Lecture 2: 23 December, 2008

1. Elements of Sustainability - from a practical point of view

We discussed various interfaces in organizations that lead to sustainability issues.
(a)Materials, Machine, Technology: Resource consumption, wastes and emissions, eco-efficiency, energy efficiency, Eco-Design (Design for environment), product & process innovation and quality, packaging, green purchasing, logistics, Research & Development & patents
(b)Employees: Occupational Health & Safety, employee compensation/benefits, employees' union, inclusion & diversity, discrimination, gender bias/harassment, insider trading, ethics, bribery & corruption, employee productivity, employee morale and loyalty
(c) other stakeholders (e.g. NGOs, community etc.): Fair & ethical behaviour, socially relevant business, social programmes, philanthropy, ecological footprints, emergency response, complaints response, product safety, legal compliance
(d) Money and Markets: interest rates, exchange rates, credit rating, stock value, DJSI score, profits and dividends, taxes, niche markets,competition, new and emerging markets, brand value/image

In terms of practices in business many of these issues are identified and acted on as: Resource productivity/eco-efficiency, air emissions, water/liquid discharges, soil contamination, energy efficiency, eco-design, green products, green purchasing, Sustainable new businesses, occupational and health, Global Compact, employee engagement, stakeholder engagement, General Business Principles (Code of conduct of business), human right, social accountability, corporate philanthropy, social activities, wages, dividends, taxes, value of purchases, profits etc.

2. Economic issues - wages, taxes, purchases (materials and services)

Salaries/wages help to develop the local economy. There are many examples of communities depending on the salaries earned by employees - e.g. Jamshedpur, Bhilai, Nagda. Taxes are used by the Government for social issues. Purchases again lead to economic development; if purchases are local, then the local economy gets benefited.

3. Environmenal issues - Environment / Business link, characteristics of environment, environmental conflicts, conflict resolutions, business response to environmental issues, environmental issues in the life-cycle of products

We discussed the three major functions of the physical environment, viz., (a) source for resources, (b) sink for the waste and (c) provider of amenity value. Development is the use of natural resources available in the biosphere for the benefit of the community through products and services. While a part of the resources are used by the business for useful products and services, a part of the resource becomes waste. Enviornment acts as a sink for the waste. If waste is added to the environment at a rate beyond the carrying capacity of the eco-system, the system will collapse. If the waste is disposed off without consideration for the enviornment, the environment may lose its amenity value (e.g. dirty beaches, strewn with plastics bags and cups).

The three characteristics of the physical environment are:(a) Common Property, (b) Multiple Use and (c) Uncovered cost
One of the major problems of the physical environment is that it belongs to everyone; everyone thinks that someone else will take care of it. It is like our keeping our flat clean by sweeping it everyday, but throwing the sweepings on to a common place, because the common place belongs to everyone. Air, water, earth, fauna and flora and the biosphere belong to the whole humanity; but in the absence of individual responsibility we allow these common properties to deteriorate, which in turn will affect all us. (Discussed Tragedy of Commons - please google and find out more about this term)

Natural resources are used for many purposes. For example, water is used for drinking, cooking, cleaning, washing, gardening, irrigation, sports, transportation, cooling, as solvent, in an industry etc. If the resource is scarce (clean water is indeed a scarce resource) and there are multiple demands for this scarce resource, conflicts are bound to arise (e.g. we discussed Sinar Mas Paper mills)

Another important characteristics of natural resources is that when such resouces are used certain costs are not covered. In the conventional cost accounting we do not consider the environmental cost in calcuating the cost of an activity. For example if one is asked to calculate the cost of travel between your house and the college, one would consider the price of the motor cycle (interest & depreciation), cost of petrol, cost of maintenance, cost of insurance, etc. But not the cost of damage done to the environment due to the emissions from the exhaust, the cost of health care of people who are affected by such emissions, the cost of lost work days, the cost of physical diabilities brought in by autoemissions etc. These uncovered costs are now distributed on the society. This is potentially a conflict issue if the problem of emission goes beyond one's tolerance limits (we discussed briefly the CNG introduction in Delhi; ban on vehicles older than 15 years etc.)

We (the society) cannot allow these potential conflict situations developing into actual conflicts. Society uses three types of conflict resolution/prevention techniques, viz., (a) Command and Control, (b) Economic Instruments and (c) Voluntary initiatives.

Command & Control is the technique used by Governments to see that the society behaves within certain parameters, which are supposed to be safe, of environmental performance. For example it enacts acts and rules, like the Water (prevention & control of Pollution) Act or Air (prevention & control pollution) act to prevent and reduce water and air pollution respectively. (see http://envfor.nic.in for Indian environmental acts and rules). Statutory authorities implement these acts and rules using regulations, like the standards for emissions, discharges etc. In this way the Government tries to ensure that the common resources are used diligently by the society (we also discussed about PUC for your vehicle). (We had a brief discussion on RoHS and REACH)

The second technique used for conflict avoidance/resolution is the use of Economic instruments; this can be through the Government or through individual players. Government can give tax concession or impose tax depending on if an activity or product is environmentally sound or not. For example the Government (Water (Prevention & Control of Pollution) Cess Act)may give concession on water cess if hte industry establishes an effluent treatment facility to treat the polluted water before discharging it. It can give concession on customs duty for pollution control equipments. These concessions encourage environmentally sound behaviour of the society. One example of economic instrument that is very popular now is the "carbon credit"; this is similar to emission trading. By reducing the emission of greenhouse gas emissions (GHG) through approved CDM projects one can earn what are called Carbon credits, which can then be sold to buyers from developed countries who have a mandate to reduce their GHG emissions. Here the Government acts as a facilitator. Individual companies can similarly influence the way society behaves; for example the "deposit-refund" system is used for getting back used products or packaging by charging a deposit when the product is bought and paying the customer an amount when the product or packaging is brought back to the dealer at the end of life of the product. (I explained how the Cocacola cans were picked up by old people in the USA to give them back to the corner shops to get a few cents).

The lecture stopped at this point on day 2.




Paper for Discussion:


The Link between Competitive Advantage and Corporate Social Responsibility

by Michael E. Porter and Mark R. Kramer

Harvard Business Review (December, 2006)

We had some lively discussion during the reading of this paper; keep it up.
We stopped at page 2, last but one paragraph. We start from Four prevailing justifications for CSR in the next reading on Jan 5, 2009.