Presenting the Business Case to E4S
Posted 9.23.05The debate over the business case for socially responsible and sustainable business models has been surrounding the business-in-society field for quite some time. Nadya Zhexembayeva, a Ph.D. candidate in Organizational Behavior working with The Center for B·A·W·B, discusses this issue in a recap of her recent presentation to Entrepreneurs for Sustainability (E4S) regarding the business case.
The debate over the business case for socially responsibly and sustainable business models has been surrounding the business-in-society field for quite some time. I have been following this debate with sporadic interest, reviewing what would fall accidentally into my e-mail account or pop up during related article searches and it seemed that almost everybody had an opinion on whether or not socially and environmentally sound business makes good economic sense. Then came an invitation to speak on this topic at one of the events of Entrepreneurs for Sustainability (E4S), Cleveland’s vibrant community of practice, and I have launched into a systematic search for everything related to this ‘new and emergent’ area of research.
Imaging my surprise, when I uncovered that the argument is not so ‘new’, and definitely not so ‘emergent’, with strong positions going back to early fifties, and the first empirical article published in 1972. If anything, the field has reached a level of maturity and has been actively converging towards a unified, although multifaceted, front.
Indeed, the evidence of the strong business case for corporate responsibility and sustainability has been tracked and confirmed by academics, practitioners, financial community and consumer behaviorists alike. Creating sustainable business value is a viable opportunity, and multiple drivers exist to bring this value up.
Customers continue to serve as the biggest driver for sustainable value creation, with demands for more people- and planet-conscious products, lower prices, and impeccable company reputation. Organic Consumers Association, for example, has reported in 2005 that the demand for organic dairy products in USA exceeds the existing supply, with many companies increasing their revenues by 30+%, while the industry satisfies only 85% of demand. September 2005 survey of more than 15,000 consumers by Global Market Insight found that in U.S. alone 42% of all consumers are willing to spend more for products branded as organic, environmentally friendly, or fair trade . This number is higher for the youngest group polled, suggesting that a future consumer will put higher demands on a company’s business-in-society performance.
Investors serve as another driver for sustainable value creation; the rapid growth of Socially Responsible Investing, which has now reached $150 billion in US and £10 billion in UK, suggests an emergent opportunity for businesses searching for access to capital. Other stakeholders, such as employees, suppliers, environment, and the general public, may also serve as a source of sustainable economic value. In fact, a Harvard 11-year study of corporations that emphasized stakeholder management found these corporations had sales growth four times and employment growth eight times that of “shareholder first” companies.
The company itself serves as a great value-added source. Changes like waste reduction and internal efficiencies processes, innovative people- and planet-conscious solutions and new methods of employee engagements have already yielded the total of $262 million in savings for Interface, $2 billion in savings for Xerox, and $650 million in savings for BP.
To sum it all up, research shows that the companies with strong social and environmental performance simply do better overall. Over a five-year period the Dow Jones Group Sustainability Index (DJGSI) performed an average of 36.1 % better than did the traditional Dow Jones Group Index (DJGI). Energy companies in the DJGSI performed 45.3 % better than did those on the DJGI. Empirical studies published in academic journals support this claim as well: 70 out of 127 major studies published in academic peer-reviewed journals since 1972 found positive relationships between social and financial performance, while only 20 found negative relationships.
After I presented these and many other facts, figures, and cases at the E4S meeting on September 20, 2005, an audience member questioned whether I see any evidence of large multinational corporations “getting it”. Well, I think that the business of the world is way ahead of most of the research in this area when it comes to “getting it”. A recent announcement by GE, one of the world's largest companies and economies, that it will invest annually $1.5-billion in research and technology into cleaner technologies with plans to double GE revenue to $20 billion in 2010 from sales of products and services that provide big environmental advantages, only illustrates the unwavering strength of the business case for business as an agent of world benefit.
By Nadya Zhexembayeva
 View, for example, Drucker’s arguments ‘for’ in the 1954 The Practice of Management, and Levitt’s arguments ‘against’ in 1958 Harvard Business Review.
 Risk Management, 1972, 19 (4)
 Stanford Social Innovation Review, Spring 2004
 Ethical Corporation, August 16, 2005
 KPMG, The Business Case for Sustainability, 2001
 Interface Sustainability Report, 2004
 GreenBiz, 2002
 GreenBiz, 2005
 World Economic Forum, 2005
 Administrative Science Quarterly, 2003, 48