“For long term economic growth of the firm,large publically listed companies should follow a strategy of sustainabledevelopment and publish sustainability accounting reports”. Sustainable development is ‘development that meets the needs of thepresent without compromising the ability of future generations to meet their ownneeds’ (United Nations/WCED, 1987). Fundamentally, sustainable development isused by many large publically listed companies through programmes, goals andreports, in an attempt to manage and reduce the use of socio-economic andnatural resources such as lack of sanitation, social injustice and environmentalpollution. Adding onto this, sustainable development goes hand-in-hand withcorporate social responsibility (CSR), and is noted as being predominantly, acompany’s ethical responsibility but may also be a philanthropic responsibility.Sustainable development goals aim to satisfy all stakeholders of the company,including employees, the local community, suppliers, trade unions andshareholders. In this essay, I’ll explore the importance of large publicallylisted companies following and publishing sustainable development strategies,and the effect on mainly employees, the local community and shareholders, aswell as on the companies’ long-term growth.
I’ll also explore various theoriesincluding Carroll’s four-part model of CSR (Carroll’s CSR Pyramid), theStakeholder Theory, the Traditional Management Model and the Triple Bottom lineto strengthen my arguments about the effects of sustainable development. This essaystructure is divided into 2 sections, with the first section examiningarguments that support the essay question and the second section examinesarguments that oppose the question. Firstly, many large companies believe that due to their vast outputand impact on society, they have a responsibility to their stakeholders to actin a socially conscientious fashion. As a result, companies set sustainabledevelopment goals, which are regarded as ethical responsibilities according tothe Carroll (1991) CSR Pyramid. Adding onto this, these ethical obligations canultimately continue the success of a company and lead to high margins(Baumgartner and Ebner, 2006). These obligations are generally the same for allstakeholders (Carroll, 1991); as all groups of interest want to be treated withrespect and for their rights to be protected. In line with Baumgartner andEbner’s argument, (Azmi, 2006) proposes that a strong ethical stance isessential to economic growth of a company.
Daimler AG, the German parentcompany of Mercedes-Benz, lists promoting diversity, which can be deemed anethical responsibility, as one of their sustainable development goals. Daimlerboasts an incredible 282,488 employees from 156 different countries. What’smore, the number of diverse employees from an incredible array of countrieswith varied specialisations, can result in higher morale, stability andrelations within the workforce. This can ultimately lead to greaterproductivity and manufacturing of Mercedes-Benz automobiles, and subsequentlypromote Mercedes Benz’s growth. Therefore, the arguments made that suggest ethicalresponsibilities benefit stakeholders, with reference to Carroll’s CSR Pyramid,leading to a company’s growth, are valid. According to Freeman (1984), who developed the Stakeholder Theory,it is of great importance for companies to fulfil obligations that areeconomic, legal, ethical and philanthropic, in the interest of all stakeholders.Based on the Stakeholder Theory, (Stiftung, 2013) believes that followingsustainable development and CSR strategies, offers companies intangible assetsi.e.
an enhanced brand image and greater acceptability of the company.Moreover, The UK Small Business Consortium (2006) states that 88% of consumerswould associate with companies that partook in sustainable development andethical strategies. The consumer support and enhanced brand image of suchcompanies, can have a desired increase in sales. In line with what Stiftungargues, Avlonas and Nassos (2013, p20) believe that there’s been a worldwidegrowth in ‘consumer education’ and ‘social consciousness’, This therebyinfluencing companies to publicise their brand image as green-orientated, in anattempt to potentially generate positive growth of the company. Additionally, Level4 of the Carroll CSR Pyramid, differs from the other levels of the CSR Pyramid. Level 4, the philanthropic obligationsof a company, aims to ‘address societal needs and prioritize them overshort-term profit maximization’ (Szekely, Dossa and Hollender, 2017, p 52). Tofurther illustrate these arguments, I’ll refer to some of Daimler’s sustainabledevelopment goals.
Daimler (2016) haswater conservation strategies enforced in some Mercedes Benz production regionsi.e. Brazil and Mozambique. Furthermore, Daimler aims to manage sustainablewater developments in these countries, by offering training programmes to localfarmers and installing steady water supplies.
These strategies by Daimler, withreference to Carroll’s CSR Pyramid, can be regarded as both ethical and philanthropicresponsibilities, as Daimler means to go above and beyond their call of duty,to benefit the local community of the countries in which they operate.Subsequently, such kind acts by Daimler, show their effective sustainabledevelopment and moral compass. Even though this Daimler water conservation projectlasts 2 years, till 2018, the influence on impressed consumers and ultimatelythe improved Mercedes-Benz brand image would be long-lasting. This results in apositive correlation with the growth and success of Mercedes-Benz.Mercedes-Benz realise that following sustainable development goals whichsatisfy all stakeholders can potentially maximise profits, and takes precedenceover simply pleasing shareholders.
Elkington (1998) coins that the key to sustainable development isthrough social, environmental and economic measures. Through this idea,Elkington proposed the Triple Bottom Line which is another way of measuringsustainable development. The Triple Bottom line differs from the conventional bottomline which solely focuses on a company’s net income to evaluate performance. Applyingthis theory, (The Sigma Guidelines, 2013) emphasises the importance ofsustainable development in providing a company’s competitive advantage andadded value, as well as other benefits such as improved innovation prospects andmaintaining shareholder value. Accordingto (Schulz and Flanagan, 2016) many Fortune 100 companies significantly utiliseparts of the Triple Bottom Line to measure their performance. To exemplify thesearguments, I’ll refer to Samsung, that presents the 3 components of the TripleBottom Line in their sustainability accounting report.
Samsung provides userswith information regarding human rights protection such as their Child LabourProhibition Policy. This information can be deemed the social obligation of theTriple Bottom Line, yet can also be deemed as a legal obligation according toCarroll’s CSR Pyramid. Furthermore, one of Samsung’s environmental obligationsis explored through their entertaining 3-day Environment & Safety Innovationevent, which educates their employees on sustainability measures. Educating theiremployees, creates awareness of sustainable development strategies and can improveoperating efficiencies within the company and relations between employees andtop management. These sustainable development obligations that Samsungundertake can ultimately help them to financially grow.
On the other hand, sustainable development strategies don’t alwayslead to the success and long-term growth of a company. To illustrate thisstatement, I’ll refer to the Friedman (1970) Traditional Management Model,which asserts that a company’s main focus and drive should be to satisfyshareholders, by chiefly maximising profits. This model is based on theconventional Bottom Line theory. McWilliams and Siegel (2001) propose thatthere’s no correlation found between ethical responsibilities and a company’s economicstanding. Therefore, this suggests that sustainable development plays no role ina company’s long-term growth.
Moreover, this proves Friedman’s theory valid,that companies should focus on pleasing shareholders, not stakeholders. Notonly that, but Maddox (1995, p 305) also states that with relation tosustainable development, it’s not ‘possible with any certainty to know whatfuture needs will be’. This implies that there’s a certain risk to followingsustainable development goals, and means some companies may be unable to reapthe rewards of higher profits. An example of a company that failed withsustainable development and CSR strategies was Unilever. According to Borelli (2017),Unilever once a renowned sustainable company, tackling global warming andsocial injustice, found itself in disarray. Although Unilever followed somesustainable development goals through social and environmental measures, thecompany was found to have been involved in collusions with rivals, sexualharassments claims and environmental disputes.
This Unilever example proves thatsustainable development strategies were actually worthless in the key to thecompany’s success and economic growth. Also, Unilever’s downfall suggests acompany can have sustainable development strategies and reports, which aretheir ethical obligations, yet still be engrossed in unethical practises. According to Pearce and Atkinson (1993), measuring sustainabledevelopment strategies comes with many struggles due to the form of indicatorsused such as the FTSE4Good Index and the Index of Sustainable Economic Welfare(ISEW). This argument suggests that measuring a company’s success and growthbased on sustainability and CSR, can be problematic and imprecise as the indicatorsare merely projections ans estimates. In line with the prior argument, Stiftung(2013) states that practically there aren’t any arranged methods for CSRmeasurement. This subsequently makes completing social responsibilities somewhatdifficult for companies that wish to account for their CSR performance. Anexample of a CSR indicator is the Corporate Responsibility Index (CRI), whichis described as ‘a voluntary, self-assessment survey'(Hopkins, 2005, p218).
Thefact that the CRI is self-assessed raised issues of biasness, unreliability andverifiability of such indicators to measure CSR. To exemplify these arguments,I’ll refer to the pharmaceutical company Johnson & Johnson and theirsustainable development strategies. Johnson & Johnson successfully completedtheir 5-year pledge as part of the Millennium Development Goals. In the process, the company helped improve the livesof 400 million women and children, by making childbearing safer and reducingHIV contagions.
These philanthropic obligations by the company, help thecompany stand in good stead and unsurprisingly Johnson & Johnson isranked in the top 5 of the FTSE4Good US Index, as at November 2017 (FTSE,2017). The FTSE4Good Index Series is used to generate tracker funds and measureperformance levels. However, Johnson & Johnson’s net earnings fell from$3.83 billion in Q2 2017 to $3.76 billion in Q3 2017 (Johnson & Johnson,2017).
These findings suggest that although Johnson & Johnson is mostdutiful to philanthropic and ethical obligations, their economic obligations togenerate profits for shareholders, have been neglected. In addition, Johnson following sustainable development strategies, has seen a fall in theirnet earnings, and therefore a fall in economic growth of the company. The publication of sustainability accounting reports is part of the sustainabledevelopment process, detailing the company’s sustainable development strategies,and which follow social, environmental and economic obligations. These publicationsare available to all interested parties of the company, including employees andstakeholders and report the company’s fulfilment of strategies. Bent and Richardson(2003) define sustainability accounting as ‘thegeneration, analysis and use of monetarised environmental and socially relatedinformation in order to improve corporate environmental, social and economicperformance’. Additionally, governments follow different reportingframeworks of sustainable development, with respect to the United Nations (UN)and European Union (EU) standards (ACCA, 2010). I have explored the relationship between sustainability development withits associated sustainability accounting reports and financial development of acompany.
Sustainability development and sustainability accounting reports havebenefited these companies by offering a long-term solution to financialdevelopment, as to merely economic obligations which offer a short-termsolution. A company that solely maximises profits runs the risk of satisfyingshareholders in the short-term, as shareholders are prone to sell and investtheir shares in other more laudable companies and ventures. Countless largepublically listed companies have utilised sustainability accounting reports basedon Carrol’s CSR Pyramid and the Elkington’s Triple Bottom Line, and have formedstrong relationships with stakeholders and seen improvement in customer loyalty,which have enhanced the companies’ performances in the long-term.