What about economic sustainability?

Frank Brandauer

After more than five years, I believe the practice of sustainability has matured to a point that there is now a commonly accepted belief that it is comprised of three basic aspects: environmental, social and economic. My experience suggests that we all have been working very hard to learn about the first two elements (environmental and social); what they are and how they relate to other functions, processes and systems. What struck me recently was just how little has been made of, or said about, the third element– economic sustainability.

Really think about it. No one actually ever talks about this piece other than to reference it as the third leg of the sustainability stool. I guess I just figured that this topic was already covered by the standard financial filings and disclosures, or that it was someone else’s job (someone who just never showed up to the meetings), or that some how it was just a given.

Recent events have caused me to believe that we really missed something significant, that we failed to truly understand the full concept of Sustainability. It now appears that without all three pieces in place nothing is in reality sustainable, including, it seems, the entire worldwide economic system.

We have been reminded that economics cannot be under estimated or overlooked. I suspect that we will soon find that all those purely “nice to have” and the “good to do” sustainability projects will not survive long. If they do not represent a real economic gain they will all go the way of the subprime mortgage.

At its core, EHS is grounded in compliance and worker safety requirements and sustainability’s only foundation is customer expectations. That may well change as regulations are developed but that is not likely to happen until the economy turns.

For now its simple, all sustainable efforts must also be able to deliver real, tangible and quantifiable economic value or advantage. For me this litmus test helps makes sense out of a lot of crazy ideas. It is nice to know that gravity still applies.

About Frank Brandauer

Frank Brandauer is the Vice President of Regulatory Affairs at Therapak Corp. and a former member of the NAEM Board of Directors.

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  1. Rich Fiore

    December 15, 2008

    I agree with what you have said about the importance of the economic ‘leg.’ I think that the recent meltdowns in the economy have painfully focused once again the three-legged stool of sustainability is an ideal construct and that the three legs are not equal in length and maybe only so when (1)the environmental or social implications of a business project can together or separately be fatal to a key venture as a whole—and/or, (2)he said cynically, when their is plenty of money available to do the right thing. For all the other times, the harsh reality is that the social and environmental legs are filtered by economics and are therefore secondary. So, maybe the analogy of a ‘stool’ should be replaced by that of a ‘circular chain’ with three links in it, where the weakest link is always the economic one, which can break sustainability at any time. This broken chain doesn’t mean that the project won’t go on, it just means that it’s not a truly sustainable project in the environmental and/or social senses. From a global perspective, I personally don’t think this way of looking at things will change unless environmental or social systems are facing an obvious imminent collapse or maybe until we get away from the “day-trading” and quarter-to-quarter mentality of Wall Street, and adopt as a society a more long-term viewpoint of how we conduct business.
    Good luck with that. If a democratic government is a reflection of its people, I offer as proof how our government has in the last 35 years (since the first Arab oil embargo in 1973-1974)wisely stewarded the United States towards a meaningful energy independence policy and by deregulating the banking industry in 1999 so that derivative investments based on nothing really could tank the world’s financial markets in 2008.

  2. Jim Lime

    December 15, 2008

    Frank makes an excellent point concerning the economic component of sustainability. I never really agreed with the term – the triple bottom line. For me, there is only one bottom line and that is the financial one. Without a profitable going concern, the enterprise is not sustainable. Every sustainability initiative must further customer expectations and contribute to profitable growth.
    Thank you Frank for making a great and sometimes overlooked point!

  3. Phil Wood

    December 15, 2008

    There is a wonderful online video/discussion on making the link to economic activity (and the recent cause of the economic meltdown)…just take the environmental module

  4. William D'Alessandro

    December 15, 2008

    Important subject, great comments. The economic leg of sustainability, however, shouldn’t be confused with financial performance of a business unit or an enterprise. It has always meant (outside the USA) the non-financial economic performance.

    Just for example, and not to condemn or praise, it is not about Exxon’s stupendous annual profits but about oil’s relationship with the environment in every respect. It is about the lifecycle assessment of SUVs not GM’s annual financial report to the SEC. About DuPont’s reliance on or independence from chemicals of very high concern. And so on.

    Of course profitability is essential. But the point — or I should say, the intellectual foundation — of the third leg of the triple-bottom line is an inbred corporate appreciation of the fact that profitability is an outcome of sustainable management not the prequisite for it.

  5. Nancy Neely

    December 15, 2008

    Frank, totally agree. One has to step back and look at the total picture. All three elements must be addressed with financial being the buiding block that holds up (or “provides us” with the ability to address) social and environmental programs. If our soical and environmental efforts are not finacially feasible, then they will not be sustainable.

  6. Rick Ramirez

    December 15, 2008

    Thanks for raising the point; in our company, the “economic” pillar of Sustainability embraces a broader definition of “economic value.” We connect those actions and initiatives regarding energy/water/material efficiency, EHS performance, good corporate governance/social responsibility and, manufacturing environmentally advantaged products (for example)to not just hard financial value such as share price, higher profit or, lower cost, but also increasing “intangible” value and reputation which brings “economic value” in many ways – – – increased access/attractiveness to our markets, market share, increased flexibility in license to operate, improved talent recruitment/retention, shareholder/community attractiveness. Some of these “economic value” benefits may be more difficult to measure than traditional financial value measure but nonetheless real and increasingly important for differentiation in a competitive market place.

  7. Daniel S. Swords

    December 17, 2008

    The problem is that “real, tangible, and quantifiable economic value,” as it is measured by corporations today, is generally not real because it is based on externalizing the true costs of environmental resources and environmental and social impacts through government subsidies, tax breaks, and regulatory loopholes.

    The point is that too often economic gain is achieved at the unsustainable expense of social and environmental costs. As an environmental professional organization, we (NAEM) shouldn’t just be soft-pedaling the triple bottom line analogy to our business colleagues by trying to convince them of the intangible economic value of social and environmental responsibility, we should be actively developing and supporting a true cost accounting methodology for social and environmental impacts and lobbying the appropriate government agencies to do their job in controlling these impacts by requiring accounting for these costs in corporate economic value determinations.

  8. Chris Sheehey

    December 18, 2008

    Thanks for your provocative comments. On this side of the Atlantic, it doesn’t feel like the commitment to sustainability is evaporating. The message I hear is that we should curb our immediate ambitions but persevere. It is also interesting that, on both sides of the Atlantic and the Pacific and the Indian, some are arguing that financial management must be conducted with the same long-term thinking that has developed in support of environmental and social sustainability. The Committee Of Sponsoring Organizations (COSO) advocated internal controls that went far beyond SarbOx, calling for enterprise risk management (ERM) systems. If the ERM model becomes predominant, then ESG (Environmental, Social, Government) metrics may be the bread and butter tools of the future. In any case, 2009 will be a wild ride!

  9. Sandy Nessing

    December 19, 2008

    I totally agree that we have not put as much emphasis on the economic pillar of sustainability as we now know we must. We’re ramping up for our 2009 sustainability report and are having those discussions now. I think we always looked to the traditional financial reports to fill the void but today, that is no longer sufficient. We need to tie these elements together more substantially from now on — recent events dictate it.

  10. George Gosieski

    January 6, 2009

    While I understand your perspective, I don’t completely agree. The social responsibility movement created the triple bottomline concept of People, Planet, Profit and is clearly reflected as an integrated model in the CSR template generated by the Global Reporting Initiative.

    Recognition of the interrelationship of People, Planet, Profit is really a reflection on our improving sophistication, awareness, and engagement with the concept of Social Responsibility.

    I would argue that the CSR framework is becoming dated as companies evolve into business ecosystems where they are always on, competing everywhere, against everyone, for everything, all the time. The interdependence within and sensitivity of these business ecosystems has become painfully transparent with recent events.

    I believe a better model would integrate the CSR template and James Moore’s work in 1995 where People + Place + Planet + Performance = Sustainable Growth.

    Application of this model or the CSR template requires a “dusting off” the old skill set of the Generalist where integrative thinking is a core attribute. A prime example of this model in work is the sustainable workplace and its ability to provide scalable benefits in the areas of People, Place, Planet, and Performance at the enterprise, employee, and community levels.

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