Brazilian Institute of Corporate Governance
4
Corporate Governance Handbooks
Sustainability
Guide for Companies
An Overview for Directors and Senior Executives
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Sustainability
Guide for Companies
An Overview for Directors and Senior Executives
Foreword by Mervyn E. King
2008
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• • • •
Brazilian Institute of Corporate Governance
The Brazilian Institute of Corporate Governance (IBGC, to use its Portuguese acronym) is dedicated
exclusively to the promotion of corporate governance in Brazil. It is the country’s main advocate of corporate
governance practices and debates, and has achieved national and international recognition.
Founded on November 27th, 1995, IBGC – a Brazilian non-profit organization – aims “to be a reference
in corporate governance, contributing to the sustainability of organizations and influencing key agents in our
society towards greater transparency, justice and responsibility”.
Chairman of Board of Directors
José Guimarães Monforte
Vice-Presidents
Gilberto Mifano and Mauro Rodrigues da Cunha
Board Members
Celso Giacometti, Eliane Lustosa, Fernando Mitri, Francisco Gros, João Pinheiro Nogueira Batista and
Ronaldo Veirano.
Executive Committee
Edimar Facco, Eliane Lustosa and Ricardo Veirano
General Secretary
Heloisa B. Bedicks
For further information on the Brazilian Institute of Corporate Governance, please visit the website:
www.ibgc.org.br. To become an IBGC member please call: + 55 (11) 3043-7008.
B827s Brazilian Institute of Corporate Governance.
Sustainability Guide for Companies: An Overview for Directors and Senior Executives
/ Brazilian Institute of Corporate Governance; coordination by Carlos Eduardo Lessa
Brandão and Homero Luís Santos; foreword by Mervyn E. King; translation by Jodie
Thorpe. São Paulo, SP: IBGC, 2008. (Corporate Governance Notebooks Series, 4).
48p.
Translated from: Guia de Sustentabilidade para Empresas, c2007.
ISBN: 978-85-99645-08-06
1. Corporate Governance. 2. Sustainable Development. 3. Sustainability. I. Title.
II Brandão, Carlos Eduardo Lessa, coord. III Santos, Homero Luís, coord.
IV.Thorpe, Jodie, trans.
CDU – 658.4
Librarian in charge: Mariusa F. M. Loução – CRB-12/330
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• • • •
Credits
This work was carried out by the Sustainability for Companies Study Group (GESE), established by the
IBGC.
• • • •
Acknowledgements
To Professor Mervyn King, who had the kindness to write the foreword for this document.
To the staff of IBGC, who gave their support to the GESE, and to Cristine Zanarotti Prestes Rosa, who,
in addition to being secretary for the project, contributed so much to the content of this document.
To the GESE members who are also members of IBGC, who gave their time so generously for the
development of corporate governance.
To the GESE members who, even without being IBGC members, worked in the spirit of collaboration
and contributed their knowledge and experience to enrich the content of this document.
• • • •
Contributions
Members Cibele de Macedo Salviatto Cláudio Pinheiro Machado Filho Fernando Foz Macedo Heloisa B. Bedicks Leonardo Viegas Paulo Bellotti Paulo Conte Vasconcellos Paulo Vanca Ricardo Pinto Nogueira Roberto Sousa Gonzalez Rogério Gollo Rogério Marques Sandra Guerra Simone de Carvalho Soares
• • • •
Non-members
Alvaro Plínio Pureza
Antônio Carlos Lopes Simas
Aron Belinky
Christina Carvalho Pinto
Clarissa Lins
Diva Irene da Paz Vieira
Elisabeth Barbieri Lerner
Fábio Feldmann
Giovanni Barontini
Luciana Brenner
Marina Schurr
Patrícia de Caires Sogayar
Tarcila Reis Ursini
Coordination
Carlos Eduardo Lessa Brandão (IBGC’s Chief Knowledge Officer)
Homero Luís Santos (Chairman of GESE)
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Contents
1
2
3
4
5
Foreword by Mervyn E. King
6
Introduction
8
Context
1.1 The global context and its impact on companies
1.2 The connection with IBGC Corporate Governance Best Practice
10
Concepts
2.1 Sustainability
2.2 Sustainability in companies
2.2.1 An approach to doing business
2.2.2 Intangibles and externalities
13
Sustainability and business viability
3.1 Sustainability and the economic value of companies
3.2 Impact on reputation and license to operate
3.3 Correlation between sustainability and business success
18
The stages of sustainability in companies
4.1 The five stages
4.2 Transitions between stages
22
Application
5.1 Sustainability in institutional definitions and strategy 5.1.1 Embedding in institutional definitions
5.1.2 Connection with strategy 5.2 Sustainability and operations 5.2.1 Connection with operations 5.2.2 Setting goals and monitoring results 5.2.3 Compensation (remuneration)
5.3 Sustainability in corporate governance 25
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Annexes
6.1. Recent history of sustainability
6.2. Business initiatives
6.3. The Triple Bottom Line (TBL) and the five-capital model
6.4. Sustainability tools, standards and indicators
6.4.1 Principles-based standards 6.4.2 Performance standards
6.4.3 Process standards
6.4.4 Hybrid standards
30
References
39
Glossary
42
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Foreword
There is a gap between the financial and economic value of a company. The price of any share
on any stock exchange in the world will not equal book value. This is because traditional accounting does
not take account of intangibles or the so-called non-financial aspects.
In the 21st Century, intangibles can be more valuable than tangible assets. One therefore has
an iceberg effect, where the tangibles are accounted for and what is really valuable is not even seen on
the balance sheet or on the profit and loss statement. Intangibles such as goodwill, brand, reputation, the
quality of governance, the quality of management, the human rights record of a company, social and labor
issues and a company’s treatment of the eco-systems in the community in which it operates have all become
material issues today.
There is growing public attention on key sustainability issues. The best example is climate
change. When companies are asked why they report on sustainability issues, their answers are varied. For
example, “we do it because our competitors are doing it”; “we have found that strategically we are able to
manage reputation and brand in a more informed manner”; “our stakeholders want it”; and perhaps most
importantly of all, “it improves our risk management”. The latter is probably the most significant because
sustainability issues can become huge risk issues for a company.
Sustainability issues can be grouped under the headings of Economic, Environmental and Social.
It is important for companies to be able to report on the economic impact which its operations have had, both
positively and negatively, on the community in which it operates during the year under review. The company
should also be able to report on how it intends to enhance the positive aspects and eradicate or ameliorate
the negative aspects of the company’s operations in the community in which it operates in the year ahead.
It should also report on the company’s impact on the community’s eco-systems. People, planet
and profit can no longer be separated.
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Human rights and social issues are also significant sustainability issues. Thus, for example, in
regard to procurement contracts, a company needs to make sure that their suppliers are not discriminatory,
there is freedom of association and they do not use child labor. If they do, it can have material reputational
damage for the company. Likewise, a company should check whether its suppliers have in place proper
occupation, health and safety measures in producing the goods received by the company.
One of the principles of good governance is that a board of directors has a positive duty to give
strategic direction to a company. In developing a strategy for the company, both short- and long-term issues
have to be considered. In considering the latter, one has to take account of sustainability issues. It follows
as a matter of logic that governance, strategy and sustainability have become inseparable. One can no
longer plan strategically without having regard to sustainability issues.
Stakeholders want forward looking information to be given by the preparers of annual statements.
The balance sheet and the profit and loss statement are backward-looking and a photograph of a moment
in time of what is happening in the company. The stakeholders need to make a more informed assessment
of the true economic value of a company and the only way this can be done is ensuring that reports contain
enough information that stakeholders can make such an assessment.
It is appropriate that the IBGC has issued a Sustainability Guide for Companies, because the
three factors of people, planet and prosperity are interdependent in the 21st Century.
Mervyn E King SC
Chairman of the Board of GRI – Global Reporting Initiative, First Vice-President of the Institute of Directors, Southern Africa (IoD-SA) and
member of the Private Sector Consultative Group of the GCGF – Global Corporate Governance Forum (World Bank). Professor King was
a South African Supreme Court Judge and is the Chairman of the IoD-SA Committee responsible for the writing and revision of the King
Report on Corporate Governance in South Africa.
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Introduction
To celebrate its 10th Anniversary in 2005, the Brazilian Institute of Corporate Governance (or IBGC, to
use its Portuguese acronym) launched a series of publications entitled Corporate Governance Handbooks.
The object of this initiative is to bring practical information to the market which will help improve
corporate governance processes and help board members and other administrators perform their duties, thereby
contributing to improved business performance, increased investor trust, and the flow of financial resources to
the company.
IBGC’s Corporate Governance Handbooks are edited in three series according to their content:
Legal Governance Documents, Documents on Governance Structures and Processes, and Special Governance
Themes. They are the result of contributions, suggestions and recommendations made by the Institute’s
members, who make up its various working groups.
Because of the broad scope of the topic, this document was prepared by the Sustainability for
Companies Study Group (GESE), established for this purpose by IBGC’s Knowledge Center. Study groups permit
a greater participation of experts who are not necessarily associated with the Institute.
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The present Sustainability Guide for Companies is part of the Special Governance Themes series. It
aims to present to directors and officers and other corporate governance agents the topic of sustainability from the
perspective of corporate governance, linking it to corporate philosophy and strategy. It is an effort to internalize
the new concepts and tools in management processes and to provide a decision-making model that takes into
account economic-financial and socio-environmental aspects, as well as the short- and long-term interests of
diverse stakeholders.
This document is directed primarily at for-profit organizations. However, corporate governance and
sustainability principles may be applied to a variety of organizations of different sizes, structures and objectives.
This initiative does not seek to provide detailed concepts and practices, but rather to promote a
minimum common language for both topics (corporate governance and sustainability), and to signal ways in which
organizations can understand sustainability as an element of management excellence. From a wider perspective,
we believe that ignorance of these topics will be unacceptable for organizations with a long-term vision.
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1
Context
1.1 The global context and its impact on companies
1.2 The connection with IBGC Corporate Governance Best Practice
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1.1 The global context and its impact on companies
a) Understanding the scope of corporate responsibility is becoming an inevitable
priority for business leaders around the world. Society is increasingly scrutinizing the
environmental, social and economic impacts of corporate activities.
b) Such scrutiny stems from increasing environmental and social degradation, which
impacts all countries, regardless of income level, and which may jeopardize the very
continuity of civilization. 1,2
c) For companies, this scrutiny can be seen as a source of opportunity, innovation and
competitive advantage rather than of new costs and constraints to their activities.
However, this requires a long-term, strategic focus, since social and environmental
aspects will sooner or later be reflected in financial statements and companies’
economic and market value, and can have a decisive influence on their longevity.
d) From the social perspective, companies will be able to broaden the range of their
stakeholders, allowing them to identify risks and opportunities that had not been taken
into account previously. From the environmental perspective, companies will be able
to go beyond eco-efficiency initiatives and start to redesign products and services
and re-assess management practices and business models. In terms of long-term
economic value creation, companies will shift to seeking “optimum profits” rather
than “maximum profits”, taking into account how results are obtained.
e) Investors, directors and officers face a new reality that demands an understanding
of the broader role of companies in society, beyond their role as market agents. This
requires the development of a broader vision, which recognizes that companies
form part of society, and this, in turn, forms an integrated system with the natural
environment.
1 - Since the 1980s, the growing human demand for natural resources is exceeding supply by more than 20%, impacting
the quality of life of populations. See “One Planet Business: creating value within planetary limits”, WWF, 2007 - www.
sustainability.com/insight/research-article.asp?id=941
2 - See “Living Planet Report” - http://assets.panda.org/downloads/living_planet_report.pdf
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1.2 The connection with IBGC Corporate Governance
Best Practice
a) IBGC’s “Code of Best Practice of Corporate Governance” is based on four
basic principles: Transparency, Fairness, Accountability and Corporate
Responsibility.
b) These four principles are integrated in the various aspects of corporate
sustainability, including long-term strategy, risk management, consideration
of intangible aspects, quality of stakeholder relations and responsibility
for actions and omissions that, sooner or later, may affect companies’
economic value.
c) According to the fourth principle, Corporate Responsibility, directors and
officers must address the longevity of their organizations and therefore
incorporate social and environmental concerns in defining their business
and operations. This implies a broader vision of corporate strategy, which
takes into account a wider range of corporate relationships.
d) Due to its direct management benefits and in order to facilitate access to
capital, good corporate governance is being rapidly adopted by companies.
It can therefore act as both a “gateway” for introducing sustainability into
the corporate environment and a “guardian” of the company’s alignment
with sustainability.
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2
Concepts
2.1 Sustainability
2.2 Sustainability in companies
2.2.1 An approach to doing business
2.2.2 Intangibles and externalities
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2
Concepts
2.1 Sustainability
a) In economic terms, sustainability means living on the “income” the planet provides
rather than on its “capital”, the so-called natural capital. All economic activity
depends on this capital. 3
b) Natural capital is responsible for providing environmental services, i.e. the benefits
that human beings get from nature, produced by interactions within ecosystems
such as oxygen production, carbon sequestration, soil formation, water, timber and
fiber provision, climate regulation, and aesthetic, spiritual and leisure values. Many
of these services are essential for human beings.
c) The notion of social capital4 used in this document is associated with the quality
of relationships between people and groups within society, for which trust is an
essential factor. Social capital influences the degree of stability and prosperity, and
is crucial in the quest for sustainability.
d) Sustainable development is understood as development that meets the needs of the
present without compromising the ability of future generations to meet their own
needs. This definition makes it possible to balance the interests of environmental
conservation and improving the quality of human life. It is the criterion based on
which human impact on the environment must be assessed.5
e) The idea of sustainability has been gaining momentum in recent years. Because of
the diversity of possible definitions and approaches, it is more effective to define
“what sustainability is not” in the broadest sense. There are four basic conditions
through which society may become unsustainable, i.e., undermine its own future
viability:6
i) the systematic increase in nature in the concentration of substances extracted
from the Earth’s crust;
3 - See “Ecological Footprint” in the Glossary.
4 - Not to be confused with the Brazilian notion of corporate capital, reflected in currency, represented by the amount
invested by the shareholders of a company which is mentioned in the company´s By-laws or Articles of Association
and divided in shares (in the corporations) or quotas (in the limited liability companies, cooperatives and other types
of legal entities).
5 - WCED (1998).
6 - See “The Natural Step” in the Glossary.
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ii) the systematic increase in nature in the concentration of substances produced by
society;
iii) the systematic weakening of biological diversity and of the cycles that sustain
natural processes;
iv) the submission of people to conditions that systematically undermine their ability
to meet their fundamental needs.
f) In the economy, industrial processes and logistics are based on a linear logic
(extraction – production – use – final disposal), while in nature processes are cyclical,
non-linear and self-regulating through the interaction between eco-systems (zero
waste).
g) The effects resulting from human action upon social and environmental systems are
often non-linear, irreversible and difficult to measure. Certain events may have their
effects spread through time, due to a feedback cycle that amplifies the initial effects.7
h) In the face of events resulting from complex systems such as climate (the consequences
of global warming, for example, may go beyond those predictable by science), the
Precautionary Principle should be followed. The Principle states that “where there
are threats of serious or irreversible damage, lack of full scientific certainty shall not
be used as a reason for postponing cost-effective measures to prevent environmental
degradation”. 8,9
2.2
Sustainability in companies
2.2.1 -
An approach to doing business
a) From a corporate perspective, economic and financial viability is vital; without it
the company does not survive. However, it is becoming imperative for the quality of
corporate performance to seek alignment with a vision of sustainability in the broader
sense.
b) For the private sector the concept of sustainability represents an innovative approach
to doing business, in the sense of sustaining economic and financial viability while
preserving environmental integrity for present and future generations, and building
more harmonious societal relationships, resulting in a solid and positive reputation.
7 -
8 -
9 -
Diamond (2005).
“Rio Declaration on the Environment and Development” (1992), Principle 15:
www.unep.org/Documents.Multilingual/Default.asp?DocumentID=78&ArticleID=1163.
In considering the Precautionary Principle, it is relevant to understand the concepts of risk (identified future events for
which the probability of occurrence can be estimated), uncertainty (identified future events for which the probability
of occurrence cannot be estimated) and ignorance (future events which, at the time of analysis, cannot be identified,
much less quantified). See Faber, Manstetten and Proops (1996, 209-11).
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c) This approach incorporates the best corporate governance practices and has strategic
characteristics, since it facilitates the identification of risks and opportunities, enables
the company to preserve and create value, increases the probability of business
continuity (longevity) and, simultaneously, contributes to sustainable development.
d) As a result, the company will be able to improve the quality of social capital (by
respecting cultural diversity and the interests of the various stakeholders directly or
indirectly involved in the business or impacted by it) and reduce – or optimize – the use
of natural resources and the company’s impact on the environment.
e) Approaching business in the light of sustainability allows companies to consider, in
a more structured manner, the local and global aspects that are increasingly directly
affecting their economic and financial results, and to respond to new societal
expectations regarding environmental, social justice and generational issues.
f) These themes have the potential to affect the business environment because they are
closely linked to the behavior of shareholders, financial investors, clients, suppliers,
employees, communities and legislators who are involved, directly or indirectly, in the
company’s activities.
g) Companies that are alert to sustainability issues develop the ability to anticipate
environmental, social, legal and institutional trends, and benefit strategically as a result.
h) There still exists a certain juxtaposition regarding the various definitions of terms that
refer, to a greater or lesser degree, to the scope of sustainability in companies, such
as Corporate Social Responsibility, Social Responsibility and Corporate Sustainability.
i) The promotion or funding of philanthropic, cultural, social and environmental projects
must be clearly related to the company’s social goals or contribute in a readily
identifiable way to business value. If not, these activities can be considered a
corporate governance problem, since the directors and officers would be exceeding
their mandates.10
2.2.2 - Intangibles and externalities
a) The perspective of sustainability will require the company to face situations in which it
will struggle to quantify certain impacts resulting from its actions with respect to their
inclusion in financial accounts (intangibles) or their financial value (externalities).
10 - See Porter and Kramer (2006) for a structured approach directed to business strategy.
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b) Intangible assets are rights, with no physical representation, which give the company
a unique or preferential position in the market, i.e. they contribute to a company’s
economic value. Some aspects may be included in financial accounts (e.g.: expenditures
related to brands and patents, public concessions, copyright, licenses) while others,
despite their contribution to the value of the company, are not (e.g.: customer portfolio,
company reputation).
c) Economic externalities are the effects of a transaction on third parties that did not
consent to or participate in it. They result, therefore, from activities that involve the
involuntary imposition of costs or benefits upon third parties who do not have the
chance to prevent them, the obligation to pay for them or the right to compensation.
Externalities may be positive (e.g.: increased property value due to better lighting and
road paving) or negative (e.g.: decreased property value due to soil contamination
from a neighboring property).
d) Many environmental services and social capital benefits are externalities, i.e., the
company benefits but does not pay for them, which encourages their unsustainable
use.
e) Responsibility for externalities places business ethics in a broader – even global –
behavioral perspective, which impacts a company’s reputation.
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3
Sustainability and
business viability
3.1. Sustainability and the economic value of companies
3.2. Impact on reputation and license to operate
3.3. Correlation between sustainability and business success
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3.1 Sustainability and the economic value of companies
a) From a financial perspective, the broader and more consistent a company’s
understanding of the dynamics of the actors and systems that affect it, the greater its
chances to remain profitable and in operation, i.e., of being economically viable.
b) Financial statements reflect tangible aspects from the point of view of accounting
principles. Other, intangible, aspects will impact those statements. One example is the
company’s reputation, which impacts its ability to generate revenues, both in the short
and long term.
c) Situations involving sustainability will be reflected, sooner or later, in financial
statements, in the economic and market value of the company.
d) Revenues, costs and expenses, capital invested and the cost of the capital used to
finance the business are the main drivers of both the company’s economic value and
of the financial valuation of investments and divestments.11
e) The following is a list of potential impacts on value drivers resulting from aspects
linked to sustainability:
i) Revenues: reaction of the client base to the company’s position; identification of
market opportunities due to a better understanding of stakeholders; anticipation of
changes in the regulatory environment; eco-efficiency generating new products.
ii) Costs and expenses: efficiency in natural resource use in production processes;
workforce retention and productivity; restrictions or preferences on the part of
suppliers.
iii)Capital invested, understood as the working capital and fixed assets that generate
the company’s operations: greater or lesser degree of efficiency in natural resource
use; identification, in advance, of changes and restrictions in the supply of certain
resources.
iv) Cost of capital, related to the perceived risk of the company: ease or difficulty in
accessing either debt or equity capital.
11 - The value drivers are applied, for example, in the discounted cash flow (DCF) method used for the financial evaluation
of business opportunities by the great majority of companies, financial analysts (including capital market analysts and
investment banks), books and publications. See Bruner et al. (1998).
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f) Reassessing value drivers can inspire a strategic rethink of the company’s business
model, leading to improvements or even its replacement with another more adequate
model.
3.2 Impact on reputation and license to operate
a) Measuring economic and financial performance has been one of the main concerns
of companies, and is based on diverse financial and accounting indicators such as
return on investment, revenue growth, growth in profit margins and discounted cash
flow, among others. On the other hand, “intangible assets” contribute decisively to the
value of a company.
b) The company’s reputation, which is part of its economic value, is a consequence of its
set of actions and positions through time.
c) The adoption by companies of a responsible approach results, in time, in tangible
gains such as cost efficiency and effectiveness and greater productivity. Responsible
practices produce additional stimuli for internal improvements, such as clarity and
alignment of principles, purpose, policies and practices, with an impact on management
quality.
d) Ultimately, every company needs a social license to initiate and maintain operations
through time. Part of this license is formal (based on laws, regulations, etc.) and
another broader and more intangible part is informal and reflects the degree of societal
acceptance and approval of a company’s activities. It is the latter which is subject to
a new focus of attention by directors and officers, in order to cultivate that license or
avoid the risk of its erosion or loss.
3.3 Correlation between sustainability and business success
a) By considering environmental aspects and stakeholder interests broadly, the
company can establish a structured agenda of issues relevant for identifying risks and
opportunities associated, directly or indirectly, with the economic performance of the
business, enriching strategic discussions and fostering innovation.
b) The relationship between the main factors that influence the company’s economic
value and sustainability factors may be illustrated using a matrix:12
12 - Inspired by “Developing Value: The business case for sustainability in emerging markets”, published jointly by
SustainAbility, IFC and the Ethos Institute. See www.sustainability.com/developing-value.
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i) To determine criteria for actions correlating sustainability and business variables;
ii) To prioritize actions in accordance with strategy;
iii) To support the selection of management performance indicators.
c) Figure 1 is an illustrative example of a matrix, which needs to be adapted and detailed
according to individual company contexts. The cells can be filled with business
initiatives and classified in accordance with their business impact.13
Sustainability Factors
Actions
Commitment to
Sustainability
Results
Business Success Factors
(economic value)
Principles,
purpose, vision
Relationships, recognition of
impact and dialogue with respect
Corporate
governance
Engagement
of other
stakeholders
Nature of
operations
Products,
processes,
business models
Revenue and market access
Cost eficiency and effectiveness,
and productivity
Tangible
Asset management
Access to capital (investments)
Risk management
License to operate
Human capital
Intangible
Brand
Reputation
Figure 1: Correlation between sustainability factors and success factors (illustrative).
d) In order to better demonstrate actions related to sustainability, financial statements
and corporate reports should provide a breakdown of some expenditures, to allow an
estimate of relevant intangible assets.
e) It is recommended that social and environmental information is made available as
frequently as financial information, and that the annual report incorporates all
information related to sustainability practices.
13 - The correlation between sustainability and economic value should also be used to enrich economic and financial
evaluations of investment and divestment decisions.
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4
The stages of corporate
sustainability
4.1 The five stages
4.2 Transitions between stages
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4.1 The five stages
a) There are diverse systems to map the alignment of companies with respect to
sustainability, each with its own nomenclature and language.14
b) Companies can be classified in stages based on their treatment of sustainability in
relation to external factors (current legislation and regulation) and to internal ones
(integration with strategy or with company principles and purpose):
i) Legal pre-compliance: in this stage the company sees profit as its sole purpose,
ignores sustainability and stands against any related regulation, as this would
mean additional expense.
ii) Legal Compliance: the company manages its liabilities by complying with labor,
environmental, and health and safety legislation. Social and environmental
actions are treated as costs and sustainability is paid lip service.
iii)Beyond legal compliance: the company takes a proactive approach,
understanding it can save costs through eco-efficiency initiatives, and
recognizing that social and environmental investments can minimize
operational uncertainties and risks, improve reputation and have a positive
impact on economic value. Sustainability initiatives are concentrated within
specialized departments instead of being institutionalized.
iv) Integrated strategy: the company re-brands itself and integrates sustainability
in its key business strategies. The board of directors is the main forum for
dealing with sustainability. The company creates economic value through
differentiated initiatives that benefit stakeholders. Instead of costs and risks,
it perceives investments and opportunities, develops clean products and
services, understands the life cycle of its products and services, and benefits
from sustainability initiatives.
v) Purpose & passion: the company adopts sustainability practices because it
understands that it does not make sense to contribute to an unsustainable
world. Sustainability initiatives are not presented to the board of directors, they
emanate from it.
14 - See Willard (2005). For an evaluation of the stages of responsible business practices in 108 countries, see “The state
of responsible competitiveness”, in the study “Making sustainable development count in global markets”.
www.accountability21.net/publications.aspx?id=878&terms=Making+sustainable+development+count+in+
global+markets
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4.2 Transitions between stages
a) Motivations: in Figure 2, below, the items above the arrows indicate some of the
motivations for transitions between stages:
regulatory pressure
eco-efficiency
regulatory threat
public relations crisis
business opportunities
risk management
passionate
founder/chairman/CEO
pre-compliance
compliance
beyond
compliance
integrated
strategy
purpose &
passion
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
Figure 2: The five stages of sustainability in companies.
b) Moving to stage 4: This is a transformation and not a transition, which takes
place through the internalization of sustainability in the company and its people.
Environmental, safety and social considerations are no longer dealt with at the
departmental or managerial level but are moved up to the board of directors. Such
migration indicates the metamorphosis of the company, which starts to benefit in
revenues, innovation and productivity, and not only in risk management and cost
savings.
c) Difference between stages 4 and 5: the difference between companies that are
in stages 4 and 5 is in motivation: while companies in stage 4 “adopt sustainability
practices in order to be successful”, companies in stage 5 “are successful because
they have adopted sustainability practices.”
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Application
5.1 Sustainability in institutional definitions and strategy
5.1.1 Embedding in institutional definitions
5.1.2 Connection with strategy
26
26
26
5.2 Sustainability and operations
5.2.1 Connection with operations
5.2.2 Setting goals and monitoring results
5.2.3 Compensation (remuneration)
27
27
27
28
5.3 Sustainability in corporate governance
28
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Application
5.1 Sustainability in institutional definitions and strategy
5.1.1 - Embedding in institutional definitions
a) The mission and vision of the organization and its business must express the concept
of sustainability formally and unequivocally.
b) The formal declaration of the organization’s values and code of conduct must provide
guidance for directors and officers and be a tool for communicating to society the
decision to adopt the principles of sustainability.
c) In mergers, acquisitions and associations, the principles and practices that rule
sustainability must be preserved in the institutional definitions of the resulting
entities.
d) Conglomerates should strive to ensure coherence of principles and consistency of
sustainability practices across their various businesses and corporate activities.
5.1.2 - Connection with strategy
a) Sustainability values and practices should be sources of inspiration in the formulation
of business strategies.
b) The principles of sustainability should be applied to the business model, of which they
should be part, and not only to peripheral activities.
c) Embedding sustainability in business strategies, right from project conception or
product and service development, allows companies to maximize opportunities and
strengthen the long-term economic value of the organization.
d) Possible negative externalities generated by the organization must be studied with a
view to internalizing them in business strategies, seeking to reduce potential or real
risks and contribute to long-term economic value.
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e) Initiatives to align business activities with sustainability must be evaluated for their
long-term economic and financial viability (business case), taking into account the
interests of partners and other stakeholders.
f) Sustainability practices adopted by the company must be disseminated throughout
the entire value chain, both upstream (in the activities that precede the company’s
direct participation, linked, for instance, to suppliers) and downstream (in the activities
that follow the company’s direct participation, related, for example, to clients), through
formal mechanisms duly registered in contracts or partnership agreements.
5.2 Sustainability and operations
5.2.1 - Connection with operations
a) The directives fixed by the strategy must be converted into business processes.
b) Attention must be given to situations that involve physical or geographic expansion
of activities, technological innovation, creation of new products and services, or
modification of those already existing (involving life cycle assessment of the products
and services).
c) When adjusting processes to align with strategies that incorporate the principles
of sustainability, positive and negative economic externalities must be considered.
These externalities must be balanced by taking into account both the expectations
of stakeholders (internal to the company or located in the company’s economic and
social environment) and the impacts on the environment and future generations.
d) Contracts or agreements with those in the value chain must be monitored to ensure
their alignment with the company’s social and environmental practices.
5.2.2 - Setting goals and monitoring results
a) Any system of indicators must ensure that institutional discourse and actions are duly
aligned (“walk the talk”). In this sense, it is recommended that initiatives are submitted
to independent third-party verification, which should not only verify the execution of
proposed actions and the accuracy of resource allocation, but also the actual results
obtained versus stated objectives.
b) Indicators must exist that allow the quantification and specification of actual impacts
related to the dimensions of sustainability contained in strategies and operational
processes.
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c) Quantification allows long-term goals to be set and monitored and allows verification
at the end of the process as to whether or not the agreed result was achieved.
d) The efforts of the company (such as “the number of people trained by a project”) should
not be treated as “outcomes”; the real outcomes are the benefits actually obtained (for
example, the extent to which the training provided by the project improved, or not, the
lives of those who received it).
5.2.3 - Compensation (remuneration)
a) If the results agreed upon by the directors, officers and other managers are achieved,
it is essential that they are recognized, since they involve the application of a new
paradigm.
b) The performance appraisal system for directors, officers and other managers must
show a coherent alignment between business strategy, short-, medium- and long-term
goals and remuneration.
c) Ensuring a financial reward for directors, officers and other managers for achieving
expected results will determine the success of the practice of management for
sustainability.
d) The remuneration system must reflect the degree of insertion of sustainability in
institutional definitions and its relation with business strategy, operational processes
and management indicators.
e) By relating remuneration to performance appraisals which include social and
environmental aspects, directors, officers and managers should also be rewarded for
short-term actions for which results will be only seen in the medium and long term.
f) For the effectiveness of these remuneration measures, the benefits offered for good
social and environmental performance must be motivating, even compared to those
related to economic performance. For example: nothing is achieved by offering $ 1 to
“keep trees standing” if the executive will earn a $ 2 bonus for cutting them down.
5.3 Sustainability in corporate governance
a) It is at the highest administrative levels that management values and philosophy are
addressed, of which sustainability principles must form a part.
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b) It is essential that the board of directors and the CEO are convinced of the strategic
importance of sustainability, assuring the leadership and commitment necessary to
address the issue within the organization.
c) Sustainability may form part of the scope of a specific board committee, as a temporary
measure to support its integration in the organization’s daily activities, until it is naturally
embedded in activities connected to strategy and operations.
d) The board of directors should support and back up management in the process of
attaining long-term goals and in reducing negative externalities, taking care that
management does not hasten short-term actions that could generate negative
externalities in the medium and long term.
e) Emphasis should be placed on training board members on the issues that are relevant
to embedding sustainability in the organization.
f) The board of directors must be aware of the changes taking place in the responsibility
of companies, shareholders, directors and officers, including with respect to fiduciary
duty.15
g) There are an increasing number of tools available to guide companies in incorporating
sustainability in management processes. It falls to the board of directors to guide the
process of defining tools to be adopted so that they have a connection with strategic
priorities. The tools may be grouped in accordance with their approaches: based on
principles, on performance, on processes, or hybrid standards.16
15 - See Annex 6.2.a.
16 - See Annex 6.4.
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Annexes
6.1
6.2
6.3
6.4
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Recent history of sustainability
Business initiatives
The Triple Bottom Line (TBL) and the five-capital model
Sustainability tools, standards and indicators
6.4.1 Principles-based standards
6.4.2 Performance standards
6.4.3 Process standards
6.4.4 Hybrid standards
31
32
34
35
35
35
36
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6.1 Recent history of sustainability
The nuclear weapons used in World War II led the world to think collectively, because the
consequences could affect everyone. The creation of the United Nations (UN), in 1945, was one
of the results of such concern.
In addition to nuclear weapons, other potential global impacts have been identified. The
Club of Rome, created in 1970 by an international group of executives, scientists and leaders of
governmental and non-governmental organizations, led a study to understand the interconnection
between different aspects that could put humankind at risk, such as population growth, pollution,
economic limits and social conflicts. In 1972 The limits to growth17 was published, indicating that
environmental limits (resource use and waste generation) could have a significant impact on
global development.
Although it was received with skepticism, the Club of Rome’s report was a contributing
factor which led the United Nations to organize, in 1972, the UN Conference on the Human
Environment, known as the Stockholm Conference, with the participation of more than 100
countries, including Brazil. The resulting Stockholm Declaration brought the impact of the use of
natural resources in the current model of economic growth to the international political agenda.
In 1983 the Vienna Convention was signed, the first instrument designed to foster actions
to deal with a global environmental problem: the preservation of the ozone layer, essential for life
on Earth. The deterioration of the ozone layer is due mainly to the use of CFC (chlorofluorocarbon)
gases. At the time, the issue was not yet a priority: only 20 countries participated. In 1989, however,
the Montreal Protocol came into force, after it was ratified by 29 nations plus the European
Union, which together produced 89% of the substances that harm the ozone layer. The goal of
the Protocol is to eliminate the use of products harmful to ozone by 2010.
In 1987, the World Business Academy was founded as a forum to deal with the role and
responsibility of business in the face of moral, environmental and social challenges. In 1993 the
Club of Budapest, a humanistic association of scientists, writers, businessmen and political and
spiritual leaders, was founded with a similar objective.
Also in 1987 the document Our common future - known as the “Brundtland Report”18 – was
produced, the result of the UN’s World Commission on Environment and Development. It was in
this report that one of the best known definitions of sustainable development was first published:
“development that meets the needs of the present without compromising the ability of future
generations to meet their own needs”.
17 - See Meadows et al. (1972).
18 - See WCED (1998).
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The 1990s also witnessed international agreements regarding sustainability. In 1992, in the
United Nations Conference on Environment and Development, held in Rio de Janeiro (Rio Earth
Summit), Agenda 21 was developed - a broad plan signed by 178 UN member countries involving
global, regional and local actions. It is an ambitious agenda for sustainable development – and
not just the environment.
In 1997 the Kyoto Protocol was signed, within the United Nations Framework Convention on
Climate Change. It addresses the issue of global warming and changes to the climate caused by
human activity in recent centuries, involving principally the burning of fossil fuels, with significant
consequences for human beings and other forms of life on Earth.
The first UN proposal dealing with the theme of corporate sustainability was the Global
Compact, launched in 2000 as a personal initiative of the then secretary-general Kofi Annan,
aiming at putting a human face on globalization. In that same year, during the Millennium Summit
in New York, with 147 heads of state and governments and representatives from 189 countries
present, the Millennium Development Goals were established, encompassing 18 targets related
to eight global sustainable development goals. The Earth Charter, which the United Nations
approved in 2002 during the World Summit on Sustainable Development in Johannesburg, has
the same breadth as the Universal Declaration of Human Rights, with reference to sustainability,
equity and justice.
6.2 Business initiatives
Several initiatives that relate access to capital to the degree of a company’s alignment
with sustainability are being developed. Investors are increasingly taking into account quality of
governance and social and environmental impacts on the business as important elements of their
risk evaluation process.19
A list of initiatives with their respective links appears below.
Some of these are also listed in 6.4.
a) Corporate governance and climate change/corporate responsibility
Sustainability and risk: climate change and fiduciary duty for the 21st century trustee
(CERES/Harvard University)
http://216.235.201.250/netcommunity/Document.Doc?id=106
The changing landscape of liability (SustainAbility/Swiss Re)
www.sustainability.com/insight/liability-article.asp?id=180
19 - See ‘Who cares wins’: one year on – a review of the integration of environmental, social and governance value drivers
in asset management, financial research and investment processes, IFC - Global Compact - www.ifc.org/ifcext/home.
nsf/AttachmentsByTitle/Who_Cares_Wins/$FILE/Who_Cares_Wins.pdf
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Corporate governance and climate change: making the connection (CERES)
http://216.235.201.250/netcommunity/Document.Doc?id=90
b) Institutional investors/multilateral institutions
Show me the money: linking environment, social and governance issues to company
value
www.unepfi.org/fileadmin/documents/show_me_the_money.pdf
Principles for Responsible Investment (PRI)
www.unpri.org/
c) Credit providers
Equator Principles
www.equator-principles.com/principles.shtml
d) Corporate reports
Sustainability Reports: Global Reporting Initiative (GRI)
www.globalreporting.org
Climate Governance: The Carbon Disclosure Project (CDP)
www.cdproject.net
e) Stock Exchange Indexes
DJSI – Dow Jones Sustainability Indexes
www.sustainability-indexes.com/
FTSE4Good - Financial Times Stock Exchange
www.ftse.com/Indices/FTSE4Good_Index_Series/index.jsp
ISE - Corporate Sustainability Index – Bovespa
www.bovespa.com.br/Mercado/RendaVariavel/Indices/FormConsultaApresentacaoP.
asp?Indice=ISE
JSE SRI Index – Johannesburg Stock Exchange
www.jse.co.za/sri/
f) Accountants
Sustainability: the role of accountants (ICAEW)
www.icaew.co.uk/index.cfm?route=117128
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6.3 - The Triple Bottom Line (TBL) and the five-capital model20
The concept of the TBL is widely used to describe sustainable development in an
organizational context, placing such performance in terms of the economic, social and
environmental bottom lines. It is a popular and powerful concept. The SIGMA (Sustainability Integrated Guidelines for Management) principles are based on the TBL idea and have developed
it, offering the concept of protecting and improving five types of capital: natural, social, human,
manufactured and financial.
These capitals are the basis on which the bottom lines are generated and are placed
under the umbrella of organizational accountability. This approach is aimed at illustrating the
dynamic nature of sustainable development.
Both approaches – TBL and the five-capital model – are complementary, since
manufactured and financial capital are reflected in economic bottom line, human and social
capital are reflected in the social bottom line and natural capital in the environmental bottom
line.
By using the five-capital model it is possible to overcome some of the limitations of the TBL
concept, such as, for instance, the temptation to make concessions among the social, economic
and environmental factors as if they were equivalent or interchangeable (environmental integrity
is, in fact, a pre-requisite for society and for the economy) and could be treated independently
(whereas they are actually interrelated facets of a single reality).
The five types of capital are interrelated and thus must be managed, protected and
improved in an integrated manner. The five capitals emphasize the fundamental nature of natural
capital, as well as the fact that financial capital is just an expression of the value of the other
capitals.
The five-capital approach assumes that these distinctions are useful for organizations,
particularly when they are developing a vision and principles for acting in alignment with
sustainable development.
Many companies are managing the three elements of the TBL separately. However, they
increasingly need to be managed so that their interrelations are recognized. A strategic approach
such as this is important in order to generate significant changes rather then incremental ones.
Fewer and better integrated standards may encourage initiatives in companies where the
plethora of standards has been an obstacle for action.
The following Figures illustrate both approaches.
20 - Based on GRI (2002), SIGMA (2003) and Oakley and Buckland (2004).
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1
social bottom line
2
economic bottom line
3
environmental bottom line
Figure 3: The Triple Bottom Line (TBL)
Source: Elkington (1998)
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Figure 4: The five-capital model
Source: SIGMA (2003)
6.4 - Sustainability tools, standards and indicators21
The objective of this classification is simply to facilitate the understanding and relationship
between the various initiatives linked to sustainability for companies. The suggested classification
can and should be critically evaluated by each company.
6.4.1 Principles-based standards: establish principles of behavior, but do not indicate
how they will be achieved nor determine how conformity with them can be
assessed.
i) Advantages: identification of the scope of issues and external alignment.
ii) Disadvantages: lack of details for implementation and measurement.
6.4.2 Performance standards: concentrate on what the organization is actually
doing. They may vary from specific goals to lists of indicators against which the
organization should compare itself.
i) Advantages: help to provide transparency around what the organization is
achieving.
ii) Disadvantages: difficulty in establishing goals that are sensitive to the context
of each company. Given their more restricted scope, they may lead companies
to omit important aspects of sustainability.
21 - See Oakley and Buckland (2004), Leipziger (2003) and Ethos (2004).
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6.4.3 Process standards: describe processes that the organization should
follow to improve its performance. They may include processes to identify
appropriate goals.
i) Advantages: provide practical guidelines and help establish processes
and behaviors.
ii) Disadvantages: they do not indicate levels of performance and can be
very bureaucratic.
6.4.4 Hybrid standards: combine elements of the three previous approaches,
aiming to establish a degree of consensus before measuring performance
and impact. They provide an architecture to extract the best out of each
approach and provide a framework of principles, some practical guidance
about what should be done and the possibility to measure performance.
A list with some examples of initiatives, with relevant links, appears below.22
a) Principles-based standards
Agenda 21
www.unep.org/Documents.Multilingual/Default.asp?DocumentID=52
Code of Best Practice of Corporate Governance - IBGC
www.ibgc.org.br/CodigoMelhoresPraticas.aspx
Earth Charter
www.earthcharter.org/
Global Compact
www.unglobalcompact.org/
Millennium Development Goals
www.un.org/millenniumgoals/
OECD Guidelines for Multinational Enterprises
www.oecd.org/department/0,2688,en_2649_34889_1_1_1_1_1,00.html
OECD Principles of Corporate Governance
www.oecd.org/dataoecd/32/18/31557724.pdf
22 - See also “Tool Compatibility Guide”
www.ethos.org.br/_Rainbow/Documents/Guia_Compat_ING.pdf
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PRI – Principles for Responsible Investment
www.unpri.org/
Universal Declaration of Human Rights
www.un.org/Overview/rights.html
b) Performance standards
CDP – Carbon Disclosure Project
www.cdproject.net
DJSI – Dow Jones Sustainability Indexes
www.sustainability-indexes.com/
Ecological Footprint
www.footprintnetwork.org/gfn_sub.php?content=footprint_overview
Ethos Indicators on Corporate Social Responsibility
www.ethos.org.br/_Rainbow/Documents/indicators_2003.pdf
FTSE4Good – Financial Times Stock Exchange
www.ftse.com/Indices/FTSE4Good_Index_Series/index.jsp
GRI – Global Reporting Initiative
www.globalreporting.org
ISE – Corporate Sustainability Index - Bovespa
www.bovespa.com.br/Mercado/RendaVariavel/Indices/
FormConsultaApresentacaoP.asp?Indice=ISE
JSE SRI Index – Johannesburg Stock Exchange
www.jse.co.za/sri/
NBC T 15 - Brazilian Accounting Norms –
Information of a Social and Environmental Nature
www.portaldecontabilidade.com.br/nbc/t15.htm
Social Balance – Ibase
www.balancosocial.org.br/cgi/cgilua.exe/sys/start.htm?sid=2
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c) Process standards
AA1000
www.accountability21.net/default.aspx?id=42
Equator Principles
www.equator-principles.com/principles.shtml
FSC – Forest Stewardship Council
www.fsc.org/en/
ISO 9000
www.iso.org
ISO 14000
www.iso.org
ISO 26000
www.iso.org/sr
MSC – Marine Stewardship Council
www.msc.org
NBR 16000
www.abnt.org.br
OHSAS 18001
www.osha-bs8800-ohsas-18001-health-and-safety.com
SA 8000
www.sa-intl.org/index.cfm?fuseaction=Page.viewPage&pageId=473
d) Hybrid standards
The Natural Step
www.naturalstep.org
The SIGMA Project
www.projectsigma.co.uk
Triple Bottom Line (TBL)
See Elkington (1998)
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References
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7
References
BRUNER, R., EADES, K., HARRIS, R., HIGGINS, R. (1998) “Best practices in estimating the cost of
capital: survey and synthesis”, Financial Practice and Education, Vol. 8, No. 1, Spring/
Summer, pp. 13-28
DIAMOND, J. (2005) Collapse: How societies choose to fail or survive, New York: Penguin
ELKINGTON, J. (1998) Cannibals with forks: the triple bottom line of 21 st century business, Gabriola
Island: New Society Publishers
ETHOS, Instituto (2004) “Tool Compatibility Guide”, São Paulo: Ethos Institute
FABER, M., MANSTETTEN, R., PROOPS, J. (1996) Ecological economics: concepts and methods,
Cheltenham: Edward Elgar
HENRIQUES, A., RICHARDSON, J. (eds.) (2004) The triple bottom line: does it all add up? Assessing
the sustainability of business and CSR, London: Earthscan
IBGC - Brazilian Institute of Corporate Governance (2004) “Code of Best Practices of Corporate
Governance”, São Paulo: IBGC
LEIPZIGER, D. (2003) The corporate responsibility code book, Sheffield: Greenleaf
MEADOWS, D.H., MEADOWS, D.L., RANDERS, J., BEHRENS III, W. (1972) The limits to growth: a
report for the Club of Rome’s project on the predicament of mankind, 2nd ed., Washington,
DC: Potomac Associates Book
MEADOWS, D.H., MEADOWS, D.L., RANDERS, J. (1992) Beyond the limits: confronting global
collapse – envisioning a sustainable future, White River Junction: Chelsea Green
MEADOWS, D.H., RANDERS, J., MEADOWS, D.L. (2004) Limits to growth: the 30 year update,
White River Junction: Chelsea Green
OAKLEY, R., BUCKLAND, I. (2004) “What if business as usual won’t work?”, in: HENRIQUES and
RICHARDSON (eds.) (2004), pp. 131-141
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PORTER, M.E., KRAMER, M.R. (2006) “Strategy and society: the link between competitive
advantage and corporate social responsibility”, Harvard Business Review, Vol. 84,
No. 12, December, pp. 78-92
SIGMA PROJECT (2003) “The sigma guidelines: putting sustainable development into practice
– a guide for organizations”, London: BSI
WCED - World Commission on Environment and Development (1987) Our Common Future,
Oxford: Oxford University Press
WILLARD, B. (2005) The next sustainability wave: building boardroom buy-in, Gabriola Island:
New Society Publishers
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Glossary
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Board (of Directors)
Governing body elected by the subscribers
of the organization concerned with providing
business direction, with overseeing
and controlling the executive actions of
management, according to the organization
charter and the law. Though all its members
might not be engaged in the organization’s
day-to-day operations, the entire board
is held liable for the consequences of the
organization’s policies, actions, and failures
to act.
Book Value
Calculated by following accounting prin–
ciples. It is retrospective (focus on historical
data) and incorporates fiscal and legal
questions. It is the basis for calculating
Economic Value.
Company Value
May be divided into three types: Book Value,
Economic Value and Market Value.
CEO
Chief Executive Officer.
Chairman
Chairman of the board of directors.
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Ecological Footprint
A resource management tool that measures
the amount of land and water that a human
population requires to produce the resources
it consumes and have its waste absorbed,
using prevailing technology. The concept
makes it possible to establish benchmarks
for comparisons between individuals,
cities and nations. Its calculation takes into
account the area of arable land and pasture
(to fulfill the population’s needs for food and
other products), forests (to supply timber, its
derivatives and other products), urbanized
area and the land needed to absorb excess
CO2 from the burning of fossil fuels. It
is being used by many institutions, such
as the European Community. See www.
footprintnetwork.org.
Economic Value
The intrinsic value of the company. It is
prospective (based on projections of the
company’s performance) and takes into
account the value of money in time and the
risk associated with the company’s activities
with respect to the return on investment. It
has a managerial approach, and allows a
correlation between company performance
and compensation, both of capital providers
and employees.
Directors and Officers
Board members and top executives.
Eco-efficiency
Relationship between the value of the
product or service and its environmental
impact.
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Fiduciary Duty
Directors have a responsibility to act
diligently and honestly while executing
the tasks which are required for the good
development of the company, considering
its business operations, acting in good faith
and in the interest of the organization as a
whole, acting in accordance with its statutes
or social contract, avoiding conflicts of
interest and not making inappropriate use
of the goods, opportunities and information
of the company or the position being
exercised.
Indicators
Tools that enable access to information
about a particular situation, which have
the main characteristics of being able to
synthesize different pieces of information,
keeping only the essential meaning of the
aspects analyzed. To fulfill its purpose, an
indicator must be transparent, complete,
relevant, precise, neutral, comparable and
auditable.
Management
Activities under the responsibility of the
CEO or equivalent.
Managers
Include the board of directors and other
managers.
Market Value
Represents the vision of market agents,
reflected at the time of an acquisition and
sale transaction. It is directly linked to
current and projected performance and to
the company’s reputation.
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Open Systems
A set of interconnected elements to which
is attributed an explicit purpose, making up
a whole that interacts with the environment
of which it is part, importing from it material,
energy and information, processing them
in accordance to its own standards and, in
consequence, exporting products.
Social license to operate
A social contract which is not formalized,
but through which stakeholders’ vote
of confidence in the operations of the
company is maintained. It is obtained by
understanding how the company’s actions
affect stakeholders. Relations between
companies and society are based on
a “social contract” that evolves along
with changes in society and in societal
expectations. In this contract society
legitimates the company’s existence,
recognizing its activities and obligations,
as well as establishing legal limits for its
actions.
Stakeholders
Relevant individuals with interests
pertinent to the company, or individuals or
entities that take some kind of risk, direct
or indirect, vis-a-vis the company, such
as: shareholders, employees, clients,
financial investors, suppliers, creditors,
environmental organizations, government,
and communities involved directly or
indirectly with the company’s activities.
For the purposes of this document,
stakeholders also include parties affected
by the company which are not organized
and cannot be engaged, such as the
environment, other living beings, children,
future generations, etc.
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Sustainability Guide for Companies
The Natural Step
A conceptual approach based on widelyheld scientific principles, which is intended
to provide a common language to address
how human societies can act in such a way
as to avoid making their future on the planet
unviable. See: www.naturalstep.org
•
45
Value
Expression of an organization’s achievement
of its social objectives, which can be
translated into monetary (company value)
or non-monetary aspects, such as in the
case of non-profit organizations.
Triple Bottom Line
A model based not only on the economic
point of view (a single bottom line vision),
but also on the social and environmental
aspects, all of them in an integrated
manner.
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Sustainability Guide for Companies
•
47
Over the past decade, sustainability has moved from the fringes of the business world
to the top of shareholders’ agenda. The concept of sustainability has gained traction among corporate employees, regulators, and customers, too. Consequently, any
miscalculation or misjudgement of matters related to sustainability can have serious
repercussions on how the world judges your company and values its shares.
For corporate management, finding the right balance among competing economic,
social, and environmental goals is the essence of “responsible leadership.” In practice, responsible leadership means integrating ethical considerations into company
decision-making, and managing on the basis of personal integrity and widely-held
organisational values. Responsible leaders manage for the common good and gain
authority and legitimacy in direct proportion to their success in serving others.
Is that kind of leadership readily achievable? Clearly, a perfect balance of all competing interests is difficult to achieve and managers are bound to make missteps in
the attempt. Nevertheless, most stakeholders are adamantly in favour of companies
dealing with sustainability issues in an honest and open fashion. So, as a first step toward demonstrating responsible leadership, companies must establish trust between
themselves and their various stakeholder communities. Sometimes, the process of
establishing trust can be painstakingly slow. But it starts by understanding stakeholders’ concerns and acknowledging their legitimacy. Only after you’ve mapped the
spectrum of stakeholder issues can you start to prioritise them and develop suitable
responses and outreach programmes.
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Sponsored by:
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Sustainability
Guide for Companies
The Brazilian Institute of Corporate
Governance (IBGC, to use its
Portuguese acronym) is dedicated
exclusively to the promotion of
corporate governance in Brazil. It
is the country’s main advocate of
corporate governance practices and
debates, and has achieved national
and international recognition.
An Overview for Directors and Senior Executives
Corporate Governance Handbooks
Founded on November 27th, 1995,
IBGC – a Brazilian non-profit
organization – aims “to be a
reference in corporate governance,
contributing to the sustainability
of organizations and influencing
key agents in our society towards
greater transparency, justice and
responsibility”.
IBGC - Instituto Brasileiro de
Governança Corporativa
Av. das Nações Unidas, 12.551 - 2508
World Trade Center
São Paulo, SP 04578-903
Brazil
Tel.: +55 (11) 3043-7008
IBGC Paraná – Tel.: +55 (41) 3022-5035
IBGC Rio – Tel.: +55 (21) 2223-9651
IBGC Sul – Tel.: +55 (51) 3328-2552
www.ibgc.org.br
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