Social and Environmental Sustainability versus Financial Sustainability - Case Study Example

SOCIAL AND ENVIRONMENTAL SUSTAINABILITY VERSUS FINANCIAL SUSTAINABILITY Social and Environmental Sustainability versus Financial Sustainability Introduction The concept of sustainability has its foundation on the premise that communities and the people that live in them are made up of economic, social and environmental systems (Bennett, James and Klinkers, 2009). These systems are always in a constant interaction, and there is a need to strike a balance between them for the proper running of the community. The harmonious operation of the economic, social and environmental systems is essential for the benefit of their inhabitants both presently and for the future benefits. A balanced and healthy society is that which provides a decent way of life and to all of its members and can endure into the future. Such is a sustainable society (Schaltegger, Bennett and Burritt, 2006). Therefore, sustainability refers to an ideal towards which we strive and against which we weigh our proposed plans, actions, expenditures and decisions. Sustainability is a means of looking at a society in the broadest sense possible in terms of space and time. Every community has its different social, economic and environmental systems that make the pursuit of sustainability a local endeavour depending on the systems surrounding the particular community. Every society has its unique concerns and needs, and the quantity, quality, balance, and the importance of these matters is unique. The term sustainability can be defined differently depending on the context and the discipline in which the word is being used. In a more general dimension, sustainability can be taken to refer to the endurance of processes and systems (Del Bo and Bignami, 2014). Therefore, social and environmental sustainability refers to the persistence of the social and environmental systems and processes. Financial sustainability refers to the persistence of the economic processes and systems as applied to the business environment. The sustainable development forms the organizing principle for sustainability. The movement towards sustainability presents a social challenge that involves national and international law, transport and urban planning, individual and local lifestyles alongside ethical consumerism. There are varied ways in which corporations and individuals strive to live sustainably (Staicu and Feleaga, 2013). These may take the form of reappraising the economic sectors, reorganizing the living conditions, the use of science to create technologies, reappraising o work practices and the adjustment of individual lifestyles. Despite the increased use of the term sustainability, the attainment of environmental sustainability has been and remains a major challenge to human societies. Environmental sustainability is analysed based on climate change, environmental degradation and growth of population, overconsumption and the pursuit of indefinite economic growth in a closed system by society. Social sustainability is a measure of the quality of communities (Epstein and Rejc Buhovac, 2014). It implies the society-nature relationships mediated by work together with the societal relationships. Social sustainability within a society is attained when the arrangement of the institutions and the work done in a society satisfy a wide range of human needs. These events are dictated upon by the way nature and its reproductive capacities are maintained over long periods and the claims of human dignity, social justice and participation are fulfilled. Financial sustainability of a business organisation is reflected in the organisation’s ability to provide goods and services to the market profitably endurably (Thomas, 2007). In financial sustainability of activities, the focus is on the long-term profitability of the enterprise rather than on the short-term gains. The Corporate Perspective of Sustainability: The Coca-Cola Company 2013 Report on Sustainability Every business enterprise and corporation aspire to remain in profitable operations for the unforeseeable future under the ‘Going Concern principle on which statements are made and published. The ability of any organisation to remain in operation for a long period depends on the balance between its financial, social and environmental needs (Fung, Law and Yau, 2010). There are economic, social and environmental perspectives of a business organisation. None of these systems is less important to deserve being undervalued at the expense of another. Business groups that fail to balance between the demands of their economic, social and environmental systems end up closing down operations due to loss making. Since its inception in 1886, the Coca-Cola Company continues to hold a leadership and visionary position in the beverage and soft drinks industry (Yadava and Sinha, 2015). One would by no means doubt the ability of this company with both a rich history and the present to balance between its social, economic and environmental needs. The GRI reporting guidelines provide reporting standards, principles, disclosures and the implementation of the manual in the preparation of sustainable reports by organisations (Hens and Nath, 2005). Notwithstanding the location, sector or size of the organisation, these guidelines provide an international reference to the institutions interested in the disclosure of the approach of governance. Included also is the voluntary disclosure of the social, economic and environmental performances and their impacts. Under the Sustainability and GRI reporting for the Coca-Cola Company for the financial year 2013/2014, the consequences that are the result of the company’s everyday activities are addressed. The company’s administration model and values are presented in this report in a manner that defines the link between the company’s commitment to economic sustainability procedures and its strategy. Both negative and positive sustainability performance and impacts reports are made to the members of the public and the companys stakeholders. The voluntary annual GRI report of the company aims at showing the companys support for sustainability reporting towards the attainment of more transparency (Mangion, 2011). The 2013/2014 companys sustainability report outlines the companys sustainability commitments that are achievable up to the year 2020. In the communicated vision, the company commits itself into a sustainability framework that is categorised into ‘me, ‘we and the ‘world. The framework is an expression of the shared vision of how the Coca-Cola Company and its stakeholders can work together in the creation of social value that makes a difference for the consumers and the society. The ‘me category explains the role of the company in promoting the personal well-being. The company under this commitment pledges to adopt healthy marketing methods and produce products that do not threaten the consumers health (Hahn and Lulfs, 2013). Under the ‘we category, the company makes a commitment to empowering five million women entrepreneurs in the world by 2020 and preserve the human and workplace rights. As a commitment to the Corporate Social Responsibility, the Company pledges to give 1% of its annual operating income back to the society. Under the third category, the company makes a commitment to protecting the global environment. The company has committed itself to replenishing 100% of the total water used in its final products and by 25% by 2020 compared to the 2010 baseline. In terms of packaging, the company aims at reaching a 75% recovery rate of the bottles and cans introduced in the developed markets in an endeavour to protect the environment. To use environmentally friendly plant containers of up to 30% of the total bottling done annually. The company also aimed at reducing the carbon footprint of the drink by 25% through the end-to-end value chain. Finally, the companys commitment to source essential agricultural ingredients. The social, economic and environmental sustainability commitments of the company are plainly notable from the brief summary of the 2013/2014 sustainability report. Its aim and purpose are to create a sustainable world community. Emerging Business Models and Sustainability Businesses have the highest capacity to create sustainability in the economic, social and environmental frontiers of human life. These and other related activities in the consumption-production systems form the primary causes of sustainability deficiencies (Hens and Nath, 2005). However, the core of the innovative ideas of reducing environmental pollution and improving the efficiency of the production processes and structural changes in the socio-technical systems is at the core of businesses. Upcoming modern business models have proven important in the diffusion of social, technological and organisational innovations that are essential to sustainability. The conceptual architecture of markets is established for several components of the models. The importance of the value models is to explain target customers, value proposition, the customer relationships, the distribution channels, the arrangement of resources and activities, cost structures and the revenues. The novel approaches that are used to connect any of the core components of the business models are referred to as the model innovation. A number of methods are used today by the companies to develop models that have a potential to create greater sustainability (Hopwood, Unerman and Fries, 2010). Under the product service system, the customer pays for the services delivered by a product as opposed to buying the product itself. Here, companies take the full responsibility of the products life cycle. Under the open approach, modern companies are pooling up knowledge and resources with individuals and other groups in developing and commercialising new ideas. The approach has created the transition to a much more sustainable built environment. The peer-to-peer approach of innovation engages the cooperation of widely distributed and loosely cooperated individuals. The approach has increased the creation of networks among the peers in sharing of resources. The social enterprise and benefits corporations is an important model in which companies have the responsibility to pursue environmental and social value alongside the financial value. Other important models in the creation of sustainability include the new manufacturing paradigm, the gift economy, the crowd funding model and the sharing economy. The 2013 KPMG report on the Corporate Social Responsibility provides an insight of the tremendous growth in the number of companies and countries that have adopted the corporate social responsibility reporting as a major business practice. The Coca-Cola Company in the 2013 rankings for the participation and reporting on the corporate social responsibility issues took a lead compared to the Indian Tata Motors and other similar companies. Companies in the modern world have increasing engaged in corporate social responsibility as part of improving the social sustainability and in managing their relations with the consumers and the communities. While the aspect of financial sustainability constitutes measurable elements in assessing the level of sustainability attained by the organisation in the economic front, the environmental and social sustainability involve aspects that cannot be quantified. The nature of financial sustainability is quantitative as values from the ratio analysis and the financial performance statements are used to estimate the level of financial sustainability of a firm (Horrigan, 2010). On the contrary, environmental and social sustainability involve qualitative aspects and cannot be quantified. Only evaluations of the extent to which the organisation has made efforts to meet the set standards against which performance is measured are used for the estimations. There may be greater accuracy and efficiency attained in the measurement of the level of financial sustainability, accuracy may be compromised by subjective judgements and excessive estimates in the environmental and social sustainability. However, there is an observable disparity in the application of principles to the evaluation of financial and the social and environmental sustainability. The accountants use the principle of a going concern exclusively in estimating the possibility of poor performance that may result in the closing down of operations in the near future (Idowu and Leal Filho, 2009). The use of the principle forms the basis of differentiating between greater financial sustainability between organisations. Where errors are made in the interpretation of the principle, it is highly likely that wrong impressions will be created and may in effect lead to the closure of the operations. Social and environmental sustainability measures do not involve the use of such quantification principles. While the financial sustainability looks into the future, the social and environmental sustainability concentrate on the current state and have little or no futuristic dimension in them. The aims and approaches used by companies in reporting differ across the financial and environmental and social sustainability disclosures. According to the legitimacy theory by Shethi, Dowling and Pfeffer (1975), firms seek legitimacy from the public by ensuring that their value systems are congruent with the society values within which it operates. According to the postulations of this theory, a disparity in the way business operations are conducted and reporting done differ from the financial, and social and environmental activities and reporting. Companies carry out their social and environmental activities with the aim of conforming to the social requirements of the public (Colombatto, 2010). On the other hand, financial sustainability operations are carried out in a manner that focuses on conformance to the documented operating standards. The reporting of social and environmental activities is done primarily to create a good image of the business operation in public and according to the society in which the company runs. Reporting in the financial sustainability is done to conform to the financial reporting standards. The accountability theories stipulate that firms operate on the belief that they are genuinely accountable to the stakeholders and recognise and accept their obligations towards them voluntarily (Staicu and Feleaga, 2013). According to these theories, it the acceptance and willingness of the firms to dispense their duties to the stakeholders that explain their reporting. The stakeholder theory, on the other hand, stipulates that, whether or not the management of stakeholders results in improved financial performance, the managers have a duty to manage businesses to the advantage of the stakeholders. The assertion of this theory is primarily pegged on the idea that financial obligations owing from the firm to the stakeholders are the primary operational objective. The nature of the underlying assumptions in the sustainability differences is a major obstacle in reconciling the differences between the financial, social and environmental sustainability. Combining the future and the present is an arduous task whose achievement cannot be predicted with certainty (Jackson, 2014). Qualitative and unregulated estimations have a significant difference in regulated and quantitative estimates. However, the statement in principle and the documentation of the underlying principles governing the reporting and operations surrounding these major sustainability issues could help resolve the disparity. The achievement of greater efficiency in the sustainability obligations can be achieved if the unanimity in principle existed between the various reporting and operation elements (Jacobsen, 2011). There is an existence of subjective judgement created by the disparities in the organisational objectives that are significantly influenced by the societal needs. The attainment of greater standards in this regard can be achieved by establishing conformity with the operation and reporting requirements across the business fronts and the societies. Until such compliance is achieved, the risks accruing from the subjectivity of the voluntary subjective reports on the firms and the stakeholders will keep prevailing. Efficiency will be lost, and sustainability is bound to decline in the end. Conclusion The focus on sustainability in the modern business world is of paramount importance in the maintenance of a balanced society and a sustainable community (Jean-François, Drew and Lankas, 2014). Business do not operate in a vacuum. They are place in the middle of societies that have varied social, economic and environmental needs. There is a common focus on the adoption of modern business models in reporting matters related to performance and disclosure in a unanimous endeavour to improving the sustainability levels. Companies and individuals have committed their efforts in the noble pursuit of equitable balance between the social, environmental and the economic needs of the society. 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