Is sustainability a dirty word?

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Companies, big and small, must demonstrate the value they bring to society and persuade everyone that they operate responsibly. Or else, says Michael Kenward

Deep in the jungles of Madagascar, well, somewhere on that island, you could bump into teams of ’smell hunters’. They are there in pursuit of new fragrances for lotions and potions that we smear on to our bodies. A return to the wi ld for inspiration is one sign of the increasing importance of sustainability in the chemical industry.

Environmental issues, and sustainability in general, are key driving forces behind the work of Anton van der Weerdt, director of fragrance R & D at Quest, an ICI subsidiary. ’You can relate a natural odour to a flower or plant’, he says. ’It makes it easier to connect to consumer marketing.’

Nature can provide novel fragrances because new scientific techniques allow the smell hunters to capture volatile chemicals from plants, for example, and bring these back to the laboratory for analysis and replication. ’Biocaptive techniques’, says van der Weerdt ’are totally non-invasive or use only renewable parts of the plant, such as fruit or leaves. This is why we can analyse even the rarest plants and then leave them undisturbed.’

Quest is not alone in adding sustainability to its chemical formulae. There is hardly a major player, including ICI, that does not proclaim its sustainability in a fat and glossy report. These documents have evolved over the years. In the case of many chemical companies what started as reports on safety and health then grew to become reviews of performance on safety, health and the environment (SHE). This has now moved on to become reports on how the companies deliver sustainability.

ICI’s first sustainability report, in March 2003, offers one definition of the concept. ’Sustainable development is defined as forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs.’ This description comes straight from Our common future , the 1987 report of the World Commission on Environment and Development (WCED).

No longer is it enough to treat the environment with care, ICI’s report talks of ’our progress in the three basic areas of sustainable development - financial, social and environmental - or, in our terminology, "How we operate", "People matter", and "Caring for the environment"’.

Most large companies in the chemical sector a nd beyond make much of their sustainability credentials. BASF, for example, opens its corporate web page with a ’tab’ for the subject, leading to a page that proclaims: ’We act in accordance with the principles of Sustainable Development’.

The company als o publishes a regular newsletter on sustainability and the inevitable environment report, which has a heavy emphasis on the company’s sustainability quotient. BASF’s report tells us that: ’Our commitment to sustainability is integrated into the Values and Principles of the BASF Group, and is hence a core component of the conduct that is binding for all our employees.’

Green money
BASF does not see the divide between economics and sustainability that some might suggest. ’In my opinion’, says Eggert Voscherau, vice chairman of the board of executive directors and the senior person responsible for the environment and related activities, ’the market is an extremely effective mechanism for integrating sustainability in the competitive process.’

Companies increasingly look beyond the environment to make their case. BP, for example, has long proclaimed its ’green’ credentials and now espouses the cause of sustainability. ’I believe that our long-term future depends on our environmental and social performance’, says Lord Browne, BP’s chief executive officer.

BP states its position in terms that underline the expansion in thinking beyond the environment. ’The challenge of sustainable development in the 21st century is to strike a balance - to sustain economic growth and reduce the income gap between rich and poor, while preserving the resource base and avoiding damage to the environment.’ The company points out that without energy, the poorer regions of the world stand little chance of achieving the economic growth th ey need to alleviate that poverty.

Unlike some oil companies, BP has persevered in its attempts to turn renewable energy sources into a profitable business. For example, the company accounts for nearly one-fifth of the world market for solar energy.

BP not only publishes the obligatory report on its environmental performance, in this case billed as its Environmental and social review , underlining the broader remit of sustainability, it sent its own delegation to the UN’s World Summit on Sustainable Deve lopment in Johannesburg in August 2002. The company also sought an outside audit of its activities, a part of a growing trend as more and more businesses seek an independent endorsement of reports on sustainability and the environment.

Triple bottom line
’One of the things that we routinely do is to look at reporting by companies’, says John Elkington, founder of the consultancy SustainAbility. ’The latest benchmark survey last year showed that since we started doing those benchmark surveys 10 years ago there has been an explosion in activity of verification of those reports.’

Elkington helped to invent the notion of corporate sustainability, and has been telling companies what it is all about for longer than most. Indeed, Elkington set up SustainAbility in 1987, long before the green movement had even thought of using it as a weapon.

Many companies take their lead in defining sustainability from SustainAbility. ’We have tried to define sustainable development in the business area in terms of the triple bottom line’, says Elkington. ’The economic, the social and the environmental aspects of societies’ expectations of what business should do and how value should be created.’

Elkington may have helped to define the movement, but he says that we may now need to revise what we mean by sustainability. This is partly because the goal posts have moved. Social aspects once meant not being tortured. The term now encompasses such items as access to clean water. Not that Elkington objects to this trend, but he says that ’we have really got to get a lot of this language squeezed back into stuff that makes sense to ordinary people’. He fears that this ’confusion of languages and agendas’ is sometimes an excuse for doing less than is possible.

It is, after all, more than a decade since the first sustainability reports appeared. Monsanto and Norsk Hydro set the ball rolling in 1990. Since then there has been a massive increase in the number of companies reporting. However, SustainAbility is not impressed by this growing mountain of paper. Its recent report, Trust us , complained that ’the total number of companies reporting by 2002 was still very small when compared with the estimates of more than 50 000 multinational corporations, let alone the millions of smaller companies operating in different parts of the world’.

It does not help that, unlike financial performance, there are few accepted standards for how companies report on their environmental and social performance. The Global Reporting Initiative (GRI), set up in 1997, i s an attempt to establish internationally agreed standards for reporting on a company’s achievements in sustainability. The GRI, ’a collaborating centre of the UN Environment Programme’, describes itself as ’a multi-stakeholder process and independent institution whose mission is to develop and disseminate globally applicable Sustainability Reporting Guidelines’.

Stakeholder sustainability
In the UK there are as yet no statutory requirements for reporting a company’s sustainability performance. There is a draft out for consultation, and this was the basis for the accounting and consulting firm Ernst & Young to assess BP’s report of its performance. While these reports are not likely to match the significance of financial reports in the near future, they are becoming more important.

’Demonstrating the value that a company brings to society, and gaining the trust of stakeholders that operations are conducted in a responsible and sustainable way, have become serious issues on the corporate agenda’, says Richard Wilson, the partner responsible for Ernst & Young’s services to companies in the oil and gas, chemicals and utilities sectors. ’Companies are increasingly facing broad requirements under which they are expected to identify and respond to stakeholder and societal needs.’

We are not talking PR here. ’The issue of corporate social responsibility - broadly defined to include such concepts as sustainability, sustainable development, and sustainable enterprise management - is now challenging the very foundations of the business strategies of the world’s leading organisations’, notes Wilson.

While it is important for companies to report on their performance, at least as significant is the way in which they deal with the issues internally. Companies c an all too easily talk with forked tongues. The board may say one thing, and make fine public pronouncements, while out in the market something very different happens. ’Whether it is in Washington DC or Brussels’, says Elkington, ’you find exactly the same companies, whether they are represented through Cefic [European Chemical Industry Council] or through industry federations or lobbying groups, pushing a really quite different line’. He notes, for example, how oil companies may proclaim their sustainability while lobbying against any moves to reduce CO ₂ emissions.

Many of these issues apply throughout the business world, however the chemical sector has some unique problems, says Elkington. If anything, it may have set the ball rolling before others. It was among the first to experience the pressure of environmentalists. This gave birth to various ’responsible care’ initiatives, effectively the forerunners of sustainable development. ’This has quite a lot to do with the reputation of the chemical sector’, says Elkington.

This activity was, Elkington explains, ’seen as a way of raising the whole sector’s image and reputation. It was not terribly successful, in that respect at least, because the reputation has stayed pretty well low down, and in some cases deteriorated further. Nonetheless it has been a good framework to help people in the chemical sector to think through some of those issues, and engage. The question is where next?’

SustainAbility has started to look for answers to this question. The American Chemistry Council has commissioned the company to look at the future of responsible care. The sector certainly needs to rethink its approach, says Elkington. ’The chemical sector has a continuing and profound problem’, he insists. ’It really seems to struggle with addressing it.’

There is more to getting the right image than persuading the public to like your business. It is also rising in importance in the eyes of the investment community. Does sustainability really do anything where investors look first for benefits? On the bottom line? In these investor oriented times, any company is asking for trouble if it tries to push too hard in a particular direction without taking such perspectives into account. Fortunately for the sustainably inclined, the financial analysts, without whom many investors do not know what to think, have started to endorse the concept, notes Elkington.

It pays to be green
In November 2002, the international bank WestLB Panmure issued a report More gain than pain , analysing the perform ance of companies that indulged in sustainable business practices. ’The findings of our study’, the report said, ’clearly suggest that it can pay to take the ’sustainability factor’ into account when selecting stocks. There is an additional return even after risk adjustment.’

There is even a stock performance hit parade that measures how companies perform in the sustainability stakes. The Dow Jones Sustainability Index tracks the companies that perform best in sustainability. This puts DuPont, which supports the GRI, at the top of the table for the chemical sector.

Evidence like this, rather than pressure from environmentalists, may persuade companies to think about their sustainability. It is certainly more likely to carry weight in parts of American busin ess, where, as Elkington puts it, ’anything with the sustainable development label on it is seen to be semi communist’. Perhaps they will be more easily convinced when they realise that the quest for sustainability is one reason why their new perfumes have their origins in the jungles of Madagascar.