Thursday, February 01, 2007

The Evolution of Sustainable Business

"Sustainability" describes principles that minimize negative environmental and social impacts, both now and in the future. Businesses are increasingly adopting sustainability principles, and their reasons for their doing so are continually evolving. Sustainability principles are not directly compelled by law. Meanwhile, a prescription for attaining sustainable business remains somewhat elusive. ISO 14000 may offer the most rigorously-developed guidelines. ASHRAE Standard 100-2006, entitled Energy Conservation in Existing Buildings, attempts to prescribe sustainability principles for a more narrowly-defined audience.

"Sustainability" emerged as a business buzzword in the 1990s. The first business leaders to embrace the concept may have done so primarily for boosting their companies’ public images. If so, then their investments in waste recycling and resource conservation may have been perceived as a way to grow their companies’ value, as reflected in the goodwill line item on their balance sheets.

In 2002, the Sarbanes-Oxley Act was signed into U.S. federal law in response to recent examples of egregious corporate fraud. Stated broadly, the Act attempts to ensure higher standards of corporate responsibility, especially regarding financial and accounting liabilities. Since environmental performance can have enormous financial implications, corporate sustainability programs emerged as a tool for offsetting the risk of failing to meet regulatory scrutiny. In other words, by investing in sustainability initiatives, corporations insured themselves against regulatory non-compliance.

Fast-forward to today. Popular awareness of climate change is influencing consumers’ purchasing behavior. A growing number of consumers demand products and services that offer a reduced "environmental footprint." Wal-Mart advances the sustainability concept by challenging its suppliers to wring as much waste as possible from their manufacturing and distribution efforts. Eaton Corporation, a diversified manufacturer of auto and aircraft components, recently joined the Green Suppliers’ Network, so that its suppliers could coordinate efforts to "improve processes, increase energy efficiency, implement cost-saving opportunities and optimize use of required resources to eliminate waste." For suppliers, then, investment in sustainability programs becomes the cost of gaining access to markets… or perhaps the cost of simply staying in business.



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