Braungart, a German chemist and his partner, William McDonough, an American architect and designer, made C2C a part of a much larger

13. Rapacioli, Lang, Osborn, and Gould (2011): n. page. Chartered Institute of Management Accountants (2014). 14. Schreef (2014). 15. The Product-Life Institute (2013).

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conversation for business and design with their book by the same name, and more recent book titled Upcycle.16 The C2C philosophy is centered on improving product quality by shifting production practices from being “less bad”(eco-efficient) to becoming “more good”(eco-effective). “The key principles of ecoeffective design were first systematically outlined in the Intelligent Product System (IPS), developed and articulated by Braungart and his colleagues at the EPEA (Environmental Protection and Encouragement Agency).”17 These principles are: (1) Waste = Food, (2) Utilize Current Solar Income, and (3) Celebrate Diversity. The IPS also recognizes that there is a biological metabolism as well as a technical metabolism, and that they function as “two nutrient cycles in the realm of human industry […]within which materials should flow as healthy nutrients.” In 2010, McDonough and Braungart founded The Cradle to Cradle Products Innovation Institute, a non-profit organization, which administers the Cradle to Cradle Certified™ Product Standard. Their system relies on specific methods of production addressing the materials and manufacturing practices of each product. “These materials and practices are assessed in five categories: Material Health, Material Reutilization, Renewable Energy, Water Stewardship, and Social Fairness.”18 The Institute encourages and assists businesses in implementing the C2C philosophy in order to create value from a new, untapped dimension of the production industry. A key design principle is waste = food. C2C can be applied at any scale. Complex examples exists, such as Honda’s green production plants and design of vehicles. McDonough and Braungart have worked with clients that include: Ford, Nike, Herman Miller, BASF, DesignTex, Pendleton, Volvo, and even Cities like Chicago to implement design and C2C principles. You can find C2C certified products in many market sectors. C2C actions include having the necessary resources to start the initiative, stakeholder engagement, educating customers on the added-value, long-term planning, and ensuring products return within closed-loop systems. Other important C2C decision variables include locations for

16. McDonough and Braungart (2002), and more recent book McDonough and Braungart (2013). 17. McDonough Braungart Design Chemistry. (2002). See page 2. 18. Cradle to Cradle Products Innovation Institute (2014).

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buildings, manufacturing and distribution centers, energy, and raw material sources, and supply chain infrastructure. If designed and planned for correctly, these options, when part of a colocation strategy, can reduce waste while enabling innovation partnerships with other enterprises as can be found in the next brief.

Industrial Ecology Industrial ecology (IE), popularized in the late 1980s, is the shifting of industrial process from linear, open loop systems, in which resource and capital investments move through the system to become waste, to a closed loop system where wastes become inputs for new processes.19 IE is the study of industrial systems aimed at identifying and implementing strategies that reduce these system‘s environmental impacts. Robert White defines IE as “the study of the flows of materials and energy in industrial and consumer activities, of effects of these flows on the environment, and on the influences of economic, political, regulatory, and social factors on the flow, use, and transformation of resources.”20 Industries such as manufacturing and energy plants extract raw materials and natural resources from the earth and transform them into products and services that meet the demands of a growing population. IE was developed to better understand the impact industry has on the environment. In this context, industrial ecologists, work to understand the industrial systems that are in place and find ways to use fewer natural resources in addition to new uses for waste materials and byproducts. IE research includes topics such as material and energy flow studies “industrial metabolism” describing the material and energy turnover of industrial systems;21 dematerialization, the reduction of materials required to serve economic functions in society;22, and decarbonization, the reduction of greenhouse gas emissions into the biosphere; life-cycle planning, design, and assessment, to study environmental impacts associated with all stages of a product’s life from extraction through end of life; design for the environment, a design approach to reduce overall environmental and human health impacts of a product or service; and extended producer responsibility, looking at waste management as a strategy

19. Frosch and Gallopoulos (1989). 20. White (1994). Cited within Ehrenfeld (2007). 21. Ayres (1994) 22. Rosenberg (1982).

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designed to promote the integration of environmental costs of goods throughout their life cycle into the market price of the product.23 Ecoindustrial parks are involved in “industrial symbiosis” where collocated businesses cooperate with each other and with local communities to reduce waste, pollution, and efficiently utilize resources, i.e., energy, water, and infrastructure. The intent is to increase economic benefits and improving environmental quality. Another way to think about this is that there are no landfills in natural systems. Some have claimed that man-made landfills will be gold mines of the future, as we mine what is in them, and we should not have linear systems where we pile up our waste for decades if not centuries. Instead, we can design closed-loop, C2C systems. A better-known example of this IE approach can be found in Kalundborg industrial park, Denmark. Within the park, companies reuse each other’s waste, i.e., the power station produces energy and a byproduct, gypsum. This byproduct is made into plasterboard, also called drywall. Other examples include substituting fly ash from burning coal into cement and concrete production; converting cooking grease into biodiesel that can reduce supply chain impacts; wastewater treatment byproducts become fertilizer for area farms; and the use of renewable energy and solar photovoltaics reduce life cycle impacts of manufacturing products and the buildings in which the products are made. What if we did not pay to have trash taken away, but instead, were paid for what we recycle and upcycle? The old adage, “One man’s trash is another man’s treasure” applies here. How would that change our practices at work and at home? Closed loop thinking can be part of many business management decisions. The scope and geographical distance between entities is a driving force enabling the creation of industrial parks. When contemplating the location of a business unit, building, or supply chain provider, the IE concept is still valuable in framing location decision and in reviewing the additional direct and indirect value created in one location, verses another. Where and how products are made has significant impacts on the ecological footprint of a product. The next brief will look at the measurement and reporting of these life cycle impacts and ways to differentiate products.

23. OECD (2001).

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Environmental Product Declarations and Living Products An environmental product declaration (EPD) is a comprehensive report that documents the ways in which a product, affects the environment throughout its lifecycle.24 An EPD tells the life cycle story of a product (raw material acquisition, energy use and efficiency, content of materials and chemical substances, air emissions, soil and water, and waste generation while also including product and company information) in a single, written report. It focuses on information about a product’s environmental impacts, such as 100-year global warming potential (i.e., CO2), smog creation, ozone depletion, and water pollution. An EPD can also include other product impacts such as land use changes and potential toxicity risks as well as corporate environmental initiatives that are of particular interest to the discloser. An EPD quantifies environmental data for a product with pre-set categories of parameters based on the ISO 14040 GHG emission series of standards. It is part of standardized ISO 4025 Type III product declarations, guidelines and LCA based tools. These declarations are applicable worldwide for all interested organizations, i.e., you have one declaration for all national and international markets. Why would a company want to declare? EPDs are a disclosure tool that helps purchasers better understand a product’s sustainable qualities and environmental repercussions, so they can make more informed product selections. EPDs do not rank products, and the existence of an EPD for a product does not indicate that environmental performance criteria have been met. They can help meet increased demands for information on the market and simplify information exchange for purchasing and procurement, while also facilitating in-company product related work, e.g., conception, design, etc. EPDs help to establish a fair comparison of products and services by their environmental performance, reflect continuous environmental improvement of products and services over time and are able to communicate and add up relevant environmental information along a product’s supply chain. Finally, EPDs can be a dynamic internal communication tool working in parallel with the

24. Underwriter Laboratories EPD definition, accessed January, 2018 at https://industries. ul.com/environment/certificationvalidation-marks/environmental-product-declarations

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product development processes toward integrated management and improved innovation. Development of an EPD comes after conducting a product life cycle assessment (Chapter 6), and is based on applicable product category rules. They are available for anything from food products and beverages to textiles; office machinery; electricity, gas, and water supply, and refuse disposal and sanitation. One of the first EPDs in North America was from Interface flooring. Companies like Rockwool, Carlsberg and Turborg beer, Nucraft, Allsteel, and Vitro Glass have them for their products. They are also required for building products within Leading Energy and Environmental Design (LEED) v4 certified buildings and are part of the International Living Future Institute’s (ILFI) living product challenge. Imagine producing more energy and water for every unit of a product produced than is needed to manufacture that same unit of product. This is a living product. In this context, the creator of living buildings (ILFI) now certifies living products. Manufacturers are using the Living Product Challenge https://living-future.org/lpc/ as a framework to rethink the way products are made. Instead of trying to be less bad, they are creating goods that have a positive impact. In this way, we can create products that are healthy and free of toxins, socially responsible, and respect the rights of workers, while having a net positive benefit to both people and the environment. As enablers of change, these certifications use the same LCA and EPD information as a challenge to manufacturers to create products that are healthy, inspirational and give back to the environment. Examples of living products include Mohawk flooring, Humanscale chairs, Owens Corning Ecotouch insulation, and Superior Essex cat cable are found in healthy, high-performance buildings.

High-performance Buildings The commercial real estate sector has seen an increase in property owners, architects, and construction professionals pursuing the development of high performance, “green” buildings because of their marketability benefits, lower costs, improved air quality, and alignment with corporate sustainability goals. Evidence has shown that owning and operating energy-efficient, high-performance properties provides multiple benefits including lower utility bills, higher rents, improved occupancy, improved human health and productivity, and greater net operating income.

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Now more than ever, the businesses along with the commercial real estate sector, architects, and construction industries have many reasons to pay attention to high-performance building practices. To start, they can reduce your annual operating and maintenance costs. Energy consumption is an important part of the building equation as our built environment consumes around 40% of global energy. From new technology and building energy efficiency disclosure regulations (see, e.g., what is happening in New York City), to corporate sustainability programs. There is demand for more efficient spaces and buildings that achieve designations such as LEED or ENERGY STAR. High-performance buildings are more than just a trend in commercial real estate; they’re mainstream and there is a good business case behind it.25 A study by the Deutsche Bank Institute of Climate Change found that by retrofitting all the buildings in the United States would be a $279 billion dollar investment yielding $1 trillion dollars in savings over a 10-year period.26 To understand how a building can be considered high performance, we can look at how certified buildings signal an integrated approach to their design, construction, operations, and maintenance. There are four LEED rating levels and associated points: Certified (40 49 points), Silver (50 59), Gold (60 79), and Platinum (80 + ). The point system is directly related to reducing CO2 and waste. Demand from clients and the market are the top reasons for building green.27 With buildings utilizing upwards of 40% of primary energy use they have an impact on energy systems, the environment, and the health and well-being of their occupants.28 LEED is the most widely used green building rating system in the world. Available for virtually all building, community, and home project types, LEED provides a framework to create healthy, highly efficient, and cost-saving green buildings. LEED certification is a globally recognized symbol of integrated management and sustainability. There are

25. U.S. Department of Energy, Better Buildings, “The Business Case for High-Performance Buildings,” accessed January 2018 at https://betterbuildingssolutioncenter.energy.gov/ videos/business-case-high-performance-buildings 26. “Greening the Bottom Line” Emily Flynn, Sustainable Endowments Institute. Deutsche Bank Institute for Climate Change. 27. USGBC “The Business Case for Green Building,” accessed January 2018 at https://www. usgbc.org/articles/business-case-green-building 28. Impacts of U.S. Buildings, part of a Green Building Alliance presentation November 6, 2017. Source: 2008 EIA Energy Outlook & USGS 2000 data.

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over > 2.2M sq. ft. certified daily, with the LEED system promoting integration, flexibility, sustainability, and value.29 The Energy Star commercial buildings program is another way of signaling a building’s performance. This voluntary EPA program helps businesses and individuals reduce environmental impacts through understanding, measuring, and managing building energy performance. The system offers building managers standardized and comparable metrics for managing building efficiency. Building managers can enter utility data into an on-line Portfolio Manager tool to see how the building compares to similar buildings nationwide. Energy performance scores are available in a 1 100 scale for 15 types of buildings ranging from banks and financial institutions, to data centers, hospitals, hotels, schools, offices, retail stores, and warehouses. A score of 50 indicates your building is performing at the industry average and a building with a 75 or higher is eligible for the Energy Star label. The input of utility data to the Portfolio Manager system calculates GHG emissions (including carbon dioxide, methane, and nitrous oxide) and it aligns its methodology with other GHG emission inventory and reporting programs (ISO standards, and the GHG protocol). To date it has helped over 200,000 buildings benchmark their energy performance and more than 12,500 have earned Energy Star certification.30 With available on-line tools, you can search for utilities that can automatically provide their utility data to Portfolio Manager and interactive maps to find a building near you. Both LEED and Energy Star buildings should be part of the integrated management roadmap as we spend 90% of our time indoors and yet indoor air quality can be from two to five times worse than outdoor air quality. These buildings can reduce energy consumption up to 50% and CO2 emissions up to 39%, while decreasing water use by 40% and solid waste by 70%.31 We also know these buildings can: sell for an average of $171/sq. ft. more than conventional buildings while costing $0.42/sq. ft. less than the national average. Additionally, with design options for outside views additional benefits include an increase in mental functioning, reduction of call processing times in call centers, and shortened hospital

29. United States Green Building Council (USGBC), accessed January 2018, at https://new. usgbc.org/leed 30. EPA Energy Star: Quick Facts accessed January 2018 at https://www.energystar.gov/ ia/partners/spp_res/neprs/ENERGY_STAR_and_Automated_Benchmarking_Quick_ Facts.pdf 31. Turner and Frankel (2008); Kats (2003); and GSA Public Buildings Services (2008). 32. Green Building Alliance GBA presentation (2017).

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stays.32 Productivity within these buildings increases from better lighting, ventilation, and individual temperature controls. Even simple things such as increased daylighting within these buildings helps workers to be more productive, students do better on tests, and learn faster.33 Given the single largest line item, expense for major corporations is their labor, investing in high-performance, green buildings will have a direct impact on productivity and bottom lines. There is a general rule in commercial real estate: you spend $3 per sq. ft. on utilities, $30 per sq. ft. on rent, and $300 per sq. ft. on people. Including high-performance buildings in your enterprise, strategy helps reduce absenteeism and presenteeism, i.e., the reduction of healthcare costs, days “working while sick,” and a generally less healthy workforce. A low “first cost” approach, only looking at the price of the project, means building to code at the lowest cost. Without an integrated approach, this first cost is typically value engineered to find ways to cut cost and quality for components of the project and systems when only myopically looking at a single bottom line and leaving out operations, maintenance, human health, and productivity. High-performance buildings have paybacks of less than three years and multiple benefits. How long do we typically use buildings? Decades, maybe a century, and high-performance buildings provide cost savings year after year after year? Trends in high-performance buildings are moving toward net zero impacts, and net positive energy, producing more energy than the building needs while meeting standards for the Living Building Challenge34 with buildings producing more energy and water than they consume on an annual basis. Take this one step further, and there are already thousands of buildings within cities involved in the 2030 Challenge where their existing buildings will reduce by 50% the amount of water and energy consumed by this date. After this date all new buildings will be carbon neutral.35 An important performance metric to think about is finding the site energy use intensity (EUI). It is the summation of all annual energy use per square foot of a property, i.e., energy divided by square foot. It allows you to compare different sized buildings, and your utility bill can help you find it. You can use conversions for 1 kWh = 3.412141 kBtu, or

33. GBA Green Building Alliance GBA presentation (2017). 34. See ILFI’s Living Building Challenge at https://living-future.org/lbc/ 35. See Architecture 2030’s The 2030 Challenge at http://architecture2030.org/2030_challenges/2030-challenge/

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1 natural gas MCF is equal to 1020.00016 kBtu and add up all your site energy for one year. For example, a site may consume 7.5 million kBtu in a year that is 50,000 sq ft and its EUI is 150, while a smaller property at 10,000 sq ft that consumes the same amount of energy would have an EUI of 750. EUI is much the same as an MPG for cars and allows comparison across properties. It is a picture of energy efficiency where hospitals with all their specialized equipment have a national median Source EUI of 398 kBtu/sq ft, while schools have a 141 kBtu/sq ft national median Source EUI. This metric allows you to compare similar buildings to each other or to compare your building to the national median for your property type in Energy Star’s Portfolio Manager. You can also look at your historical data on a monthly and even daily basis, with the help of proper metering of utilities, to benchmark performance, and review what causes spikes or dips in energy use over time. This type of data also enables energy usage to be part of an energy strategy discussion at the c-suite level.36 There are many versions of EUI; i.e., site, source, weather normalized, and national median to help assess performance and to review pre- and post-performance of a building project such as retrofitting one floor. As we spend 90% of our time inside buildings, high-performance spaces are an imperative. Passive House http://www.passivehouse. com/ (German Passivhaus) is a rigorous, voluntary standard for energy efficiency in a building, reducing the ecological footprint of the structure. It results in ultralow energy buildings requiring very little energy for space heating or cooling. This approach to buildings purposely takes an integrated approach. Using building science to bring down a buildings energy needs through tighter envelopes, efficient systems, and site orientation, so that less “active” solutions such as a solar photo voltaic system is need on top of it. Imagine heating your home with the equivalent of a hair dryer as this is how efficient passive homes can be. It is one of the best paths to Net Zero and Net Positive. Passive House is not just for houses. Passive buildings work for schools, offices, hotels, multifamily units, and skyscrapers too. While origins of this approach to buildings came from houses, a common usage of this term is passive buildings. It does not cost a lot more to build passive buildings compared to conventional buildings. We typically find the larger the buildings, the less of a cost difference there is. Much the same as the history of LEED, there is a relatively low cost

36. Winston et al. (2017).

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difference of 5 10%. Yet this first cost is recovered in cost savings from operating the building within a few years. When looking for high-performance building cost savings, a natural path toward integrated management of sustainability is to take a passive solutions approach first-tighten the envelop, reduce the footprint. Then look for active solutions and efficient systems, before putting renewable energy sources in the mix. This approach will help ensure a path toward sustainability while reducing the demand for energy. As more large scale window, door, insulation, and envelop manufacturers bring highperformance products to the market, we will see better economies of scale and expected lower costs. The WELL Building Standard https://www.wellcertified.com is a holistic approach to how we think about buildings. It takes a deeper look at how we design, operate, and behave within the places where we live, work, learn and play. It helps us look at how these spaces can be optimized to advance human health and well-being. Covering seven core concepts of health and hundreds of features, WELL is a flexible building standard and represents the future of integrated design. This is already happening as buildings are now developed with people’s health and wellness at the center of design. The WELL Building Standard takes a holistic approach to health in the built environment that now includes behavior, operations, and design. WELL is a performance-based system for measuring, certifying, and monitoring features of the built environment that impact human health and well-being, through air, water, nourishment, light, fitness, comfort, and mind. Dashboards in buildings can now show occupants real time information on energy and utility data along with air quality indoors and outside to occupants. This helps not only in the way the building is operated and managed, but also affects how occupants interact with the building to control comfort levels and productivity. WELL is grounded in medical research that explores the connection between the buildings where we spend 90 percent of our time, and the health and wellness impacts on us as occupants. WELL Certified™ spaces can help create a built environment that improves the nutrition, fitness, mood, sleep patterns, and performance of its occupants. If you want to improve building performance, you have multiple options. There are interactive, flexible, and recognized certifications of a building’s environmental attributes through third-party providers. When you are ready to make positive changes for integrated approaches to building operations, occupant comfort and climate,

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known programs and tools can help identify opportunities and provides a path toward integrated management within buildings. With a growing field of experts ready to help with assessment, guidance, and certification programs, you can develop a customized approach to realize integrated management and sustainability goals for new construction projects, existing buildings, and even interior renovations. The high-performance building movement is built on integrated management. This process starts with architects, engineers, construction professionals, building owners, and facility managers who understand their buildings and operations to leverage this knowledge to produce best practices in sustainable design, construction, and operations. This integrated, collaborative approach allows experienced green building project teams to get further up the learning curve for those new to highperformance building. With known targets for performance from Passive House, the WELL standard, Living Buildings, Energy Star, and USGBC LEED, we can reduce energy and water use, while increasing indoor air quality for occupants. The benefits of going through an integrated process and certifications of high-performance buildings includes: reduced operating costs, identification of tax incentives and utility rebates, meeting and exceeding government regulations, attracting and retaining employees, along with increasing the marketability of the property and building. I asked a colleague in the high-performance building field, how he would describe an integrated solution? His response, “to me, building Energy Assurance (EA) is a perfect example of an integrated solution. An integrated solution is a system that meets a need, by utilizing components to offer solution(s) that are greater than the sum of its parts. The difference between a system and integrated solution, are in the components. EA’s components are autonomous and meet current needs, therefore they have interdependent goals. Integration of these components into a larger system with a focused goal for a building creates an opportunity for me to reach a goal that was otherwise cost prohibitive or unattainable[…] The feedback loops in a system serve the components. The feedback loops in an integrated solution serve the greater goal. When I create and implement new feedback loops for an integrated solution, the components are able to identify a niche in their system that is new and innovative. This has happened with whole building energy modeling. Examples include using calibrated models beyond design, in commissioning and building operations, and in exporting dynamic targets. This has happened with integrated energy dashboards. Examples include

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new displays and connectivity to wearable sensors for building occupants.”37 If the topics and trends in this chapter are new to you, it is ok. There is so much to do in the integrated management space that it is hard to keep up with all that is happening. Fortunately, the innovators and early adopters have been designing and building this way for decades. It has taken some time to cross the performance measurement chasm as we now know high-performance buildings and integrated practices reduce energy consumption, CO2 emissions (waste), and costs while increasing the value creation opportunities that include human health and productivity. We now step back from traditional approaches to decision making and ask, if all of this information (i.e., topics, trends, and evidence-based business case for each) is available to us, what keeps us from acting on these integrated opportunities? The changing performance frontier provides new opportunities for integrated management and sustainability as part of the valuation of natural capital, closed-loop systems, products, buildings, and investment decision making. Enablers of this change come in valuing this reduction of waste in our design, planning, financial analysis, decision-making, and policy development. An understanding of integrated management opportunities and the full impacts of investment decisions will further enable innovation. The trends discussed in this chapter provide proof that the innovators and early adopters have found success in implementing these practices.

Chapter Summary The information in Chapter 8 explores the business strategies and practices that increase profits, improve natural capital and create social value. An evidence-based approach to uncovering trends in practice and research highlight current integrated management practices. Given the changing performance frontier, there are now new measurement, management, and certification opportunities not yet visible to many, yet already in practice by some. When an enterprise is creating both ESG and financial value, it will be pushing out the performance frontier to the

37. Based on multiple conversations and email correspondence with Craig Stevenson, cocreator of Auros Group, certified Passive House consultant, Living Future AP, WELL AP, LEED AP BD + C, RESET AP, DBIA, MBA, MS_MIS, and construction industry executive for over 25 years.

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upper right in quadrant in Figure 8.1 of this chapter. As some bump up against their frontier boundary, obstacles will be raised in the form of tradeoffs. As the sustainability frontier is constantly moving in the direction of the first quadrant, enterprises not at the cutting edge of the frontier can take advantage of existing practices, process, product design, closed-loop systems, and high-performance buildings to create value with a strong business case as a foundation for change. Closing a gap between your current state and a future, integrated state, will help close strategic gaps while capitalizing on material opportunities for an enterprise. The crux of this chapter is that, it is indeed possible for enterprises to pursue social and environmental value creation in ways that also create financial value. The examples presented here do not constitute definitive research evidence generalizable to all enterprises, but are suggestive of what an enterprise and their management leadership can accomplish once their minds are open to new possibilities. There are no guarantees, but it pays to assess the feasibility of these new integration opportunities. The remaining chapters in this book show you what this could look like at scale, and provide further evidence of change, while looking at how to prioritize competing opportunities, and shows how to go about envisioning a future different from our current reality. To apply learning from this chapter, do your own research, and apply the trends, standards, certifications, and practices to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

• •

Is there a SASB materiality map for your industry sector? Research chapter trends, how can your enterprise save dollars and create value from them?

•

Where are there C2C, and IE opportunities in your industry?

•

What product declarations are in use in your industry?

•

What is your building’s EUI?

•

How many high-performance buildings are near you (LEED, Energy Star, Passive House, Green Globes, Living Buildings, or WELL certified)?

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Bibliography Ayres, R. U. (1994). Industrial metabolism: Theory and policy. In R. U. Ayres & U. K.Simonis(Eds.), Industrial metabolism: Restructuring for sustainable development (pp. 3 20). Tokyo: United Nations University Press. Chartered Institute of Management Accountants. (2014, May). Web. 09 Sept. 2016. Cradle to Cradle Products Innovation Institute. (2014). Get Cradle to Cradle Certified™. Cradle to Cradle Products Innovation Institute. Retrieved from http://www.c2ccertified.org/get-certified/product-certification. Accessed on August 2016 Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard Business Review, 91(5), 5060. Ehrenfeld, J. (2007). Would industrial ecology exist without sustainability in the background? Journal of Industrial Ecology, MIT, 11(1), 47. Frosch, R. A., & Gallopoulos, N. E. (1989). Strategies for manufacturing. Scientific American, 261(3), 144 152. Green Building Alliance (GBA) presentation. (2017, November 6). Source World Green Building Council. GSA Public Buildings Services. (2008). Assessing Green Building Performance: A Post Occupancy Evaluation of 12 GSA Buildings. Hart, S. (1997). Beyond greening: Strategies for a sustainable world. Harvard Business Review, Jan-Feb, 75(1), 66 76. Hawken, P., Lovins, A. B., & Lovins, L. H. (2007). A road map for natural capitalism. Harvard Business Review, 77(33), 145 158. Hawken, P., Lovins, A., & Lovins, L. H. (1999). Natural capitalism: Creating the next industrial revolution. New York, NY: Little, Brown. Jäger, U. P., & Sathe, V. (Eds.). (2015). Strategy and competitiveness in Latin American markets (pp. 199 218). Cheltenham and Northampton, MA: Edward Elgar Publishing. ISBN: 978 1 78471 141 2. Kats, G. (2003). The costs and financial benefits of Green Guilding: A report to California’s Sustainable Building Task Force. Kottasova, I. (2016). Starbucks cups aren’t recyclable. Here’s the solution.” CNNMoney. Cable News Network. Web. Accessed September 2016 at https://money.cnn.com/2016/07/21/news/starbucks-recyclable-cups/ index.html. Kotter, J. P. (1995). Leading change: Why transformation efforts fail. Harvard Business Review, March-April, 85(1), 96 103. McDonough Braungart Design Chemistry. (2002). Introduction to the Cradle to Cradle Designsm Framework (Version 7.02 ed.). MBDC and EPEA. McDonough, W., & Braungart, M. (2002). Cradle to Cradle: Remaking the way we make things. New York, NY: North Point Press. McDonough, W., & Braungart, M. (2013). The upcycle: Beyond sustainability Designing for abundance. New York, NY: North Point Press.

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OECD. (2001). Extended producer responsibility: A guidance manual for governments. Paris, France. Porter, M. E. (1996). What is strategy? Harvard Business Review (November December), 74(6), 61 78. Rapacioli, S., Lang, S., Osborn, J., & Gould, S. (2011). The elephant in the boardroom. Human Resource Management International Digest, 19(5). Rosenberg, N. (1982). Inside the black box: Technology and economics (p. 72). Cambridge, NY: Cambridge University Press. ISBN 0-521-27367-6. Schreef, N. S. (2014). Humans in ecological overshoot: Collapse now to avoid a larger catastrophe. The Seneca Effect. https://thesenecaeffect.wordpress. com/2014/12/01/humans-in-ecological-overshoot-collapse-now-to-avoida-larger-catastrophe/. Accessed May 2016. The Product-Life Institute. (2013). Cradle to Cradle. Geneva: Product-Life Institute. Retrieved 09 12, 2016, from The Product-Life Institute: http:// www.product-life.org/en/cradle-to-cradle Turner, C., & Frankel, M. (2008). Energy performance of LEED for new construction buildings final report. White, R. M. (1994). President, National Academy of Engineering. Preface. In B. R. Allenby & D. J. Richards (Eds.), The greening of industrial ecosystems. Washington, DC: National Academy Press. Winston, A., et al. (2017, January February). Energy strategy for the C-Suite. Harvard Business Review, 95(1), 98 107. Accessed July 2018 at https://hbr. org/2017/01/energy-strategy-for-the-c-suite

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9 Crossing the Chasm Evidence and Opportunity Today, there is a growing community of more than 2,500 Certified B Corps from 50 countries and over 150 industries working together toward one unifying goal: to redefine success in business, and they have all signed an Declaration of Interdependence BLab1 Information in this chapter continues the review of best practices and the changing landscape for integrating sustainability into an enterprise, and function (i.e., systems within systems). Here we will review emerging trends and the evolving performance frontier introduced in Chapters 1 and 8, while proposing a new way forward. The trends covered in this chapter build off of environmental performance, closed loop systems, products, and high-performance buildings in the last chapter to look at performance measurement, social sustainability, reporting, and new business models. As part of the Section IV brainstorming actions to close the gap, the information and practices in this chapter provide further proof that you can identify and close the integration gap. The best practices and topics in this chapter will help you to compare and contrast your enterprise and to provide new insights as to what you can do when developing your own vision of integration. Existing practices can act as benchmarks showing integrated management and sustainability are already utilized across industries. The objectives of this chapter are to:

• explore strategies and practices that increase profits while creating environmental and social value;

1. From the home page for Benefits Corporation and summary of their statistics on this web page[…]https://www.bcorporation.net/

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• highlight and research important trends and integration practices; • review emerging performance measurement opportunities; and • help brainstorm actions for a future desired state of integrated management. Building on existing practices and trends, this chapter helps to brainstorm actions to close the gap for your individual function and enterprise as we review and learn more about integrated management trends, and best practices.

Brainstorming actions to close the gap Crossing the integrated Management chasm CDP and GHG protocol

Reporting

Social cost of carbon dioxide Hybrid models

How Firms Integrate: Crossing the Chasm toward Sustainability To understand the integration of sustainability into design processes, systems, and practices we draw from a modified version of the Technology Adoption Life Cycle assessment model from Chapter 6.2 This model has five categories of firms: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards (see Figure 9.1). We see these same categories of firms in our own research and find generalizable attributes of these firms within their different approaches to integration. An interesting aspect of the integrated management adoption model is the identification of gaps between the categories of enterprises. These gaps can be defined as the level of obstacles that must be overcome before the group will accept the integration opportunity. With modification to fit integrated management practices, the gaps signify the difficulties firms, and industries may have with sustainability. The largest gap,

2. Moore (1991). Information and figures from this and the following section modified and used with permission from Sroufe and Melnyk (2017).

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The Chasm

Relative % of adopters

Innovators, integration enthusiasts

Early adopters, visionaries

Early majority pragmatists

Late majority conservatives

Laggards skeptics Time

Want integration and performance

Want solutions and convenience

Figure 9.1: Integrated Management Adoption Cycle. Source: Modified from Sroufe et al. (2000). the “chasm,” separates the Early Adopters from the Early Majority. This chasm is important because the acceptance of sustainability initiatives, amount of time, and resources allocated, type of culture necessary, presence of tools or measures available, and sustainability options explored are different on either side. The gaps between the other categories of enterprises are not as clear, and do not affect the acceptance of integrated management initiatives as dynamically as the larger chasm. Crossing the chasm can be described in what the Early Adopter is pursuing. Firms to the left of the chasm are perceived change agents with a competitive advantage and ability to differentiate products or services. The chasm can also represent the performance frontier described in more detail in Chapter 8. The chasm is a gap between different levels of integrated practices. To understand where your own enterprise may stand or to help identify other firms within a given industry sector, we offer the following attributes of each category of firms. The Innovators pursue new integration management opportunities aggressively because unique ESG resources are central to their manufacturing and service delivery process. These firms may have integrated because of a good fit with a cross-functional culture, ability to measure performance on multiple dimensions, and business environment they faced. Integrated management and innovation are considered part of the formal corporate culture. Innovators promote “sustainability” as part of culture, market “green” or “eco-labeled” products, and seek

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new technology for specialized information, GHG waste avoidance, utilize a social cost of carbon dioxide (SCC, also called a shadow price), more effective public relations programs, frequent auditing and reporting, and frequent management reviews and policy improvements. These firms develop an integrated and formal design process in order to have a unique resource (e.g., management and decision support systems) and specialized information to aid in decision-making. They find that enhanced financial performance and competitive advantage can come from the design and integrated management process. There are not many Innovators, but their success is key, because their endorsements reassure the other firms that new integrated management initiatives do in fact work. A commonly used example of an innovator is the General Electric Company. Since 2005, GE’s Ecomagination program has four commitments: (1) double the investment in R&D for cleaner technologies; (2) increase revenues from Ecomagination products; (3) reduce GHG emissions and improve the energy efficiency of GE’s operations; and (4) keep the public informed. These commitments represent ambitious goals for innovation and reflect the broader challenges their customers and society face. Drawing on their global capabilities, strengths in technology and knowledge of markets around the world, GE leverages their ability to build a broad portfolio of innovative solutions to a range of energy and environmental challenges. In this context, GE Global Research has formed an Ecoassessment Center of Excellence that provides focused expertise in life cycle assessment, end of life and transportation, along with assessment of a material’s impacts on the environment, and human health risk assessment. While many factors affect a firm’s adoption of integrated management practices, the drivers tend to be the formal cross-functional responsibility found within these firms, use of teams, corporate culture that understands the opportunities that come from tackling sustainability issues, the use of ESG performance measures, and the presence of a sustainability functional unit to drive integration. Motivations for action and implementation of integration activities are found within a receptive corporate culture. In many situations, the CEO dictates the corporate acceptance of integration within culture; while in other enterprises, environmental and social champions within functions lead the way. We have found that the more innovative firms tend to have environmental specialists and engineers involved in all of the design processes and they value the inclusion of ESG performance measures in individual and enterprise performance assessment.

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Early Adopters are much like Innovators, having bought into new ESG concepts early in the concept’s life cycle, but unlike Innovators, their corporate culture does not emphasize “sustainability.” Rather Early Adopters are firms who find it easy to conceptualize, or understand the first mover benefits of integrated management initiatives, and relate these potential benefits to their objectives. These enterprises tend to look at initiatives from an anticipatory performance measurement and cost savings perspective. Early Adopters do not rely on well-established references in making integrated management decisions; they instead prefer to rely on vision, intuition, and developing their own business case for integrating environmental and social opportunities. Early Adopters become the key to opening up new sustainability initiatives in technology or the adoption of new standards and efforts to utilize a SCC in decisionmaking. Adoption of life cycle assessment or environmental standards such as EMAS, ISO 14000, ISO 50000 for energy management, Net Zero goals, or AS8000 for governance are directly aimed at financial enhancement and competitive advantage. The driving forces for improvements are to seek new technology for waste elimination, early adoption, and learning from emerging standards, more effective public communication programs, product declarations and labeling, auditing and reporting, and frequent management reviews and policy improvements. Early Adopters find the factors affecting value (i.e., flexibility, lead time, cost, and innovation), the market, and performance measurement to be important to the integration of new opportunities into new product design. While the design process itself may be formal, there are components of the process that formally and informally integrate ESG issues. Informal integrated management is typically the work of an environmental champion, and formal processes involved check sheets, and cross-functional information systems (i.e., and EMS), and a sign-off at each stage or gate of the product development process. The Early Majority share the Innovator’s and Early Adopters ability to relate to new integration initiatives, but need practicality. Our prior research has shown these firms are risk averse, and many times content to wait and see how others are progressing before they adopt or invest in an initiative. Early Majority firms need a compelling, verifiable reason to change. ESG issues are seen as more of a coming opportunity than an integrated part of business processes. The driving force for integrated management improvements is the threat of changing industry norms, potential risks, and regulation. The Early Majority look at integrated initiatives such as life cycle assessment, cradle to cradle certifications, industrial ecology, product declarations, and high performance buildings

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opportunistically and informally. The Early Majority and Late Majority focus more on the elements of value, with a necessary focus on costs and the budgets constraining their efforts. The Late Majority consider the costs (first costs) of new sustainability projects too high to justify. As a result, they wait until there is an established standard or coming industry norm before starting a new initiative and showing support. Thus, the importance of established standards discussed in Chapter 7. Late majority firms see drivers for ESG improvements as favorable to public perception of company operations, avoidance of legal liabilities, and protection of the firm’s reputation. Integrated management initiatives may be included in decision-making periodically and informally. The Late Majority tend to consider more carefully the tradeoffs of their performance frontier concerning the allocation of scarce resources to ESG performance improvements. The final classification of enterprises is the Laggard. These organizations are the last to adopt integrated management of ESG performance enhancement, and simply do not want anything to do with new integrated initiatives for a variety of reasons. The only time they buy into new initiatives is when it is a critical part of their product or when an external group (e.g., customers or regulators) forces it on them. The drivers for sustainability improvements are regulations and industry norms. Laggards are reactive, focusing primarily on governmental regulations (specifically Occupational Safety and Health Act, Resource Conservation and Recovery Act, Waste Electronic and Electrical Equipment, and Regulation Evaluation, Authorization and Restriction of Chemicals regulatory requirements) to drive integration opportunities. For Laggards, integration, if it is considered, is the job of the Environmental Health and Safety function and lawyers. Typically, an environmental problem (spill, accident, or injury) is what will prompt action from a Laggard, rather than seeking opportunities for integrated management of ESG performance enhancement.

Crossing the Chasm Enterprises can, and have, crossed the chasm to improve the integrated business practices. The existence of the chasm does not, in itself, stop the evolution of an enterprise from realizing a more dynamic performance frontier. Instead, the chasm represents the greater amount of effort needed by decision-makers at an enterprise to take a proactive stance toward enhancing ESG practices. Innovators and Early Adopters have

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formally integrated these opportunities into the new product design process within firms such as 3M, Covestro, Dow, Disney, DuPont, L’Oréal, Herman Miller, Timberland, and Unilever. Examples can be found within formal processes that integrate environmental concerns into each step of a new product design process. LCA software, databases, environmental management systems, the SCC, and information systems are in place to aid in decision-making. Being among the first to adopt, the Innovators and Early Adopters expect to get a jump on the competition via specialized assets and a more dynamic performance frontier that creates obstacles for others to catch up to. This jump on the competition can take on several forms, i.e., unique resources, reputation and brand image, legal restrictions to entry and access to new markets, perceived risk reduction by investors, lower product costs, waste and GHG elimination, energy reduction, more complete customer service, or other advantages that include employee attrition, learning, human health, and productivity. By contrast, the Early Majority want productivity and efficiency improvements for existing operations. Integrated management is seen as a way to minimize discontinuities with the old ways of doing business. By the time these enterprises integrate practices, they expect it to work properly and to work more seamlessly with their existing systems and standards. The Early Majority and other enterprises to the right of the chasm (also considered farther inside the performance frontier) take a more opportunistic, or periodic, and informal approach to the integrated management of sustainability. These enterprises typically have few if any formal systems that help with environmental and social issues during product development. Instead, they rely on individual champions to address environmental and social performance opportunities as they arise. The Laggards do not even consider ESG integration as these performance metrics are seen only as tradeoffs. Lubin and Esty state that sustainability is a strategic imperative for firms.3 Within this context, the authors suggest a key starting place is to have leadership with a vision of sustainability and understanding of the value creation process. Next, management needs to establish and integrate execution capabilities for which we know design and systems thinking are critical elements. Whether your enterprise is involved in assessment, strategy development, or process improvement, the use of integrated management across functions will shape your thinking,

3. Lubin and Esty (2010).

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manufacturing, and delivery of goods and services in profound ways. Crossing the chasm with a focus on value creation and performance metrics may be what enables your enterprise to take advantage of the trends reviewed in Chapter 8, and those we review next in this chapter.

Social Cost of Carbon Dioxide The Social Cost of Carbon Dioxide, abbreviated as SCC is about estimating the benefits of reducing, or impacts of GHG emissions. The EPA and other federal agencies, and a growing list of multinational corporations use estimates of the SCC to value the climate impacts of business decisions and policy-rulemaking. The SCC is a measure, in dollars, (typically set at $36) of the long-term damage done by a single metric ton of CO2 emissions in a given year. A key aspect of this is to think about how this dollar figure also represents the value of damages avoided for a small emission reduction (i.e., the benefit of a CO2 reduction).4 Other movements coming out of this valuation of carbon dioxide impacts include “unburnable” fuel, stranded assets, and the keep-it-in-the-ground movements. The understanding is relatively straightforward: in a sustainable society, nature is not subject to systematically increasing the substances extracted from the earth’s crust or concentrations of substances from society. We can avoid social costs of climate change by not extracting and burning fossil fuels. The SCC is meant to be a comprehensive estimate of climate change damages and includes changes in net agricultural productivity, human health, property damages from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning. However, given some modeling and data limitations, it does not include all important damages. The Intergovernmental Panel on Climate Change Fifth Assessment report observed that SCC estimates omit various impacts that would likely increase damages. The models used to develop SCC estimates, known as integrated assessment models, do not include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature. This is because of a lack of precise information on the nature of some damages and because the science incorporated into these models naturally lags research with new findings

4. EPA Fact Sheet (2016).

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published every month. Nonetheless, the current estimates of the SCC can be considered conservative estimates, and are a useful measure to assess the climate impacts of CO2 emission changes. This is how GHG emissions can be normalized to CO2 emission with a monetary value placed on them. To attempt to understand this value, Gernot Wagner, a research associate at Harvard’s School of Engineering and Applied Sciences and an expert on carbon economics, describes it this way; “Every time someone flies across the country and back, they emit about one ton of carbon, which causes about $40 worth of “climate damages to the economy, ecosystems, human health, and the planet. All 300 million of us in the United States all seven-plus billion of us then pay a fraction of a penny every time I get to take a round-trip to San Francisco. That’s the real problem: I benefit; the rest of society pays.”5 This is similar to insights from Michael Bloomberg and Carl Hope, in their book Climate of Hope when talking about examples of moral hazards, where 23% of global climate change pollution is emitted by one country, yet the goods produced in that country are consumed elsewhere. The federal government calls the impact of carbon dioxide the “social cost of carbon.” It has put a price on it as a way of addressing climate change issues. That price has been set at $36 per metric ton of carbon dioxide emitted into the atmosphere. Modeling has this cost rising to $50 a metric ton in 2030 and $69 a metric ton in 2050. It gets more expensive the longer we wait to take action. The EPA uses the SCC when it calculates the efficiency ratings of products like refrigerators and the impacts of federal policy. Note that different researchers come to different costs, and several are far higher than the EPA’s. The upper bounds are between $55 and $266 per metric ton of carbon.6 Estimates of the social cost of GHGs increase over time because future emissions are expected to produce larger incremental damages as physical and economic systems become more stressed in response to greater climatic change, and because GDP is growing over time and many damage categories are modeled as proportional to GDP. One of the most important factors influencing SCC estimates is the discount rate. A large portion of climate change damages are expected to occur many decades into the future and the present value of those damages (the value at present of damages that occur in the future) is highly dependent on the

5. Hanley (2016). 6. Hanley (2016).

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discount rate. To understand the effect that the discount rate has on present value calculations, consider the following example. “Let’s say that you have been promised that in 50 years you will receive $1 billion. In ‘present value’ terms, that sum of money is worth $291 million today with a 2.5 percent discount rate. In other words, if you invested $291 million today at 2.5% and let it compound, it would be worth $1 billion in 50 years. A higher discount rate of 3% would decrease the value today to $228 million, and the value would be even lower $87 million with a 5% rate. This effect is even more pronounced when looking at the present value of damages further out in time. The value of $1 billion in 100 years is $85 million, $52 million, and $8 million, for discount rates of 2.5%, 3%, and 5%, respectively. Similarly, the selection of a 2.5 percent discount rate would result in higher SCC estimates than would the selection of 3% and 5% rates, all else equal.”7 EPA and other federal agencies also use estimates of the social cost of methane (SC-CH4) and the social cost of nitrous oxide (SC-N2O) in analyses of regulatory actions that are projected to influence CH4 or N2O emissions in a manner consistent with how CO2 emission changes are valued. Valuing and including the future impacts of waste (GHG emissions normalized to CO2) enables innovation and can differentiate firms. MNCs have taken notice. With over 1000 MNCs using the SCC, also called a shadow price (more on below in the following brief), any enterprise can utilize this valuation of waste to inform decision-making. It can recognize new value (costs avoided) in project investments, technology acquisitions, accounting, discounted cash flows, returns on investments, and further advance an already strong business case for integrated management by also considering the environmental and social value in decision analysis.

Carbon Disclosure Project and GHG Protocol In 2000, the establishment of the CDP (www.cdp.net) focused attention on the collection of CO2 information from companies to “accelerate unified action on climate change.”8 Based in the United Kingdom, the CDP provides centralized accounts of corporations’ climate change and water management policies and measures their direct impact on the

7. EPA Fact Sheet (2016). 8. Carbon Disclosure Project (2011).

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environment through greenhouse gas emissions. Working with institutional investors and purchasers holding > $100T in assets, the CDP has a worldwide presence, including offices in New York, Berlin, São Paulo, Beijing, and Tokyo.9 CDP reports a company’s emissions based on scope, reduction from base year, and target year emissions. Like many sustainability programs, CDP believes in using base targets to set goals for reduction. In the Supply/Chain Public Procurement options, supplier companies’ carbon information is requested in order to identify emissions through all parts of the production and distribution process. The Supply Chain Report, A New Era: Supply Chain Management in a Low-Carbon Economy is available as a free download highlighting survey results of CDP reporting organizations and suppliers.10 Results of the survey show 90% of CDP supply chain member organizations have a climate change strategy. Additionally, 62% reward suppliers for good carbon management practices with 39% soon to deselect suppliers that do not adopt such measures. When CO2 emission are looked at as waste and associated cost, there become new ways to envision the cost sharing investments across supply chains and the shared benefits from collaborative partnerships. While climate change policy is still evolving, organizations are seizing the GHG space as a means of differentiation and waste reduction. To help in this process, the GHG Protocol Initiative (www.ghgprotocol.org) arose when World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) recognized the need for an international standard for corporate GHG accounting and reporting. Together with multination corporate partners such as British Petroleum and General Motors, WRI identified an agenda to address climate change, among which included the need for standardized measurement of GHG emissions. In the late 1990s, WRI and WBCSD convened a core steering group comprised of members from environmental groups (WWF, Pew Center on Global Climate Change, The Energy Research Institute) and from industry (Norsk Hydro, Tokyo Electric, Shell) to engage in a multi-stakeholder standards development process. The GHG Protocol is now the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions. As part of a decade-long partnership between the WRI and the WBCSD, the GHG Protocol is the result of

9. Molloy (2010). 10. Carbon Disclosure Project (2011).

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work with businesses, governments, and environmental groups around the world to build a new generation of credible and effective programs for tackling climate change. It serves as the foundation for nearly every GHG standard and program in the world from the International Standards Organization to The Climate Registry as well as hundreds of GHG inventories prepared by individual companies. The GHG Protocol also offers developing countries an internationally accepted management tool to help their businesses to compete in the global marketplace and their governments to make informed decisions about climate change. The GHG Protocol Corporate Accounting and Reporting Standard (also called the Corporate Standard) was published in 2001. Since then the GHG Protocol has built upon the Corporate Standard by developing a suite of calculation tools to assist companies in calculating their greenhouse gas emissions and additional guidance documents such as the GHG Protocol for Project Accounting. Additionally, WRI and WBCSD have partnered with governments, businesses, and non-government organizations in both developed and developing countries to promote the broad adoption of the GHG Protocol as the foundation for sound climate change strategies. The primary benefits of using the GHG protocol include its acceptance as a global standard, understanding of process level performance metrics, and the scope and bounds of GHG measurement for organizations and supply chains. This information is important for understanding and determining who is responsible for GHG emissions, goal setting, and differentiating from others within an industry. Understanding starts with knowing the scope of GHG emissions and what you have direct control over (Table 9.1). The ISO adopted the Corporate Standard as the basis for its ISO 14064: Specification with Guidance at the Organization Level for Quantification and Reporting of GHG Emissions and Removals. This ISO action highlighted the role of the GHG Protocol’s Corporate Standard as the international standard for corporate and organizational GHG accounting and reporting. ISO, WBCSD, and WRI signed a Memorandum of Understanding in 2007 to jointly promote both global standards. The CDP and GHG protocols enable vast amounts of information for benchmarking, and functional integration of CO2 measurement along with opportunities for; enterprise, building, energy system, and global supply chain performance assessment. The CDP and GHG protocol initiatives provide proven models for understanding, and with the help

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Table 9.1: GHG Protocol Emission Definitions. Scope 1: Direct GHG emissions Direct GHG emissions occur from sources that are owned or controlled by the company (e.g., emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.), along with emissions from chemical production in owned or controlled process equipment. Scope 2: Electricity indirect GHG emissions Scope 2 accounts for GHG emissions from the generation of purchased electricity or brought into the organizational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated. Scope 3: Other indirect GHG emissions Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of raw materials and finished goods; and use of sold products and services. For products such as consumer electronics, the use of the product will have the largest impact on GHG emissions.

of the GRI framework, reporting, process level performance rolled up into enterprise and supply chain performance.

Global Reporting Initiative (GRI) The introduction of materiality (in Chapter 5), is one of the most important foci of the latest version of the GRI (www.globalreporting.org/). This enterprise is a multi-stakeholder non-profit organization founded in the United States in 1997 by the Coalition of Environmentally Responsible Economies. In 2002, GRI was formally recognized as a UNEP collaborating organization and moved its central office to Amsterdam, where the Secretariat is currently located. GRI has regional “Focal Points” in Australia, Brazil, China, India and the United States, and South Africa and a worldwide network of 30,000 people. This organization’s sustainability reporting framework has become the de facto framework used around the world to enable greater

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organizational transparency, and their guidelines are available to the public at no cost. GRI’s reporting guidelines are used by thousands of companies in over 100 countries.11 The GRI’s mission is to mainstream the disclosure of environmental, social, and economic performance metrics for companies. The goal of GRI is to develop a standard practice for sustainability reporting which allows stakeholders to compare sustainability related data. These sustainability-reporting standards have been continuously developed over 20 years and represent global best practice for reporting on economic, environmental, and social issues. There are several options for reporting depending on the level of detail and amount of metrics a firm can measure and verify. After a company has decided to utilize the GRI reporting structure, the GRI metrics can be used as an audit template internally. The internal auditing and reporting process categorizes information for a general profile disclosure, management approach, an executive mission statement, and a strategy for executing sustainable initiatives. These initiatives are then linked to performance indicators as they relate to economic, environmental, and social metrics. The principles and guidelines help to make the report tailored to a company’s specific industry and the sustainability challenges they face. Primary benefits of GRI reporting include the use of existing performance metrics for environmental, social, human rights, society, and product responsibility and the ability to have third party verification of report contents. Thus, you do not have to reinvent the wheel when looking to integrate relevant ESG metrics. Developing a GRI based sustainability report can be a beneficial undertaking for any enterprise and help focus effort on meaningful and strategically aligned, e.g., “material” actions. The auditing and reporting process facilitates process level understanding of operations and functions and should be leveraged to inform management decisions, identify benchmarks and actions for cost reduction and avoidance, supply chain integration, brand reputation, and market differentiation. GRI guidelines and performance metrics also help with the assessment of corporate governance. In an earlier survey of GRI report readers, 90% of those polled said that reading the

11. The GRI produces a comprehensive Sustainability Reporting Framework that is widely used around the world, to enable greater organizational transparency. The Framework, including the Reporting Guidelines, sets out the Principles and Indicators organizations can use to report their economic, environmental, and social performance. GRI is committed to continuously improving and increasing the use of the Guidelines, which are freely available to the public. Global Reporting Initiative (2013d).

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sustainability reports resulted in them viewing the companies in a more positive light.12 Enablers of reporting internally include top management and systems with the capabilities to capture and report in real time. Drivers and enablers of reporting and transparency include employees, community, and both internal and external stakeholders while developing materiality maps. Investors and stakeholders looking to verify ESG claims of companies can look for these reports to better assess integrated performance. GRI reporting firms include the likes of Alcoa, Apple, EMC, Ford, IBM, Herman Miller, Walmart, and Unilever to name a few. Trends show information in these reports disproportionately includes carbon footprinting, evidence of ESG performance goals and management systems as these enablers of integrated management are keys to success.13 Information within these reports indicates intent and follow-through from year to year while complementing financial reports. Developing a strategy to integrate sustainability does not increase communication and operating costs, as just the opposite has been found with studies showing a strategy that includes comprehensive reporting, goals and verification of data, improves profitability.14

Integrated Reporting and IIRC The intent of IR is to improve the management decision-making process, create an innovative approach to stakeholder relations, and connect internal departments within an enterprise. Additionally, IR does not require disclosure of all financial material and non-financial information as it is designed for the unique business model of each organization. The history of Integrated Reporting has four distinct phases. The first phase, known as company experimentation began in 1999, when Price waterhouse Coopers created the Value Reporting Framework.15 Their intent was to identify non-financial information that is relatable across the board to all industries. It was also during this phase that two Danish

12. Brown, Martin, and Teodorina (2007). Web. September 22,2011; Retrieved March 22, 2013 from; http://www.hks.harvard.edu/mrcbg/CSRI/publications/workingpaper_36_ brown.pdf 13. Sroufe (2017). 14. Waghor (2017). 15. “Pricewaterhouse Coopers (PwC).” Integrated Reporting, integratedreporting.org/profile/pricewaterhousecoopers-nv-netherlands-accounting/. Accessed September 21, 2017.

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companies, Novozymes, a biotech company, and Novo Nordisk, a global healthcare company along with Natura, a Brazilian company who specializes in cosmetics, released their first Integrated Reports in 2002. The second phase was expert commentary when consultants, academics, and other experts began to establish the basic principles of Integrated Reporting. These principles are based on observations of corporate practices and include; bringing greater cohesion and efficiency to the reporting process, and adopting “integrated thinking” as a way of breaking down internal silos and reducing duplication, as well as focusing on value creation, and the types of capital used by the business to create value over time.16 The third phase, codification, began in the first decade of the twenty-first century when an amalgamation of NGOs, accountants, business leaders, and investors, began to work with each other to better define Integrated Reporting. Codification can be a roadblock for a cohesive understanding of Integrated Reporting across various industries and international markets, mainly due to the loosely defined explanation of the concept. The fourth and final phase is institutionalizing. This consists of the efforts by the groups mentioned in phase three, in influencing the regulatory and market environments to create a more favorable climate for the implementation of Integrated Reporting. The main goal of the fourth phase is to create voluntary codes of conduct and encouraging the passage of laws and regulations. It is important to understand the development of each phase to understand what the successful creation of an Integrated Report will look like and how this can benefit an enterprise. Numerous challenges exist to the implementation of Integrated Reporting at the business leadership level. First, the lack of a common definition and lack of a unanimous framework hinders the implementation of this approach to reporting. Both the IIRC https://integratedreporting.org/ and organizations such as the Global Accounting Alliance (GAA) https://www.globalaccountingalliance.com/ have acknowledged this shortcoming. The GAA encourages the “full adoption of the International Framework as a credible basis in the ongoing journey of relevant corporate reporting.”17 Additionally, Robert Eccles noted that adding and changing reporting regulations is an ongoing struggle between companies and those who demand information from them. Some companies argue that additional reporting regulations will put

16. Eccles and Krzus (2015). 17. Hubbard (2014).

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them at a competitive disadvantage.18 This is a fair point to make as many are concerned that increasing transparency can give away proprietary information and possibly competitive advantage. The International Living Future Institute’s (ILFI’s) Declare labels for living products can provide some evidence of satisfying the need for transparency while at the same time disclosing all the chemicals in a product, typically down to a 100-ppm level. ILFI does this by not fully disclosing the exact mix of chemicals or process information, but instead providing assurance that this label is backed by a full Life Cycle Assessment and details that can still protect the manufacturer while at the same time promoting a new standard for transparency. The third challenge is an offset of the first challenge and that is who internally is responsible for Integrated Reporting? Typically, the CFO oversees compiling annual financial statements, however it is important that the person in charge of creating an Integrated Report can coordinate between the upper executives of the company and focus not exclusively on the financial picture, but the more dynamic operations that encompass an enterprise. This person and/or team must be able to accurately and decisively present their findings to the board of directors and the various shareholders of a company.19 As an experiment, an Integrated Report was developed for ExxonMobil. It took only 40 hours and used existing, publicly available data. It was done, to address concerns in the corporate community about the perceived costs, and litigation risk from reporting.20 Not only was this plausible, but the material ESG issues for ExxonMobil touch all of the United Nation’s Sustainable Development Goals except for SDG#4 on quality education. Additionally, their supply chain management affects 14 of the SDGs and if an internal team did this report it could be more detailed, include their own materiality assessment, and enable integrated thinking within the company. Over 750 organizations have adopted the approach around the world (e.g., Dell, Coca-Cola, Shell, Natura, United Technologies, Philips, PepsiCo, Southwest Airlines, Puma, and Bayer to name a few). Among nations, South Africa has been one of the foremost leaders. For example, South Africa is the only country in the world where Integrated Reporting is mandatory with occasional chatter of this taking place on

18. Eccles and Krzus (2015). 19. Eccles and Krzus (2015). 20. Eccles and Krzus (2018) and see Eccles (2018).

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individual stock exchanges such as the NASDAQ and DOW. Outside of requirements, dedication to long-term value has compelled industries and companies to adopt integrated reporting. The product manufacturing and grocery industry initially adopted the usage of the UPC code. Despite high initial implementation costs, the adoption of the UPC provided standard definitions for products, automated inventory management and customer check out, and helped retailers and consumers to better understand optimal menu options and promotions. The analogy of the UPC code, and similar trends from RFID from the past foreshadow the adoption of integrated reporting. Take this a step further and new technologies such as Blockchain hold even more potential to accelerate integration. Novo Nordisk, a global health and diabetes care provider, was one of the first companies to explore the experimentation of Integrated Reporting in 2002 with Danish company Novozymes and Brazilian company Natura. These companies identified sustainability and managerial competencies as critical for long-term success and determined that traditional financial statements like the income and balance sheet do not quantify these topics. Novo Nordisk created its first Integrated Report in 2004 and as a result has cofounded the Diabetes Advocacy Alliance, which is a network of organizations who educate policy makers about potential legislation to reduce the number of people facing diabetes. As a side note, Novo Nordisk’s US headquarters is fully powered by renewable resources, which has contributed to a 30% reduction in energy costs. Financially, Novo Nordisk won the 2009 Good Neighbor Award for success in job creation and community involvement, and now contributes 14% of sales to research and development. Southwest Airlines created its “One Report,” an integrated report, which transformed from the Environmental and Financial Stewardship report in 2009. The creation of this report required high investment from senior management to gather and streamline data to inspire improvement. Results gathered from the implementation of integrated reporting in 2016 include the capacity to save over 300,000 gallons of fuel in trucks and vehicles, 2 million hours spent on training and education. For example, the funding of the new “Wings” training center, over 650,000 conversations with customers via social listening, 85% of employees proud to work for Southwest, nearly 150,000 volunteer hours.21

21. Southwest One Report (2016).

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Enablers of sustainability and financial report integration includes top management and cross-functional collaboration with marketing and communications, public affairs, accounting and finance. While the collection of data is within formal and informal systems, there is a new opportunity to turn these numbers into meaningful information and a new story to tell about an enterprise. The combined efforts of putting together One Report (the first book on integrated reporting published in 2010 by Eccles and Kruzs) purposefully promotes functional integration and understanding of practices affecting more than a single bottom-line. Going beyond single bottom-line performance is the focus of the next brief.

Impact Investing The concept of impact investment evolved from socially responsible investing, which involves screening out investments with negative social impacts. Modern impact investing goes beyond avoiding the negative and seeks to make positive change.22 The Global Impact Investing Network (GIIN) https://thegiin.org/, a nonprofit dedicated to increasing the effectiveness of impact investing, provides comprehensive resources on the topic. GIIN defines impact investments as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”23 Concerning financial returns, GIIN states “impact investments [...] target a range of returns from below-market to market rate returns.”24 Though some funds do yield above market returns, as the practice suggests, most fund managers and investors do not take a full range of returns into consideration. Impact investors seek social and environmental outcomes that would not occur if not for their investments.25 Impact investing can be seen as the integration of sustainability and investing taken to the next level.26 This approach to investing involves

22. Edwards-Pitt (2014). 23. “Global Impact Investing Network: About Us.” Global Impact Investing Network. GIIN, n.d. Web. September19, 2014. 24. “Global Impact Investing Network: About Us.”Global Impact Investing Network. 25. Brest and Born (2013). 26. From the Margins to the Mainstream Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors. Areas of Definitional Confusion. World Economic Forum, n.d. Web. September7, 2014.

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evaluating ESG factors.27 A quantitative and qualitative analysis allows for portfolios that are aligned with investors’ social and environmental priorities, while delivering the returns in line with investors’ financial goals. This rigorous financial process tries to consider the impact of an investment on all stakeholders.28 Financial services firm Rockefeller & Co., a leader in sustainability and impact investing, focuses on “seeking out investment opportunities in far-sighted industries and firms with attractive future growth and income potential.”29 They use the criteria of governance, products and marketing, workplace, environmental stewardship, community, and human rights, as well as intrinsic business model and individual business leadership, in determining sustainable investments. They believe that sustainability and affect investing does not mean forgoing competitive financial returns.30 Impact investing typically involves large amounts of capital, as the types of investors often include foundations, banks, health systems, and corporations.31 With more capital, challenges such as climate change and poverty can be addressed more effectively. Philanthropy and charitable giving are not considered impact investments. These larger capital investments can help companies create new technologies that promote the wellbeing of society.32 Impact investing is a prime example of what Porter and Kramer call “creating shared value” “[It] involves creating economic value in a way that also creates value for society by addressing its needs and challenges.”33 Impact investing seeks to create profits with a social purpose, where both the company and the community prosper what Porter and Kramer refer to as “a higher form of capitalism.”34 The majority of listed Impact Investing leaders, according to GIIN, are special foundations that are committed to social causes. One example, the Rockefeller Foundation, states that their target impact is to “improve the lives of poor or vulnerable people.”35 Thus, they invested $70,000 to

27. Schueth (n.d.). 28. Schueth, Steven. “History of SRI.” 29. “Sustainability and Impact Investing.”Rockefeller & Co. Rockefeller & Co., Inc., n.d. Web. September7, 2014. 30. “Sustainability and Impact Investing.”Rockefeller & Co. 31. Stern, Gary M. “Impact Investing.”Financial Planning. 32. Richter (2013). Business Source Premier. Web. September8, 2011 33. Porter and Kramer (2011). Print. 34. Porter, Michael E., and Mark R. Kramer. “Creating Shared Value.” 35. GIIN. “Impact investing Profiles,” Global Impact Investing Network. 2009-2014. Web. September8, 2014.

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the Disability Opportunity Fund to both assist in providing housing to the disabled and help build the fund’s capital.36 Similarly, the Bill and Melinda Gates Foundation invested $2 million in Inigral Inc., so that the company can improve its products and customer bases to help students complete secondary degree programs.37 In regards to environmental issues, the David & Lucile Packard Foundation invested $5 million in the Nature Conservancy to help them purchase 2,325 acres of land to restore and conserve it.38 This investment has since been repaid through grants the Nature Conservancy has received.39 Other examples include Aspirational Redwood Fund and Wonder Capital, originally only available to institutional investors, but now open to the general population. Moreover, they offer a guaranteed return. Enabling an impact investment strategy will involve evaluating the priorities of your enterprise and identifying what social and environmental causes align with your mission, considering how much capital is available, performing a quantitative and qualitative analysis of investment opportunities, and setting goals for both investment returns and social and environmental value created. It is important to remember to see opportunity in long-term investments as it typically takes years of measurement to see social and environmental value creation.40 To help with this GIIN has developed Impact Reporting and Investment Standards. A catalog of generally accepted performance metrics that allows investors to select metrics in line with their goals.41 For additional resources, see the Impact Measurement Working Group of the Social Impact Investing Taskforce, established by the G8, as they developed measurement guidelines for impact investors looking for new ways to find and measure the full benefits provided by an investment.42 Next, we look at how to design an entire enterprise around benefits and performance beyond a single bottom-line.

36. GIIN. “Impact investing Profiles.” 37. GIIN. “Impact investing Profiles.” 38. GIIN. “Impact investing Profiles.” 39. GIIN. “Impact investing Profiles.” 40. Kirby (2014). RBC Global Asset Management. May 31, 2014. Web. September9, 2014. 41. “Impact Reporting and Investment Standards.”IRIS. Global Impact Investing Network, n.d. Web. September19, 2014. 42. IMPACT MEASUREMENT WORKING GROUP: MEASURING IMPACT. Rep. Social Impact Investment Taskforce, September2014. Web. September 19,2014.

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Benefit Corporation What is a Benefit Corporation? According to BLab http://benefitcorp. net/, it is “a new legal enterprise to create a foundation for long-term mission alignment and value creation. It protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO.”43 In the United States, a certified BCorp is a type of for-profit corporate entity, authorized by 33 US states and the District of Columbia with 9 other states with legislation under consideration that includes public benefit and positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals.44 Benefit corporations differ from traditional C corporations in purpose, accountability, and transparency, but not in taxation. In 2015, Italy became the first country in the world to legally recognize benefit corporations across its entire territory. Australia is in the process of drafting their own similar version. The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment, i.e., maximum positive externalities and minimum negative externalities. A benefit corporation’s directors and officers operate the business with the same authority as within a traditional corporation but are required to consider the impact of their decisions not only on shareholders but also on society and the environment. In a traditional corporation, shareholders judge the company’s financial performance; with a BCorp, shareholders judge performance based on the company’s social, environmental, and financial performance. Much like an integrated report, transparency provisions require BCorps to publish annual benefit reports of their social and environmental performance using a comprehensive, credible, independent, and transparent thirdparty standard. Historically, United States corporate law has not been structured or tailored to address the situation of for-profit companies that wish to pursue a social or environmental mission.45 While corporations generally have the ability to pursue a broad range of activities, corporate decisionmaking is usually justified in terms of creating shareholder value. A

43. Benefit Corporation web site accessed January, 2018 at http://benefitcorp.net/ 44. Social Enterprise Law Tracker (2017). 45. Trust Law (2015).

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commitment to pursuing a goal other than profit as an end for itself may be viewed as inconsistent with the meme that a corporation’s purpose is to maximize profits for the benefit of its shareholders. The idea that a corporation’s purpose to maximize financial gain for its shareholders was first articulated in Dodge v. Ford Motor Company in 1919. Over time, through both law and custom, the concept of “shareholder primacy” has come to be widely accepted. This has recently been challenged by legal scholar Lynn Stout’s book The Shareholder Value Myth. More evidence of a shift away from shareholder value as the sole focus of an enterprise can be found in Bauer and Pain’s Harvard Business Review article on the “Error at the Heart of Corporate Leadership”, who argue the myopic approach to shareholder primacy is not the real purpose of a corporation.46 Why form this type of enterprise? Incorporating as a benefit corporation legally protects an entrepreneur’s social goals by mandating considerations other than just profit. By giving the owners and managers the secured legal protection necessary to consider the interest of all stakeholders, rather than just the shareholders who elected them, BCorps can help meet the needs of those interested in having their business help solve social and environmental challenges.47Additionally, the demand for corporate accountability has only increased in the last two decades, with many consumers already aligning their purchases with their values. Certified BCorp status is a purposeful way to differentiate your enterprise from the competition and capitalize on these customers. Obstacles come in the form of expanded reporting requirements. This means providing shareholders with adequate information to determine if your enterprise is achieving its stated purpose. Each year a BCorp must provide this information within its annual report.Key to this report is the requirement of a “third party standard” for assessing overall performance, and the process for selecting this third-party standard must also be reported within the report. The report must indicate the efforts made to achieve a general public benefit and/or the circumstances that hindered that achievement. These reports are required to be on the enterprise’s web site and can also be found within B Lab’s (the nonprofit organization serving the global movement of people using business as a force for good) searchable database. There are also impact assessment reports and analytic tools to help overcome the

46. Stout (2012) and Bauer and Paine (2017). 47. Bend and King (2014).

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obstacles of expanded reporting requirements. BCorps are fairly new legal entities. It is unclear how courts will interpret their mandates to not only seek profits, but also to consider potential benefits to society. Furthermore, the impact on raising capital and how angel investors and venture capitalists will react remains to be determined as these partnerships develop and evolve. Examples of certified BCorps include Kickstarter, Ben & Jerry’s, Patagonia, New Belgium Brewing, Method Products, Green Mountain Power, Warby Parker, and also include law firms, manufacturers, banks, architects, and real estate developers. When keeping up with current trends, keep an eye on these firms and others mentioned in the Chapter 8 briefs. Periodically compare and contrast the actions of these enterprises as it will help inform your pathway toward integration. That pathway could very well lead to a future “to be” state where your enterprise strategy aligns with established sustainability goals enabling measurement, reporting, and integrated reporting.

Chapter Summary The information in Chapter 9 explores business strategies and practices that increase profits, create social value and improve natural capital while providing a path for crossing the chasm. The trends reviewed here are part of an evidence-based approach to uncovering actionable practices and research highlighting contemporary integration opportunities. Given the changing performance frontier, there are now new management, reporting, and hybrid organization opportunities not yet visible to many, yet already in practice by some innovative and early adopting enterprises. Given the multitude of actionable trends in the last chapter and this one, there are several paths forward for an enterprise. Which opportunities will you choose and how will you prioritize actions? The remaining chapters in this book review new propositions for changes to decision-making along with how to prioritize competing opportunities so you can take action toward creating a future different from our current reality and the integrated enterprises we have been waiting for. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

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What Will Your Integrated Enterprise (IntEnt) Achieve?

•

Research and relate chapter topics to find where your enterprise can create new value.

•

Where and how can you apply the SCC and GHG Protocol?

•

How do you compare to your industry peer’s GRI reporting?

• • •

Review an integrated report from an enterprise highlighted in this chapter. Search for well-known companies that are also Benefit Corporations, what do you find? What can you learn from a Benefit Corporation annual report?

Bibliography Bauer, J., & Paine, L. (2017). The error at the heart of corporate leadership, Harvard Business Review, 95(3), 50 60. Bend, D., & King, A. (2014). Why consider a benefit corporation?, Forbes Community Voice. Retrieved from https://www.forbes.com/sites/ theyec/2014/05/30/why-consider-a-benefit-corporation/#3dcae1ed65e9. Accessed on January 2018 Brest, P., & Born, K. (2013). When can impact investing create real impact? (SSIR). Stanford Social Innovation Review, 11(4), 22 31. Brown, H. S., Martin, D. J., & Teodorina, L. (2007). The rise of the global reporting initiative (GRI) as a case of institutional entrepreneurship. Harvard University, 1 48. Retrieved from www.hks.harvard.edu Carbon Disclosure Project. (2011). Retrieved from https://www.cdproject. net/en-US//Pages/overview.aspx. Accessed on September 27, 2011 Eccles, B. (2018, March 21). In Praise of ExxonMobil’s Reporting Transparency. Forbes, Leadership, #BigBusiness. Eccles, R. G., & Krzus, M. P. (2015). Meaning and momentum in the integrated reporting movement. Journal of Applied Corporate Finance, 27, 8 17. Eccles, R. G., & Krzus, M. P. (2018, March 21). Constructing ExxonMobil’s First Integrated Report: An Experiment. Retrieved from SSRN: https:// ssrn.com/abstract=3145369 Edwards-Pitt, C. (2014, Aug. 7). Social impact investing: A flash in the pan or the wave of the future? Forbes. Forbes Magazine, Web. September 19, 2014.

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EPA Fact Sheet. (2016). Social cost of carbon, accessed January 2018 at https://www.epa.gov/sites/production/files/2016-12/documents/social_ cost_of_carbon_fact_sheet.pdf Hanley, S. (2016). Federal court knocks down challenge to EPA’s social cost of carbon, Clean Technica. Accessed August 2018 at https://cleantechnica. com/2016/08/16/federal-court-knocks-challenge-epas-social-cost-carbon/ Hubbard, J. (2014, Mar. 12). The practical Challenges of integrated reporting. GAA Accounting, www.gaaaccounting.com/the-practical-challenges-ofintegrated-reporting/. Accessed on September 21, 2017. Kirby, S. (2014). Align your portfolio with your values. Align Your Portfolio with Your Values,n. pag. Lubin, D., & Esty, D. (2010). The sustainability imperative. Harvard Business Review, 88(5), 42 50. Molloy, C. (2010). Cutting the carbon: Carbon disclosure project aims to foster a green economy. Accountancy Ireland, 42(6), 44 45. Moore, G. (1991). Crossing the chasm. New York, NY: Harper Business. Porter, M. E., & Kramer, M. R. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62 77. Richter, L. (2013). Social impact investing at the intersection of health and community development. National Civic Review, 102(4), 67 71. Schueth, S. (n.d.). History of SRI. The conference on sustainable, responsible, impact investing. SRI, Web. September 7, 2014. Social Enterprise Law Tracker. (2017). Status tool, accessed January, 2018 at http://www.socentlawtracker.org/#/bcorps Southwest One Report. (2016). Retrieved from http://southwestonereport. com/2016/. Accessed on January 2018. Sroufe et al. (2000). International Journal of Operations & Production Management, 20(2), 267 291. Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315 329. Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains to drive value volumes I and II. management issues, insights, concepts, and tools. New York, NY: Business Expert Press. Stout, L. (2012). The shareholder value myth. San Francisco, CA: BerrettKoehler Publishing. Trust Law. (2015). “Balancing purpose and profit: Legal mechanisms to lock in social mission for “profit with purpose” businesses across the G8.” Waghor, T. (2017). Sustainable reporting: Lessons from the Fortune 500, Forbes Leadership #BigBusiness. Retrieved from https://www.forbes. com/sites/terrywaghorn/2017/12/04/sustainable-reporting-lessons-fromthe-fortune-500/#6470f2986564. Accessed on January 2018.

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10 Propositions Integration and Innovation “One of the greatest mistakes we can make is to think that single bottom line financial measures of success from the past will suffice in the future” Robert Sroufe1 As part of the Section IV brainstorming actions to close the gap, the information and propositions in this chapter ask you to think about decision-making differently while providing further proof that you can identify and close the integration gap. The best practices and topics in this chapter will help you to compare and contrast your enterprise, to provide new insights as to what you can do when developing your own vision of integration. We will look at how integrated management and ESG performance can be part of financial decision-making. After reviewing propositions and tools in this chapter, a new performance frontier is available to you, and within reach. The objectives of this chapter are to:

• highlight and research important trends and integration practices; • review emerging performance measurement opportunities; • propose new valuation practices; • review tools to help assess and prioritize actions; and • envision a future desired state of measurement and integrated management. Building on existing practices and evidence-based management, Chapter 10 provides an opportunity to review and learn more about

1. I often say this within my MBA Sustainable Business Practices program courses.

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integrated decision-making, performance measurement and a new path toward the integrated management of ESG practices.

Brainstorming actions to close the gap Integration and innovation Integrated financial analysis

Decision making

Integration and Innovation Performance Frontier

Propositions

Valuation & tools

Pushing the

The above briefs from Chapters 8 and 9 all point to exponential increases in capabilities for performance measurement, management, and reporting of integrated performance. With hundreds of ESG metrics available to financial analysts in Bloomberg terminals, MSCI Global Socrates and Trucost data sets, decision-makers can include more than costs in decision analysis. The integrated management movement is happening as demonstrated in the topics covered in this book. It can move farther and faster in shaping a new performance frontier with the help of all functions, but especially accounting and finance along with supporting management systems. How? Integrated management is not something that is to be done in addition to strategy. It is a part of strategy and can create value. But is this always the case? Some will say yes, others will say no. As we explore new approaches to decision-making in this chapter, we will explore these questions and provide several propositions as a new path forward. When assessing the valuation of a company or project, we tend to consider measures such as costs, cash flow, returns, opportunity costs, time, discount rates, and few other factors. In general, the goal of these calculations is to weigh the benefits and costs of an investment. Yet, have we actually evaluated “all” of the benefits and costs? It is the criteria for what classifies benefits and cost that has been up for debate as intangibles and externalities have largely been avoided, and the full value not taken into account. With the introduction of the SCC, and other environmental/social impacts, there is now more to consider

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when evaluating cash flows and returns. The goal of these calculations is to increase the full, and long-term, value of the firm. Reclassifying this value could be considered the job of integrated decision-making. If only first costs are proposed and valued, everyone misses out on understanding the system dynamics of a decision if there is no attempt to include environmental and social value. We can debate the values, but there first needs to be acknowledgement by some that there is any value at all. Environmental impacts and externalities cannot continue to be worth nothing. What comes next is a look at financial performance and new propositions for measurement and management of integrated decisions and a new performance frontier. The propositions have been tested in multiple ways but not fully developed. This is good as it provides an opportunity to continue testing and expanding these ideas. This is also a call to action for open-minded optimists (future change agents) who can envision integrated decision-making. Next, conceptual and practical foundations for change will be outlined. The four standard financial reports reflect a firm’s status at a single period of time. The balance sheet offers what is considered the most comprehensive snapshot of a company’s financial position. It presents assets = liabilities + shareholders’ (owners’) equity on a specific date. From a balance sheet, investors in publicly held companies can see exactly what the company owns and owes, as well as the amount invested by the shareholders, thus getting a snapshot of a company’s financial health at a given moment. The balance sheet must always balance; the left side, assets, is always equal to the right side, liabilities, and shareholders’ equity. The four standard financial reports reflect a single point in time:

• The Income Statement shows profit (or loss) for a specific period of time.

• The Balance Sheet is a snapshot of an organization’s financial condition at a designated time point in time.

• A Statement of Change in Stockholder’s Equity is a supplement to the Balance Sheet showing any withdrawals or additions to contributed capital based from transactions between owner and entity.

• A Cash Flow Statement shows sources and uses of cash during a specific period.

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Overlooked in this balancing act are the 80% of a company’s assets and liabilities, including social and environmental, that conveniently fall outside the scope of accounting.2 This means our current accounting and financial reporting captures only 20% of the tangible valuation of an enterprise. Examples of intangible assets already show up as patents, copyrights, even customer lists and royalties are considered assets and therefore need to appear in the balance sheet (Figure 10.1). What aspects of an enterprise’s operations would make this unbalanced? Why not consider environmental liabilities along with the social value created as assets in balance sheets of the future?3 Why have we continued to take an “unbalanced” approach?

Figure 10.1: Expanded Balance Sheet.

2. Barry (2013). 3. Adapted from: Eccles and Saltzman (2011). and Sroufe and Ramos (2015).

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P1. We currently rely on an unbalanced approach to financial analysis and reporting. The reference to “bottom line” describes the relative location of the net income figure on a company’s income statement, the financial report that captures profit or loss status again at a single point in time. The net profit or loss figure will usually be the last line at the bottom of the page subtracting all expenses from revenues. This stands in contrast to revenues, which are the “top line” figures on an income statement. To improve bottom line profits, companies focus on increasing revenue through growth and/or cutting costs through efficiencies. By capturing a company’s financial health at a single point in time, without considering the full impacts and value created by a firm, the balance sheet and income statement reflect an incomplete and biased view of financial health and liquidity. McKinsey and Company have asked for change in the way the Generally Accepted Accounting Principles (GAAP) income statement is structured to help investors find the information they need for decision-making in one place and in a format that is easy to understand and compare.4 As such, these standard financial reports should be a transparent disclosure of a company’s revenues and expenses that investors can readily interpret. Not surprisingly, the call for measurement and reporting of sustainability practices (i.e., SASB, EPDs, SCC, CDP, GRI, , Impact Investing, and BCorps) that impact top and bottom lines comes from a diverse group of stakeholders, including accounting firms, consultancies, corporate executives, entrepreneurs, investment analysts, sustainability thought leaders and business educators. The prevailing sentiment across these stakeholders is that new performance measures should reside with known financial reporting mechanisms such as the income statement, balance sheet and cash flow statements. Some within the scientific community have called for assessing nature’s contributions to people, valuing intangibles, and human health effects, along with scientifically including environmental and social value in capital expenditures.5 We can envision a future when an Integrated Management Strategy Statement (Chapter 3) includes having a balance sheet that includes environmental and social performance line items. Perhaps renamed the “value statement,” it will capture the financial, social and environmental conditions of a firm over multiple periods

4. Jagannath and Koller (2013). 5. Diaz et al. (2018) and McGartland et al. (2017). And calls for more science based evaluations within investments by Vörösmarty et al. (2018).

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of time. This will be accompanied by a statement of change in stakeholder’s equity (rather than stockholders’ equity) aligning important industry issues, SASB materiality mapping, and strategic initiatives. There are at least three ways to look at the benefits of ESG data. First, the internal benefits of doing so include improved resource allocation decisions and increasing engagement with shareholders and stakeholders. Second, it would offer externally facing ESG investor data, and this can also be used for improved reporting and can be utilized by third parties for sustainability rankings and indices. Finally, risk management can be proactive, an enterprise can lead best practices in establishing metrics for standards and frameworks, and this integrated data can reduce risks when it’s part of strategy, operations, and supply chain management planning. P2. We can account for environmental and social value. If sustainability is the responsible utilization of all resources, and accounting is the universal language for comparing worth from company to company, then it should come as no surprise that valuing natural capital, C2C, IE, the GRI, , along with Impact Investing have emerged as the current revolution for utilization of resources, managing performance, raising capital, and leveraging innovation. For the purposes of this book and application to management decision-making, an IBL is the analysis and disclosure of financial, social, and environmental assets and liabilities to the internal and external stakeholders of a firm. This definition takes IBL beyond an accounting practice to a catalyst for the integration of sustainable management solutions, risk management, and stakeholder engagement. The formal and informal systems required for IBL reporting already exist in processes for reporting financial, human resource, sustainability activities.6 However, many decision-makers struggle to quantify the intangible assets and liabilities that affect profitability and liquidity, even though intangibles account for up to 80% of a typical enterprise’s valuation.7 The missing link to sustainable management solutions for many in business is the ability to fully understand natural and human capital and monetize the firm’s impacts on the natural capital and social sustainability. The result is that a financially-at-risk company can appear to be highly profitable on paper if the

6. Sroufe (2017). 7. Barry (2013).

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environmental and social assets and liabilities have not been fully assessed and reported accurately. P3. An IBL offers a more complete picture of enterprise value. Understanding the right problem, within the system in which the problem occurs, is critical to addressing problems and not their symptoms. Tackling the complex problems of wasteful systems with the early involvement of stakeholders is critical to unraveling the problem, creating a vision of the future, and making informed decisions. C2C, Design for Environment, and Industrial Ecology, Life Cycle Analysis, and EPDs are the result of addressing the complex problems of waste while trying to realize the value of closed loop systems. This is not easy, and it takes time as we all have different mental models and most of us understand only a narrow, functional specialists approach to recognizing and solving a problem. This should not be surprising given the structure of universities, training institutions and professional associations are primarily focusing on narrow areas of expertise. Consequently, there is a dearth of graduates and certifications for integrated management skills. If we can take a systems-thinking approach to identifying the drivers of problems, and map the variables related to the problem, we can develop a systems understanding of what is happening. Only then can we identify key leverage points in a system for real change. Leverage points, are key variables in a system offering the greatest opportunity for integrated and fundamental solutions to problems. As Meadows points out, “shifting ones mental model is far more powerful that the usual interventions in a physical, structural, or financial system.”8 What this also means is that beliefs are the most powerful drivers of behavior and action. To help improve the opportunity to find and utilize leverage points, look for root causes of problems as they provide a deeper understanding of the opportunity, and look for variables with the highest number of relationships to other variables within systems (causal loop diagrams) as they will have a multiplicative effect on other variables and the entire system. A systems-thinking approach to problem solving will help identify actions for “material” issues and opportunities for an enterprise. To this end, decision-makers can use the SCC and a cost on carbon dioxide in decision-making to assess the combined environmental and social value of an investment, new process, product, or service by measuring the

8. Meadows (1999).

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carbon dioxide associated with the investment. The SCC values natural capital and social impacts in the price of a ton of CO2 emissions. When using federal guidelines of $36/ton, we can assess the impacts of externalities that have been overlooked in business as usual decision-making. This means we can value the impacts of emissions (externalities) and the value of avoiding those impacts. The CDP has reported that Disney and Microsoft use an internal price on carbon dioxide of $6/ton, the State of California and Google $14, Province of British Columbia $30, Royal Dutch Shell $40, and Puma $87. When proposing new investments at Disney that lower emissions, they reward business units for projects that reduce emissions by giving back the value of the emissions avoided. This way, the business unit can use those resources to promote other innovative changes to business practices that reduce emissions further while monetizing environmental and social value creation. If Mickey Mouse can do this, what’s stopping the rest of us? Ford includes climate scientists on vehicle design teams to assess the impacts of their vehicles on climate change multiple years out into the future. They specifically assess CO2 levels in future scenario planning. Multinational companies are already using a SCC and a price on carbon dioxide emissions for financial analysis, and governments integrate it for the evaluation of policy-making. P4. We can integrate environmental and social performance measurement (both negative and positive) into decision-making. As varied stakeholders demand more information, better methods for assessing the value of sustainability has become an imperative. Traditional financial measures net present value (NPV), internal rate of return (IRR), return on investment (ROI) and payback cycles do not capture the short- or long-term importance, value, or risks associated with natural and social capital. This gap between the perception of importance and actual use of dynamic performance metrics confirms work on the integration of sustainability into project management.9 Managers within some of my own research studies have reported that within their enterprises, they are measuring natural and social resources throughout the organization, yet they do not fully utilize the information.10 There appears to be a disconnect from the capture of mostly environmental efficiency efforts and some social activities, and the use of this

9. Martens and Carvalho (2015). 10. Sroufe (2017).

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new data in accounting practices to inform holistic approaches to financial planning and decision analysis aligned with both sustainability and strategy. It always helps to provide examples of a holistic approach. Here, high-performance building projects are an example and the building blocks, all puns intended, of what could be the future of decisionmaking. Research with colleagues on building retrofits explore the integration calculations for 12 investments that improve the energy performance of buildings as well as offering other economic, environmental, or human benefits. The bottom lines calculations include the ROI, Payback in months or years, and 15-year NPVs for the Investment. These investments and their IBL calculations are illustrative of the potential of a new approach to accounting, to shifts in financial decision-making. They are not intended to be definitive or comprehensive as a set of investments, but each are significant relative to improving building energy performance and indoor environmental quality.11 Based on an integrated approach to the investments, we found integrating environmental and human data can shorten payback periods. Based on cost data collected from vendors, manufacturers and trade literature, first bottom line simple paybacks for 12 energy retrofit measures ranged from 2 to 20 years, combining both energy, facility management and other first bottom line benefits. When the environmental benefits of the electricity savings are included, simple paybacks were accelerated to 1.5 18 years. Most strikingly, when the human benefits of reduced health costs, lower absenteeism, and improved task performance or productivity are included, the paybacks for investments in energy efficiency in US offices are often less than one year. Figure 3 provides a summary of all 12 energy retrofit measures comparatively. Setting priorities between the 12 could be set by the lowest overall ROI (or the highest NPV), or set by the most affordable capital investment per employee with measurable environmental and human benefits reflected in ROI or NPV values (Figure 10.2). Utilizing existing data and management systems, there is a new opportunity to push for further integration. Based in part on the trends in this chapter and emerging research on integration, there is a call to action for a change in management systems to ensure they include natural and social performance factors. With the availability of this data comes an evolving approach to performance measurement. In addition

11. See the dissertation of Srivastava (2018) and Sroufe and Srivastava (2018).

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270

Lighting

Enclosure

HVAC

105 100

90

194

225

243

100

95

8

183

175

190 92

85

6

70

72

65

68 65

60

5 60

55

55

54

50 45

52

4

49

40 35

3

38

Payback period (in years)

Payback period (in months)

Financial + environmental + human

Payback period

75

Financial Financial + environmental

Inte grated Management

7

80

30 25

30

30 27

2

27 26

20

20

15

18

1

10 5

5

3

4

4

3

7

8

4

3

2

1

0 Occupancy sensors for closed spaces

Daylight dimming on perimeter lights

Lower ambient light & add task lights

$150 per room

$180

$200

Financial savings ($ per employee)

$62

$40

Environmental savings (linked to energy savings)

$4

$4

-

$72

$368

Example initial costs ($ per employee)

Human saving (Health & productivity gains)

Individually Integrated LED Inverted Light shelves in addressable lighting & IP venetian blinds clerestory LED lamps controls

External shading

Operable window for natural ventilation

Underfloor air Individual and networking temperature control

Whole building performance goals

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Figure 10.2: Investments Integrating Financial, Environmental, and Social Cost-benefits. Source: Used with permission from Srivastava (2018).

to evaluating projects via NPV, we can now propose consideration of a different approach to assessment as an IntFV, IntRR, and ROInt. A cash flow analysis can include the SCC per ton of CO2 avoided, and SCC of emissions from manufacturing emissions and supply chains. This approach will include the value of environmental impacts and social performance building on earlier attempts of EP&L statements by companies such as Puma and Kering. A future value will enable enhanced decision analytics considering accrued environmental and social impacts and benefits. We can also consider this the “shared value” of a given activity.12 Risks increase when assessment of a company within a supply chain or industry appears profitable on paper because environmental and social assets and liabilities are not part of the assessment. Try stress testing a traditional financial assessment with an integrated approach. With an IntFV assessment, decision-makers can evaluate the future value of assets and risks accrued and compounded over time, value both impacts and benefits, and look at dynamic long-term valuation of a capital expenditure beyond myopic costs and single bottom line cash flows. There is now a critical opportunity for organizations to enable new valuation practices, further integrate company-wide risks with an integrated management approach to reporting overall performance. The results for some will show a stark contrast between current performance versus a full value assessment of negative impacts that have allowed inefficient systems and waste to continue as business as usual. Next time you have an opportunity to look at a traditional NPV, IRR, and ROI assessment, run the numbers as usual. Then take a second run at this by including environmental and social value created or destroyed. The SCC can help in your second, more integrated approach. Keep in mind, we waste over 80% of each gallon of gas put into a combustion engine, and over 60% of all energy created in the United States. This allows us to overlook inefficient systems producing mostly heat and friction and less energy services than we think.13 Therefore, we do not think about this inefficiency when flipping a light switch, we just see the light come on. What would you do as CEO if you found out >66% of your employees added no value (the equivalent amount of wasted energy within our energy systems) to your enterprise over the

12. Porter and Kramer (2011). 13. See, for example, the information on hyper cars in the Lovins, Lovins, and Hawken Harvard Business Press article on Natural Capitalism, or the Lawrence Livermore National Laboratory US Estimated Energy Use flow diagram showing how much waste (rejected energy) we have in our energy systems.

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last year? What would an investment in a net zero building look like if you included the reduced annual energy consumption and value of GHG emissions avoided in a 20-year cash flow analysis? P5. We should stress test investments and decisions with a new integrated approach. Is there no limit to how far an enterprise can go in improving the bottom line with initiatives that also help the environment and social sustainability? The “and” thinking (versus “either/or” thinking) underlying the win-win approach to integration at the heart of this book and chapter trends is exactly what helped businesses evolve in the past. For example, we learned how to increase the quality and reduce the cost of our products with total quality management. Value chain managers figured out how to reduce inventory and improve delivery service with just-in-time inventory management. Technology has decreased transaction times and provides real time visibility into business systems. However, there is a limit (the performance frontier) and limits to growth must be taken into account.14 A major challenge for the vast majority of enterprise managers is their lack of resources, financial resources in general and managerial talent more specifically, which are used intensely by sustainability practices when operationalized as integrated management. So we must ask: Do most enterprises have the resources and capabilities needed to create, measure, manage, and report ESG value in addition to traditional financial value? We will explore this more in the next chapter and rest of this book. Next, it will be valuable to take some time to review assessment tools that help decision-makers assess and prioritize options.

Tools to Help Assess and Prioritize Multiple-criteria Decision Analysis (MCDA) MCDA methods are increasingly popular in decision-making for integrating business practices. This is because of the multidimensionality of

14. See a similar relation between sustainability and quality management. This position proposes that Sustainability is a next step of Lean Production. For instance Fliedner and Majeske (2010) argue: “Sustainability is the next evolutionary stage of lean as it goes beyond the internal waste elimination[…] While sustainability promotes internal waste reduction within a single transformation process, it also encourages external waste reduction across the value chain.”

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integration options and the complexity of prioritizing social, environmental, and economic actions when planning. The use of analytic hierarchy process is the methodology underlying MCDA as tool for helping decision-makers’ structure problems. This process of performing this analysis has a phased approach involving purposeful pairwise comparisons of options. It can help with the integration of social and environmental dimensions into process improvement projects, supplier evaluation and selection decisions, renewable versus fossil fuel based energy projects, resolving trade-offs, and to better screen and assess performance.15 It is flexible, enabling decision-makers to accommodate both quantitative and qualitative information. MCDA is a simple yet powerful decision support tool first developed within the management science field over 30 years ago.16It was developed to help managers make more effective decisions by structuring and evaluating the relative attractiveness of competing options and the criteria important to the options. This decision support tool has been used successfully for structuring decisionmaking in many areas of business management and strategic planning. To give a brief overview of this approach, MCDA requires the decision-maker to describe different criteria: the objective, the relevant sub criteria, if any, and the alternatives to be evaluated. One major advantage of using MCDA is that the construction of a hierarchy diagram forces the decision-maker to structure and explicitly define the problem and how each of the options and how the option can move the enterprise in the right direction toward integration, is flexible, and has a good return on investment. Requiring decision-makers to explicitly define the objective and relevant criteria, and to assign numerical values for their relative importance forces the user to consider tradeoffs in detail. Since managers typically rely on only a subset of information (e.g., heuristics), MCDA helps managers make “more rational” decisions by structuring the decision as they see it and then fully considering all available information on the criteria and alternatives. In other words, the process of developing the analysis model provides value on its own, independent of the final ranked evaluation of the alternatives. Fortunately, there are software packages and videos available on line to help get up to speed on how to apply MCDA to prioritize available options from prior chapters for your enterprise.

15. Handfield et al. (2002). 16. Saaty (1990).

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Including Uncertainty in Decision Analysis Software is available for modeling uncertainty in spreadsheets. Excel is something most people are familiar with when using spreadsheets for organization, analysis, and storage of data to help solve problems.@Risk is one package we often use to try and better understand the chances of making a profit, or taking a loss and we can use it to include the SCC in cash flow analysis. With input variables helping to model uncertainty (a range of minimum and maximum values) around future prices, values of renewable energy credits, or discount rates, a combination of Excel and supporting software packages can help assess the likelihood that a project will finish on time, within budget, or the probability of hitting a target IntRR, ROInt, or IntFV. When utilizing available information to perform risk analysis using Monte Carlo simulation, it can model possible outcomes within widely used spreadsheet software. Users can better understand the likelihood of an event and a probabilistic estimate of its success. Monte Carlo simulation, when used in conjunction with Excel, mathematically and objectively computes and tracks many different possible future scenarios, then tells you the probability and risks associated with each different option. This means you can judge which risks, (e.g., of electricity price changes over time, or the price of photovoltaics and renewable energy sources) to take and which ones to avoid, allowing for the best decision-making under uncertain conditions in the future. Software packages such as this help decision-makers plan for risk management strategies through the integration of literally thousands of samples from available inputs to a cash flow analysis or finishing a project on time, to run the simulation with the latest solving technology to optimize any spreadsheet with uncertain input variables and the associated impacts on the outcomes in a model. Using genetic algorithms, along with embedded software functionality, it can help determine the best allocation of resource, optimal asset allocation, the value creation or destruction of an option based on the SCC and how much CO2 is avoided or released into the atmosphere from an option, most efficient schedules, and much more. This tool also has both software options available and how to videos available on line to get you up to speed on how to use this software.

Chapter Summary The information in Chapter 10 explores practices that will help reevaluate traditional approaches to decision-making. The trends reviewed here

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are part of an evidence-based approach to uncovering actionable practices and research highlighting contemporary integrated management opportunities. Given the changing performance frontier, there are now new measurement, management, and reporting opportunities involving shadow pricing and SSC already in practice. Decision-makers can now propose and assess new valuation practices and brainstorm action for a new future vision and desired state of integrated decision-making. The bounds of the performance frontier are constantly changing. The continued integration of environmental and social performance metrics is causing the movement of the frontier out towards the first quadrant of cutting-edge capability. The four propositions in this chapter provide opportunities to reflect on and apply new valuation practices for measuring IntFV, IntRR, and ROInt investment opportunities. The remaining chapters in this book will show you how to go about taking action to create the integrated enterprises we have been waiting for, and what it will mean to have a no compromises approach to decision-making. To apply learning from this chapter, do your own research, and apply the trends and propositions to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

• • • • •

Where in your function or enterprise can you include social or environmental performance in decision analysis? Can you find an example of where only “first costs” were considered relevant to a business decision and what other costs were overlooked? Assess your next investment decision with an IBL, IntFV, IntRR, and ROInt approach, how does this impact decision-making? What new data will you need? Where and how can MCDA be applied to situations with multiple options and multiple performance criteria for your next capital expenditure decision? Expand on your Excel spreadsheeting skills by adding simulation software such as @Risk to see how this tool can help account for uncertainty around important decision-making variables.

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Bibliography Barry, J.S. (2013). The future of sustainability reporting needs CPAs. The CPA Journal, 83(4), 7. Accessed August 2018 at https://www.nysscpa.org/ news/publications/the-cpa-journal/article-detail?ArticleID=11252#sthash. jT0Zim2d.dpbs. Diaz, S.et al. (January 19, 2018). Assessing nature’s contributions to people. Science, 359(6373), 270 272. Eccles, R., & Saltzman, D. (2011). Achieving sustainability through integrated reporting. Stanford Social Innovation Review, 9(3), 55 61. Handfield et al. (2002). Applying environmental criteria to supplier assessment: A study of the application of Analytical Hierarchy Process. European Journal of Operational Research, 141, 70 87. Jagannath, A., & Koller, T. (2013). Building a better income statement, accessed January 2018 at https://www.mckinsey.com/business-functions/strategyand-corporate-finance/our-insights/building-a-better-income-statement Martens, M. L., & Carvalho, M. M. (2015). The challenge of introducing sustainability into project management function: Multiple-case studies. The Journal of Cleaner. Production, 117, 29 40. McGartland, A. et al. (2017). Estimating the health benefits of environmental regulations. Science, 357(6350), 457 458. Meadows, D. (1999). Leverage points: Places to intervene in a system. Hartland, VT: The Sustainability Institute. Porter, M., & Kramer, M. (2011). Creating shared value. Harvard Business Review, 89(1 2), 62 87. Saaty, T. (1990). How to make a decision the analytical hierarchy process. European Journal of Operational Research, 48, 9 26. Srivastava, R. (2018). Integrating financial, environmental and human capital the triple bottom line for high performance investments in the built environment, PhD Thesis, Pittsburgh, PA: Carnegie Mellon University. Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315 329. Sroufe, R., & Ramos, D. (2015). The un-balanced sheet: A call for integrated reporting. In L. O’Riordan, P. Zmuda, & S. Heineman (Eds.), New Perspectives on Corporate Social Responsibility. Germany: Springer Fachmedien Wiesbaden. Sroufe, R., & Srivastava, R. (2018). Enabling environmental and human costs/benefits in building investment decision making process. Academy of Management, 2018. Vörösmarty, C. et al. (February 2, 2018). Scientifically assess impacts of sustainable investments. Science, 359(6375), 523 526.

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Section V Prioritization

Action

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11 The Strategic Integrated Enterprises We Have Been Waiting for “Nothing except nature can transform the world as swiftly as can business - for better or for worse” Amy Larkin1 Information in this chapter takes your assessment and available actions a step further in providing ways to think about and prioritize creative solutions. The chapter starts with a brief review of the section themes of this book and how we got to where we are. We then take a look at the role of corporations in solving large complex problems. What we find is that many large, well-known MNCs are on their own path toward integrated management. Some have come further than others as we review how corporate evaluators measure success. This chapter then reviews the changing landscape involving value propositions, goal setting, and shareholder value. We end the chapter by looking at the work necessary for integrated management across functions and culture on a path toward the innovative future necessary for a sustainable society. The objectives of this chapter are to:

• highlight the importance of integrated opportunities across systems and strategies;

• explore why corporations are at the nexus of integrated opportunities and why they are critical to large-scale impact;

• highlight integrated management and organizational change toward sustainability; and

• propose new goals to help turn options into actions. 1. From the book, Larkin (2013).

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Section IV of this book provides many actions to close the gap for your business function, and enterprise. In this Section, we build on efficiency opportunities to find effective and creative solutions to help you prioritize integrated management opportunities.

Prioritization and action Integrated systems

Corporations

Cities and countries

Evaluators

UN SDGs

This book starts in Section I by suggesting there is a new vision of a performance frontier beyond using the terminology of sustainability. Integrated management provides the opportunity to rethink functions, enterprises, and systems dynamics to create value. Critical drivers and enablers provide an enterprise, decision-makers, and policy maker’s ways to take on complex problems. As larger systems level problems are addressed and disassembled into smaller systems within systems, every enterprise can contribute to and have a vision for their own sustainable future. With the application of the SSD five-level framework, ABCD planning, and backcasting from your vision, you will find integrated management opportunities and manage change toward success. While the first Section of this book promotes awareness and a framework for success, Sections II stresses the importance of building a shared understanding of the integrated management opportunity across enterprise functions. Given the importance of value creation in for-profit enterprises, and a renewed energy in understanding value creation for both shareholders and stakeholders, we review the importance of materiality in shareholder value, revenue growth, operating margins, asset efficiency, and expectations. The value creation opportunity provides a transition into Section III and the importance of assessing and benchmarking your current operating systems, processes, and strategic assessment options. Section IV then helps you to brainstorm actions to close the gap between your current practices and a future state further out on the performance frontier. A review of trends and integrated practices prove you can close the gap. Finally, a number of propositions provide a proving ground for a new measurement/management frontier of integrated performance. Section IV provides a path forward toward a new vision and

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change management. This final Section V and its chapters start moving you down this path in prioritizing actions and goals for your enterprise. We can build on your research and application of problem-based learning in previous chapters to review creative solutions. This iterative process of learning and application enables you to backcast from your vision so that you can decide on your priorities and goals. Outcomes of this action learning approach help to assess available options to see if they take you in the right direction toward integrated management, are flexible, and have a business case for success2 (Figure 11.1).

Section III

Section I and II

Vision

Vision Current situation

Section IV

Section V

Vision

Vision Current situation

Current situation

Figure 11.1: The Funnel Metaphor.3

2. The sections of this book take you through the ABCD planning process and are grouped to A understand and create a new integrated vision of the future; B perform a baseline assessment and benchmark current practices to understand gaps between where you are today and where you want to be in the future; C brainstorm solutions building on evidence based practices; and D prioritize actions ready to meet the challenges of a new future. This purposeful outline of sections for the book is based on and inspired by my time spent living in Sweden with colleagues at BTH University, Broman and Robert’s (2017); and book Strategic Leadership towards Sustainability. 3. Modified with permission from the Journal of Cleaner Production, Broman & Robért, (2017).

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The information in the chapters leading up to Section V have introduced the ABCD planning process as an explicit approach to understanding your vision, benchmarking, and actionable integrated management practices. The narrowing funnel walls representing the challenges and constraints of an unsustainable society were first introduced in Chapter 3. With the information in Section IV available to you, we can now put more thinking and planning into developing a pathway toward integrated management and your vision while working within the constraints of the funnel walls to prioritize available actions. Next, is a brief reminder and look at the importance of systems integration across enterprise functions, and a review of what it means to have a strategic approach to prioritizing actions. We then take a deeper diver into sustainability rankings and indices while questioning business as usual practices and priorities. The important role of corporations as catalysts for change is reviewed before looking at tools to help prioritize actions that will design and develop the strategic, integrated enterprises we have been waiting for.

Strategic Integrated Systems Enterprise information systems are at the core of business operations, strategy, functional connectivity, value chains, and typically end up clustered in densely populated geographic locations as integrated platforms for cities. Information systems in this context are “formal, sociotechnical, organizational systems designed to collect, process, store, and distribute information.”4 Understanding this enables decision-makers to understand that the systems of an enterprise go beyond not only a computer taking in data and processing transactions, but also are largely related to the social and organizational structure of the enterprise itself. As organizations become more focused on their objectives and mission, changes are integrated into the businesses operations in order to create and capture value.5 When asking a software engineer from Philips what an integrated solution looks like, he said, “Modern software comprises a diverse array of components open source software, cloud computing, IoT devices, etc., each of which may be developed in a different

4. Pigni and Pigni (2015). 5. https://duq.blackboard.com/bbcswebdav/pid-2699162-dt-content-rid-9581129_1/courses/ BU-MGMT-724-01-201810/Senge%20Sternman.pdf

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platform/language by teams scattered across the globe. From the user’s point-of-view, the ’integrated’ characteristics should be invisible, and only a ‘solution’ should remain. If the seams and joints and limitations and latencies are visible or unexpectedly prominent, then the solution’s integration can be improved.”6 If the enterprise does not make changes to its systems and underlying software, then any change in the purpose or goal of the company will be met with little real change. The seams, and limitations can be visible providing opportunities to look for further integrated management opportunities. This makes integrated systems critical to developing and furthering the vision and goals of the organization. These enterprise systems are often used concurrently with customer relationship management and supply chain management to automate business process across value chains. To help get the most out of systems, it is important to have a strategy to align decision-making within an enterprise and value chain. A vision is not a strategy, but instead an inspirational picture of what it will look like to achieve enterprise mission and goals. The vision and incentives are part of what leaders do to motivate people. A strategy is “a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision-making. A good strategy provides a clear roadmap, consisting of a set of guiding principles or rules, that defines the actions people in the business should take (and not take) and the things they should prioritize (and not prioritize, e.g., waste and GHG emissions) to achieve desired goals.”7 When boiled down to its simplest elements, the vision is about why people are motivated, the mission is about what you will be achieving, the value chain consists of who you will be creating value with, and strategy is about how scarce resources should be allocated to accomplish what you have set out to do. When looked at together, this alignment of decision-making and actions are what directs small, medium, or large enterprises on a path from the current situation to the future with focused purpose. As Sir Brian Pitman said, “There is always a better strategy than the one you have; you just haven’t thought of it yet.”8 This also means that the outcomes of your strategy will not be robust (i.e., can run into the walls of the funnel showing up as supplier shortages, legal injunctions for pollution, social sustainability issues in

6. From conversations with Tracey (2018). 7. Watkins (2007). 8. Pitman (2003).

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your supply chain, and other violations of your license to operate) if you try and develop elements of the strategy in isolation from the mission, prioritized goals, and your value chain. By prioritizing actions, the process of crafting strategy can better ensure long term competitiveness. This is the ability to provide products, services, and value chains that create as much or more value for customers than do competitors and is a catalyst for superior performance.9 If we continue to think the business case and performance are only about financial performance we are not making fully informed decisions. A traditional business case approach to decisions and priorities posits social, environmental, and economic performance are not in synch with each other. It avoids conflict and allows people to remain in their comfort zone. Why not take a step beyond traditional single bottom line measures of performance, when strategy and competitiveness can now take into account the material environmental and social value of products and services? Successful integration of systems, functions, and value chains considers the drivers and enablers of activities aligned with both sustainability and enterprise strategy to inform performance measurement and management. The number of performance measures (opportunities for goal setting) is growing, and the collection and dissemination of this information is expected to continue to expand. Evidence of this can be found in organizations such as the CDP, GRI, MSCI Global Socrates, Trucost, who was acquired by Standard & Poor’s, and Bloomberg terminals which now track hundreds of measures for individual enterprises and their supply chains. Leading organizations are the ones integrating higher levels of environmental and social performance, as signaled publicly through corporate reporting and rankings.

Impacts of Corporations

Agents of Change

Evaluators, in the form of ranking agencies, provide insight into how to measure integrated management, stakeholder engagement, and key performance indicators found in GRI reporting and other indices. A couple to draw from here include Forbes Top Sustainability Rankings and 9. See for example, the CDP released their 2018 report. “Closing the Gap: Scaling Up Sustainable Supply Chain Practices” https://www.cdp.net/en/research/global-reports/ global-supply-chain-report-2018; and take a look at www.sustainablebrands.com/news_ and_views/supply_chain/sustainable_brands/cdp_names_58_companies_leading_charge_ tackling_climat

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Newsweek’s Green Rankings. Are these the strategic integrated enterprises we have been waiting for? The answer to that question is “It depends,” yet we can better understand what kinds of ESG metrics are used to assess the performance and related insights. To get a sense of what metrics and goals are deemed important by those evaluating publicly traded firms, the Forbes Top Sustainable Companies criteria include carbon emissions, energy, water, waste, leadership diversity, and percent of tax paid to get to an overall score and ranking. Forbes ranks the top 100 firms, the top 20 of which are in Figure 11.2. The Newsweek Green Rankings consist of energy, carbon emissions, water, waste, green revenue, sustainability pay, and the presence of a sustainability themed committee. Newsweek ranks the top 500 firms, the top 20 of which are in Figure 11.3. It is important to note that there are other rankings to look at and draw conclusions from when considering which important ESG performance metrics are in place to measure integrated environmental and social sustainability performance. Other rankings include but are not limited to The Corporate Knights, Ranking the Brands, CSR Magazine Global, companies listed on the S&P Environmentally and Socially Responsible Index, and Dow Jones Sustainability Index. There is good reason to look at these top performing firms: They are setting the Forbes Top Sustainable Companies Country of HQ 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Siemens AG Storebrand ASA Cisco Systems Inc Danske Bank A/S Ing Group Commonwealth Bank of Australia Koninklijke Philips NV Johnson & Johnson Koninklijke DSM NV Enagas SA Dassault Systemes Derwent London PLC Centrica PLC McCormick & Co Inc/MD Henkel AG & Co KGaA Bayerische Motoren Werke AG Credit Agricole SA Nokia OYJ Natura Cosmeticos SA Intesa Sanpaolo SpA

Germany Norway United States Denmark Netherlands Australia Netherlands United States Netherlands Spain France United Kingdom United Kingdom United States Germany Germany France Finland Brazil Italy

GICS Industry Group Industrials Financials Information Technology Financials Financials Financials Industrials Health Care Materials Utilities Information Technology Real Estate Utilities Consumer Staples Consumer Staples Consumer Discretionary Financials Information Technology Consumer Staples Financials

Figure 11.2: Forbes Rankings of Top Companies. Source: 2017 data.

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Company

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Newsweek Top Global Green Companies Country of HQ

L'Oreal SA Centrica PLC Enbridge Inc Siemens AG Cisco Systems Inc Henkel AG & Co KgaA Accenture PLC BT Group PLC Adidas AG Koninklijke Philips NV H & M Hennes & Mauritz AB Schneider Electric SE Best Buy Co Inc Roche Holding AG Airbus SE Toyota Motor Corp Apple Inc Vinci SA BP PLC Glencore PLC

France United Kingdom Canada Germany United States Germany Ireland, Republic of United Kingdom Germany Netherlands Sweden France United States Switzerland Netherlands Japan United States France United Kingdom Switzerland

GICS Industry

Personal Products Multi-Utilities Oil, Gas & Consumable Fuels Industrial Conglomerates Communications Equipment Household Products IT Services Diversivied Telecommunications Textiles, Apparel & Luxury Goods Healthcare Equipment & Supplies Speciality Retial Electrical Equipment Speciality Retial Pharmaceuticals Aerospace & Defense Automobiles Technology Hardware, Storage Construction & Engineering Oil, Gas & Consumable Fuels Metals & Mining

Figure 11.3: Newsweek Ranking of Top Companies. Source: 2017 data

Green Score 89.9% 88.7% 86.0% 85.3% 83.7% 82.6% 82.5% 82.5% 79.6% 77.9% 76.7% 76.6% 76.3% 76.3% 72.4% 72.0% 71.5% 69.5% 69.5% 69.1%

boundries for the evolving performance frontier because their size and ability to create industry norms allows taking actionable integrated management options to scale. Let’s get back to the question of if these firms are the strategic integrated enterprises we have been waiting for? Yes and no. Yes, these enterprises are on a path toward more integrated management of environmental and social value creation and can be held up as exemplars. Yet also no, there is still more to do in these top ranked enterprises to get to a no-compromises approach to integrated management and a sustainable society that does not violate SSD sustainability principles. We would therefore want enterprises and integrated solutions ensuring that nature is not subject to systematically increasing … concentrations of substances extracted from the earth’s crust, concentrations of substances produced by society, and degradation by physical means, and in that society, … people are not subject to conditions that systematically undermine their capacity to meet their needs. We need future enterprises to create more value and positive impacts for the environment and society than the destructive impacts of their enterprise systems (e.g., IntVA from Chapter 2). Contemporary rankings help shape the performance frontier. These top ranked corporations are proof of integrated management in action and the agents of change who can move industries and consumers in ways that will need collaborative effort with value chains, NGOs, and governments. It’s tomorrow’s performance frontier, rankings, indices and decision-makers that will help produce the strategic enterprises necessary for integrated solutions enabled by systems across functions, value chains, and cities. Integrated enterprises can, and will do more for the environment and society. Integrated management is about the longterm viability of enterprises, and nations.

What We Value Matters Ten of the biggest corporations make more money than most countries in the world combined.10 Corporations have increased their wealth vis-àvis countries according to figures released by Global Justice Now. This NGO found that 69 of the world’s top economic entities were

10. Ten of the biggest corporations make more money than most countries in the world combined; accessed January 2018 at http://www.globaljustice.org.uk/news/2016/sep/12/ 10-biggest-corporations-make-more-money-most-countries-world-combined

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corporations rather than countries in 2015. They also discovered that the world’s top 10 corporations a list that includes Walmart, Shell, and Apple have a combined revenue of more than the 180 “poorest” countries in the list, which including Ireland, Indonesia, Israel, Colombia, Greece, South Africa, Iraq, and Vietnam. For comparison, in the previous year’s assessment, 63 of the top economic entities were corporations. When looking at the previous year’s top 200 economic entities, the figures support this trend of corporations outpacing entire countries, with 153 being corporations. The size of some corporations have overtaken entire countries. How we assess the performance of both corporations and countries provides some insight as to what we value and signals performance priorities (Figure 11.4). We can expand this further by looking at the world’s top economies and includes cities in the rankings. Cities are becoming large global players of change and some are labeled as sustainable, smart, and resilient. With the United States pulling out of the Paris climate agreement (COP21), mayors of major cities have stepped up to address climate change to help enable the United States to reach its target, despite the federal government and a United States. President not supporting this global effort. Both a country and city level acknowledgements, and pledges to curb carbon dioxide emissions, signal a new priority and valuing of the environmental health and productivity of ecosystem services, which we already know is > $145 trillion a year globally11 (Figure 11.5). When assessing countries using Gross Domestic Product (the monetary value of all finished goods and services produced in the country in a given period of time) along with companies and countries using revenue, there is a myopic, single bottom line focus. This static look at a monetary value, without considering the valuation of environmental and social performance, severely limits our understanding of performance. Without an integrated approach to understanding performance, (i.e., IntFV, IntRR, and ROInt), we could find our investments are doing more harm than good. Now, juxtapose this single bottom line approach to performance, and there is a different reality that IBL measurement and reporting will help to uncover. For firms who are performing well across ESG performance dimensions there is a compelling story to tell about your accomplishments. For those not performing well across an IBL (e.g., extractive

11. Costanza et al. (2014). And this valuation has only been growing over time since this team’s valuation work started in 1997.

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Top 100 Countries / Corporations 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34

United States China Germany Japan France United Kingdom Italy Brazil Canada Walmart Spain Australia Netherlands State Grid China National Petroleum Sinopec Group Korea, South Royal Dutch Shell Mexico Sweden Exxon Mobil Volkswagen Toyota Motor India Apple Belgium BP Switzerland Norway Russia Berkshire Hathaway Venezuela Saudi Arabia Mckesson

3,251 2,426 1,515 1,439 1,253 1,101 876 631 585 482 474 426 337 330 299 294 291 272 260 251 246 237 237 236 234 227 226 222 220 216 211 203 193 192

35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68

Austria Samsung Electronics Turkey Glencore Industrial & Commercial Bank of China Daimler Denmark UnitedHealth Group CVS Health EXOR Group General Motors Ford Motor China Construction Bank AT&T Total Argentina Hon Hai Precision Industry General Electric China State Construction Engineering AmerisourceBergen Agricultural Bank of China Verizon Finland Chevron E.ON AXA Indonesia Allianz Bank of China Honda Motor Japan Post Holdings Costco BNP Paribas Fannie Mae

189 177 175 170 167 166 162 157 153 153 152 150 148 147 143 143 141 140 140 136 133 132 131 131 129 129 123 123 122 122 119 116 112 110

69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Ping An Insurance United Arab Emirates Kroger Société Générale Amazon.com China Mobile Communications SAIC Motor Walgreens Boots Alliance HP Assicurazioni Generali Cardinal Health BMW Express Scripts Holding Nissan Motor China Life Insurance J.P. Morgan Chase Gazprom China Railway Engineering Petrobras Trafigura Group Nippon Telegraph & Telephone Boeing China Railway Construction Microsoft Bank of America Corp. ENI Nestlé Wells Fargo Portugal HSBC Holdings Home Depot Citigroup

110 110 110 108 107 107 107 103 103 103 103 102 102 102 101 101 99 99 97 97 96 96 96 94 93 93 92 90 90 89 89 88

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Figure 11.4: Corporations and Governments Revenues. Source: 2015 data, Global Justice Now, September 2016. http:// www.globaljustice.org.uk/news/2016/sep/12/10-biggest-corporations-make-more-money-most-countries-worldcombined

Rank 1

Entity China

Category Country

Revenue/GDP (S billion) 17,188.7

Rank 51

2 3 4

United States India Japan

Country Country Country

16,490.2 6,983.8 4,524.3

52 53 54

5

Russian Federation

Country

3,633.8

55

Entity Switzerland

Category Country

Royal Dutch Shell Corporation Sweden Country China Petroleum & Chem. Corporation Kazakhstan

Corporation

Revenue/GDP (S billion) 452.6 429.1 426.4 423.3 422.2

6 Germany Country 3,523.0 56 Washington, DC Metro area 420.4 7 Brazil Country 3,124.6 57 Sao Paulo Metro area 409.3 8 Indonesia Country 2,552.5 58 Hong Kong Metro area 395.5 9 France Country 2,463.9 59 Dallas Metro area 392.3 10 United Kingdom Country 2,460.8 60 Chile Country 389.4 11 Mexico Country 2,044.0 61 Mexico City Metro area 383.7 12 Italy Country 2,062.8 62 Romania Country 380.9 13 Korea Republic Country 1,696.2 63 Austria Country 374.7 14 Tokyo Metro area 1,536.9 64 Exxon Mobil Corporation 374.6 15 Saudi Arabia Country 1,532.6 65 Guangzhou Metro area 361.5 16 Canada Country 1,521.3 66 British Petroleum Corporation 360.5 17 Spain Country 1,475.8 67 Peru Country 354.7 18 Turkey Country 1,434.2 68 Ukraine Country 354.3 19 New York City Metro area 1,334.2 69 Tianjin Metro area 353.5 20 Iran, Islamic Rep. Country 1,290.0 70 Singapore Metro area 347.8 21 Australia Country 1,015.2 71 Nagoya Metro area 345.8 22 Thailand Country 1,014.3 72 Shenzhen Metro area 345.3 23 Nigeria Country 1,000.9 73 Boston Metro area 342.3 24 Poland Country 910.5 74 Istanbul Metro area 331.5 25 Egypt, Arab Rep. Country 900.1 75 Norway Country 329.6 26 Pakistan Country 849.4 76 Philadelphia Metro area 329.4 27 Los Angeles Metro area 818.0 77 Suzhou Metro area 322.3 28 Seoul-Incheon Metro area 804.2 78 San Francisco Metro area 314.7 29 London Metro area 794.4 79 PetroChina Corporation 312.3 30 Netherlands Country 770.1 80 Taipei Metro area 311.1 31 Malaysia Country 731.4 81 Jakarta Metro area 305.4 32 Paris Metro area 679.8 82 Rotterdam-Amsteram Metro area 304.8 33 South Africa Country 672.3 83 Czech Republic Country 301.8 34 Philipines Country 659.1 84 Buenos Aires Metro area 300.3 35 Osaka-Kobe Metro area 638.2 85 Chongqing Metro area 300.0 36 Colombia Country 607.7 86 Milan Metro area 296.7 37 United Arab Emirates Country 586.6 87 Qatar Country 292.0 38 Shanghai Metro area 564.7 88 Bangkog Metro area 291.7 39 Chicago Metro area 535.4 89 Busan-Ulsan Metro area 281.9 40 Algeria Country 527.7 90 Atlanta Metro area 279.9 41 Moscow Metro area 526.0 91 Delhi Metro area 279.1 42 Venezuela Country 514.7 92 Portugal Country 272.2 43 Iraq Country 500.1 93 Greece Country 267.1 44 Vietnam Country 487.2 94 Toronto Metro area 262.7 45 Beijing Metro area 481.1 95 Kuwait Country 262.3 46 Bangladesh Country 473.9 96 Israel Country 259.0 47 Koln-Dusseldorf Metro area 461.3 97 Seattle Metro area 254.2 48 Houston Metro area 459.4 98 Miami Metro area 249.7 49 Belgium Country 458.0 99 Madrid Metro area 249.4 50 Wal-Mart Stores Corporation 453.0 100 Volkswagen Group Corporation 248.6 Source: World Bank World Development Indicator Series, Brookings Institution Global Metro Monitor 2014, Forbes Global 2000 List 2014. Note: This study presents national and metropolitan GDP figures at purchasing power parity rates (PPP), as opposed to market exchange rates. PPP rates present economic output figures based on the relative purchasing power of local currency in the national context, rather than absolute economic output. This accounts for the "outperformance" of certain economies over others, for example the United States ranking below china, despite the lower-ranked economy being greater on more familiar market exhange terms Country Metro Area Corporation

50 42 8 100

Figure 11.5: 100 Top Economies. Source: Used with permission from the Chicago Council on Global Affairs, 100 Top Economies Report https:// www.thechicagocouncil.org/sites/default/files/report_100-top-economies_revised-20161026.pdf

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industries for which there are very few on the sustainability rankings lists) it’s time to better understand an integrated approach to value creation, the performance frontier, and whether or not an enterprise is a constructive or destructive participant in environmental and social value creation outlined in Chapter 8. If we continue to look only at revenue or stockholder value as a measure of the productivity frontier, then we will never realize the full value creation and/or destructive capabilities of an enterprise.12 This is especially true when we know that roughly 80% of a publicly traded enterprise’s full value is disclosed in its annual report.13 Most of an organization’s value is intangibles. This has helped cause poor investment decisions that repeatedly result in financial risks. Take for example a CDP report showing that just 100 companies are the source of over 70 percent of global emissions.14 It probably comes as no real surprise that 100 active fossil fuel producers including ExxonMobil, Shell, BHP Billiton, and Gazprom, are linked to 71% of industrial greenhouse gas emissions since 1988, when human-induced climate change was officially recognized through the establishment of the Intergovernmental Panel on Climate Change (IPCC). The Carbon Majors database is the most comprehensive ever compiled showing 32 percent of historic emissions since 1998 can be traced to just 25 corporate (ExxonMobil, Shell, BP, Chevron, Peabody, Total, and BHP Billiton) and state producers (Saudi Aramco, Gazprom, National Iranian Oil, Coal India, Pemex, CNPC, and Chinese Coal, of which Shenhua Group & China National Coal Group). These fossil fuel companies and their products have helped to release more emissions in the last 28 years than the years since the start of the industrial revolution. It’s hard to wrap your head around, but it’s actually 833 GtCO2e in the 28-year period from 1988 to 2015. This amount of CO2 generated in less than three decades is as much as 820 GtCO2e released in the 237 years (almost 24 decades) between 1988 and the birth of the industrial revolution, measured from 1751. The CDP produced this research and report to inform investors about momentum gains on the path toward a low carbon tipping point. Scientists are concerned as if this trend continues on the same trajectory, global average temperatures would be on course to rise by 4ºC by the

12. Bower and Paine (2017). 13. Eccles and Kruzs (2010). 14. CDP “New report shows just 100 companies are source of over 70% of emissions. Accessed January, 2018 at https://www.cdp.net/en/articles/media/new-report-showsjust-100-companies-are-source-of-over-70-of-emissions

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end of the century15 likely to cause species extinction and large food scarcity risks worldwide.16 A Sloan Management Review article on why companies should report financial risks of climate change may come as a wakeup call to some. Investors and the world are watching to see how publicly traded enterprises will respond to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), commissioned by the Bank of England and chair of the G20’s Financial Sustainability Board. The TCFD is asking for enterprises to report on their responses to the risks and opportunities created by climate change. They emphasize that these disclosures can and should be within existing reporting formats such as 10Ks.17 In the United States, the SEC does look at reporting and disclosure within the description of business (compliance with environmental laws and environmental capital expenditures), legal proceedings (pending enforcement proceedings with sanctions), and MD&A (financial conditions and results of operations and any known trends, demands, commitments, events, or uncertainties related to climate).18 There are global calls for disclosure to better inform investors and make risks transparent. The reporting of climate related disclosures is not new as 42 national and 25 subnational jurisdictions have placed a price on carbon.19 Other drivers include the U.S. EPA mandatory reporting rule, along with regional and state GHG initiatives such as the Regional GHG

15. Compared with the IEA 6DS scenario projecting nearly a 4ºC rise by the end of the century, and 5.5ºC in the long-term. https://www.cdp.net/en/articles/media/new-reportshows-just-100-companies-are-source-of-over-70-of-emissions#4 16. Based on the IPCC (2014). 17. Eccles and Kruzs (2017). 18. These are partially enabled by the SEC climate change disclosure rule, Interpretive release issued February 2, 2010, “commission guidance regarding disclosure related to climate change” where climate related disclosures include impact of legislation, international accords, indirect consequences of regulation or business trends, and physical impact. This is “intended to remind companies of their obligations under existing Federal Securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents.” Also see the SEC sustainability reporting concept release, April 13, 2016 “business and financial disclosure required by regulation S-K”; https://www.sec.gov/rules/concept/2016/33 10064.pdf 19. From a presentation by John Fillo, on Carbon Strategy Drivers and Carbon Finance; 11 27-17 to the Duquesne MBA Sustainability program cohort, source is State and Trends of Carbon Pricing-Advance Brief, World Bank Group, ECOFYS, 2017.

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Initiative (RGGI), California trading platform and linked carbon trading between California, Quebec, and Ontario. The motivations to report include investors need for this information and these investors are mobilizing to make sure enterprises take the recommendations seriously. To this end, ShareAction and Boston Common Asset Management have a campaign with $1 trillion in assets under management to implement these recommendations at 60 of the world’s largest banks. Additionally, shareholders have been receptive, and will be asking for more responsiveness from enterprises in annual general meetings. An example of this shareholder activism can involve stranded assets due to climate change. This happened when shareholders requested Southern Company prepare “a report disclosing the financial risks to the Company of stranded assets related to climate change and associated coal demand reductions.”20 They went on to request “increased disclosure of Southern Company’s stranded asset risk to be able to evaluate the prudence of management’s investment decisions.” Investors may be less interested in investing in those enterprises that do not implement the recommendation as they can be seen as having undisclosed risks. And finally, it is in the best self-interest of an enterprise to comply with the recommendations as they will have better strategies for adapting to climate change, risk management, and telling their own stories about their strategies to stakeholders and stockholders.

High-level Measurement and Alignment Options Other measures of progress include the Social Progress Impetrative, Human Development Index, and Gap Frame with the translation of the UN SDGs into dimensions, issues, and indicators for countries and regions around the world. The Social Progress Imperative has a framework, methodology, and data on countries using its social progress index (SPI) which measures the extent to which a country provides for the social and environmental needs of its citizens. The SPI is based on 50 indicators (outcomes or results) in the areas of basic human needs, foundations of wellbeing, and opportunity for all individuals to reach their full potential. They value and prioritize the integrated management of

20. See for example, the 2017 Proxy Resolutions & Voting Guide, ICCR, January 29, 2017.

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sustainability as “social progress” and “the capacity of a society to meet the basic human needs of its citizens, establish the building blocks that allow citizens and communities to enhance and sustain the quality of their lives, and create the conditions for all individuals to reach their full potential.” Improving quality of life is a complex and multilayered endeavor, and past efforts to measure progress simply haven’t created a sufficiently nuanced picture of what a healthy society looks like. A country’s social performance can be compared with that of other countries not only on the SPI score, but also for each of its 50 components. The Economist reported on this initiative as going ‘Beyond GDP.’”21 Several indexes go beyond GDP, such as the Human Development Index and the Happiness Index, and introduce new priorities for assessing performance. These include access to schools, healthcare, a clean environment, sanitation, and nutrition. An enterprise can use SPI, HDI, or happiness indices for guidance on where it can contribute the most to the social and ESG needs of the people in the countries in which it operates. For example, a company can look for other data such as in the GRI guidelines and SASB “materiality maps” for guidance on which ESG outcomes should be given priority because they have the biggest impact on the company’s performance and align with the needs of the cities and countries in which they operate. Gap Frame is a framework that translates the UN SGDs into relevant measures for a country and is the basis for a “strategic business tool, highlighting the gap of where we are today versus where we need to be so that all of us can live well on one planet.” A snapshot of each country provides a score and focuses attention on priority dimensions. For example, here is the assessment of the U.S. (Figure 11.6).

Turn Options into Actions and Priorities Goals for the Future When talking about goals, all global roads lead to the United Nations SDGs. In 2015, the UN adopted the 2030 Agenda for Sustainable Development and its 17 Sustainable Development goals with 169 targets. Over the next fifteen years, with these new goals that universally apply

21. Bishop (2013). Beyond GDP, accessed February, 2018 at https://www.economist.com/ blogs/feastandfamine/2013/04/social-progress

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UNITED STATES OF AMERICA (USA) Gap frame score: planet 4.9;

© Gap frame 2017

Average of 4 dimensions: 6.2

1. Biodiversity

Governance (20-24) 24. Transparency

Planet (1-8)

2. Carbon quotient

6.4

4.9

3. Oceans

23. Business integrity

4. Land & forests

22. Peace & cooperation

5. Clean air

21. Structural resilience

6. Water

20. Public finance

7. Clean energy

19. Innovation

8. Waste treatment

18. Sustainable production

17. Sustainable consumption

9. Health

Economy (15-19) 6.8

Society (9-14) 10. Equal opportunity

16. Resources use

11. Education

15. Employment 14. Quality of life

12. Living conditions 13. Social integration

0 5.1 6.7 7.5 8.9

6.7 5.0 6.6 7.4 8.8 1.0

A threat Critical Watchlist Safe space Towards ideal

Figure 11.6: Country-level Gap Frame Score and Priority Dimensions. Source: Used with permission from Gap Frame; Gap Frame by Country; http://gapframe.org/by-region/north-america/united-states-ofamerica/ to all, countries can mobilize efforts to end all forms of poverty, fight inequalities, develop sustainable cities and communities, and tackle climate change, while ensuring that no one is left behind. So, what does this mean to your enterprise? In 2016, the Paris Agreement on climate change entered into force, addressing the need to limit the rise of global temperatures. Governments, businesses, and civil society together with the United Nations are mobilizing efforts to achieve the Sustainable Development Agenda by 2030. Universal, inclusive, and indivisible, the Agenda calls for action by all countries to improve the lives of people everywhere. Enterprises can integrate these goals while being profitable and there are calls for doing so while expanding the definition of society where multinational companies are an important part of this emerging society.22

22. See Watson (2015) and Consolandi and Eccles (2018).

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The new goals are unique in that they call for action by all countries, poor, rich, and middle-income to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth within sustainable cities and communities. The goals address a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection. While the SDGs are not legally binding, governments are expected to take ownership and establish national frameworks for the achievement of the 17 Goals (see the SDGs and Figure 11.7 below). Countries have the primary responsibility for follow-up and review of the progress made in implementing the goals, which will require quality, accessible, and timely data collection. Regional follow-up and review will be based on national-level analyses and contribute to follow-up and review at the global level. This country level analysis will be broken down into industry and even enterprise level performance with many MNCs already reporting their alignment with and performance on the goals. Thus, the SDGs provide a reporting opportunity for any enterprise to map is value creation into global efforts. Multistakeholder partnerships have already been recognized as an important component of strategies that seek to mobilize all stakeholders around the new agenda. The Business & Sustainable Development Commission’s report Better Business, Better World has said this is a $12 trillion per year opportunity.23 Another way to look at the SDGs is to ask, what goals fit with your strategic SWOT assessment, available options, and which ones should become your top priorities? (Figure 11.7, Table 11.1). As business leaders look for new ways to differentiate products and services, here are seventeen opportunities. The SDGS and their underlying targets help to uncover new value creation and value propositions regarding how you and your enterprise can do more than provide products and services to customers. As the COO of Unilever, Harish Manwani claims, a conversation he had with a manager when he started

23. The Business & Sustainable Development Commission’s report “Better Business, Better World” has said this is a $12 trillion per year opportunity and dives into the business case if you’re looking for any further examples of what is possible. https://www.greenbiz.com/ article/what-do-sdgs-mean-business-now?

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Figure 11.7: Sustainable Development Goals. Source: UN SDGs. Source: knowledge platform, https://sustainabledevelopment.un.org/sdgs with the company changed his perception of what the company was and his role within it could be about.24 He initially thought his role was to sell soap and soup, but the manager corrected him: No, it’s about “changing lives” and a larger purpose. To this end, Unilever is tracking performance and contributing to these global goals through the Unilever Sustainable Living Plan (USLP). Mr. Manwani goes on, saying, “When 2M people use your brand, that’s the amplifier.” To create larger shifts in system change, we will be measuring actions aligned with the SDGs. If you do not know how your organization aligns with and integrates the SDGs, you will be missing opportunities to differentiate, attract employees who want to be part of meaningful enterprises, and not be able to tell a compelling story of how your organization may already be changing lives. Other large MNCs aligning efforts with these goals can be found on the UN Global compact website and include well-known companies such as Starbucks. This enterprise’s global social impact report outlines a vision for sustainability, greener retail, and community engagement, and

24. Manwani, H. Profit’s Not Always the Point. Ted Talk, accessed on December 21 2017. Retrieved from https://www.ted.com/talks/harish_manwani_profit_s_not_always_the_ point

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Table 11.1: Sustainable Development Goals with Examples. Sustainable Development Goal

Description of Goal/Target(s)a

Examples

1. No poverty

Eliminate poverty in all forms, everywhere. Current measure of poverty is people living under $1.25/day.

World Crafts is a company, which provides people in poverty an opportunity to sell handcrafted goods through fair trade. Many of the artisans are women, using the money they raised as a way to climb out of poverty.b

2. Zero hunger End hunger while securing access to safe and nutritious food by all people, at all times.

Kroger has a mission to end hunger and wasted food in their communities by 2025. Almost $319 million was contributed in 2016 in Kroger’s name. Kroger has a plan to donate balanced meals, advocate zero hunger, achieve zero hunger by 2025, which will transform their communities.c

3. Good health and well-being

Hand in Hand is an artisan soap shop that donates a bar of soap and a month of clean water to people in Haiti for every bar of soap sold. The hope is that the donations will help decrease the spread of illnesses in Haiti. The company also uses

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By 2020, reduce the number of injuries and deaths globally from road traffic accidents by half. By 2030, the goal is more widespread but includes reducing the global maternal mortality rate; reducing the number of deaths from hazardous chemicals; ending preventable deaths in

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Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

environmentally safe children under 5 years old; ending health epidemics such ingredients in all of their soaps.b as AIDS, tuberculosis and malaria; and ensuring access to sexual and reproductive health services to everyone. 4. Quality education

Ensure equal access for everyone to early childhood development, preprimary education, free quality primary, and secondary education, and affordable quality technical, vocational and tertiary education. This goal also includes ensuring all youth achieve literacy and acquire the knowledge to promote sustainable development.

Starbucks partnered with Oprah Winfrey to develop a new drink, the “Oprah Chai.” For each Oprah Chai sold, a portion of the profit is donated to the Leadership Academy Foundation which is Oprah Winfrey’s Charity dedicated to bringing education opportunities to women in South Africa.b

5. Gender equality

End any form of discrimination against all women of any age, everywhere. This includes eliminated violence against women and harmful practices such as forced marriage, genital mutilation, and human trafficking. The goal is to also ensure equal opportunities for leadership and universal access to sexual and reproductive health and rights.

Itaipu Binacional is a global generator of renewable energy located in Brazil. This company collaborated with the Center for Excellence Innovation in the Automobile Industry to develop a new technological solution for more sustainable cities based on renewable sources. This project ensured 50% of the leadership roles to

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Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

women and ensured gender equality in their operations. They also encouraged women to participate in internships and learning opportunities.d 6. Clean water and sanitation

Ensure universal access to safe and affordable drinking water, and adequate sanitation and hygiene. The goal also includes improving water quality water-use efficiency, reducing pollution, and minimizing hazardous chemicals in water. Additionally, to integrate water resources and increase safe reuse of water around the world.

PepsiCo implemented conservation policies, reducing its water consumption by 20% in 2012, saving 14 billion liters of water.e

7. Affordable and clean energy

Ensure access to affordable and reliable energy services for everyone, to increase the share of renewable sources and improve energy efficiency.

AbzeSolar’s Mama-Light initiative for Sustainable Energy is providing access for women and small businesses to affordable energy.f

8. Decent work Achieving full employment, promoting a safe and secure and economic work environment, and growth increasing economic productivity through diversification and technological upgrading. Also to maintain at least a 7% GDP product growth per

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Dell partnered with the UN Foundation to launch an initiative called EntrepreneursUNite, which ensures SGD 8 is a priority by all member states. They targeted entrepreneurs and small businesses since they are

Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

annum in underdeveloped countries.

the number one creators of new jobs and the driving force of the economy.f

Develop reliable and resilient 9. Industry, innovation, and infrastructure, including infrastructure regional and trans border. Also, to promote industrialization, increasing the access of small-scale enterprises and enhancing and encouraging innovation through research and development.

Citi has invested $42.6 billion into infrastructure projects globally in 2016. This has allowed increased access to power in many countries and affordable green housing in the US.f

10. Reduced inequalities

To ensure equality, achieve income growth for the bottom 40% of the population beyond the national average, while promoting inclusion of all people regardless of any demographic separations. Eliminate discriminatory laws and improve the regulations surrounding global financial markets, including implementations and controls around these regulations.

MasterCard is working with the UN to help women in Nigeria gain access to ID cards with electronic payment capabilities. They are also working with Mercy Corps to help even more women in Nigeria register for an eID, which would be their first formal identification.f

11. Sustainable Ensure access to adequate housing, affordable transport cities and systems, and inclusive green communities and public spaces. This also includes reducing deaths and economic losses due to natural and water-related

Bechtel is a construction and civil engineering company who is helping Saudi Arabia enhance their infrastructure. They are developing four new economic cities, designed

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Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

disasters, and supporting least developed countries in building sustainable infrastructure.

for sustainability. They are utilizing imaging technologies and tracking critical information prior to development, which will help them implement recycled water, solar powered heating, and energy efficiency.f

12. Responsible Implementing a 10-year framework for sustainable consumption and production consumption and production. Also, to achieve efficient use of natural resources, reduce food waste, reduce pollution, and promote sustainable public procurement practices.

Novozymes is a biotechnology company that developed biosolutions products that reduce energy, carbon dioxide emissions, raw material, and chemical consumption. The reduction in carbon dioxide emissions in 2014 is equivalent to taking 25 million cars off the road, or 60 million tons of emissions. Their new goal is to 100 million tons of emissions in 2020.f

13. Climate action

IBM collaborated with AECOM and UNISDR to create a scorecard, which measures a city’s resilience to a natural disaster. This will help increase the readiness for a disaster because they will be more knowledgeable on the

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Strengthen resilience to climate-related disasters, integrate climate change measures, improve education around climate change and impact reduction, and increase the commitment by developed countries to the UN framework convention on climate change. Inte grated Management

Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

policies by completing the assessment. A city will be able to prioritize and track progress while becoming aware of weaknesses before a disaster hits.f 14. Life below water

Oceans cover 75% of Earth’s surface and contain 97% of Earth’s water. By 2025, significantly reduce and prevent marine pollution. Protect marine and coastal ecosystems.

In order to tackle ocean pollution, Ireland instituted legislature prohibiting the sale and manufacture of products with microbeads.g

15. Life on land Human life depends on the Earth including forests, plant life, and agriculture. By 2020, prevent deforestation and begin restoring degraded forests.

Unilever teamed with others in their industry to ensure zero net deforestation associated with four commodities: soy, beef, palm oil, and paper. Unilever is the largest purchaser of palm oil in the world.h

16. Peace, justice, and strong institutions

Brazil instituted a new law that criminalizes femicide, which is the targeted violence of women. This includes discrimination, domestic violence, and defamation.i

Preventing corruption, bribery, theft, trafficking, and children leaving school early. Significantly reduce violence and its related deaths

17. Partnerships Success in the goals requires for the goals partnerships between

The Blended Finance Taskforce at the World

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Table 11.1: (Continued) Sustainable Development Goal

Description of Goal/Target(s)a

Examples

governments, the private sector, and society. This partnership represents the shared vision of humanity and the planet. This also requires partnership for funding.

Economic Forum is working towards setting up a blended finance initiative for funding which combines public and private funding. An example of this type of funding was when the Inter-American development bank, Mitsubishi UFJ Financial Group, and other commercial banks together loaned money to finance two wind farms in Chile.j

“Sustainable Development Goals: 17 Goals to transform our world.” The United Nations. http://www.un.org/sustainabledevelopment/ b Ivy (2015). c “Kroger Zero Hunger Zero Waste.” The Kroger Co. https://www.thekrogerco.com/ sustainability/zero-hunger-zero-waste/ d “Companies leading the way.” Women’s Empowerment Principles. 2018. http:// weprinciples.org/Site/CompaniesLeadingTheWay/ e Xeros (2015). f Business for 2030, Forging a path for business in the UN 2030 Development Agenda.” USCIB. http://www.businessfor2030.org/ g “Ireland Supports Sustainable Goals at UN Oceans Conference.” Department of Foreign Affairs and Trade. 7 June 2017. https://www.dfa.ie/news-and-media/press-releases/ press-release-archive/2017/june/irelad-at-un-oceans-conference/ h “Eliminating Deforestation through Advocacy & Partnership.” Unilever Global Company Website. Unilever, 2018. https://www.unilever.com/sustainable-living/transformationalchange/eliminating-deforestation-through-advocacy-and-partnership/ i “In Brazil, New Law on Femicide to Offer Greater Protection.” UN Women. March 16, 2015. http://www.unwomen.org/en/news/stories/2015/3/in-brazil-new-law-on-femicide-to-offergreater-protection j Hirstenstein (2018). a

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provides a mapping of their operations into the SDGs. Their actions include, but are not limited to, hiring commitments, planting trees, renewable energy and food rescue, reduction of environmental impacts of disposable coffee cups, environmental leadership, and community engagement25 (Figure 11.8). Global companies are moving on the uptake of these goals quickly. At the time of writing, the UN Global Compact has over 9,000 companies, in 161 countries and over 51,000 reports available to the public in support of the SDGs. When these actions and goals are amplified at a

Sustainable Coffee 1 No poverty 2 Zero hunger 3 Good health and well-being 4 Quality education 5 Gender equality 6 Clean water and sanitation 8 Decent work and economic growth 9 Industry innovation and infrastructure 10 Reduced inequalities 11 Sustainable cities and communities 12 Responsible consumption and production 13 Climate action 15 Life on land 16 Peace, justice and strong institutions 17 Partnerships for the goals

Strengthening Communites 1 No poverty 2 Zero hunger 3 Good health and well-being 4 Quality education 5 Gender equality 6 Clean water and sanitation 9 Industry innovation and infrastructure 11 Sustainable cities and communities

17 Partnerships for the goals 1 No poverty 4 Quality education 5 Gender equality

6 Clean water and sanitation 7 Affordable and clean energy 8 Decent work and economic growth 9 Industry innovation and infrastructure 11 Sustainable cities and communities 12 Responsible consumption and production

17 Partnerships for the goals

Greener retail

16 Peace, justice and strong institutions 17 Partnerships for the goals

Creating opportunities

Figure 11.8: Starbucks Program Alignment across the SDGs.26

25. Starbucks’ contribution to the UN Sustainable Development Goals. Accessed on April 2018. Retrieved from https://news.starbucks.com/uploads/documents/Starbucks_ Sustainable_Development_Goals.pdf 26. Ibid.

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country level, we get a new way to look at priorities and how entire global regions can come together to enable the goals and partnerships on a path toward the integrated management of sustainability within enterprises, value chains, and cities (Figure 11.9). Integrated management is about transformative, not incremental change. We cannot solve big complex problems with a green team, or a one-and-done new environmental program. It takes the valuation of more than a single bottom line and priorities that everyone can get behind. Change comes in the form of economic policy, social behavior, manufacturing systems, and value chains, while pushing out the performance frontier within functions, enterprises, value chains, cities, and countries. Leading multinational enterprises and even countries are already on the path toward integrated management. What we value and prioritize now will dictate where the path to integrated management can take us. Why would we want to set our sights on easy to obtain goals and incremental change? There is a more effective alternative through the available trends and actions shaping the integrated management revolution. Knowing what we now know about the available trends, actions, and priorities, we can think about how to apply creative solutions that have more than a single bottom line benefit. We can take an integrated approach where information enables continued transparency and trust in the firms disclosing it, and where manufacturing systems and living products can be part of distributed solutions. Where value chains and smart cities disclose more, not less data. Where collaborative efforts in fitting together pieces of the SDGs puzzle empower stakeholders while emerging technologies create new possibilities. We do not have to develop solutions that are complete; instead, as Jason McLennan, founder of ILFI and author of the book Zugunruhe, puts it: good ideas can be “half-baked.” When incomplete ideas are put forth, others can help become part of the solution and the complete the necessary work. The creative ideas proposed for an enterprise can be goals of zero. That is, Net Zero waste, and Net Positive operations and buildings. It can start with looking for the measurement and valuation of environmental and social performance used to assess Integrated Value Added (IVA) from Chapter 2. Armed with more data such as GHG emissions, the ability to assess different forms of energy consumption (i.e., electricity, natural gas, diesel fuel), and avoided emissions, more informed decisions can be made regarding investment options and priorities. The use of the SCC in decision analysis to assess IntFV, IntRR, and ROInt will get decision-makers out of their comfort zones while challenging accounting

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Good health and well-being Climate action Quality education Clean water Reduced inequalities Affordable and clean energy Decent work Responsible consumption Gender equality Zero hunger Sustainable communities Peace and justice Partnerships for the goals End poverty Innovation Life on land Life below water

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Figure 11.9: Global Regions Application of SDGs. Source: Used with permission from “SDG Commitment Report 100”https://www.cbd.int/financial/2017docs/un2017-scr100.pdf

and financial functions to include and disclose more information within their practices. While all of these actions will take place at different rates of adoption, there will be a continuous search for the strategic integrated enterprises we have been waiting for.

Chapter Summary Information in this chapter takes the assessment of an enterprise and available actions from prior chapters a step further in providing ways to think about and prioritize creative solutions. The chapter started with a brief review of the ABCD planning process as explicitly applied to Sections I through V of this book. We then reviewed the role of corporations in solving large complex problems. What we found is that many large, well known MNCs are on their own path toward integrated management. Some have come farther than others and we saw how corporate evaluators (i.e., rating agencies and indexes) measure that success. This chapter ends by looking at the United Nations’ Sustainable Development Goals and how functions, enterprises, value chains, cities, and even countries can align actions within the SDG framework and goals. After reading this chapter, you should be able to understand the importance of integrated opportunities across systems and strategy, explore why corporations are at the nexus of integrated solutions, see opportunities for integrated management and organizational change toward sustainability, and propose new goals to help turn options into actions. To apply learning from this chapter, do your own research, and apply the information to your own enterprise. What’s your IntEnt?

What Will Your Integrated Enterprise (IntEnt) Achieve?

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Review your enterprise strategic plan and look for opportunities for integrated solutions. See if the largest city near where you work is involved in any sustainability rankings and if any integrated actions are under way. What firms in your industry are recognized by top sustainability rankings?

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• • •

What SDGs best align with your personal environmental and social priorities? How might these change over your lifetime? Given the products, services and value chain your enterprise is involved in, how can the value proposition align with specific SDGs? What SDGs are given high priority for the country you live and work in?

Bibliography Bishop, M. (2013). The Economist’s US business editor, is a member of Social Progress Imperative’s advisory board. Beyond GDP, accessed February, 2018 at https://www.economist.com/blogs/feastandfamine/ 2013/04/social-progress Bower, J. L., & Paine, L. S. (2017, May June). The error at the heart of corporate leadership. Harvard Business Review, 95(3), 50 60. Broman, & Robert’s. (2017). Framework for strategic sustainable development. Journal of Cleaner Production, 140, 23 24. Consolandi, C., & Eccles, R. (2018, February15). Supporting sustainable development goals is easier than you might think. MIT Sloan’s Big Ideas Worth Sharing. Costanza, R. et al. (2014). Changes in the global value of ecosystem services. Global Environmental Change, 26, 152 158. Eccles, R., & Kruzs, M. (2010). One report. New York, NY: Wiley. Eccles, R., & Kruzs, M. (2017). Why companies should report financial risks from climate change, MIT Sloan Management Review, Big Idea: Sustainability Blog, accessed February, 2018 at https://sloanreview.mit.edu/ article/why-companies-should-report-financial-risks-from-climate-change/? utm_source=linkedin&utm_medium=social&utm_campaign=sm-direct Hirstenstein, A. (2018, Jan 23). Blended Finance could life sustainable development by $1 Trillion. Bloomerg.com, Bloomberg. https://www.bloomberg. com/news/articles/2018-01-23/davos-elite-tout-blended-finance-as-wayto-raise-1-trillion IPCC. (2014). AR5 WGII ‘Impacts, Adaption, and Vulnerability’ report’s assessment on some of the impacts associated with a 4ºC rise. https:// www.cdp.net/en/articles/media/new-report-shows-just-100-companiesare-source-of-over-70-of-emissions#5 Ivy, M. (2015). 5 companies dedicated to helping the world’s poor. The Borgen Project. Accessed June 2017 at https://borgenproject.org/5companies-dedicated-helping-worlds-poor/ Larkin, A. (2013). Environmental debt: The hidden costs of a changing global economy (p. 211). New York, NY: St. Martin’s Press.

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Pigni, G., & Pigni, F. (2015) Information systems for managers (without cases), Edition 3.1. 3rd ed., (p. 1228). Burlington, VT: Prospect Press. Pitman, S. B. (2003). former CEO of Lloyds TSB, Harvard Business Review. Tracey, S. (2018). Personal conversations about integrated solutions. He is a software engineer at Philips Home Healthcare Solutions. Watkins, D. (2007). Demystifying strategy: The what, who, how, and why. Harvard Business Review, on-line, September 10, 2007. Watson, B. (2015). How can companies integrate sustainable development goals? The guardian sustainable business. Accessed August 2018 at https:// www.theguardian.com/sustainable-business/2015/oct/12/united-nationssdg-un-global-compact-sustainability-world-business-council. Xeros. (2015). 17 organizations addressing the world’s water issues. Xeros Cleaning Technologies. Retrieved from http://www.xeroscleaning.com/ blog/17-organizations-addressing-the-worlds-water-issues. Accessed on January 2017.

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12 The Future What Could Be! “The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationships to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again” Porter, M. and Kramer, M.1 Information in this chapter provides an opportunity for you to think about what could be. To go beyond what people say, “can’t be done” to build upon what is already happening. The chapter starts by taking most out of their comfort zone with a no-compromises, no-apologies approach to the integrated management of sustainability. It then takes a look at the existing solutions proposed over the last decade that move enterprises toward more, not less, integration. Numerous evidencebased approaches have the potential to disrupt how individuals, enterprises, governments, supply chains, and cities interact with and create symbiotic value with each other. This chapter then ends by calling for you to reflect on your own vision and action plan for the future with optimism for what could be. The objectives of this chapter are to:

• challenge conventional thinking; • envision a no-compromises approach to integration; • enable innovative solutions contributing the UN SDGs; 1. Porter and Kramer (2011).

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• reflect on your own vision and action plan; and • pose a call to integrated management. What is your IntEnt? In this chapter, we summarize what could be the path you and your enterprise pursue as the actions we all take reinforce each other with dynamic capabilities and multiplicative impacts. The sections of this book and individual chapters have taken you through a nonrandom walk on a path starting with a new performance vision, then transition to a shared understanding of integrated management, an assessment of your current reality to help you brainstorming actions to close the gap, and end on a prioritization of options and actions. This book and its contents cannot accomplish much all by itself. With action learning and change on the behalf of those who read this book, engage others, and find new ways to take an enterprise into the future, anything is possible.

Prioritization-take action No Compromises

Vision

Action

Solutions

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Multiple definitions of sustainability (see, for example, the UN’s Brundtland Report,2 or Ehrenfeld’s abandonment of the word to instead use “flourishing”,3 or search using Google and you will get over 200M results) create confusion across disciplines and inaction for many. Despite prior efforts to bring about an understanding of sustainability, there have been continued difficulties in its definitional ambiguity and operationalization.4 There has been a large amount of work done in consolidating research in the management literature,5 reviews involving supply chains,6 and manufacturing.7 Prior research has also shown that

2. Brundtland (1987). 3. Ehrenfeld and Hoffman (2013). 4. Carroll (1999). See also, Joyner and Payne (2002) and Carter and Jennings (2004). 5. See for example, Peloza and Yahnin (2008) and Hoffman (2013), 6. Hoejmose and Adrien-Kirby (2012), Giunipero, Hooker, and Denslow (2012), and Miemczyk, Johnsen, and Macquet (2012). 7. Curkovic and Sroufe (2016).

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the existing definitions of corporate social responsibility, a predecessor to more current research involving sustainability, are to a large degree congruent.8 Others suggest that the confusion is not so much about definitions, as much as it is about how sustainability is operationalized in a specific context.9 This confusion presents the opportunity for clarity in providing a customized approach to integrated management for any enterprise. As introduced in Chapter 1, integrated management is the process of including ESG performance in close coordination between business processes, functions, groups, organizations, and systems. For over four decades, the message from environmentalists has been basically the same, human activities impact the earth in negative ways and we have to make tradeoffs. These tradeoffs influence conventional, narrow, reductionist approaches to efficiency and waste reduction. Efficiency can be a good starting point, yet a conservation and tradeoff mentality can discourage stakeholders from developing more innovative approaches to solving complex problems. The opportunity is in both efficiency and effectiveness, where the first is incremental and the later, enables finding bigger opportunities and levers for systems change. To this end, and for your reflection on the contents of this book, we can build a better, shared understanding and vision of our common future. To start, we can properly position the integrated management of sustainability as a strategic imperative while operationalizing activities to support it. This places practical importance on what enterprises “can do” to be innovative and to take effective ideas into the future. What if we start taking a no compromises approach to seeing sustainability for the integrated management opportunity it is? For too long, sustainability has been about shrinking your ecological footprint, i.e., negative impacts on the environment. “It’s a good place to start, but a tragic place to stop.”10 Instead, we can integrate approaches to uncovering the sum total of the value we create. Ask yourself: Would the world be better off without my enterprise?

• What is the sum total of both our negative, and positive impacts (i.e., Integrated Value Added, IntVA)?

8. Dahlsrud (2008). 9. Dahlsrud (2008), Marrewijk (2003). Along with Pagell and Schevchenko (2014). 10. From International Living Future Institute’s Chief Scientist, Greg Norris.

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• Can we get to an Integrated Bottom Line (IBL) value proposition? This can be reflected in a profit and loss statement when value creating and value degrading impacts are taken into account.

• Where will we end up on the performance frontier? When answering these questions and looking for this level of understanding of enterprise processes, functions and systems, we are getting to the heart of integrated management. It is about systems thinking, and better decision-making with tangible measures of both action and inaction. A strategic transition toward a sustainable society is based up on a planning process that any enterprise can use to integrate sustainability into practice. Without a structured approach, there will always be a continuance of issues for reactive enterprises due to a lack of common language, nonintegrated actions, and a lack of business case to further support actions and the enterprise itself.11 Juxtapose this reactive approach against an integrated enterprise including ESG performance in its strategic planning process. An integrated enterprise can strategically assess and manage ESG performance and see this as an innovation opportunity aligned with long-term sustainability goals (e.g., the UN SDGs). Within these enterprises, managers change culture and differentiate their services and products relative to others while simultaneously creating value. With an exponential increase in the amount of data, scientific evidence, and performance measurement for an enterprise, now is the time for action with a customizable approach to operationalizing the integrated management of any organization toward sustainability. There is a proven approach to utilizing the framework for Strategic Sustainable Development, eight sustainability principles, ABCD planning process, and tested approaches to understanding the systems and issues we face. Add to this the propositions for measuring an IBL, IntFV, IntRR, ROInt, and financial decision analysis along with modeling uncertainty, and we can have a different trajectory for enterprises into the future. The best results will come from the action learning based approach outlined in the prior chapters, utilization of known solutions, and a determination to integrate practices and systems. What if from now on all enterprises: utilize the SSD and a planning process to develop goals of zero toxic chemicals in their products and supply chains, that water leaving their facilities is cleaner than the water coming into them, that they see CO2 for the waste that it is and place a

11. Robért (2015).

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value on it (e.g., SCC)? What if enterprises also have no negative impacts on indoor and outdoor air quality, have buildings that generate more electricity and water than they consume, and utilize zero emission transportation vehicles? What if both natural and social capital is valued by the firm within a profit and loss statement, that they find cradle to cradle solutions, report their integrated ESG and financial goals and performance to stakeholders using global standards, with short-term actions demonstrating alignment with long-term SDGs to meet the needs of the current generation without compromising the needs of future generations? Imagine this integrated future, as a juxtaposition to disposing of waste with the lowest local economic cost and finding the lowest cost for labor available globally while not valuing how much waste systems (i.e., energy, transportation, solid waste, and food) produce, or the degradation of the environment, or impacts on health and human productivity, with single bottom line wealth creation for those who can afford to separate themselves from this waste without accounting for the interdependencies of the systems they rely on? These are the possibilities a no compromises approach integrated management provides.

Revisiting the Performance Frontier Trade-offs between economic value creation, and environmental and social value creation are the reality if a firm is located on the sustainability frontier. We know that trade-offs can be avoided if a firm is located inside the frontier and its strategy is positioned to move it outward. When the frontier is pushed outward due to innovative practices and disruptive technologies, the current location of the firm would fall inside the new frontier and trade-offs can be avoided. Information in Chapters 6 and 7 were about understanding your current reality and how your enterprise is most likely not positioned out on the best practices performance frontier. Later chapters were about how leaders have been able to integrate and push the frontier outward and seize new opportunities. Closing the chasm between your current reality and a “to be” future is available now as there is no escape of knowing about the trends involving integrated options and the growing chasm created by business as usual as the performance frontier continues to move outward. The integration chasm regarding the value of sustainability will continue to widen as best practices and rankings have pushed out the frontier. Add to this the ability for technology to now provide more data and information than ever before. The changes in IS/IT if not adopted, can cause an enterprise to not be able to cross the technology

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chasm as new skills and technological competencies change our current reality. Finally, due to a growing body of work such as Bower and Paine’s Harvard Business Review article on “the error at the hearty of corporate leadership” and for those who do not integrate, there is a widening institutional chasm regarding the purpose of the firm and the ability to go beyond only a single bottom line as a measure of success. What does this mean for you? If, as Peter Drucker has said, “Every environmental and social problem of our time is a business opportunity in disguise,” than turn these chasms into integration opportunities by changing your awareness, utilizing technological innovation, and questioning long-held assumptions regarding the purpose of the firm. Take a page from Nike’s playbook as its history as a company has an innovative start that within a matter of years was questioned for its supply chain practices (i.e., labor infractions) and for not creating ESG value. It was an efficient enterprise that due to external drivers such as Greenpeace and other stakeholders, embarked on a drive to integrate sustainability internally. Early integration involved risk management, transparency, monitoring, and collaboration with NGOs. These efforts evolved into the integrated management of sustainability as a future business driver, embedded in product life cycles, within teams and even on their board while looking for disruptive business models and product innovation linked to systems innovation. Nike was able to use the “integrated management of sustainability” to further reduce its packaging and waste with goals of zero toxic chemicals for its supply chain, improve it energy efficiency and pick other high impact areas such as global water scarcity. Nike also successfully built teams (with disruptive innovation and scenario planning as a focus by developing new skills and sustainability networks when pursuing new technology) with targets to achieve these goals by 2020, thus pushing the sustainability frontier outward for others in their industry. Nike moved outward, closing awareness, technology, and institutional chasms to simultaneously improve its ESG and financial performance.

Challenges The systems and enterprises of today have largely been operating under the same mindsets we had at the start of the industrial revolution two centuries ago allowing short term planning in-line with a belief that there are: unlimited natural resources, unchecked waste, lack of measurement, and that people are expendable inputs to manufacturing systems. Further, the beliefs that the environment is ours to control, that there are

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no impacts from population and consumption, that wealth concentration is the natural order of the economic system, and profit as the only measure of success have all clouded our understanding of reality. This dated mindset stands in stark contrast to today’s growing recognition of globalization, automation, environmental degradation, climate change, volatility of markets polarizing economic development, and social inequity. There is now a new, more complex reality featuring multiple stakeholders and new corporate enterprise responsibilities. We have an opportunity to reimagine the processes by which enterprises operate: renewable energy as more effective than coal utilities, selling the energy you generate back to the grid, and constructing high performance buildings, supply chains and cities are just some examples. This is all part of the “Next Industrial Revolution” that calls for systems and business models with integrated management practices aligned with the diverse interests of society, the environment, and shareholders. No one said it would be easy as there are a number of challenges to overcome. The systems and enterprises of tomorrow need our ability to identify and act on innovative solutions while we work toward overcoming some key challenges. One challenge to a large-scale migration to IBLs and integrated reporting is the short-term thinking employed by many business leaders. Often those leading large enterprises are driven primarily toward efficiency and instantaneous rewards. This may be a winning strategy for a brief time period, but years down the line the decisions made with instant gratification and efficiency in mind fall into the same trap of unintended consequences with regards to the release of wastes into ecological systems as externalities with no associated value.12 Measurement and integrated management can inhibit progress when trying to measure too many attributes of performance. This is compounded if we do no more than see these new metrics as risk management. To this end, the sheer number of potential issues, and the expanding range of possible ESG risks, should be reflected in the potential KPIs and intangibles affecting a bottom line when they are material to the enterprise. These indicators can include financial measures such as: trends in legal compliance; disclosure of climate related risks, fines, insurance, and other legally related costs; and development, remediation, 12. This section of the chapter is based on information from Sroufe, R. and Ramos, D. “The Unbalanced Sheet” Chapter 13 in the book New Perspectives on Corporate Social Responsibility: Locating the Missing Link, edited by L. O’Riordan, P. Zmuda, and S. Heinemann, Springer Gabler Press.

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decommissioning and abandonment costs. Compounding this is a growing need to measure environmental impacts in terms of new metrics, including: the number of public complaints; the life-cycle impacts of products; energy, materials, and water usage at production sites; polluting emissions; SCC; environmental hazards, and risks including the valuation of ecosystem services; waste generation; consumption of critical natural capital; and performance against best-practice standards set by leading customers and by sustainably focused and ethical investment analysts.13 Another challenge for integration and its reporting is that sustainability as an enterprise concept has for too long lacked a clear definition. Many groups such as the GRI, IIRC, and SASB are working tirelessly to provide frameworks and direction for international standards and companies to strive for while adopting these measures. However, international standards lacking collaborative, synergistic relationships to each other can pull decision-makers in different directions. Key performance metrics, standards, and future policy need to build upon one another to be flexible, work toward the common goal of a sustainable society, and have a business case ROInt that is understandable. MNCs can lead the way and not wait for policy makers. It may require policy makers and legislative bodies enforcing specific guidelines for each enterprise to get them on the same page with regards to accounting across countries and industries. There are two more major challenges to integration and its associated reporting: resource limitations and shortage of expertise. It takes a relatively large amount of resources to begin measuring intangible aspects of an enterprise and verifying the assurance of that data and information with experts. Verification is a problem, in and of itself, due to misinformation about the science behind climate change and a dearth of established standards in the world that can successfully lead the way even if an enterprise would like to change its accounting methods. The lack of expertise problem will fade as integrated management efforts grow in popularity and maturity, within enterprises and in business schools. It should be reassuring to know that many business schools around the globe, for over a decade, have been ranked for their own integration efforts by the likes of the Aspen Institute, and The Corporate Knights. However, as we well know, the resource constraint issue will remain even if there is no shortage of experts to offer assurances.

13. Elkington (1998).

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Even with these barriers, integrated management and integrated reporting is the wave of the future. To quote Peter Bakker, president of the World Business Council on Sustainable Development, “To get all businesses involved in solving the world’s toughest problems, we must change the accounting rules.” A commitment to accounting and financial modeling that includes an integrated approach and IBL reporting will increase brand recognition and goodwill for an enterprise while improving quality of life for individuals, supply chains, cities, the environment, and progress toward a sustainable society. As Bill McDonough has said in the documentary The Next Industrial Revolution, “When we follow nature’s rules, growth is good. The question before us is not growth versus no growth. It is: What would good growth look like? And this is a question of intent, of design. What if we grow health instead of sickness, home ownership instead of indigence, education instead of ignorance?”14 The systems and enterprises of tomorrow need a vision of innovative solutions while we continue to work on these and other challenges.

We Need Innovative Decision-makers and Solutions While Chapters 8 and 9 reviewed many of the best practices and trends in integrated opportunities, there needs to be another explicit nod to some of the seminal authors and thinkers whose ideas have had profound impacts on the integration of sustainability into thinking about design, economics, closed loop systems, climate change, CO2, and cities. While there are easily too many to include within this chapter, many of these people and their published work is mentioned throughout this book and are referenced in the compendium. Depending on where your interests may take you, or where your functional expertise is found within an enterprise, consider the following published resources to take a deeper dive into a topic:

• Sustainability by Design, by John Ehrenfeld-design-based solutions • Stockholder Value Myth, by Lynn Stout - reviewing the meme and legal basis of a firm’s fiduciary responsibility

14. From the documentary, The Next Industrial Revolution, William McDonough and Michael Braungart, (2002) quote from Bill McDonough.

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• Natural Capitalism, by Paul Hawken, Amory Lovins, and Hunter Lovins on valuing natural assets, productivity, biologically inspired models, and reinvestment in natural capital,

• Natures Fortune, by Mark Tercek and Jonathan Adams

how busi-

ness and society thrive by investing in nature,

• What Has Nature Ever Done for Us? by Tony Jupiter

solutions for

valuing natural resources

• The Upcycle, by William McDonough and Michael Braungart

and

closed loop systems solutions by the authors of Cradle to Cradle

• Reinventing Fire, by Amory Lovins and the Rocky Mountain Institute business solutions for the new energy era across industry sectors

• The Integrated Reporting Movement: meaning, momentum, motives, and materiality, by Robert Eccles and Michael Krzus solutions involving integrated reporting

for examples and

• Making Sustainability Stick, by Kevin Wilhelm

best practices for implementing sustainability efforts at a corporate enterprise level

• Green Giants, by Freya Williams

for insights on how businesses are deriving billion dollar revenues from the integration of sustainability

• Drawdown: the most comprehensive plan ever proposed to reverse global warming, edited by Paul Hawken as a synthesis of 100 ways to remove carbon dioxide from the environment and monetizing the benefits of doing each one

• Climate of Hope, by Michael Bloomberg and Carl Pope

solutions

addressing climate change and cities All of the solutions proposed in these resources further advance the integrated management of sustainability within functions, enterprises, systems, and supply chains, and align with the UN SDGs. The opportunities are many and the time for decision-makers with creative solutions is now.

Strategies, Functions, Systems, Value Chains, and Cities are Proving Grounds for Creative Solutions Large-scale change will require a new strategy leveraging emerging technologies (e.g., AI, dashboards, big data, and Blockchain). It also required

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taking a systems perspective to understanding problems versus symptoms, and a structured approach (i.e., the SSD) to finding opportunities with the biggest impacts. As we know, a strategy is “a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision-making. A good strategy provides a clear roadmap, consisting of a set of guiding principles or rules, that defines the actions people in the business should take (and not take) and the things they should prioritize (and not prioritize) to achieve desired goals.”15 When we take another look at this, the vision is about why people are motivated toward less harm and more good, the mission is about what you will be achieving as outlined by the UN SDGs, the value chain consists of who you will be creating ESG value with, and strategy is about how scarce resources should be allocated to accomplish what you have set out to do across processes, functions, and systems. Systems are at the core of business strategy, operations, functional connectivity, value chains, and cities. Information systems as are the “formal, sociotechnical, organizational systems designed to collect, process, store, and distribute information.”16 Understanding socioecological systems as well as information systems as systems within systems enables decision-makers to utilize information systems and emerging technology to see their potential and role of the integrated enterprise. Systems thinking, both large and small, will be critical to developing and scaling solutions.

Function Integration Integrated management within an enterprise across functions is a strategy with the goal of synchronizing information systems, technology, and culture, with the larger enterprise strategy and goals. Integration is a signal and attribute of how sustainability is a function of business processes. The ways in which an enterprise coordinates research and development, manufacturing, and marketing functions across international borders provide some insight into integrated global industries. People and information, along with emerging technology such as AI, machine learning, and decentralized systems provide flexible approaches

15. Watkins (2007). 16. Pigni, Gabriele, Federico Pigni. Information Systems for Managers (without cases), Edition 3.1, 3rd Edition. Prospect Press, 2015-12-28.

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to the integration of sustainability into business systems, dashboards, and global coordination. When developing and implementing ESG systems, employee engagement at all levels of an enterprise is critical for a successful integrated management strategy. With the sharing of information, resources, and creative solutions, managers can develop a culture that encourages innovative approaches to complex sustainability issues. Each function within an organization faces unique ESG challenges and a customized approach to operationalizing sustainability as reviewed in Chapter 2 is important to identifying and developing actionable solutions. Education and training will help enable employees achieve the results put forth in the vision, mission, and goals. As a result, an enterprise can proceed down the path toward integrated management gaining momentum with shared experience and the encouragement of cross-functional ideas throughout the organization.

Integrated Value Chains The Story of Stuff tells the story of how 99% of all the stuff we make is on its way to or in a landfill within nine months. We can reverse this take, make, waste, approach to manufacturing and supply chains with a new story, The Story of Solutions (https://storyofstuff.org/movies/the-storyof-solutions/). It was not until the 1980s and 1990s that supply chain management prevailed in strategic level acceptance in the world. The next logical step was the integration of the entire supply chains as well as functions within an enterprise to gain competitive advantage.17 Drivers of this competitive advantage have been cost and uniqueness. Drivers for reduced costs have been learning, economics of scale, capacity, linkages, integration, timing, location, and policies that affect cost. Attributes of uniqueness include availability, quality, rapidly introducing new products, product uniqueness, and responsiveness to customer request and customized designs.18 The drivers for competitive advantage are directly related to the integration of functions and other enterprises. In this way, marketing departments play a role in understanding customers’ needs, market trends, demand management, and selection of marketing channels. The production function affects the performance of other functional units by controlling manufacturing capacity, inventory,

17. Pagell (2004). 18. St. John and Harrison (1999).

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scheduling, and manufacturing processes. Research and development functions influence the processes of other units through the introduction and development of new products and the design process. Logistics affect other functions when delivering the correct items ordered to customers, meeting due dates, and selecting adequate modes of transportation. Accounting and finance help keep track of value and inform decision-makers as to the integrated value added from capital expenditures and valuing intangibles from global value chains. The integration of internal functions and external value chains is only growing in importance. Add to this the potential of big data and Blockchain’s impact on sustainability, and business practices there is a lot to be excited about. How about a tracking system that provides visibility of products as they move across supply chains while signaling potential issues with tampering or safety? Or automatically certifying shipments while keeping a ledger of all shipment transactions (that can include environmental and social cost of carbon dioxide impacts) in a cloud based technology that is virtually tamperproof? Unilever has already begun using this technology to trace food products across oceans and continents.19 Or, what about a database that monitors on-site renewable energy generation, uses the IoT to connect smart meters and dashboards in real time for decision-makers to better manage buildings all over the world, issues renewable energy credits, and automatically distributes them based on existing contracts? The benefits of increased transparency, accurate tracking, a permanent ledger, and cost reduction are all benefits Blockchain has to offer across multiple industries. This technology is already in use to improve government efficiency, tracking the Syrian refugee crisis, bridge the poverty gap for the world’s most impoverished people, and even helping to preventing voter fraud.20 Predictions are that it will transform carbon accounting, GHG emission monitoring, closed loop systems, and trust in ESG reporting. Integrated supply chains help stakeholders to achieve cost saving and value creation for customers. This was confirmed recently by an EVP of a healthcare enterprise when speaking at a sustainable supply chain management event noted, “It’s better for functional leaders to focus on value creation first instead of cost avoidance.” Enablers include emerging technology, collaboration, information sharing, and flexibility in taking action as external drivers of change. What this means is that a higher

19. Based on information from Clancy (2017) and Davies (2018). 20. Eddie Newsroom (2017) and Quora (2017).

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level of integrated management leads to a higher level of enterprise performance, and value chains are critical systems connecting enterprises, customers, and stakeholders.21

Integrated Cities Cities have been taking on new labels: smart, sustainable, and resilient. These are important designations and indicators of integrated systems within building, infrastructure, transportation, and economic development. Cities are in critical need of integrated management and solutions that scale. Why? Because the world is urbanizing at a rapid pace. In the 1950s, there were two mega-cities with 10 million or more inhabitants. As of 2015, 22 mega-cities have emerged, 17 of which are located in developing countries. Whether you live in one of these cities or not, our population is growing and even high-density areas such as cities have design and strategic planning practices with a focus on having smart, sustainabile, resilient, and integrated infrastructure. By 2050, we could have an additional 2 billion people in cities, with about two thirds of the global population living in cities. These urban systems will experience a majority of this growth in developing countries, with most of it taking place in Asia and Africa. Cities are also hubs of transportation, locations for enterprise headquarters, and are connected by the same logistical infrastructure that enable value chains. Cities are therefore among the best places to look for and implement integrated solutions for urbanization, rising middle class consumption, and population growth. “As engines of economic growth, cities already produce 80 percent of the world’s GDP. They consume over two-thirds of global energy supply, and generate 70 percent of GHG emissions. Cities are also uniquely vulnerable to climate change as 14 of the world’s 19 largest cities are located in port areas.”22 If managed well, resilient, inclusive, and resource-effective cities, that do not violate SSD sustainability principles will become the closed loop, regenerative drivers of a new economy, that contribute to both local livability and global public good. If managed poorly, sprawling urban areas will degrade land, continue to be devastated along coastlines from weather events, strain ecosystems and essential infrastructure services,

21. Pagell (2004), Eddie Newsroom (2017) and Quora (2017). 22. Sustainable Cities, Global Environmental Facility, Investing in Our Planet, accessed January, 2018 a https://www.thegef.org/topics/sustainable-cities

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increase levels of air and water pollution, and increase the size of vulnerable populations. Enablers of progress toward sustainable cites include organizations like the World Bank, Global Environmental Facility, and United Nations Agencies to provide an integrated approach to urban development and a Global Platform for Sustainable Cities.23 These organizations support activities including but not limited to geospatial data and tools for urban planning, GPSC national platforms for public access to data, alignment with the UN SDGs, implementation and diagnostic tools and dashboards to assess sustainability status, along with preparing and implementing action plans for integrated and sustainable growth. They provide an Urban Sustainability Framework with policy objectives and planning resources for (1) sustainability indicators, (2) diagnostic process, (3) sustainability action plan, (4) financing and investment, and (5) process for implementing the framework. For an interesting perspective and Ted Talk on megacities, watch Parag Khanna in “How Megacities are Changing the Map of the World.” Within this video, Khanna asks us to reimagine how life is organized on earth, as our expanding cities grow ever more connected through transportation, energy and communications networks, and as we evolve from “geography” to what he calls “connectography.” This emerging global network of civilization holds the promise of reducing pollution and inequality and even overcoming geopolitical rivalries. Khanna asks us to embrace a new maxim for the future: “Connectivity is destiny.”24 Connectivity and sustainable cities hold a new promise for the future and new ways for people to thrive in dense urban environments. Another dimension of integrated cities is the International Living Futures Institute’s Living Community Challenge. This challenge is comprised of seven performance areas, or “Petals”: Place, Water, Energy, Health and Happiness, Materials, Equity, and Beauty and Spirit. Petals are subdivided into a total of 20 Imperatives (goals), each of which focuses on a specific sphere of influence. This compilation of Iimperatives can be applied to the master plan and/or completed construction of almost every conceivable community type, be it a small city block or street, a planned residential development, a mixed-use transit

23. Global Platform for sustainable cities; accessed February, 2018 at https://www.thegpsc. org/ 24. How megacities are changing the map of the world, Ted Talk, http://www.ted.com/ talks/parag_khanna_how_megacities_are_changing_the_map_of_the_world

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community or a large college campus. Naturally, strategies to create Living Communities will vary widely by occupancy, use, construction type, and location this is necessary but the fundamental considerations remain the same. With this framework you can enable communities that are healthy for all elements of life, nurturing places promoting healthy lifestyles for everyone. These communities can be Net Positive as they generate their own energy and capture and treat all the water they need, have multipurpose spaces where everything has purposeful and multiple benefits to the community and environment, be regenerative spaces for people and the environment, and have walkable, bikeable places with affordable public transportation. Successful integration of systems, functions, and value chains considers the drivers and enablers of activities aligned with both sustainability and enterprise strategy to inform performance measurement and management. The number of performance measures (opportunities for goal setting) is growing, and the collection and dissemination of this information is expected to continue to expand. Evidence of this can be found in organizations such as the CDP, GRI, MSCI Global Socrates, Trucost (acquired by Standard & Poor’s), and Bloomberg terminals that track several hundred environmental and social measures for individual enterprises and their supply chains. Leading organizations are the ones with higher levels of integrated ESG performance as signaled publicly through corporate reporting and rankings. These same organizations now map actions into the UN SDGs.

A Call to Integrated Management Action We need to try and understand the paradox of current business models and management thinking, i.e., our current wasteful systems, the unbalanced sheet and a focus on first costs, not long-term value. Information in this book tries to take a different look at value creation across functions and systems, financial analysis, reporting, natural capital, shared value, and risks while exploring new IBL opportunities and propositions, best practice trends and evidence of leading multinational companies taking action. In doing so, the resources available to you in this book include an evidence based, practical look at the intersection of enterprise functions and systems as part of an evolving sustainability performance frontier. We have provided a working definition of integrated management and IBL performance as the valuation, analysis, and disclosure of financial, social, and environmental assets and liabilities to the internal

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and external stakeholders of a firm. This definition takes IBL beyond an accounting practice and someone else’s responsibility, to position it as a catalyst for the integrated management of sustainability in management solutions, risk management, and stakeholder engagement to find material solutions (actions). A review of the growing literature supported by evidence of multinational firms’ best practices and trends show this area of management practice, scholarly research, and business school pedagogy will be impactful for both practitioners and scholars for many years to come. The integrated management of reporting involving social and environmental sustainability includes enabling, clarifying, quantifying, valuing, improving, and performance reporting in ways that investors and stakeholders want to see. It is an important goal that an IBL and the reporting of integrated management efforts become standardized and used across industries. This is already happening more in an EU-based reporting than in a US context. The steps necessary for functional experts in areas such as accounting and finance will be to get top management support to assess an organization’s current ability to measure and report ESG performance information. By understanding formal and informal systems already in use for the capture and dissemination of information, an enterprise can ready itself for this coming shift in measurement and reporting. If an enterprise already has existing integrated management efforts, teams and a senior manager to lead these initiatives, then it is ahead of the game. A renewed urgency to review material financial and nonfinancial performance measures, while also developing causal models showing the explicit relationships between sustainability practices, natural capital, social performance, and governance, is a logical step toward better understanding your integrated management value proposition. If instead, management finds itself lagging in these areas, know that there are multiple organizations available to help with guidelines on “how to” take on these new reporting opportunities. Also, compare and contrast your enterprise to best-in-class examples of top ranked enterprises to see what chasm exists between yourself, competitors, and industry leaders. Opportunities to cross the chasm between yourself and leading organizations include having the CEO appoint an executive level integration officer, and the development of teams throughout an enterprise structure to enable, clarify, and quantify new practices and processes. Benchmarking your enterprise and other firms mentioned in this book will go a long way toward understanding what it will take to

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determine the prioritized actions for developing and implementing integrated management projects. All decision-makers should consider the tone from the top and include nonfinancial performance metrics for use in leadership team meetings, and if you have one, this should include the board of directors.25 A plan of action for valuing, improving, and further integrating IBL performance will include the organization’s website and social media, and support for reporting to both internal and external stakeholders. Measurement and reporting needs to be aligned with the business model, linked to strategy, and shared value creation. As we all know, every issue and opportunity will need to be put into a business context with enough detail for decision-makers to understand the implications for value creation and destruction. “The profile of corporate stakeholders and their ability to influence business has changed. Companies must demonstrate that they are managing the interests of all their capital providers in order to show that they have a sustainable business model.”26 More thought leaders and managers these days recognize that Milton Friedman was wrong and obsessing over short-term shareholder value is bad business.27 This insight should be a wake-up call for business leaders and business schools to uncover and develop new opportunities for measuring and reporting natural capital, social sustainability, risk management and the ability to leverage management systems that all push the bounds of a new sustainability performance frontier. It was foreshadowed in the first chapter of this book that you will be asked to prepare a Vision and Action plan. This exercise in reflection and only assignment in this chapter does not have rigid guidelines or a structured approach, but instead an opportunity to really think about, capture, and even have a conversation with others about your future.28 The plan needs to describe how you will connect business and integrate sustainable development in your own career and enterprise. Specifically, you should think about actions for your:

25. Paine (2014). 26. KPMG (2012). 27. See, for example, Winston (2018). Along with Murry (2016). And Bower and Paine (2017). 28. I need to thank Sandra Waddock for introducing me to this assignment and opportunity to reflect as I try and do this at least twice a year while working with my graduate students.

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1. Personal point of view on the role of business in the world for the new millennium, and 2. Personal action plan for using commerce as a tool to foster a more sustainable world. Capturing this in a succinct document provides a touchstone to revisit on an annual basis, to update and continue to build upon as your career path and life change. It can also be part of a more detailed ABCD planning process and larger action plan initiative for an entire enterprise.29 If an enterprise can provide its stakeholders with an annual report of its progress, consider this your personal report on progress toward the integrated sustainable development and value creation at a person level. Our learning about integrated enterprises and how sustainability drives value across functions and systems should be continuous. So, too, should our reflection on how enterprises and individuals can be change agents for a new future. A final question here is, in part, a challenge and call to integration: Are business schools providing a disservice to students and our economic systems by not examining and teaching an integrated approach to management? All business professionals across functional disciplines have an opportunity to be part of this radical transformation. We all have a role to play. Problem based learning and action learning pedagogy coupled with community engagement provides a different, innovative space for academic systems and business systems to combine forces to help solve global sustainability problems and create the transition to a sustainable society. What role will you play?

Optimism I am optimistic about the future. Why? The achievements and benefits of the environmental movement of the past has already put us on a different trajectory than we would have been on otherwise. We are getting

29. Here is a more detailed plan, and the second link is to a three step planning process one for San Francisco’s BART, Bay Area Rapid Transit, if you go to pages 7 and 8 I think it’s a good concise illustration. I wouldn’t think you need permission to use. Less on how commerce can play a part but I like how concise it is. https://www.bart.gov/sites/default/ files/docs/BART_SustainabilityActionPlan_Final.pdf; on the other hand, here’s a 3-step plan from GreenBiz. https://www.greenbiz.com/blog/2014/02/25/3-step-sustainabilityaction-plan-business-leaders.

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much better at not marketing the problem of sustainability, but instead selling the solutions. I believe in what Balmford and Knowlton see through their scientific lens of the word that “conservation has been called a crisis discipline, and Earth Day in the US was born of crisis the 1969 Santa Barbara oil spill. Since then doom and gloom have become the norm in conservation messaging, which is why focusing on conservation’s achievements, including those benefiting people as well as the planet, represents an important shift. In the end, support for both science and conservation depends on them delivering positive outcomes.”30 Conservation is still important and depends on the accumulation of small-scale advances globally. Scientist, business people, NGOs, governments, and everyday people globally are working on solutions to the social and environmental issues of our time. It is the largest social movement in our history, and its momentum is only growing. Another critical element needed for major change is hope. The integrated management movement provides that hope. “As Martin Luther King Jr. famously said, ‘I have a dream’, not ‘I have a problem.’ Studies show that presenting people with huge problems without solutions leads to disengagement. Without examples of efforts succeeding, hopelessness could itself emerge as a driver of extinction. Directing more effort toward identifying, understanding, and celebrating success, drawing on insights from the natural and social sciences, is key to securing the knowledge, time, and public engagement needed to reverse the tide of loss.”31 In this same vein, Paul Hawkin notes that “to be effective, we require and deserve a conversation that includes possibilities and opportunity, not repetitive emphasis on our undoing.” This knowledge, engagement, and conversations of the possibilities provide evidence of already impactful results. Examples of progress include: valuing natural capital, industrial ecology, the growth in Benefit Corporation designated enterprises, questioning of the fiduciary responsibility of the enterprise, sustainability reporting and integrated reporting, progress by the IIRC, carbon trading platforms, Conference of the Parties agreements across countries, use of the SCC and shadow pricing, high-performance buildings, net zero facilities, social finance, Living Products, regenerative buildings and products, SASB materiality maps, and the many UN efforts including the Environmental Program’s

30. Balmford and Knowlton (2017). 31. A bit more optimism and renewed focus on hope, modified from Balmford, A. and Knowlton, N, Ibid where their focus was on “conservation” efforts.

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Integrated Governance model’s, GC, Principles for Responsible Management Education (PRME), and SDGs to name a few. All provide evidence of progress for some, and new possibilities for many. Conversations at the individual integrated management level are changing. Individual responsibilities include how we work across functions, and manage an enterprise; interact with our homes, mobility and transportation systems; our purchases, and how we engage with others across social systems. Now that we know about how wasteful our legacy energy, transportation, and manufacturing systems are, how can we not change our trajectory? Discussions about individual level possibilities, waste elimination, goals of net zero, and value creation, are the foundation for optimism and integrated management without compromise. A no compromises approach will mean an epiphany for some in that their continued violation of SSD sustainability principles means their business should no longer exist in its current form. Opportunity can easily be disguised as “that can’t be done” or “that is not how we did this in the past.” Changing mindsets and paradigms is not easy. Donella Meadows has helped to make it clear that to change paradigms, do not waste your time with reactionaries, instead work with change agents, and people who are open minded.32

Fear Nothing but Closed Minds! To apply learning from this book, do your own research, reflect on the end of chapter questions in the context of your enterprise and what a sustainable future will look like. What’s your IntEnt? Take the time to learn about and to look for system level opportunities, define your own success, align with strategic planning, and to implement integrated management solutions. It will have a positive return on your investment.

Bibliography Balmford, A., & Knowlton, N. (April 21, 2017). Why earth optimism. Editorial, Science, 356(6335), 225. Bower, J. L., & Paine, L. S. (May June 2017). The error at the heart of corporate leadership. Harvard Business Review, 95(3), 50 60. Brundtland, G. H. (Ed.). (1987). Our common future: The world commission on environment and development. Oxford: Oxford University Press.

32. Meadows (1999).

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Carroll, A. B. (1999). Corporate social responsibility evolution of a definitional construction. Business and Society, 38(3), 268 295. Carter, C. R., & Jennings, M. M. (2004). Role of purchasing in corporate social responsibility: a structural equation analysis. The Journal of Business Logistics, 25(1), 145 187. Clancy, H. (2017). The Blockchain’s emerging role in sustainability, GreenBiz. Retrieved from https://www.greenbiz.com/article/blockchains-emerging-role-sustainability. Accessed April 2018 Curkovic, S., & Sroufe, R. (March, 2016). A literature review and taxonomy of environmentally responsible manufacturing. American Journal of Industrial and Business Management, 6(3), 323 346. Dahlsrud, A. (2008). How corporate social responsibility is defined: An analysis of 37 definitions. Corporate Social Responsibility and Environmental Management, 15(1), 1 13. Davies, D. (2018). Sustainable Value Chains & Blockchain: Practical Applications, Sustainable Brands, January 11. Retrieved from http:// www.sustainablebrands.com/news_and_views/supply_chain/dan_davies/ Accessed sustainable_value_chains_blockchain_practical_applications. April 2018 Eddie Newsroom. (2017). What can Blockchain do for corporate sustainability?, October 10; Retrieved from https://www.edie.net/library/Whatcan-blockchain-do-for-corporate-sustainability-/6790. Accessed April 2018 Ehrenfeld, J., & Hoffman, A. (2013). Flourishing: A frank conversation about sustainability. Stanford University Press. Elkington, J. (1998). Cannibals with forks: The triple bottom line of 21st century business, New Society, Gabriola Island, BC. Giunipero, L. C., Hooker, R., & Denslow, D. (2012). Purchasing and supply management sustainability: Drivers and barriers. Journal of Purchasing and Supply Management, (18), 258 269. Hoejmose, S. U., & Adrien-Kirby, A. J. (2012). Socially and environmentally responsible procurement: A literature review and future research agenda of a managerial issue in the 21st century. Journal of Purchasing and Supply Management, (18), 232 242. Hoffman, A. (2013). Thirty-five years of research on business and the natural environment. Part 1: A statistical synopsis. Organizations and the Natural Environment Blog, July 13. Academy of Management Organizations and Natural Environment web site. Joyner, B. E., & Payne, D. (2002). Evolution and implementation: A study of values, business ethics and corporate social responsibility. Journal of Business Ethics, 41(4), 297 311. KPMG. (2012). Integrated reporting: Performance insight through better business reporting. KPMG integrated reporting, [Online], no. 2, pp. October 14, 2013. Retrieved from: http://www.kpmg.com/Global/ en/IssuesAndInsights/ArticlesPublications/integrated-reporting/Documents/ integrated-reporting-issue-2.pdf. Accessed on December 12, 2013.

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Marrewijk, M. (2003). Concepts and definitions of CSR and corporate sustainability: Between agency and communication. Journal of Business Ethics, 44(2/3), 95 105. Meadows, D. (1999). Leverage points: Places to intervene in a system. The Sustainability Institute, 18. Miemczyk, J., Johnsen, T. E., & Macquet, M. (2012). Sustainable purchasing and supply management: A structured literature review of definitions and measures at the dyad, chain and network levels. Supply Chain Management: An International Journal, 17(5), 478 496. Murry, A. (2016). Why Milton Friedman was wrong. Fortune. Pagell, M. (2004). Understanding the factors that enable and inhibit the integration of operations, purchasing and logistics. Journal of Operations Management, 22, 459 487. Pagell, M., & Schevchenko, A. (2014). Why research in sustainability supply chain management should have no future. Journal of Supply Chain Management, 50(1), 44 55. Paine, L. (2014). Sustainability in the board room. Harvard Business Review, 92(7/8), 86 94. Peloza, J., & Yahnin, R. (2008). Valuing sustainability: A systematic review, Research Network for Business Sustainability. Ontario, Canada: University of Western Ontario. https://swift.van2.auro.io:8081/swift/v1/6bda5a38d0d7490e81ba33fbb4be21dd/sophia/blox/assets/data/000/000/021/original/ NBS-Systematic-Review-Valuing.pdf?1492523392. Accessed on August 2018. Porter, M., & Kramer, M. (2011). Creating shared value: how to reinvent capitalism and unleash a wave of innovation and growth. Harvard Business Review, 89(1/2), 64. Quora. (2017). What is blockchain used for besides Bitcoin?, Forbes, accessed April 2018 at https://www.forbes.com/sites/quora/2017/11/17/what-isblockchain-used-for-besides-bitcoin/#6b01c57d446e Robért, K.et al. (2015). Strategic leadership towards sustainability. Psilanders Grafiska. Karlskrona, Sweden: BTH University. St. John, C. H., & Harrison, J. S. (1999). Manufacturing-based relatedness, synergy, and coordination. Strategic Management Journal, 20, 129 145. Watkins, D. (2007). Demystifying strategy: The what, who, how, and why, Harvard Business Review on-line, September 10, 2007. Winston, A. (2018). Milton Freidman was wrong. Medium. Published February, accessed August 2018 at https://medium.com/@AndrewWinston/miltonfriedman-was-wrong-bbb70c01a7ae

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Integrated Management Resources Guide Integrated Management Resources for Readers The Integrated Management Opportunity For the purpose of this book and your own management opportunities, integrated management, and performance is the valuation, analysis, and disclosure of financial, social, and environmental assets and liabilities to the internal and external stakeholders of a firm. It includes Environmental Social and Governance goals for sustainable development with a process for attaining coordination between several processes, functions, groups, organizations, and systems. In this context, an integrated enterprise (IntEnt) is one that is able to operationalize goals for sustainable development by: understanding the systems in which it operates; defining success based on sustainability principles; guiding decision making with strategic environmental and social guidelines; adhering to a timeline of actions that move the enterprise toward a sustainable society; and supporting processes for planning with decision analysis tools and management techniques to monitor and guide change management. Integrated Bottom Line performance is the goal and it comes at that point in time when decision makers realize the impacts of a decision go well beyond a single functional perspective with measurement across functions, firms, and value chains in multidimensional ways.

The Framework for Strategic Sustainable Development The framework has been utilized in Business, Leadership, and Engineering programs for years. The application of the framework, its five-level framework, eight

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Sustainability Principles, and ABCD planning process can be utilized in courses while providing critical thinking about the problems business managers face. It provides a proven platform enabling quantitative and qualitative problem solving. The paper and book cited in the following text give a comprehensive and cohesive description of the Framework for Strategic Sustainable Development (FSSD), and also describes and discusses the overall method for developing the FSSD, elaborates on the general rational for and general benefits of a framework of this type, and validate benefits of the FSSD through examples of its application. The purpose is also to point to pertinent future work. The authors reflected on the 25-year learning process between scientists and practitioners. They conclude that the FSSD has proven to aid organizations in thoroughly understanding and putting themselves in context of the global sustainability challenge, and to move themselves strategically toward sustainability, i.e., to stepwise reduce their negative impacts on ecological and social systems at large while strengthening the own organization through capturing of innovation opportunities, including new business models, exploration of new markets and winning of new market shares, and through reduced risks and operation costs. The authors conclude that the framework aids more effective management of system boundaries and trade-offs, makes it possible to model and assess sustainable potentials for various materials and practices before investments are made, and offers the possibility for more effective collaboration across disciplines and sectors, regions, value-chains, and stakeholder groups. They conclude that the framework makes it possible to prevent damages, even from yet unknown problems, and not the least, to guide selection, development, and combination of supplementary methods, tools, and other forms of support, which makes it possible to increase their utility for strategic sustainable development. Finally, they have shown that the FSSD is useful for structuring transdisciplinary academic education and research. Broman, Göran Ingvar, and Karl-Henrik Robert (2013). A framework for strategic sustainable development. Journal of Cleaner Production (2015). The book Strategic Leadership towards Sustainability provides the scientific foundations for the FSSD, and how the five-level framework, eight Sustainability Principles, and ABCD planning process can be applied to organizations and a principlesbased definition of sustainability.

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The Definition of Sustainability The International Institute for Sustainable Development: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Example of how MBAs have operationalized goals for sustainability at Duquesne University: Our vision of sustainable performance includes researching and developing business opportunities that are economically, environmentally, and socially beneficial:

• The program’s economic success will depend on brand strength, community prosperity, and return on integrated investments

• Environmental responsibilities include resource conservation, recycling, reduction of supply chain impacts, collaboration with communities, closed loop systems, the pursuit of energy efficiency, and renewable energy sources

• Our social responsibility includes action learning, working with corporations on the business case for sustainability, respect for stakeholders, systems thinking across disciplines, and an ethical approach to decision-making United Nations United Nations 17 Sustainable Development Goals (SDGS) UN PRME 6 Principles (applied by innovative Universities producing future managers and MBAs) UN Global Compact Library of Resources SDG Tracker Measuring Progress towards the SDGs http://sdgtracker.org Integrating Sustainability and Financial Reporting; Reporting Standards Sustainability Accounting Standards Board (SASB) International Integrated Reporting (IIRC) Global Reporting Initiative (GRI) Example Companies Ranking and Reporting Sustainability Activities Newsweek Green Rankings of Corporations The Corporate Knights Global 100 Rankings of Corporations Dow Jones Sustainability Indices

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United Nations Global Compact companies Global Initiative for Sustainability Ratings found at http://ratesustainability.org/about/ Databases MSCI Global Socrates (Environmental Social and Governance Database for publicly traded firms) TruCost (Environmental Database for publicly traded firms just purchased by S&P Dow Jones) Bloomberg Terminals have access to Environmental Social and Governance (ESG) data CFA Institute Environmental, Social, and Governance Resources In each deliberation, we must consider the impact of our decisions on the next seven generations. Great Law of the Haudenosaunee, c. 1720

The More Comprehensive List of Resources by Topic Area Evolution of Sustainability While the concept of sustainability has been practiced by humankind since the dawn of civilization, the notion that businesses should be accountable for the ethical management of social, environmental, and financial resources is far more recent. In just a few decades, sustainability has evolved from a special interest movement to a “global business imperative” (BusinessWeek, 2007) to an “emerging megatrend” that is “driving innovation” in the twenty-first century (Harvard Business Review, 2010). Meeting Today’s Needs Without Compromising Tomorrow In 1962, Rachel Carson published Silent Spring, a Book-of-the-Month Club selection and New York Times’ best-seller that documented the detrimental effects of pesticides and pollution and accused the chemical industry of providing misinformation. While Silent Spring is often credited with inspiring public interest in the environmental movement, it was not until 1987 that the United Nations’ World Commission on Environment and Development offered a definition of sustainable development: Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future. (Bruntland Commission Report, p. 51)

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The commission viewed sustainable development as, not the destination, but the means to achieve economic, social and environmental justice 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 (p. 25).” The World Business Council for Sustainable Development (WBCSD) offers a similar definition that also includes: […]forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs. Management of Social, Environmental, and Financial Capital Although a growing body of empirical evidence suggests that companies can “do well by doing good,” quantifying the impact of social and environmental responsibility is often more challenging than measuring return on investment (ROI) from financial capital in complex, dynamic organizations. To address social, ecologic, and economic imbalances, managers must grapple with population growth and climate change, waste and pollution, food and water safety, and changing laws and regulation. Businesses the world over are rethinking business models, products, technologies and processes to reduce costs and capitalize on opportunities to leverage competitiveness in unpredictable markets. Sustainability by Design versus Reducing Unsustainability John Ehrenfeld, a pioneer in industrial ecology, introduced the concept that “reducing unsustainability, although critical, will not create sustainability.” Ehrenfeld challenged the conventional environmental problemsolving techniques and called for “sustainability by design” rather than short-term remedies or Band-aids that offer a false illusion of progress. He continues to urge leaders, engineers, scientists and other problem solvers to identify the underlying issues, root causes, and true problems, and suggests that overcoming obstacles for life to flourish on earth requires a behavior transformation, both individually and collectively, from a “having” to “being” mindset. Risk Management As technology increases access to information, organizational risk becomes closely linked to the management of social, environmental and financial risks; however, the challenges for making information accessible

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and useful to stakeholders are significant. Risk management considerations include population growth accompanied by increasing demand for scarce natural resources; concern for justice and equality of workers and peoples in foreign lands; and worldwide governmental and social interventions to address climate change, water scarcity, and food safety. No small task is predicting when/if customers will pay extra for eco-friendly products and services throughout the value chain. Key Issues and Drivers for This Emerging Trend Research increasingly demonstrates that sustainability is often the catalyst for organizational and technological innovations that yield bottomline benefits in four ways: (1) becoming environmentally friendly lowers costs by reducing energy consumption, inputs and waste; (2) reexamining business practices promotes innovation in products, services and processes to capture and deliver value in new ways; (3) promoting international standards fosters productive partnerships, economies of scale and efficiencies throughout a value chain; and (4) complying with regulation encourages experimentation with new technologies and materials and finding new uses for recycled raw materials and products. Book Collections

• Greenleaf/PRME Responsible Management Education Collection (PRMEC) includes case studies, practical guides of benefit to PRME coordinators.

• Business Expert Press PRME and Environmental & Social Sustainability for Business collections

• Sustainable Brands Top Sustainability Books and Top Tools and Trends collections

Key Topic Areas Impacting Strategic Sustainable Development We have highlighted practical tools and frameworks available to managers interested in sustainability. In addition to life-cycle analysis, ecological approaches and base of the pyramid strategy, we have included a brief description of green chemistry, a discipline that enables implementation of the other sustainability approaches, and listed resources for more information on these and other frameworks.

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Cradle-to-Cradle Cradle-to-cradle is another approach that was inspired by industrial ecology. This model embraces the idea that “waste equals food.” In other words, the output from one process can be used as input for another process, thus eliminating the concept of waste. Products can be designed to provide nourishment for something new at the end of the product’s life cycle. The objective is to design products with the method of disposal in mind. By categorizing all inputs as either technical or biological nutrients, designers can ensure that the complete process generates no waste and producers can subsequently ensure that the technical nutrients are returned to industry and reused in the same process or manufactured into another product. Thus, biological materials are returned to earth as they are deemed environmentally safe. Developed by American architect William McDonough and German chemist Michael Braungart, the cradle-to-cradle philosophy has been used to make products and processes eco-effective and not just efficient. Cradle-to-cradle certification by McDonough Braungart Design Chemistry (MBDC) can be used in advertising, labeling, and publicity to differentiate products from the competition. Companies that have used this approach to maximize their eco-efficiency while achieving considerable cost savings include Herman Miller and Nike. Environmental Product Declarations Environmental Product Declarations (EPDs) are used to quantify environmental performance for products or systems based on information from a Life Cycle Analysis (LCA) conducted according to the ISO standards. The purpose is to provide quality-assured and comparable information across manufacturers or service providers. EPDs capture information about the full environmental impacts associated with a product or service, such as raw material acquisition, energy use and efficiency, content of materials, and chemical substances, emissions to air, soil, and water and waste generation. EPDs also include voluntarily developed product and company information. EPDs are available for all products and services and build on well-structured and quantitative data certified by an independent third party. Life Cycle Analysis Life cycle analysis (LCA) allows companies to better understand and evaluate the environmental impacts of products, activities, and processes by following a product from raw material acquisition to consumer use

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and end of life disposal. LCA can be used to determine if resources are being used wisely by benchmarking against the best. It is also a strategic tool for evaluating how well a product or service fits the sustainable vision of a particular company or group. The components of LCA include a life cycle inventory, life cycle impact assessment, and life cycle improvement analysis. Life cycle inventory quantifies energy use, raw material requirements, emissions, and waste production; it is especially useful for benchmarking, targeting the means of resource reduction, developing new products, and comparing alternative products. The life cycle impact assessment and improvement stages help evaluate environmental and health risks, and develop strategies to mitigate environmental impact by changing product design, raw material usage, industrial processes, or waste management. Natural Capitalism Paul Hawken and his colleagues proposed the natural capitalism framework. Unlike the traditional economic system where financial, physical, and human capital are deployed to convert natural capital into marketable products and services, this alternative approach treats natural capital as an asset that is costly and scarce, one that must be leveraged to extract optimal productivity. By increasing the productivity of resources by a factor of ten, imitating the biological systems to eliminate waste, renting and continuously updating products and services to avoid the negative consequences of a throw-away culture, and restoring the health of our natural systems by reinvesting in them, organizations will be able to fully value all forms of capital deployed in their operations. Organizations that have adopted this framework include Interfaces, the flooring manufacturer. The Natural Step The Natural Step framework is based on the idea that a sustainable system must balance the extraction of materials from the earth and their replenishment as well as the production of substances by society and their reincorporation into the earth. Properly balanced, a human society meeting worldwide demand need not physically degrade the natural world. However, we live in a world that takes more from the earth than can be replenished and creates more waste than can be absorbed. The decline of available resources and the increase in demand for them creates a funnel effect that constricts our capabilities and options. Over time, the TNS has evolved into the FSSD

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Green Chemistry The ecological frameworks of life cycle analysis, natural capitalism, cradle-to-cradle and natural step require a redesign of both the materials and processes involved in the manufacture and delivery of the industry’s products. A key enabler is the discipline of Green Chemistry, which calls for the design of chemical products and processes that reduce or eliminate the use or generation of hazardous substances. This philosophy complements other sustainability approaches by eliminating pollution at the source by developing chemicals that are less harmful to human health and the environment, and by reusing or recycling chemicals. Tangible benefits of green chemistry include improved efficiency, safer products, improved effectiveness of product, elimination of costly end-of-pipe treatment of chemicals, reduced waste, energy, and resource usage, and improved competitiveness of product. One example of a successful green chemistry implementation is the reformulation of SC Johnson’s Windex product, launched in 2001 as a companywide effort to incorporate greener components into their products. SC Johnson was able to improve the cleaning power of Windex by 30% while eliminating 1.8 million pounds of volatile organic compounds. The reformulation also prompted an increase in market share for Windex. Industrial Symbiosis In 1989, Robert Frosch and Nicholas Gallopoulos published “Strategies for Manufacturing” in Scientific American and called for a renewed attention to design. They envisioned an industrial ecosystem wherein energies and materials are optimized, wastes and pollution are minimized, and an economically viable role exists for every product (and byproduct) of a manufacturing process. This article set the foundation for the industrial ecology approach to sustainability that led to variations, including biomimicry by Janine Benyus in 1997, natural capitalism by Paul Hawken, Amory Lovins, and Hunter Lovins in 2000, and cradle-to-cradle by William McDonough and Michael Braungart in 2002. More recently, the field has evolved from industrial ecology to industrial symbiosis, a subdiscipline of industrial ecology concerned with resource optimization among colocated companies as described in Marian Chertow in her seminal work from 2000, “Industrial Symbiosis: Literature and Taxonomy.” Unlike sustainable development frameworks that emphasize natural cyclic processes as they relate to business, industrial symbiosis fully incorporates the biological and ecological processes

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of nature, paying resolute attention to the flow of materials and energy through local and regional economies. The core philosophy is that inputs and outputs for one industrial actor could be shared, and in the process add value, reduce costs, and improve the environment. Some of those inputs and outputs include services, utility, and by-product resources. This sharing generally occurs in the form of a formalized market exchange. The keys to industrial symbiosis are multi-party collaboration and the synergistic possibilities offered by geographic proximity. Base of the Pyramid The base of the pyramid (BOP) represents the poorest and largest socioeconomic group in the world. Approximately 4 billion people live on less than US$2 per day, the majority in developing countries. To become sustainable, societies must improve the living conditions and health of the poorest members, increase their access to education, create opportunities for economic development, and service basic needs profitably. This calls for radically different business models that may require businesses to take on new roles in the targeted communities. Successful examples of BOP innovations include microfinancing by Grameen Bank in Bangladesh and Accion International operating in four continents, as well as Unilever’s personal hygiene products in India. Microfinancing The bottom of the pyramid has numerous barriers to commercial and industrial development. One such barrier is the difficulty in acquiring financing for ventures. Entrepreneurs at the bottom of the pyramid generally do not have access to collateral and this makes it difficult to receive financing in the traditional way from banks. In addition, the amount of the requested loan tends to be smaller than most banks consider for business financing. Recently, a new movement of financier organizations has developed alternative methods for loaning money to entrepreneurs at the bottom of the pyramid. This new microfinancing concept uses unconventional lending to allow an entrepreneur without collateral to acquire a loan at a fair interest rate. One of the methods used is group loans where a group of entrepreneurs is responsible for repayment. Microfinancing is realizing significant success and mainstream lenders such as Grameen Bank and Kiva.org are helping to increase the scope of lending from developed countries.

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Measuring and Reporting Tools Global Reporting Initiative The Global Reporting Initiative (GRI) is a large, multi-stakeholder network of experts worldwide who have developed a framework for reporting on economic, environmental, and social performance within an organization. GRI’s goal is to make sustainability reporting as routine and comparable as financial reporting for all organizations. GRI published the third version of sustainability reporting guidelines, called G3, in 2006. The GRI framework standardizes formats to produce reports that can be compared across firms and over time that are useful for tracking sustainability performance and benchmarking against best practices. The GRI is independent, but works in cooperation with the United Nations Global Compact, which encourages organizations to have sustainable and socially responsible policies and report on the implementation of these policies. The GRI also collaborates with the United Nations Environment Programme (UNEP) and the International Standards Organization (ISO). Triple Bottom Line Accounting, Integrated Bottom Line/Integrated Reporting The Triple Bottom Line (TBL) approach was first described by John Elkington in his 1998 book, Cannibals with Forks: The Triple Bottom Line of 21st Century Business, and later popularized by Andrew Savitz in his 2006 book, The Triple Bottom Line Approach. TBL suggests that companies will do well to pay attention to economic, environmental, and social successes rather than economic performance alone. The Integrated Bottom Line (IBL) takes Triple Bottom Line a step further by combining economic, environmental, and social value onto one balance sheet and income statement in contrast to having three separate financial statements for each. International Organization for Standardization The International Organization for Standardization (ISO) 14000 is used to design and implement environmental management systems within organizations. There are many different types of standards throughout the 14000 family, including systems and support techniques (14004), assessment of sites and organizations (14015), environmental labels and declarations (14020), Life Cycle Assessment (14040), measuring greenhouse gas emissions (14064), and even terms and definitions (14050).

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The ISO 14001 serves as the core set of standards for and environmental management system (EMS) that can be integrated with other management tools in order to achieve economic and environmental goals. While the ISO 14000 series is voluntary, it enables organizations to improve environmental performance and achieve guidelines imposed by legislation. The entire ISO 14000 series is flexible, permitting organizations to set their own goals for performance and implement the standard to any level of business. ISO 14001 features a four-step methodology: (1) Plan objectives and required processes are established. (2) Do - processes are implemented. (3) Check processes are measured and monitored and results are reported. (4) Act action is taken to improve performance of an EMS. The “Plan-Do-Check-Act” methodology has five phases: Environmental Policy, Planning, Implementation and Operation, Checking and Corrective Action, and Management Review. These smaller steps make it easier for a company to assess its position and determine where and how to improve. Once an organization has implemented the ISO 14001, it can apply for certification. Certifications are granted to ISO 14001-compliant organizations, as determined by an external audit, and are effective for three years. The International Organization for Standardization (ISO) has launched the development of an international standard for social responsibility. ISO 26000 will be published in 2010, and unlike ISO 9001 and ISO 14001, will not be a certification standard. ISO 14040 and 14044 are focused on the life cycle assessment (LCA) of a product or process. The life cycle assessment allows for the environmental impact of a product or service to be documented in order to reach a particular goal or improvement. The four phases in an LCA study are (1) the goal and scope definition phase, (2) the inventory analysis phase, (3) the impact assessment phase, and (4) the interpretation phase. All of this should be done with a focus on how the product can have a reduced environmental impact. The type of data collected will depend on the goals of the company and the product or service that is being examined. ISO 14025 uses ISO 14040 standards to help develop environmental declaration programs and environmental declarations. Type II environmental declarations allow for environmental information on the life cycle to be compared between products. The declarations have four criteria, (1) they are provided by one or more organizations. (2) They are based on independently verified LCA data, life cycle inventory analysis data or information’s modules that meet ISO 14040 standards. (3) Are developed with predetermined parameters, (4) Are subject to the administration of

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a program operator such as company, public agencies, or other organizations. Sustainability and CSR Reporting As the issue of sustainability in business continues to gain recognition from consumers, governments, and special interest groups, Corporate Social Responsibility and Sustainability reporting have become priorities for businesses in all countries. This is due to the increased CSR rankings, social consequences, and publicity of poor CSR decisions. Many companies have incorporated annual sustainability and CSR reports to be issued with their standard financial annual report to shareholders. Incorporating a strong CSR strategy into the company can have longterm positive business outcomes and reporting on these types of activities can generate goodwill and improve stakeholder relations. Socially and Environmentally Responsible Investment Indices By aligning with the interests of the stockholders, new advocacy groups and syndicated data services have adopted a market-based strategy for providing investors with information about environmental and social responsibility. An extension to the United Nations Global Compact is the Principles for Responsible Investment which seeks to promote social responsibility by aligning shareholder interests with the interests of other stakeholders. Examples include: http://www.ceres.org/ Network of investors, environmentalists, and public interest groups working with companies to address sustainability challenges such as global climate change. http://www.ceres.org/investor-network/incr a $7 trillion network of investors that promotes better understanding of the financial risks and opportunities posed by climate change. http://www.iehn.org/ the Investor Environmental Health Network (IEHN) is a collaborative partnership of investment managers, advised by nongovernmental organizations, concerned about the financial and public health risks associated with corporate toxic chemicals policies. http://www.unpri.org/ Principles for Responsible Investment is an investor initiative in partnership with UNEP Finance Initiative and the United Nations Global Compact. http://www.sustainability-index.com/ The Dow Jones Sustainability Indexes, launched in 1999, were the first global indexes to track financial performance of the leading sustainability-driven companies.

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http://www.msci.com/products/esg/about_msci_esg_research.html/ MSCI ESG Research provides in-depth research, ratings, and analysis of the environmental, social, and governance-related (ESG) performance of more than 4,000 companies in 50 + global markets. MSCI ESG Research builds on the expertise and achievements of sustainability pioneers KLD, Innovest, and IRRC, acquired through MSCI’s acquisition of RiskMetrics. Firms and Environmental Policy As firms increase their understanding of realizing commercial value through sustainable practices, policy makers need to have a greater understanding of how exactly firms work when trying to draft and implement environmental legislation.

Carbon and Climate Change Mitigation Greenhouse Gas Protocol Several approaches have been proposed to measure the emissions of CO2 and other greenhouse gases (GHG) so that such levels can be benchmarked, monitored, and controlled. Accurate and reliable measurement of GHG inventory is also critical for evaluating a company’s risk position arising from regulatory changes relative to GHG emissions. Recognizing this need, the Greenhouse Gas Protocol was developed by the World Resources Institute and the World Business Council for Sustainable Development. The GHG Protocol has become the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions. Third party verification/auditing of GHG inventory is enabled by the adoption of GHG Protocol which provides the accounting framework for dealing with different GHG standards and programs in the world. For an understanding of the potential of reduction in economic damages under UN mitigation targets, see the study from Standford by Burke, David Diffenbaugh (2018) in Nature that can be found at https://www.nature.com/articles/s41586-018-0071-9.epdf Carbon Offsets and Trading The strategies proposed to reduce GHG emissions range from conservation and efficiency initiatives to switching from fossil fuels to renewable sources of energy. Provided is a brief overview of the institutional framework that influences policies and strategies at the country-level and the mechanisms available for reducing GHG emissions using voluntary and/or mandatory systems.

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The objective of the Kyoto Protocol, adopted in 1997 and effective since 2005, is to stabilize greenhouse gas concentrations in the atmosphere. Under this agreement, industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% from the year 1990. Over 180 countries have ratified the agreement, and the participating developed countries have committed to the reduction targets and have implemented the systems necessary to achieve the reduction targets. Acknowledging the fear that compliance with the reduction targets will be expensive for many developed countries, the agreement allows the participating countries to buy carbon credits from the world market. Investment flows from the sale of these carbon credits are expected to finance the reduction of emissions in developing countries. The investment flows are targeted at supporting clean development mechanisms and joint implementation projects in less developed countries to help aid in their reduction of GHG. The Kyoto Protocol is a “cap and trade” system; each participating country is assigned a reduction target. Countries that go beyond the set targets can trade their emission rights to another country or entity that has not been able to meet their required reduction. An example of a successful GHG emission reduction system is the European Union Emission Trading system (EU ETS). The EU ETS is a mandatory system similar to the Kyoto Protocol “cap and trade.” The Chicago Climate Exchange (CCX) is an example of a voluntary system. Companies voluntarily participate in the CCX and commit to GHG reduction targets, with the ability to buy or sell emission credits depending upon their ability to meet the set targets. The worldwide emissions trading value exceeded $60 billion last year, with over 90% accounted for by EU ETS. An alternative to the “cap and trade” system is the auction system. The Regional Greenhouse Gas Initiative (RGGI) is a collaboration of ten Northeastern and Mid-Atlantic States. In this system, a collective GHG reduction target is set and individual states can auction available GHG allowances. These allowances can then be traded like any other financial instrument, giving the holder the right to emit the purchased GHG amount in excess of their set target. Unlike the above two systems which target the producer-side of GHG emissions, the carbon tax system targets the consumer side by including the full cost of GHG emissions in the product or service price. The tax is on the carbon content of energy sources, thereby crucial price signals are conveyed to consumers through the tax on the carbon content of utilized energy sources in production. This initiative is expected to spur carbonreducing investment and low-carbon behavior by consumers.

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A smaller market for carbon credits (or offsets) has emerged for individuals and institutions to purchase carbon credits to mitigate GHG emissions caused by activities such as corporate air travel and individual transportation, and electricity needs. An individual may buy a carbon offset to mitigate the GHG emissions created by personal travel. In general, offset providers work to invest in more expensive, carbon-free energy sources such as wind and solar to ensure that an equivalent amount of new GHG emissions is prevented. Ways to Save Money within Buildings at Home or at Work (Remodeling, Finishes, Appliances, Energy Savings, Heating, Cooling, Landscaping, Lifestyle) The Green and Save Master ROI Table: https://www.greenandsave. com/master-roi-table

Notes Prepared by a number of MBA Sustainability program students and faculty: including Nagaraj Sivasubramaniam, Ph.D., and Alexis Wheeler, MBA Sustainability, 2009; updated by Jessica Beckman and Erin Clymer (Class of 2010), Ben Stanforth (Class of 2011), Ashley Jones (Class of 2012), updated by Catherine Papp (Class of 2014) and Joey Winkler (Class of 2018) under guidance of Professors Diane P. Ramos and Robert Sroufe, Ph.D., and currently under development by NetImpact (Class of 2018) under the guidance of Robert Sroufe, Ph.D.

Selected Books, Websites, and Journal Articles (The Evolution of Integration) Bisson, P., Stephenson, E., & Viguerie, S. P. (2010). Pricing the planet. McKinsey Quarterly, 2. Retrieved from https://www.mckinsey.com/businessfunctions/sustainability-and-resource-productivity/our-insights/pricing-theplanet Bonini, S. (2012). The business of sustainability. McKinsey. Retrieved from https://www.mckinsey.com/~/media/McKinsey/dotcom/client_ service/Sustainability/PDFs/McK%20on%20SRP/SRP_11_Biz%20sustainability.ashx Ehrenfeld, J. R. (2008). Sustainability by design: A subversive strategy for transforming our consumer culture. New Haven, CT: Yale University Press.

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Elkington, J. (2012). The Zeronauts: Breaking the sustainability barrier. New York, NY: Routledge. Laszlo, C., & Zhexembayeva, N. (2011). Embedded sustainability: The next big competitive advantage. Palo Alto, CA: Stanford University Press. Lubin, D. A., & Esty, D. C. (2010). The sustainability imperative. Harvard Business Review, 88(5), 42 50. Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, 87(9), 57 64. Rondinelli, D. A., & London, T. (2003). How corporations and environmental groups cooperate: Assessing cross-sector alliances and collaborations. Academy of Management Executive, 17(1), 61 76. Senge, P., Laur, J., Schley, S., & Smith, B. (2009). The necessary revolution: How individuals and organizations are working together to create a sustainable world. New York, NY: Doubleday. The Sustainable Development Timeline. (n.d.). International Institute for Sustainable Development. Retrieved from www.iisd.org/pdf/2007/sd_ timeline_2007.pdf

Selected Books, Websites, and Journal Articles (Cradle-to-Cradle) Braungart, M. (2007). The wisdom of the cherry tree. International Commerce Review: ECR Journal, 7(2), 152. Braungart, M., McDonough, W., & Bollinger, A. (2007). Cradle-to-cradle design: Creating healthy emissions a strategy for eco-effective product and system design. Journal of Cleaner Production, 15(13/14), 1337 1348. Costanza, R. et al. (1998). The value of ecosystem services: Putting the issues in perspective. Ecological Economics, 25(1), 67. Cradle to Cradle Products Innovation Institute: Retrieved from http://www. c2ccertified.org/ Cradle to Cradle Origin: Retrieved from http://www.product-life.org/en/ cradle-to-cradle Emerson, J., & Woll, L. (2014). Investing evolves. Stanford Social Innovation Review. Retrieved from https://ssir.org/articles/entry/investing_evolves McDonough, W., & Braungart, M. (2002). Cradle to cradle: Remaking the way we make things. New York, NY: North Point Press. McDonough, W. (2008). Time for a new strategy. Parameter, 38(3), 109. McDonough, W., & Braungart, M. (2003). Towards a sustaining architecture for the 21st super century: The promise of cradle-to-cradle design. Industry and Environment, 26(2 3), 13 16. McDonough, W., & Braungart, M. (2013). The upcycle: Beyond sustainability designing for abundance. New York, NY: North Point Press.

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McDonough-Braungart Design Chemistry: Retrieved from http://www. mbdc.com/ William McDonough’s site: Retrieved from http://www.mcdonough.com/ cradle_to_cradle.htm United States Society for Ecological Economics: Retrieved from http://www. ussee.org/

Selected Websites and Journal Articles (Environmental Product Declarations) Environmental Product Declarations website: Retrieved from http://www. environdec.com/ Examples from the first Environmental Product Declarations (EPD) for Interface: Retrieved from http://www.interfaceflor.com/default.aspx http://www.interfaceflor.co.uk/web/sustainability/epd/certificates Zackrisson, M., Rocha, C., Christinasen, K., & Jarnehammar, A. (2008). Stepwise environmental product declarations: Ten SME case studies. Journal of Cleaner Production, 16(17), 1872 1886.

Selected Books, Websites, and Journal Articles (Life Cycle Analysis) Economic Input-Output LCA @ Carnegie Mellon University: Retrieved from http://www.eiolca.net/ Environmental Protection Agency (EPA) link for LCA: Retrieved from http://www.epa.gov/nrmrl/std/lca/lca.html Hendrickson, C. T., Lave, L. B., & Matthews, H. S. (2006). Environmental life cycle assessment of goods and services: An input-output approach. Washington, DC: RFF Press. LCA Calculator: Retrieved from http://www.lcacalculator.com/ SAIC. (2006). Life cycle assessment: Principles and practice. USEPA ebook. Schmidt-Bleek, F. (25 Dec 2007). FUTURE: Beyond Climatic Change. Factor Ten Institute. Factor Ten Institute, Web. Retrieved from http://www.factor10-institute.org/files/FUTURE_2008.pdf The International Journal of Life Cycle Assessment: Retrieved from http://www. springerlink.com/content/112849/ (Subscription required)

Selected Books, Websites, and Journal Articles (Natural Capitalism) Benyus, J. M. (2002). Biomimicry: Innovation inspired by nature. New York, NY: Harper Perennial.

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Carbon Brief. (2017). The Social Cost of Carbon. Retrieved from https:// www.carbonbrief.org/qa-social-cost-carbon. Desrochers, P. (2001). Back to the Future: A Review Essay of Paul Hawken, Amory Lovins and L. Hunter Lovins’ ‘Natural Capitalism’ and Bjørn Lomberg’s ‘the Skeptical Environmentalist’. Knowledge, Technology & Policy. Erkman, S. (1997). Industrial ecology: An historical view. Journal of Cleaner Production, 5(1 2), 1 10. Frosch, R. A., & Gallopoulos, N. E. (1989). Strategies for manufacturing. Scientific American, 261(3), 94 102. Hawken, P. (1993). The ecology of commerce: A declaration of sustainability. New York, NY: HarperCollins. Hawken, P., Lovins, A., & Lovins, L. H. (2000). Natural capitalism: Creating the next industrial revolution. New York, NY: Back Bay Books. Information on Biomimicry: http://www.biomimicryinstitute.org/ Juniper, T., & Juniper, T. (2013). What has nature ever done for us?: How money really does grow on trees. London: Profile Books. Lovins, A. B., Lovins, L., & Hawken, P. (2007). A Road map for natural capitalism. Harvard Business Review, 85(7/8), 172 183. Natural Capitalism Official Site: Retrieved from http://www.natcap.org/ Natural Capital Institute: Retrieved from http://www.naturalcapital.org/ Natural Capital Coalition: Retrieved from http://naturalcapitalcoalition. org/protocol/

Selected Books, Websites, and Journal Articles (Natural Step) Bradbury, H., & Clair, J. A. (1999). Promoting sustainable organizations with Sweden’s natural step. Academy of Management Executive, 13(4), 63 74. Holmberg, J. (1998). Backcasting: A natural step in operationalising sustainable development. Greener Management International, 23, 30 51. Karl-Henrik, R. (2008). The natural step story: Seeding a quiet revolution. British Columbia, Canada: New Society Publishers. Lahti, S. J., & Torbjörn. (2004). The natural step for communities. British Columbia, Canada: New Society Publishers. Missimer, M., et al. (2010). Exploring the possibility of a systematic and generic approach to social sustainability. Journal of Cleaner Production, 18 (10 11), 1107 1112. Web. Nattrass, B. (1999). The natural step: Corporate learning and innovation for sustainability. Doctoral Thesis. California Institute of Integral Studies. Nattrass, B., & Altomare, M. (1999). The natural step for business. British Columbia, Canada: New Society Publishers. The Natural Step Organization: Retrieved from http://www.thenaturalstep.org/

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Unruh, G. (2008). The biosphere rules. Harvard Business Review, 86(2), 111 117.

Selected Books, Websites, and Journal Articles (Green Chemistry) American Chemical Society Green Chemistry Institute: Retrieved from http://portal.acs.org/portal/acs/corg/content?_nfpb=true&_pageLabel= PP_TRANSITIONMAIN&node_id=830&use_sec=false&sec_url_var= region1 Anastas, P., & Warner, J. (1998). Green chemistry: Theory and practice. Oxford: Oxford University Press. Broman, G. et al. (2013). Systematic leadership towards sustainability. Journal of Cleaner Production. In press. http://dx.doi.org/10.1016/j.jclepro.2013. 07.019. Kirchhoff, M. M. (2005). Promoting sustainability through green chemistry. Resources, Conservation and Recycling, 44(3), 237 243. REACH the European community regulation on chemicals and their safe use: Retrieved from http://ec.europa.eu/environment/chemicals/reach/ reach_en.htm RoHS the European community regulation on the restriction of hazardous substances in electrical and electronic equipment: Retrieved from http:// ec.europa.eu/environment/waste/rohs_eee/events_rohs3_en.htm U.S. Environmental Protection Agency (EPA) Green Chemistry Portal: Retrieved from http://www.epa.gov/greenchemistry/

Selected Books, Websites, and Journal Articles (Industrial Symbiosis) Adams, W. (2009). Green development: Environment and sustainability in a developing world. (3rd ed.). New York, NY: Routledge. Chertow, M. R. (2000). Industrial symbiosis: Literature and taxonomy. Annual Review of Energy and the Environment, 25, 313 337. Chertow, M. R. (2007). “Uncovering” industrial symbiosis. Journal of Industrial Ecology, 11, 11 30. Chertow, M., & Lombardi, R. (2005). Quantifying economic benefits of colocated firms. Environmental Science and Technology, 39(17), 6535 6541. Desrochers, P. (2001). Cities and industrial symbiosis: Some historical perspectives and policy implications. Journal of Industrial Ecology, 5, 29 44. Ehrenfeld, J. R. (2009). Understanding of complexity expands the reach of industrial ecology. Journal of Industrial Ecology, 13(2), 165. Ehrenfeld, J. R., & Hoffman, A. J. (2013). Flourishing: A frank conversation about sustainability. Stanford: Stanford University Press.

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Frosch, R. A., & Gallopoulos, N. E. (1989). Strategies for manufacturing. Scientific American, 261(3), 144. Garner, A., & Keoleian, G. A. (1995). Industrial Ecology: An Introduction. National Pollution Prevention Center for Higher Education (ebook). Retrieved from http://www.umich.edu/~nppcpub/resources/compendia/INDEpdfs/INDEintro.pdf Industrial Ecology Wiki: Retrieved from http://ie.tudelft.nl/index.php/ Main_Page International Society of Industrial Ecology: Retrieved from http://www. is4ie.org/ Jacobsen, N. B. (2006). Industrial symbiosis in Kalundborg, Denmark: A quantitative assessment of economic and environmental aspects. Journal of Industrial Ecology, 10, 239 255. (example of industrial symbiosis). Jit Singh, S., Haberl, H., Chertow, M., Mirtl, M., & Schmid, M. (2013). Long term socio-ecological research: Studies in society-nature interactions across spatial and temporal scales (human-environment interactions). Heidelberg: Springer Science Business Media Dordrecht. Journal of Industrial Ecology: Retrieved from http://www.blackwellpublishing.com/journal.asp?ref=1088-1980&site=1 Kalundborg Symbiosis: Retrieved from http://www.symbiosis.dk/en/

Selected Books, Websites, and Journal Articles (Base of the Pyramid) Bower, J. L., Leonard, H. B., & Paine, L. S. (2011). Capitalism at risk: Rethinking the role of business. Harvard University Press. Brugmann, J., & Prahalad, C. K. (2007). Cocreating business’s new social compact. Harvard Business Review, 85(2), 80 90. Hart, S. L. (1997). Beyond greening: Strategies for a sustainability world. Harvard Business Review, 75(1), 66 76. Hart, S. L. (2003). Creating sustainable value. Academy of Management Executive, 17(2), 56 67. Hart, S. L. (2005). Capitalism at the crossroads: The unlimited business opportunities in solving the world’s most difficult problems. Philadelphia, PA: Wharton School Publishing. Hart, S. L., & London, T. (2005). Developing native capability. Stanford Social Innovation Review, 3(2), 28 34. Karnani, A. (2007). The mirage of marketing to the bottom of the pyramid: How the private sector can help alleviate poverty. California Management Review, 49(4), 90 111. Prahalad, C. K. (2004). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Philadelphia, PA: Wharton School Publishing.

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Sachs, J. D. (2006). The end of poverty: Economic possibilities for our time. New York, NY: Penguin Press. Seelos, C., & Mair, J. (2005). Social entrepreneurship: Creating new business models to serve the poor. Business Horizons, 48(3), 241 246. Simanis, E., & Hart, S. (2009). Innovation from the inside out. MIT Sloan Management Review, 50(4), 9 18. Simanis, E., & Hart, S. L. (2008). The Base of the Pyramid Protocol: Toward Next Generation BoP (ebook). Retrieved from http://bop-protocol.org/ docs/BoPProtocol2ndEdition2008.pdf

Selected Books, Websites, and Journal Articles (Microfinancing) Accion International a leading global microfinancing institution: Retrieved from http://www.accion.org/ Example of BOP Innovation: Retrieved from http://www.wbcsd.org/web/ projects/water/sanitation.pdf Founding Network of Social Entrepreneurs: Retrieved from http://www. ashoka.org/ Grameen Bank & Professor Muhammad Yunus: Retrieved from http:// www.grameen-info.org/ Kiva a microfinance facilitator: Retrieved from http://www.kiva.org/ about/microfinance/ Microfinance Information Exchange: Retrieved from http://www.mixmarket.org/ Microfinance Portal: Retrieved from http://www.microfinancegateway.org/ Yunus, M. (1999). Banker to the poor: Micro-lending and the battle against world poverty. Public Affairs.

Selected Websites and Journal Articles (GRI) Brown, H. S., De Jong, M., & Lessidrenska, T. (2007). The rise of the global reporting initiative (GRI) as a case of institutional entrepreneurship. Harvard University, 18(2), 182 200. GRI Home Page: Retrieved June 2018 from http://www.globalreporting.org/ Hedberg, C., & von Malmborg, F. (2003). The Global Reporting Initiative and corporate sustainability reporting in Swedish companies. Corporate Social Responsibility and Environmental Management, 10(3), 153 164. Willis, A. (2003). The role of the Global Reporting Initiative’s sustainability reporting guidelines in the social screening of investments. Journal of Business Ethics, 43(3), 233 237.

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Selected Books, Websites, and Journal Articles (TBL, IBL Accounting) Bell, S., & Morse, S. (2008). Sustainability indicators: Measuring the immeasurable. New York, NY: Earthscan. Deloitte Sustainability Reporting Scorecard. (2006). Retrieved from http:// www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/DTT_ ERS_FullScorecard_032106.pdf Eccles, R. G., & Krzus, M. P. (2010). One report: Integrated reporting for a sustainable strategy. Hoboken, NJ: John Wiley & Sons. Eccles, R. G., & Krzus, M. P. (2014). The integrated reporting movement: Meaning, momentum, motives, and materiality. Hoboken, NJ: Wiley & Sons. Eccles, R. G., & Saltzman, D. (2011). Achieving sustainability through integrated reporting. Stanford Social Innovation Review, 9(3), 56 61. EBSCO Retrieved from http://search.ebscohost.com.authenticate. library.duq.edu/login.aspx?direct=true&db=buh&AN=62850623&site= ehost-live Eccles, R. G., Herz, R. H., Keegan, E. M., & Phillips, D. M. H. (2001). The value reporting revolution: Moving beyond the earnings game. New York, NY: John Wiley & Sons. Elkington, J. (1994). Towards the sustainable corporation: Win-win-win business strategies for sustainable development. California Management Review, 36(2), 90 100. Elkington, J. (1998). Cannibals with forks: The triple bottom line of 21st century business. British Columbia, Canada: New Society Publishers. Elkington, J. (2004). Enter the triple bottom line. In A. Henriques & J. Richardson (Eds.). The Triple Bottom Line, Does It All Add Up?: Assessing the Sustainability of Business and CSR (pp. 1 17). New York, NY: EarthScan. Gazdar, K. (2007). Reporting nonfinancials. Hoboken, NJ: Wiley & Sons. Russo, M. (2008). The triple bottom line: Sustainability’s accountants. Environmental management: Readings and cases (pp. 49 62). Thousand Oaks, CA: Sage Publishing. Savitz, A. (2006). The triple bottom line approach: How today’s best-run companies are achieving economic, social, and environmental success - and how you can too. San Francisco, CA: Jossey-Bass. Savitz, A. W., & Weber, K. (2007). The sustainability sweet spot. Environmental Quality Management, 17(2), 17. Sroufe, R., & Ramos, D. (2015). The un-balanced sheet: A call for integrated bottom line reporting. In L. O’Riordan, P. Zmuda, & S. Heinemann (Eds.), New Perspectives on Corporate Social Responsibility. FOM-Edition (FOM Hochschule für Oekonomie & Management). Wiesbaden: Springer Gabler. Sustainability Accounting Standards Board: Retrieved from https://www. sasb.org/

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Selected Websites and Journal Articles (ISO) Dee, B. (2006). Environmental Labeling Standards in the ISO 14000 Series. COPOLCO Workshop. International Organization for Standardization (ISO). Retrieved from http:// www.iso.org/iso/home.html ISO 26000 for social responsibility: Retrieved from http://www.iso.org/iso/ home/standards/iso26000.htm Sebhatu, S. P., & Wnquist, B. (2007). ISO 14001 as a driving force for sustainable development and value creation. TQM Magazine, 19(5), 468 482. The ISO 14024 Series. IISD’s Business and Sustainable Development: A Global Guide. http://www.iisd.org/business/markets/eco_label_iso14020. aspx

Selected Books, Websites, and Journal Articles (Sustainability and CSR reporting) Bonini, S., Koller, T. M., & Mirvis, P. H. (2009). Valuing social responsibility programs. McKinsey Quarterly, 4, 65 73. Web. Chatterji, A. K., Levine, D. I., & Toffel, M. W. (2009). How well do social ratings actually measure corporate social responsibility? Journal of Economics & Management Strategy, 18(1), 125 169. Web. http://www.hbs.edu/faculty/Publication%20Files/07-051.pdf Du, S., Bhattacharya, C. B., & Sen, S. (2010). Maximizing business returns to corporate social responsibility (CSR): The role of CSR communication. International Journal of Management Reviews, 12(1), 8 19, 12. Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard Business Review, 91(5), 50 60. Lesser, W. (2008). Environmental protection and the social responsibility of firms: Perspectives from law, economics and business. Edited by B. L Hay, R. N. Stavens, and R. H. K. Vietor. American Journal of Agricultural Economics, 90(1), 283 285. Web. Milne, M., & Gray, R. (2008). International trends in corporate ‘sustainability’ reporting. Chartered Accountants Journal, 87(11), 60 63. Nidumolu, R., Kramer, K., & Zeitz, J. (2012). Connecting heart to head. Stanford Social Innovation Review, 10(1), 42 47. Web. Porter, M., & Kramer, M. (2006). Strategy & society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78 92. Porter, M., & Kramer, M. (2011). Creating shared value. Harvard Business Review, 89(1/2), 62 77 Web. http://hbr.org/2011/01/the-big-idea-creating-shared-value

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Savitz, A., & Besly, M. (2006). Increased visibility: Five strategies for attracting CSR investors. Business & the Environment with ISO 14000 Updates, 17(1), 8 9. Web. Willard, B. (2012). The new sustainability advantage. Canada: New Society Publishers.

Firms and Environmental Policy Chatterji, A. K., & Toffel, M. W. (2010). How firms respond to being rated. Strategic Management Journal, 31(9), 917 945. Web. Costanza, R. et al. Modelling and measuring sustainable wellbeing in connection with the UN Sustainable Development Goals. Retrieved http://www.idakub.com/academics/wp-content/uploads/2017/ from 02/2016_Costanza_SDGs-EcoEco.pdf Deloitte. (2004). Enterprise Value Map. Retrieved from https://public. deloitte.com/media/0268/enterprise_value_map_2_0.pdf Delmas, M. A., & Toffel, M. W. (2008). Organizational responses to environmental demands: Opening the black box. Strategic Management Journal, 29 (10), 1027 1055. Web. Doshi, A. R., Dowell, G. W. S., & Toffel, M. W. (2013). How firms respond to mandatory information disclosure. Strategic Management Journal, 34(10), 1209 1231. Web. Hananel, S. (2013). Study: Safety inspections don’t hurt profits. Web. Retrieved from http://www.businessweek.com.authenticate.library.duq. edu/ap/2012-05/D9UQKUUG2.htm Levine, D. I., Toffel, M. W., Matthew, S., & Johnson. (2012). Randomized government safety inspections reduce worker injuries with no detectable job loss. Science (Weekly), 336(6083), 907. Print. Michaels, D. (2012). OSHA does not kill jobs; it helps prevent jobs from killing workers. American Journal of Industrial Medicine, 55, 961. Print. Reid, E. M., & Toffel, M. W. (2009). Responding to public and private politics: Corporate disclosure of climate change strategies. Strategic Management Journal, 30(11), 1157 1178. Web. Reinberg, S. (2013). OSHA’s Safety Tests Protect Workers at Little Cost: Study. US News. Web. Retrieved from http://health.usnews.com.authenticate.library.duq.edu/health-news/news/articles/2012/05/17/oshassafety-tests-protect-workers-at-little-cost-study

Selected Websites (Green House Gas Protocol) Carbon Disclosure Project (CDP): Retrieved from https://www.cdproject. net/en-US/Pages/HomePage.aspx

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Clean Air Cool Planet Carbon Calculators: Retrieved from http://www. cleanair-coolplanet.org/ Greenhouse Gas Protocol Initiative (described above): Retrieved from http://www.ghgprotocol.org/ Nature Conservancy Personal Carbon Footprint calculator: Retrieved from http://www.nature.org/initiatives/climatechange/calculator/ Personal Carbon Footprint Calculator: http://www.carbonfootprint.com/ calculator.aspx U.S. EPA Greenhouse Gas Emissions: http://www.epa.gov/climatechange/emissions/index.html

Selected Books and Websites (Carbon Offsets and Trading) Andrew Revkin’s Blog @ New York Times on Climate Change and Sustainability: http://dotearth.blogs.nytimes.com/ Basic Information on Global Warming from National Oceanic & Atmospheric Administration: http://www.ncdc.noaa.gov/oa/climate/ globalwarming.html Bayon, R., Hawn, A., & Hamilton, K. (2007). Voluntary carbon markets. New York, NY: Earthscan. BGC Environmental Brokerage Services A provider of financial services to the world’s environmental and green energy markets: http://www. bgcebs.com/ Carbon Catalog A free and independent directory of carbon credits, listing carbon providers and projects worldwide: http://www.carboncatalog. org/ Carbon Finance A portal for all things Carbon: http://www.carbonfinance.org/ Carbon Markets & Investors Association, the trade association of service providers to the global carbon markets: http://www.cmia.net/ Carbon Offset Providers Coalition A cooperative alliance of leading entities operating in the carbon offset market: http://www.carbonoffsetproviders.org/ Chicago Climate Exchange: http://www.chicagoclimatex.com/ European Union Emissions Trading System: http://ec.europa.eu/environment/climat/emission/index_en.htm Hoffman, A. J. (2007). Carbon strategies: How leading companies are reducing their climate change footprint. Ann Arbor, MI: University of Michigan Press. Houser, T., Bradley, R., Childs, B., Werksman, J., & Heilmayr, R. (2008). Leveling the carbon playing field: International competition and US climate policy design. Peterson Institute. Intergovernmental Panel on Climate Change: http://www.ipcc.ch/

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Kyoto Protocol Official site: http://unfccc.int/kyoto_protocol/items/ 2830.php Labatt, S., & White, R. R. (2007). Carbon finance: The financial implications of climate change. Wiley Finance. Point Carbon provides news and other information related to carbon markets: http://www.pointcarbon.com/ Real Climate Climate Science from Climate Scientists: Retrieved from http://www.realclimate.org/ Regional Greenhouse Gas Initiative (RGGI): Retrieved from http://www. rggi.org/home The ENDS Guide to Carbon Offsets: Retrieved from http://www.endscarbonoffsets.com/ U.N. Environment Programme Climate Change Web site: Retrieved from http://www.unep.org/Themes/climatechange/ U.N. Framework Conventions on Climate Change: Retrieved from http:// unfccc.int/ U.S. EPA Climate Change Web site: Retrieved from http://www.epa. gov/climatechange/ USA Today’s compendium of Climate Change Books: Retrieved from http:// www.usatoday.com/weather/climate/wclibooks.htm

Sustainability: General Resources Selected Books, Articles, and Websites American Public Media Coverage of Sustainability Issues: Retrieved from http://sustainability.publicradio.org/consumed/ Blackburn, W. (2007). The sustainability handbook. Washington, DC: Environmental Law Institute. Bower, J. L., & Paine, L. S. (2017). The error at the heart of corporate leadership. Harvard Business Review, 95(3), 50 60. Brundtland, G. H. (Ed.). (1987). Our common future: The world commission on environment and development. Oxford: Oxford University Press. Business for Social Responsibility: http://www.bsr.org/ Costanza, R. et al. The UN sustainable development goals and the dynamics of well-being. Solutions. Daly, H. E. (1997). Beyond growth: The economics of sustainable development. Beacon Press. Diamond, J. (2004). Collapse: How societies choose to fail or succeed. New York, NY: Viking. Edwards, A. R. (2005). The sustainability revolution: Portrait of a paradigm shift. British Columbia, Canada: New Society Publishers. Elkington, J. (2001). The chrysalis economy. Oxford: Capstone Publishing.

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Epstein, M. J. (2008). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. San Francisco, CA: Berrett-Koehler Publishers. Esty, D. (2007). Green is beautiful; helping the planet doesn’t have to hurt your bottom line. Environmentally responsible IT can improve efficiency and generate new revenue streams. CIO. 20.6. Esty, D. C. (2007). Is china turning green? Fortune, 155(8). Esty, D. C., & Winston, A. S. (2006). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. New Haven, CT: Yale University Press. Esty, D., & Porter, M. (2005). National environmental performance: An empirical analysis of policy results and determinants. Environment and Development Economics, 10(4), 391. GreenBiz.com Annual State of Green Business and a portal for sustainability news: Retrieved from https://www.greenbiz.com/ Hiller, J. S. (2013). The benefit corporation and corporate social responsibility. Journal of Business Ethics, 118(2), 287 301. Jones, V., & Conrad, A. (2008). The green-collar economy: How one solution can fix our two biggest problems. New York, NY: HarperOne. Korten, D. (1995). When corporations rule the world. Sterling, VA: Kumarian Press. Korten, D. (2006). The great turning from empire to earth community. Sterling, VA: Kumarian Press. Laszlo, C. (2003). The sustainable company: How to create lasting value through social and environmental performance. Washington, DC: Island Press. Laszlo, C. (2008). Sustainable value: How the world’s leading Companies are doing well by doing good. Stanford, CA: Greenleaf Publishing. Lukac, E. G., & Frazier, D. (2012). Linking strategy to value. Journal of Business Strategy, 33(4), 49 57. Accessed August 2018 at https://www2.deloitte.com/ content/dam/Deloitte/ie/Documents/Strategy/2012_linking_strategy_ to_value_deloitte_ireland.pdf Makower, J., & Pike, C. (2008). Strategies for the green economy: Opportunities and challenges in the new world of business. New York, NY: McGraw-Hill. Marshall, J. D., & Toffel, M. W. (2005). Framing the elusive concept of sustainability: A sustainability hierarchy. Environmental science & technology, 39(3), 673 682. Web. Orsato, R. (2006). Competitive environmental strategies: When does it pay to be green? California Management Review, 48(2), 127 143. Porter, M., & Reinhardt, F. L. (2007). A strategic approach to climate. Harvard Business Review, 85(10). Porter, M., & Siggelkow, N. (2008). Contextuality within activity systems and sustainability of competitive advantage. Academy of Management Perspectives, 22(2), 34 56. Robèrt, K., et al. (2002). Strategic sustainable development—selection, design and synergies of applied tools. Journal of Cleaner Production, 10(3), 197. Rocky Mountain Institute: Retrieved from http://www.rmi.org/

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Senge, P. M., Laur, J., Schley, S., & Smith, B. (2006). Learning for sustainability. Cambridge, MA: Society for Organizational Learning. Senge, P. M., Lichtenstein, B. B., Kaeufer, K., Bradbury, H., & Carroll, J. (2007). Collaborating for systemic change. MIT Sloan Management Review, 48(2), 44 53. Senge, P. M., Smith, B., Schley, S., Laur, J., & Kruschwitz, N. (2008). The necessary revolution: How individuals and organizations are working together to create a sustainable world. New York, NY: Broadway Books. Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains: Management insights, issues, and tools. Business Expert Press. Volume I Foundations, Volume II Implementation. Steffen, A. (2006). Worldchanging: A user’s guide to the 21st century. In N. Harry (Ed.), New York, NY: Abrams Publishers. The Happy Planet Index Retrieved from http://happyplanetindex.org/about-nef/ The Millennium Project Future Intelligence system. Retrieved from http:// www.millennium-project.org/# The World Resources Institute. Retrieved from http://www.wri.org/ U.S. Army Corps of Engineers Sustainable Design & Development. Retrieved from http://www.usace.army.mil/Missions/Sustainability. aspx U.S. Army Sustainability: Retrieved from http://www.sustainability.army. mil/ U.S. EPA Energy Star Program: Retrieved from http://www.energystar. gov/ U.S. Green Building Council & LEED Certification: Retrieved from http:// www.usgbc.org/ U.S. National Renewable Energy Laboratory: Retrieved from http://www. nrel.gov/ Werbach, A. (2009). Strategy for sustainability. Boston, MA: Harvard Business Press. Winston, A. (2009). Green recovery. Boston, MA: Harvard Business Press. World Business Council for Sustainable Development: http://www.wbcsd. org/ Yunus, M. (2008). Creating a world without poverty: Social business and the future of capitalism. New York, NY: Public Affairs.

Hybrid Business Models Bend, D., & King, A. (2014). Why Consider a Benefit Corporation? Forbes. Retrieved from https://www.forbes.com/sites/theyec/2014/05/30/ why-consider-a-benefit-corporation/#776d851665e9 Benefit Corporations (BCorp) Bcorporations. Retrieved from https://www. bcorporation.net/

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Inclusive Wealth Index Marusiak, J. (2012). New UN Index Seeks to Oust GDP. Eco-Business. Retrieved from http://www.eco-business.com/news/new-un-indexseeks-to-oust-gdp/

Planetary Boundaries Steffen, W. et al. (2015). Planetary boundaries. Science Press. Retrieved from http://www-ramanathan.ucsd.edu/files/pr210.pdf

Carbon Pricing CDP. (2014). Corporate Use of Carbon Prices. Retrieved from https:// b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3. rackcdn.com/cms/reports/documents/000/000/851/original/companies-carbon-pricing-implications-2014.pdf?1472037024 Gold Standard. (2016). Carbon Pricing: Setting an internal price in carbon. Retrieved from https://www.goldstandard.org/blog-item/carbon-pricing-setting-internal-price-carbon Johnson, L., & Hope, C. The social cost of caron in U.S. regulatory impact analyses: an introduction and critique. Retrieved from https://www. eenews.net/assets/2012/09/17/document_gw_05.pdf

Video Resources Video: Backcasting Building off the methods from The Natural Step. Video: Ecological Footprint Explains the usage of Earth’s resources compared to the creation of new resources. Video: https://www.youtube.com/watch?v=EbZcQe9J-EE - Explaining the importance of sustainability. Video: Sustainability Explained w Natural Science Defining sustainability based on natural cycles.

Systems Thinking Resources Applied Systems Thinking: Library of resources on systems thinkingRetrieved from http://www.appliedsystemsthinking.com/systems_thinking.html Meadows, D. H. (2015). Places to intervene in a system. Nonprofit Quarterly, 22(2), 64 72.

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Impact Investing Global Impact Investing Network: Retrieved from https://thegiin.org/ WCKD ticker for Wall Street Retrieved from https://www.greenbiz.com/ article/why-wall-street-needs-wckd-ticker?utm_source=newsletter&utm_ medium=email&utm_term=newsletter-type-greenbuzz-daily&utm_content= 2018-05-20&utm_campaign=newsletter-type-greenbuzz-daily-110545&mkt_ tok=eyJpIjoiT0dGbE5UQmtObU5oWmpCbSIsInQiOiI4MXNuVnJCM25MN 056bkJLMjRHb05MOTQyT2JBdjVzSHVBS2c2bXgwb1lmNTdiTGQ0clhad1wvVGd2K2t0dXg5VjN5Y2tMeXVrSWkrYUVaZ2lSRWo0NUlkdUpyR3p3TFVFd0h6elRIXC9rREdlZXVCblZWUlM1TUJIek8zbFAyalRBIn0%3D

Sustainable Supply Chain Resources Books: Sroufe, R. P., & Melnyk, S. A. (2017). Developing sustainable supply chains: Management insights, issues, and tools. New York, NY: Business Expert Press. Volume I Foundations, and Volume II Implementation.

Articles Bove, A., & Swartz, S. (2016). Starting at the source: Sustainability in supply chains. McKinsey. Retrieved from https://www.mckinsey.com/businessfunctions/sustainability-and-resource-productivity/our-insights/startingat-the-source-sustainability-in-supply-chains Brandenburg, M. et al. (2014). Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), 299 312. doi:10.1016/j.ejor.2013.09.032 BSR. (2010). Supply Chain Sustainability: A Practical Guide for Continuous Improvement. UN Global Compact. Retrieved from https://www.bsr. org/reports/BSR_UNGC_SupplyChainReport.pdf Carter, C. R., & Rogers, D. S. (2008). A framework of sustainable supply chain management: Moving toward new theory. International Journal of Physical Distribution & Logistics Management, 38(5), 360 387. doi:10.1108/ 09600030810882816 CDP. (2017). Global Supply Chain Report 2017. Retrieved from https:// www.cdp.net/en/research/global-reports/global-supply-chain-report2017 Clancy, H. (2018). Walmart: Joining Project Gigaton doesn’t have to be a heavy lift. GreenBiz. Retrieved from https://www.greenbiz.com/article/ walmart-joining-project-gigaton-doesnt-have-be-heavy-lift

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GRI. (2017). Supply chain Transparency: A change tool for successful global business. Retrieved from https://www.globalreporting.org/information/ news-and-press-center/Pages/Supply-chain-transparency-A-change-toolfor-successful-global-businesses.aspx Seuring, S., & Müller, M. (2008). From a literature review to a conceptual framework for sustainable supply chain management. Journal of Cleaner Production, 16(15), 1699 1710. doi:10.1016/j.jclepro.2008.04.020 Sroufe, R., & Talyarkhan, V. (2018). Driving supply chains toward sustainability. Inside Supply Management, 29(2), 22 27.

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Integrated Management Strategy Statement Appendices (Actions You Can Take) from Chapter 3

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Appendix 1. Examples of economic topics to review include, but are not limited to:

Appendi x

Asset efficiency

Financial assets received from the government

R&D investment

Brand strength

Impact investing

Ratios of entry wage by gender compared to local minimum wage

Capital expenditures

Indirect economic impacts

Receivables and payables

Cash flow

Infrastructure investments

Retained earnings

Community donations

Infrastructure services supported

Return on investment

Cost of goods sold

Integrated sustainability and financial reporting

Revenue growth

Coverage of organizations defined benefits plan

Integrated Bottom Line (IBL)

Risk management

Credit rating

Liabilities

Sales

Debt and interest

Local purchasing

Shareholder value

Dividends

Market share

Socially responsible investing

EBITDA

Operating margins

Social cost of carbon (SCC)

Economic value generated

Price realization

Taxes

Economic value distributed

Profits

Tax subsidies

Expectations

Proportion of spending on local suppliers

Volume

Financial risks due to climate change

Proportion of senior management hired from local community

Wages

Financial opportunities due to climate change >add your own
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Appendix 5. Examples of Sustainability Standards/Initiatives

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Program/Initiative

Source

Summary

Social Standards Accountability, Assurance and Stakeholder Engagement: AA1000 standards www.accountability.org/

AccountAbility

These standards help organizations address issues affecting governance, business models and organizational strategy, as well as provide operational guidance on sustainability assurance and stakeholder engagement. The AA1000 standards are designed for the integrated thinking required by the low carbon and green economy, and support integrated reporting and assurance.

SA8000 www.sa-intl.org/

Social Accountability International (SAI)

This is a voluntary, universal standard for companies interested in auditing and certifying social performance. It is one of the world’s first auditable social certification standards for decent workplaces, across all industrial sectors. It is based on conventions of the International Labor Organization, United Nations, and national laws. The SA8000 standard spans industry and corporate codes to create a common language for measuring social compliance.

Fairtrade www.fairtradeusa. org/

Fair Trade USA

Initially developed in the 1940s when a few small North American and European organizations reached out to help

(Continued) Program/Initiative

Source

Summary poor communities and supply chains sell their products to well-off markets. Today, Fairtrade is a global effort aimed at helping poor countries and areas by relieving exploitation and promoting environmental, economic, and social sustainability. Currently, Fair Trade USA, formerly a licensing agency for the Fairtrade International label, has broken from the system and is creating its own labeling scheme.

www.fairtrade.net/

Fairtrade International

Human Rights www.ohchr. org/EN/HRBodies/HRC/ Pages/HRCIndex.aspx

United Nations Human The ‘Guiding Principles for Business and Human Rights’ is an Rights Council actionable set of processes and guidelines for global business designed to provide a global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity.

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Impact Investing http:// United Nations www.undp.org/content/ Development Program sdfinance/en/home/ solutions/impact-investment. html

Investments made into companies, organizations, and funds with the intention to generate a measurable social and environmental impact alongside a financial return. International banks have spearheaded the movement and developed standards.

Integrated Reporting www.sasb.org/

SASB is in the business of development and dissemination of industry-specific sustainability accounting standards. The

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(Continued) Program/Initiative

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International Integrated Reporting Council https:// integratedreporting.org/ the-iirc-2/

Source

Summary

Sustainability Accounting Standards Board (SASB)

goal is to establish an understanding of material sustainability issues facing industries and create sustainability accounting standards suitable for disclosure in standard filings such as the Form 10-K and 20-F. This organization addresses the unique needs of the US market, establishing standards for integrated reporting that are concise, comparable within an industry, and relevant to all ~13,000 publicly listed companies in the USA

IIRC

A global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition is promoting communication about value creation as the next step in the evolution of corporate reporting, an Integrated Reporting framework and its adoption.

Organic Certification www. USDA usda.gov/wps/portal/usda/ usdahome

The USDA National Organic Program regulates the standards of any farm or organization that seeks to sell an agricultural product as organically produced. The National Organic Program and the Organic Foods Production Act are intended to assure consumers that the organic foods they purchase are produced, processed, and certified to be consistent with national organic standards.

(Continued) Program/Initiative

Source

Summary

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Rainforest Alliance http:// www.rainforest-alliance.org

Rainforest Alliance

Created in the late 1980s from a social movement, the Rainforest Alliance is committed to conserving biodiversity and ensuring sustainable livelihoods (especially for those living in rainforest areas). One key feature of the standard and the associated certification process is the requirement for a detailed plan for the development of a sustainable farm management system to protect and encourage wildlife conservation.

Responsible Care www.responsiblecare.org

Chemical Industry

Responsible Care is a voluntary initiative of the global chemical industry to safely handle products from inception in the research laboratory, through manufacture and distribution, to ultimate reuse, recycle and disposal, and to involve the public in decision-making processes.

Social Cost of Carbon https://www.carbonbrief. org/qa-social-cost-carbon

SCC

Available through the US EPA, and used by over a thousand MNCs and governments, it values how much we should be willing to pay to avert future climate damages. The SCC adds up all the quantifiable costs and benefits of emitting one additional tonne of CO2, in monetary terms. This value can then be used to weigh the benefits of reduced warming

380

(Continued) Program/Initiative

Source

Summary

Appendi x

against the costs of cutting emissions. Suggested costs are $36/tonne with values ranging from $6 to $260. Sustainable Forest Products https://us.fsc.org/

Forest Stewardship Council (FSC)

FSC is an organization protecting forests for future generations while setting standards under which forests and company’s products are certified. The organization provides independent labeling and certification of products.

UTZ Certified www.utzcertified.org

Utz Certified

This is a label and program for sustainable farming of agricultural products that was launched as a separate initiative in 2002. It currently claims to be the largest program for coffee in the world. Known formerly as Utz Kapeh (Mayan for “good coffee”), this program was first launched by the Dutch coffee roaster Ahold Coffee Company in 1997. This program aims to create an open and transparent marketplace for socially and environmentally responsible agricultural products. Utz Certified is consistent with this book’s view of sustainability since the 2009 Code of Conduct version focuses on three categories of performance: (1) good agricultural and business practices; (2) social criteria; and (3) environmental criteria.

(Continued) Program/Initiative

Source

UL880 www.ul.com/global/ Underwriters eng/pages/offerings/ Laboratory and businesses/environment/ GreenBiz Group services/sq/ enterprisestandards/UL880/ index.jsp

Summary UL Environment collaborated with GreenBiz Group, a leader in corporate sustainability media, corporate sustainability leadership, and reporting, to develop UL 880: Sustainability for Manufacturing Organizations that includes governance, the environment, workforce, customers, and suppliers, along with community engagement and human rights.

Environmental Standards

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Carbon Disclosure www.cdproject.net

Carbon Disclosure Project (CDP)

An independent not-for-profit organization working to drive down greenhouse gases (GHG) emissions and sustainable water use by businesses and cities. Based on the premise that the first step in managing greenhouse emissions and sustainable water usage is that of measurement. CDP holds the world’s largest collection of self-reported climate change data.

Carbon Offsets www.co2offsetresearch.org/ policy/VoluntaryStd.html

American Carbon Registry Social Carbon Climate Action Reserve The Clean Development

There are over a dozen standards (with only six listed here) to verify the legitimacy of an offset provider by numerous combinations of metrics. An inclusive, complete, and credible carbon offset standard should include the following criteria: accounting standards; monitoring, verification and

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Mechanism Gold Standard Verified Carbon Standard

Summary certification standards; and registration and enforcement systems.a The motivation for reporting GHG emissions and purchasing offsets includes corporate public relations and corporate social responsibility, a desire to go beyond what is mandated in terms of emission reductions, and to prepare for expected compliance action, e.g., the introduction of a capand-trade system.

Conflict Minerals www.sec. Organization for gov/news/press/2012/2012- Economic Cooperation 163.htm & Development (OECD) Securities and Exchange Commission

The OECD published the guidance on conflict minerals supply chain traceability.b This guidance is gaining momentum as “the” standard within US policy. However, an analysis of the standard in comparison to existing US auditing standards under SEC highlighted a number of significant inconsistencies and conflict with relevant US standards.c Companies subject to the US law who implement the OECD Guidance without regard for the SEC auditing standards may face legal compliance risks.

Cradle-to-Cradle Standard www.mbdc.com/c2c/

A set of standards intended to ensure that products are designed to make use of renewable resources and that the resulting products can be easily disassembled and the outputs converted back into inputs for future production (rather than being returned to the ground).

McDonough Braungart Design Chemistry

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Summary

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Electronic Product Green Electronics Environmental Assessment Council Tool (EPEAT) www.epeat.net

A method for evaluating the environmental impact of computers and other electronic equipment. A seal to certify that electronic products are recyclable and designed to maximize energy efficiency and minimize environmental harm. EPEAT rating becoming a requirement for purchases placed by the US government, state, and city governments (e.g., San Francisco).

Greenhouse Gas Reduction The Climate Registry www.theclimateregistry.org/

This nonprofit organization provides information to reduce GHG emissions. The Climate Registry establishes consistent, transparent standards throughout North America for businesses and governments to calculate, verify and publicly report their carbon footprints in a single, unified registry

Greenhouse Gas Reporting Program www.epa.gov/ ghgreporting/

Implemented in 2008, requires the mandatory reporting of greenhouse gases of American firms. Comprehensive GHG data reported directly to EPA from across the country are now easily accessible to the public through EPA’s GHG Reporting Program (GHGRP).

EPA (USA)

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Greenhouse Gas Protocol www.ghgprotocol.org/

World Resources Institute World Business Council for Sustainable Development

The most widely used international accounting tool for government and business leaders to understand, quantify, and manage GHG emissions. They have worked with businesses, governments, and environmental groups around the world to build a new generation of credible and effective programs for tackling climate change. It provides the accounting framework for nearly every GHG standard and program in the world from the ISO to The Climate Registry as well as hundreds of GHG inventories prepared by individual companies.

ISO 9001 Quality Management www.iso.org/iso/home/ standards/managementstandards/iso_9000.htm

International Organization for Standardization (ISO)

The 9000 family of standards sets out the criteria for a quality management system (QMS) and this is the only standard in the family that can be certified (although this is not a requirement). This standard has been implemented by over one million companies and organizations in over 170 countries with total quality environmental management as a logical extension of a QMS.

ISO 14000 family of standards www.iso.org/iso/home/

ISO

The family of standards gives the requirements for an environmental management and is one of more than 15,000 voluntary International Standards published by the ISO. It is

(Continued) Program/Initiative

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Summary primarily concerned with “environmental management.” For the ISO, this means what the organization does to minimize harmful effects on the environment of its activities. It is not a product standard and does not give requirements for specific products or services; rather, it provides a set of generic requirements for what the organization must do to manage the processes influencing the impact of the organization’s activities on the environment.

standards/managementstandards/iso14000.htm

ISO

Sets out the criteria for an environmental management system and can be certified. It does not state requirements for environmental performance, but maps out a framework that a company or organization can follow to set up an effective environmental management system. It can be used by any organization regardless of its activity or sector. Using provides assurance to company management and employees as well as external stakeholders that environmental impact is being measured and improved.

ISO 14020 14024 Environmental Labeling www.iso.org/iso/home.html

ISO

Sets out the guidelines for environmental labeling covering three types of labeling schemes: Type I is a multi-attribute label developed by a third party; Type II is a single-attribute label developed by the producer; Type III is an eco-label whose awarding is based on a full life cycle assessment.

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ISO 14001 Environmental Management Systems www.iso.org/iso/home. htmlwww.epa.gov/ems

385

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ISO 14040 14044 Life Cycle Assessment www.iso.org/iso/home.html http://www.epa.gov/ nrmrl/std/lca/lca.html

ISO

Sets out the principles and framework for life cycle assessment (LCA) including: definition of the goal and scope of the LCA, the life cycle inventory analysis (LCI) phase, the life cycle impact assessment (LCIA) phase, the life cycle interpretation phase, reporting and critical review of the LCA, limitations of the assessment, the relationship between the LCA phases, and conditions for use of value choices and optional elements.

ISO 14064 GHG Emission Quantification and Reporting www.iso.org/iso/home.html

ISO

Sets out the principles and requirements at the organization level for quantification and reporting of GHG emissions and removals. It includes requirements for the design, development, management, reporting, and verification of an organization’s GHG inventory.

ISO 20400 Sustainable Procurement www.iso.org/iso/home.html

ISO

Provides guidance to organizations, independent of their activity or size, on integrating sustainability within procurement, as described in ISO 26000. It is intended for stakeholders involved in, or impacted by, procurement decisions and processes.

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Summary

ISO 26000 Corporate Social Responsibility www.iso.org/iso/home.html

ISO

Sets out to provide guidance rather than requirements, so it cannot be certified unlike some other ISO standards. Instead, it helps clarify what social responsibility is, helps businesses and organizations translate principles into effective actions and shares best practices relating to social responsibility, globally. It is aimed at all types of organizations regardless of their activity, size, or location.

ISO 50001 Energy Management Systems www.iso.org/iso/home.html

ISO

Based on the management system model of continual improvement used for other standards, ISO 50001 makes it easier for organizations to integrate energy management into their overall efforts to improve quality and environmental management. This energy management standard provides a framework of requirements for organizations to: develop a policy for more efficient use of energy; fix targets and objectives to meet the policy; use data to better understand and make decisions about energy use; measure the results; review how well the policy works; and continually improve energy management.

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Renewable Fuel Standard Program www.epa.gov/ otaq/fuels/renewablefuels/ index.htm

EPA (USA)

Regulations designed to ensure that transportation fuel sold in the USA contains a minimum volume of renewable fuel.

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Appendi x

SmartWay www.epa.gov/ smartway/

Environmental Protection Agency

The SmartWay Transport Partnership is a collaboration between EPA and the freight industry. This voluntary partnership program uses strong market-based incentives to challenge companies to improve the environmental performance of their freight operations. Through their collaboration with EPA, SmartWay Transport partners improve their energy efficiency, save money, reduce GHG emissions, and improve air quality.

Sustainable Supply Chains http://supply-chain. unglobalcompact.org/

United Nations Global Compact Sustainable Supply Chains: Resources & Practices

A compendium of information for business seeking information about supply chain sustainability. Information designed to assist business practitioners in embedding sustainability in supply chains including, initiatives, programs, codes, standards, and networks, resources, and tools along with case study examples of company practices.

Building Standards Energy Star www.energystar. Environmental gov/ Protection Agency (EPA) in partnership with the Department of Energy

Helping to save money and protect the environment through the use of energy efficient products and practices. This is more than just a label on a product as the EPA this is an innovative energy performance rating system for buildings which businesses have used for more than 200,000 buildings

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Summary across the country. The EPA recognizes top performing buildings with the ENERGY STAR program and provides tools such as Portfolio Manager to help assess performance.

Energy Use Intensity (EUI) https://portfoliomanager. zendesk.com/hc/en-us/ articles/213381958-What-isEUI-

Building Energy Performance Measurement

An important performance metric to think about is finding the site energy use intensity (EUI). It’s the summation of all annual energy use per square foot of a property, i.e., energy divided by square foot. It allows you to compare different sized buildings with a # kBtu/ sq ft with national median EUI by building type. EUI includes site, source, and weathernormalized performance.

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LEED Certification U.S. Green Building Leadership in Energy and Council (USGBC) Environmental Design www. usgbc.org/LEED/

LEED is intended to provide building owners and operators a concise framework for identifying and implementing practical and measurable high performance building design, construction, operations, and maintenance solutions. Certification can be at multiple levels, i.e., silver, gold, and platinum.

Passive House, German Passivhaus http://www. phius.org/home-page

A voluntary standard for energy efficiency in any building, reducing its ecological footprint. It results in ultralow energy buildings that require little energy for space heating or cooling.

Passive House Institute

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WELL Building Standard® International WELL http://standard.wellcertified. Building Institute com/well

Summary WELL is a performance-based system for measuring, certifying, and monitoring features of the built environment that impact human health and well-being, through air, water, nourishment, light, fitness, comfort, and mind. Grounded in medical research, it connection the buildings where we spend more than 90 percent of our time, and the health and wellness impacts on us as occupants.

For more information on any standard, click on the URL hyperlink. a Kollmus A., Zink, H., and Polycarp, C. (2008). Making sense of the voluntary carbon market: a comparison of carbon offset standards, Stockholm Environmental Institute, World Wildlife Fund. Retrieved from http://www.globalcarbonproject.org/global/pdf/WWF_2008_A%20comparison% 20of%20C%20offset%20Standards.pdf. Accessed on January 2018 b OECD (2013). OECD due diligence guidance for responsible supply chains of minerals from conflict-affected a high-risk areas. OECD.org. Retrieved from https://www.oecd.org/corporate/mne/GuidanceEdition2.pdf. Accessed on January 2018 c ELM Consulting Group (2011). OECD to SEC: Make us the conflict minerals due diligence/audit standard for the US | Your EHS connection. Elm consulting group.worldpress.com July 7, 2011. Retrieved from http://www.elmgroup.com/2011/07/07/oecd-to-sec-make-us-the-conflict-mineralsdue-diligenceaudit-standard-for-the-us/. Accessed on January 2018

Index

ABCD planning process, 73, 86, 89, 282, 314 Accountants stress, 48 Accounting, 13, 93 94, 173 audit systems, 121 Acidification, 168 Action learning approach, 61 62 Airbnb, 153 Alcoa, 109 Allsteel, 223 Amazon, 141 American Institute of Architects (AIA), 161 Analysis, 176 PESTLE, 195 196 quantitative and qualitative, 170, 254, 255 SWOT, 193, 194 See also Life cycle assessment (LCA) Android, 141 Ansoff’s Matrix, 197, 198 Application, 176 Artificial intelligence (AI), 6 Aspirational Redwood Fund, 255 Asset efficiency, 132 Asset management, 133 Automobile, 29 Balance sheet, 263

Balanced Scorecard (BSC), 104 integration goals in, 107 Base of the pyramid (BOP), 344 BASF, 219 Bayer financial services, 123 Bayer Material Science, 109 Ben & Jerry’s, 258 Benefit Corporations (B Corps), 12, 17, 256 258 “Beyond greening”, 215 Bill and Melinda Gates Foundation, 255 Biological materials, 341 Biological process, 343 Blekinge Institute of Technology (BTH), 72 Blockchain’s impact, 323 Bloomberg terminals, 252, 284, 326 Board of Directors, 113 114, 251, 328 Boston Consulting Group (BCG), 124 Boston Consulting Group Growth Share Matrix, 196 197 Bottom of the pyramid, 344 Boundary spanners, 123 124 Boundary spanning individuals, 109 115 Brainstorming brainstorm actions, 280 281

391

with group of people, 66 session, 65 “Brand”, 48, 131 Business executives, 123 124 function, 89 90 leaders, 212 practices, 120, 323 strategy, 44, 321 value, 125 Business models, 26, 41, 43, 89 capabilities, 47 key customers, 45 value proposition, 45 46 Business to business (B2B), 165 Business-as-usual practices, 4 “Cap and trade” system, 349 Capabilities, 47 Capital expenditures, 124 Capital investments, 44 Carbon, 176 footprint, 177 neutral, 161, 226 offsets and trading, 348 350 tax, 132 trading platforms, 15 Carbon and climate change mitigation, 348 carbon offsets and trading, 348 350 Greenhouse Gas Protocol, 348 Carbon dioxide (CO2), 142n48, 143, 162 CO2-emissions, 134 Carbon Disclosure Project (CDP), 15, 35, 127, 244 247 Carlsberg, 223 Cash flow analysis, 126 statement, 263

392

I nd e x

Causal loop diagrams (CLDs), 31, 32, 88, 89 Certified BCorp status, 257 Change management, 50 54, 78 79 Chasm, 209 BCorp, 256 258 CDP, 244 247 crossing, 240 242 GHG Protocol, 244 247 GRI, 247 249 IIRC, 249 253 impact investing, 253 255 IR, 249 253 SCC, 242 244 toward sustainability, 236 240 Chicago Climate Exchange (CCX), 349 Chief integration officers (CIOs), 109 Chief Sustainability Officers (CSO), 109, 113 Climate change, 161 mitigation, 348 350 Closed loop system, 216, 218 thinking, 221 Cloud based technology, 323 Codification, 250 Collaborative action, 62 65 Collapse, 19, 218 ColorDry, 126 Community collaboration with, 75 economic prosperity, 74 Company, Customer, Competition, Collaborators (4C), 202 203 Company economic prosperity, 74 Company experimentation, 249

Company strengths, 137 138 Complex problems, 7, 27 30, 152, 267, 279, 280, 306, 313 Comprehension, 176 Conceptual materiality matrix, 123 Conference of Parties (COP), 18 “Conscious consumer”, 136 Conservation, 17 Constraints, 153 Consumers, 131 Conventional energy sources, 160 Conversations, 330 331 Corporate culture, 189 190 environmental management systems, 29 Standard, 246 sustainability, 109 Corporate Knights, The, 205, 285, 318 Corporate social responsibility (CSR), 313 reporting, 169, 347 Corporation impacts, 284 Forbes rankings, 285 Newsweek ranking, 286 value matters, 287 293 Corporations and Governments Revenues, 289 Cost avoidance, 40 Cost of debt, 125 Cost of Goods Sold (COGS), 131 132 Covestro, 241 Cradle to Cradle model (C2C model), 216, 218 220, 341 Cradle to Cradle Certified™ Product Standard, 219 Cradle to Cradle Products Innovation Institute, 219

opportunities, 163 Crafting strategy, 283 Crash, 218 “Creating shared value”, 9, 254 Credibility/consistency, 190 Critical dimensions of integration, 25 complex problems, 27 30 systems thinking, 30 38 value creation, 38 50 “Cultural Creatives”, 136 Customer, 45, 49 Customer Relations Management (CRM), 98 Customizable framework, 59 60 Customized approach for enterprise action learning approach, 61 62 collaborative action, 62 65 facilitation and strategic planning process, 66 67 informed decision-making, 76 77 integration and change management, 78 79 strategic sustainable development, 67 76 Dashboards, 6, 90, 130, 228, 320, 322, 323, 325 KPIs for environmental performance, 106, 108 management, 106, 110 David & Lucile Packard Foundation, 255 Decarbonization, 220 Decision analysis, uncertainty in, 274 Decision-makers, 28, 162 approach, 3 4

I nd e x

393

with vision for sustainable future, 6 8 Decision-making, 169 Demand and supply management, 128 Dematerialization, 220 Department of Energy (DOE), 159 Design process and outcomes, 153, 155 Design thinking, 151 ecological footprint, 176 177 integrated management to life, 152 156 IntEnt, 178 179 LCA and design thinking enable integrated management, 172 176 NZ strategy, 156 161 PBL application, 170 172 DesignTex, 219 Detrimental ecosystem impacts, 217 Deutsche Bank Institute of climate change, 224 Dexus financial services, 123 Diabetes Advocacy Alliance, 252 Die-off, 218 Disability Opportunity Fund, 255 Discount rate, 243 Disney, 241 Dodge v. Ford Motor Company, 257 Dow, 241, 252 Drivers, 52, 91 92, 187 193 Drywall, 221 DuPont, 241 Dynamic performance frontier, 10 12 Early Adopters, 236, 239 Early Majority, 236, 239 240

394

I nd e x

eBay, 109 Eco-industrial parks, 221 Ecological footprint, 176 177 footprinting, 69 process, 343 Economic issues, 10 11 system, 19 topics to review, 368 369 “Emerging megatrend”, 338 Emission Trading Scheme (ETS), 15 Employees, respect for, 74 Enablers, 52, 92, 187 193, 323 324 End-of-life processes, 163 Energy consumption, 224 systems, 3 4 Energy Assurance (EA), 229 Energy Independence and Security Act of 2007 (EISA), 160 Energy Star, 224, 229 appliances, 131 commercial buildings program, 225 Portfolio Manager, 227 Energy use intensity (EUI), 226 Engagement, 330 331 Enterprise Resource Planning system (ERP system), 98, 130 Enterprises, 3 4, 16 17, 25, 91, 291, 295 aligning operating systems, 193 199 annual report, 3 4 benefits of integrated management, 191 193

drivers, obstacles, and enablers, 187 193 extensions to supply chain systems, 191 193 functions, 326 327 information systems, 282 283 integration, 104 management systems, 182 187 operating systems integration, 187 191 processes, 314 pursue, 312 stakeholders, 109 standards, 199 203 strategic sustainability assessment, 204 206 strategy, 60 systems, 181 Entrepreneurs, 344 Environmental, social, and governance (ESG), 4, 26, 97, 113, 120 Environmental health, and safety (EH&S), 39 40 Environmental Management Systems (EMS), 69, 98, 166, 346 Environmental Product Declarations (EPD), 169, 222 223, 341 Environmental Protection Agency, 168 Environmental Protection and Encouragement Agency (EPEA), 219 Environmental/ists/ism, 20, 313 environmental/social impacts, 262 263 management, 339 movement, 16 policy, 348

responsibility, 75 risk control and restoration, 75 and social sustainability performance, 189, 285 standards, 200 201 topics to review, 373 375 Ernst & Young financial services (EY financial services), 123 Error at the Heart of Corporate Leadership (Harvard article), 257 European Foundation for Quality Management (EFQM), 16 European Union Emission Trading system (EU ETS), 349 Eutrophication, 168 Evaluation, 176 Evaluators, 52, 92 Event-pattern-structure pyramid, 28 Evidence based management, 261 262 Evidence-based approaches, 85 Example-integrated management strategy statement, 73 Execution capabilities for integration, 137 Executive order (EO), 160 Expectations, 136 Expert commentary, 250 External enablers, 191 External factors, 139 140 “Externalities”, 127 ExxonMobil, 251 Facilitation and strategic planning process, 66 67 Financial/finance, 13, 95 96 analysis, 268

I nd e x

395

capital, 122, 339 decision analysis, 314 functions, 130 issues, 10 11 measures, 317 318 Firms, 122, 175 and environmental policy, 348 Forbes ranks, 285 Ford, 219 14040 standards, 168 14044 standards, 168 Framework for strategic sustainable development (FSSD), 20, 59, 67, 164, 314, 335 336 global sustainability challenge, 336 sustainability, 337 338 Freeware sites, 162 FrugalPac, 216 Functional integration, 89 93, 106, 321 322 accounting, 93 94 finance, 95 96 HBR, 103 104 human resources, 96 97 IS/IT, 97 98 marketing, 99 100 operations, 100 102 public relations, 102 103 Functional responsibilities, 151 Functional symptoms vs. problems, 88

Generally Accepted Accounting Principles (GAAP), 265 266 Gigaton (Walmart launched project), 183 Global Accounting Alliance (GAA), 250 “Global business imperative”, 338 Global Footprint Network, 177 Global Impact Investing Network (GIIN), 253 Global regions application of SDGs, 307 Global Reporting Initiative (GRI), 5, 122, 247 249, 337, 345 Global warming potential, 162, 165 Globalized workforces, 127 Good Neighbor Award (2009), 252 Government enterprises, 119 Green buildings, 223 Green Chemistry, 343 Green Mountain Power, 258 Green Project Management (GPM), 110 Greenhouse Gas Protocol (GHG Protocol), 69, 244 247 Greenhouse gases (GHG), 348 emissions, 126, 127, 134, 162, 176 Greening, 214 215 Group decision-making settings, 86

Gap Frame, 294 General Electric Company, 238 Ecomagination program, 238 GE-McKinsey 9 cell matrix, 196 General public benefit, 256

Harvard Business Review (HBR), 103, 142 Herman Miller, 219, 241 High-level measurement and alignment options, 293 294

396

I nd e x

country-level gap frame score and priority dimensions, 295 High-performance buildings, 223 230 “Higher form of capitalism”, 254 Human cancer, 168 Human capital, 122 Human criteria effects, 168 Human noncancer, 168 Human resources, 13, 96 97 Human-centered approach, 153 Humanscale chairs, 223 Ideation, 153 154 IKEA, 69, 134 135 Impact investing, 253 255 Impact Measurement Working Group of Social Impact Investing Taskforce, 255 Implementation process, 154 Incentive systems, 189 Income statement, 263 Income taxes, 132 133 Industrial ecology (IE), 220 221, 343 Industrial metabolism, 220 Industrial symbiosis, 221, 343 344 Inevitable evidence, 15 21 Information systems, 8 9, 90, 282 283 Informed decision-making, 76 77 Innovation, 44 Innovative decision-makers and solutions, 319 320 Innovators, 236, 237 Institutional chasm, 316 Institutionalizing phase, 250 Integrated assessment models, 242 Integrated Bottom Line (IBL), 10, 52, 64, 314, 345

opportunities, 164 reporting, 345 Integrated business management, 3 4, 9 Integrated cities, 324 326 Integrated enterprise (IntEnt), 4, 22 23, 55, 79, 115, 144, 145, 156, 178 179, 204, 275, 308 309 Integrated Future Value (IntFV), 20, 142 Integrated governance, 114 Integrated management, 4, 63, 78, 90, 121, 144, 177, 306, 312 action, 326 329 adoption model, 236, 237 benefits of, 191 193 carbon and climate change mitigation, 348 350 comprehensive list of resources, 338 enables value maximization, 41 43 evolution of sustainability, 338 340 firms and environmental policy, 348 FSSD, 335 338 GRI, 345 impacting strategic sustainable development, 340 344 ISO, 345 347 to life, 152 156 measuring and reporting tools, 345 movement, 262 opportunity, 280, 335 for readers, 335 socially and environmentally responsible investment indices, 347 348

I nd e x

397

of sustainability, 209, 316 sustainability and CSR reporting, 347 triple bottom line accounting, IBL/integrated reporting, 345 Integrated opportunities, building, 158 161 Integrated planning process, 89 Integrated problem-solving, 38 Integrated Rate of Return (IntRR), 20, 271, 274, 288, 306, 314 Integrated reporting, 54 55, 249 253 Integrated roadmap, 214 Integrated solution, 229 Integrated supply chains, 323 324 Integrated thinking, 250 Integrated value, 120 chains, 322 324 maximization, 49 50 Integrated Value Added (IntVA), 47, 306 307, 313 Integration, 141 and change management, 78 79 chasm, 315 316 energy-efficient strategies, 158 and innovation, 262 272 operationalization, 12 15 and organizational change toward sustainability, 53 responsibilities and opportunities, 8 social sustainability principles, 54 Integration across disciplines enabling integration opportunities, 104 109 evidence-based approaches, 85 functional integration, 93 104

398

I nd e x

getting system in room, 109 115 overcoming obstacles, 89 93 value multiple perspectives, 86 89 Integration opportunity Ansoff’s Matrix, 197, 198 Boston Consulting Group Growth Share Matrix, 196 197 decision-makers with vision for sustainable future, 6 8 dynamic performance frontier, 10 12 evidence of inevitable, 15 21 GE-McKinsey 9 cell matrix, 196 integrated business management, 9 New Product Diffusion Curve, 199 PESTLE analysis, 195 196 Porter’s Five Forces, 197, 198 SDGs, 4 strategic frameworks for, 193 sustainability, 9 SWOT analysis, 193 194 Intellectual capital, 122 Intelligent Product System (IPS), 219 Interactive components of business model, 43 Interface, 217 Intergovernmental Panel on Climate Change (IPCC), 134, 291 Internal forces, 137 Internal price, 127 Internal rate of return (IRR), 268 269

International Institute for Sustainable Development, 337 International Integrated Reporting Council, 19, 122, 249 253, 337 International Living Future Institute (ILFI), 223, 251 International Organization for Standardization (ISO), 16, 165, 170, 182, 186, 345 347 ISO 14001, 184 Interpretation, 153, 168, 346 Inventory, 134 135 Investor Environmental Health Network (IEHN), 347 Investors, 11 IoS (Apple), 141 IS/IT, 20, 90, 97 98, 106, 121, 130, 135, 139, 140, 315 Iterative process, 50 Kanban systems, 108 KFC, 216 Kickstarter, 258 Knowledge, 176, 330 331 KPIs, 104, 106, 108, 113, 138, 317 Kyoto Protocol, 15, 349 L’Oréal, 241 Laggards, 236, 240 Late Majority, 236, 240 Leadership, 137 Leading Energy and Environmental Design (LEED), 223 225, 227, 229 Learning process, 63 Life cycle

impact assessment, 167 168, 342 improvement analysis, 342 interpretation phase, 168 inventory, 342 inventory analysis, 166 167 process, 133 Life cycle analysis. See Life cycle assessment (LCA) Life cycle assessment (LCA), 12, 20, 69, 101, 131, 151, 152, 163 170, 341 342, 345, 346 and design thinking enable integrated management, 172 176 ecological footprint, 176 177 tool supporting design and goals of zero, 162 163 Life cycle management (LCM), 165 166 Living buildings, 5, 17, 76, 159, 162, 229 Living Machines (Todd), 218 Living products, 222 223 Logistics industry, 132 sustainability, 134 Long-term capitalism, 144 Long-term sustainability goals, 314 Low “first cost” approach, 226 Man-made landfills, 221 Management dashboards, 110 Management information systems (MIS), 97 Management systems, 182 187 Market, 134 Marketing, 13, 99 100, 130 departments, 322 323 management, 169

I nd e x

399

Material approval process, 173 Material efficiency, 165 Material Health, 219 Material Reutilization, 219 Materiality, 38, 120 124 Materiality map, 210 215 MBA, 5, 8, 337 McDonalds, 216 McDonough Braungart Design Chemistry (MBDC), 341 McKinsey’s approach, 88 Method Products, 258 Microfinancing, 344 MIT Sloan Management Review, 124 Mohawk flooring, 223 Monte Carlo simulation, 274 Moving to solutions based business model, 216 MSCI Global Socrates, 94, 262, 284, 326 Multi stakeholder engagement, 109 Multidisciplinary approach, 172, 174 Multinational companies (MNCs), 109, 126 Multiple-criteria Decision Analysis (MCDA), 272 273 Multistakeholder decision-making, 87 NASDAQ, 252 National Renewable Energy Laboratory (NREL), 159 160 National Risk Management Laboratory, 163 Natura, 250 Natural capital, 122, 266 267

400

I nd e x

Natural capitalism, 164, 173, 215 218, 342 Natural Capitalism Solutions, 140 Natural Marketing Institute (NMI), 136 Natural Step, 342 Nature Conservancy, 255 Nest, 141 Net operating working capital, 136 Net positive strategies (NP strategies), 157 Net present value (NPV), 126, 268 269 Net Zero Energy Building (NZEB), 158 161 Net zero strategy (NZ strategy), 156 building integrated opportunities, 158 161 energy, 158 energy cost, 160 energy emissions, 160 NZ/NP strategies, 157 158 Waste, 158 Water, 157 zeronaught, 156 157 New Belgium Brewing, 258 New Product Diffusion Curve, 199 Next Industrial Revolution, 317 Nike, 219 NIKE Flyknit, 126 NiSource, 109 Non-overlapping, 67 Nongovernmental organizations (NGOs), 119 Novo Nordisk, 250, 252 Novozymes, 250, 252 Nucraft, 223 Obstacles, 187 193 “One Report”, 252, 253

Operating margin, 129 Operating systems integration, 187 attributes of management systems integration, 188 credibility/consistency, 190 cultural and resistance to change, 189 190 lack of top management support, 190 sustainability, 191 Operationalizing integration, 63, 77 efforts, 60 Operations, 100 102 Opportunities, 138 Optimism, 329 331 Orchestrated change for corporate sustainability, 50 Organization of Economic Cooperation and Development (OECD), 133 Organizational change management, 50 Organizational change, 78 Owens Corning Ecotouch insulation, 223 P&G, 135, 165 Paper pallets, 134 135 Particulate matter, 217 Passive House, 227 Patagonia, 258 Payables accounts, 135 Pendleton, 219 PepsiCo, 153 Performance, 52, 92 Performance Frontier, 11, 209, 211, 212, 262 272 C2C model, 218 220 EPD, 222 223

high-performance buildings, 223 230 IE, 220 221 living products, 222 223 materiality map, 210 215 natural capitalism, 215 218 Physical capital, 122 Pittsburgh’s air quality, 217 Plan-do-check-act cycle, 106, 166 Planetary boundaries, 69 Policymaker, 157 Political, Economic, Social Technological, Legal, and Environmental analysis (PESTLE analysis), 195 196 Political leader, 157 Poly Propylene, 135 Poly-chlorinated biphenyls (PCBs), 68 Porter’s Five Forces, 197, 198 Portfolio Managers system, 225 Price competitiveness, 128, 129 Price realization, 128 129 Principles for Responsible Investment (PRI), 11 Principles for Responsible Management Education (PRME), 331 PRME Responsible Management Education Collection (PRMEC), 340 Problem-based learning (PBL), 152, 170 172 Process, 90, 153 improvements, 44 Procurement, 130, 173 Product and process design, 173 Production processes, 16 Productivity, 211 Project management KPIs, 107

I nd e x

401

Property plant and equipment (PP&E), 133 134 Propositions integration and innovation, 262 272 IntEnt, 275 MCDA, 272 273 uncertainty in decision analysis, 274 Prototyping, 154 Public Affair’s networks, 13 Public policy innovations, 18 Public relations, 102 103 Purchase order, 173 Quality of life, 294 ‘Race to Zero’ framing, 156 Receivables accounts, 135 Recovery, 163 Recycling, 163 Regional Greenhouse Gas Initiative (RGGI), 292, 349 Registered EMS, 183 Reinforcing feedback, 33 34 Reinvesting in natural capital, 217 Renewable Energy, 219 Renewable Energy Credits (RECs), 160 Renewable resources, 252 Responsibility, 174 Responsible governance, 74 Retailers, 131 Return on Integration (ROInt), 20, 142 Return on investment (ROI), 268 269, 339 Revenue growth, 125 126, 127 Revisiting performance frontier, 315 316

402

I nd e x

Risk management, 339 340 practices, 34 Rockefeller Foundation, 254 Rockwool, 223 Selling, general, and administrative (SG&A), 130 131 Shadow price. See Social cost of carbon dioxide (SCC) “Shared value”, 271 Shareholder value, 93, 124, 125, 129 COGS, 131 132 company strengths, 137 138 external factors, 139 140 GHG emissions, 126 127 income taxes, 132 133 inventory, 134 135 PP&E, 133 134 price realization, 128 129 receivables and payables, 135 137 revenue growth, 125 126 SG&A, 130 131 sustainability, 124 125 volume, 127 128 Shareholder Value Myth (Stout), 257 Shifting to biologically inspired production models, 216 Short-term gains, 35 Short-term profits, 189 Site energy, 159 Small and medium enterprises (SMEs), 119 Smog formation, 168 Social and environmental performance integration, 20 21 Social capital, 122

Social cost of carbon, 142 143, 158, 175 Social cost of carbon dioxide (SCC), 5, 142n48, 238, 242 244 Social cost of methane (SC-CH4), 244 Social cost of nitrous oxide (SCN2O), 244 Social Fairness, 219 Social management, 339 Social progress index (SPI), 293 294 Social standards, 200 Social sustainability, 266 267 Social topics to review, 369 371 Socially and environmentally responsible investment indices, 347 348 Societal topics to review, 372 373 Socio-ecological systems, 15 Software, 176 functionality, 172 Source energy, 159 160 Sourcemap, 162, 163 South Africa, IR in, 251 252 Stakeholders, 28, 31, 61, 74, 91, 113, 329, 335 equity, 263 expectations, 6 interests, 121 Standards, 199 203 Starbucks, 216 Stimulate codesign processes, 12 Strategic integrated enterprises economic growth, 296 financial functions, 308 funnel metaphor, 281 global regions application of SDGs, 307

high-level measurement and alignment options, 293 294, 295 impacts of corporations, 284 293 integrated management, 306 IntEnt, 308 309 Paris Agreement on climate change, 295 SSD five-level framework, 280 Starbucks’ Program Alignment, 305 strategic integrated systems, 282 284 sustainable development goals, 297 304 turn options into actions and priorities, 294 Strategic integrated systems, 282 284 Strategic planning, 12 process, 66 67, 314 team, 121 Strategic sustainable development (SSD), 20, 59, 67 76, 86, 89, 340 BOP, 344 cradle-to-cradle, 341 EPDs, 341 Green Chemistry, 343 industrial symbiosis, 343 344 LCA, 341 342 microfinancing, 344 natural capitalism, 342 natural step, 342 and planning processes, 33 Strategy, 283 Strengths, Weaknesses, Opportunities, Threats analysis (SWOT analysis), 193 194

I nd e x

403

Superior Essex cat cable, 223 Supply chains, 6, 8, 42, 127 extensions to supply chain systems, 191 193 impacts, 75 management, 120, 132, 134 See also Value chains Sustainability, 6 7, 9, 20, 44, 67, 109, 113, 114, 140, 169, 190, 191, 241, 266, 312, 323, 337 338 chasm toward, 236 240 and CSR reporting, 347 factors, 33 integration, 4 professionals function, 50 recognition, 26 in report, 137 standards/initiatives, 376 390 strategies, 126, 139, 186 sustainability-related assets and liabilities, 78 Sustainability Accounting Standards Board (SASB), 19, 122, 337 Conceptual Framework Source, 214 Materiality Map™, 213 standards development processes, 212 Sustainability evolution, 338 by design vs. reducing unsustainability, 339 key issues and drivers for emerging trend, 340 management of social, environmental, and financial capital, 339 risk management, 339 340 Silent Spring, 338 Sustainable business model, 328

404

I nd e x

Sustainable cities, 295, 296, 325 Sustainable development, 60, 335 Sustainable development goals (SDGS), 297 304, 337 Sustainable future, decisionmakers with vision for, 6 8 Sustainable operating systems (SOS), 52, 130 Sustainable supply chain management, 323 Sustainable value added (SVA), 47 Synthesis, 176 Systems thinking, 30 38 Task Force on Climate-related Financial Disclosures (TCFD), 291 292 Technological innovation, 44 Technology Adoption Life Cycle assessment model, 236 Technology and information systems, 13 Technology chasm, 315 316 Tesla, 128 3M, 241 Timberland, 241 Top management support, lack of, 190 Tracking, 173 Trade-offs, 315 316 Transformative approach, 35 Transportation, 173 supplier business models, 192 Triple bottom line (TBL), 7, 345 accounting, 345 Trucost, 94, 205, 262, 284, 326 Turborg beer, 223 Two-axis visual models, 122 2030 Challenge, 161, 226

UN Global Compact (UNGC), 17 UN Principles for Responsible Management Education (UNPRME), 17 UN Sustainable Development Goals (SDGs), 4, 69 global regions application, 307 “Unbalanced” approach, 263 Uncertainty in decision analysis, 274 Unilever, 241 Unilever Sustainable Living Plan (USLP), 297 Union Carbide in Bhopal India, 175 United Nations Environmental Program (UNEP), 11, 17, 345 United Nations Environmental Programme Finance Initiative (UNEP FI), 114 United Nations Global Compact (GC), 347 United States corporate law, 256 United States Green Building Council (USGBC), 225n29 “Untaxed externalities”, 215 Urban Sustainability Framework, 325 Value matters, 287 293 multiple perspectives, 86 89 proposition, 45 46, 93, 95 realization, 141

statement, 265 266 Value chains, 320 function integration, 321 322 integrated cities, 324 326 integrated value chains, 322 324 management, 168 See also Supply chains Value creation, 5 6, 14, 25, 38, 120, 144 business models, 43 47 change management, 50 54 integrated management enables value maximization, 41 43 integrated reporting, 54 55 integrated value maximization, 49 50 making business case, 140 144 materiality, 120 124 shareholder value, 124 140 value added, 47 49 Variables, 32 Verification, 318 Visual renderings, 154 Visualization, 65 Vitro Glass, 223 Volvo, 219 Walmart, 165 Warby Parker, 258 “Waste = food” principle, 219 Water Stewardship, 219 WELL Building Standard, 228 Windows, 141 “Wings” training center, 252 Wonder Capital, 255

I nd e x

405

World Business Council for Sustainable Development (WBCSD), 15, 245, 319, 339 World Economic Forum (WEF), 143

406

I nd e x

World Resources Institute (WRI), 33, 245 Xbox, 141 Zeronaughts, The (Elkington), 156