The Driving Forces and Barriers to Corporate Sustainability - Coursework Example

The Driving Forces and Barriers to Corporate Sustainability Name Institution Tutor Date Introduction Corporate Sustainability involves the creation of shareholder value in the long-term through managing risks and embracing opportunities that arise from environmental, social and economic developments (Stoughton & Ludema 2012). It seeks a richer world and equitable society in which cultural artifacts and the natural environment are well preserved for the sake of future generations (Fulop & Hernadi 2014). It also tries to ensure that businesses remain profitable but also accountable to all stakeholders, including the community and world in general (Olajide 2014). Many firms have in recent times realized its potential benefits, making it popular in management practice (Shen et al. 2015). This follows an eco-centric pattern of thought being embraced in different spheres of life (Gladwin et al. 1995). Globalisation has further promoted the trend (Voegtlin & Pless 2014). While various factors ensure that corporate sustainability is sought, there are also barriers to its acceptance or effectiveness. This paper discusses corporate sustainability, outlining five driving forces and barriers to its proper implementation. Driving Forces of Corporate Sustainability Activism and regulatory processes are major driving forces for corporate sustainability. According to Haigh & Jones (2006), popular public mobilization is significant because there are instances where Non-Governmental Organisations for example advocate for the interests of certain parts of the social system, or simply complain about perceived pressing humanitarian or ecological problems either through lobbying or buying stock in corporations hence influencing board decisions. Bansal & Roth (2000) observe that legislation on its part works because businesses end up trying to avoid legal costs, penalties and fines associated with non-compliance, and end up adopting sustainability into their organisational cultures. Haigh & Jones (2006) confirm that this has especially been the case since the 1970’s as most governments have been keen on the taxation of externalities through direct regulation, permits and corrective mechanisms such as emission standards. It is however notable that such regulatory pressure may not be reliable as they might generate non-productive overheads for firms hence less competitiveness, and on the government side, more employees might have to be employed. A growing acceptance of sustainability within management circles boosts its adoption and effectiveness. Bansal & Roth (2000) explain that when management thinks ethically, it will pursue sustainable practices as from the ethical perspective, environmental conservation is for instance what is right to do. The spread of an eco-centric trend in attitudes is therefore significant, because according to Gladwin et al. (1995), its ontology and ethic considers the earth as a source of nurture for all forms of life, and is highly sensitive to human activity. There is the belief in existence of a close interconnection between all beings and objects on it, with the human being as just one element, and that human activity needs to utilize the non-human forms in sustaining itself but within limits. Rahardjo et al. (2013) add that shareholders’ attitude towards sustainability will also be important because management is only an agent of the shareholders, and if the latter demand or at least accept sustainability as an objective, then the efforts tend to be more successful. A growing need for competitive advantage in business facilitates sustainable practices. According to Haigh & Jones (2006), internal pressure usually arises to ensure risk management and market efficiency, and through engaging in activities which benefit other people apart from the traditional stakeholders, a firm will usually end up better positioned to utilize otherwise unforeseen opportunities, deal with the risk of possible loss of presence in markets and create a presence in emerging markets. Bansal & Roth (2000) explain that when a company for instance opts to adjust production processes so as to minimize impact on the environment, it often manages to cut costs on waste disposal and inputs, and will be able to sell more of its waste products, develop paid environmental experts who can be outsourced to other firms and also boost sales a result of a more positive image, boosting revenues in the process. Yuen & Lim (2016) claim that with sustainability, a business will tend to be more successful financially, through an effect that comes rather indirectly through certain performance indicators, the main of which are job satisfaction, improved corporate image and customer satisfaction. Stakeholder requirements ensure that companies engage in sustainability. According to Sivaranjini et al. (2011), customers, investors and the entire public expect businesses to act responsibly and sustainably, hence stakeholders are a main reason behind sustainable practice in many instances. Bansal & Roth (2000) observe that local communities, consumers, the environment or conservationist interest groups tend to encourage the embracing of sustainable activities as they leave management with no option but to become responsive as a way of at least avoiding negative attention. Gladwin et al. (1995) explain that these stakeholders generally acknowledge the impracticality of separating the natural environment from business, because the environment supports all processes. Rahardjo et al. (2013) add that sustainability is preferred because of increasing realization that business attitudes that disregard sustainability contribute to a global environmental issue which according to Broome (2008), is currently a crisis. The existence of sustainability-supporting functions in many large corporations helps to promote sustainable practice. According to Stoughton & Ludema (2012), this includes for instance projects which are done by people who do not have a direct relation to the value chain and its operations, and incorporates those for example from communications and human resources. Unlike value chain and operations projects that are top management-sponsored, supporting function projects tend to be initiated by employee or participant groups. They seek to enculturate, create awareness and educate everyone on sustainability issues so as to ensure that employees embrace sustainability both at the workplace and in their homes. Leadership is another significant force that steers corporate sustainability. There is an increasing acknowledgement of the manner in which a leader implements the governance approach in the dynamic business environment, the increasingly globalized economy, the socially accountable world and the ecologically independent society greatly influences suitability. Many organizations recognize the fact that it is imperative to be reactive to the changing expectations of the society in order to establish a relationship of trust with the stakeholders. This makes the organization to be more accountable even in the future. Sustainability leadership should therefore be implemented by organizations. The concept of sustainability leadership can be defined as an approach of leading where people who are compelled to make a difference through increasing the awareness of the organization in relations to the surrounding environment. By doing so, they develop new methods of thinking, seeing and interacting in order to come up with sustainable solutions (Wayne, 2011). The model of sustainability recommends that a leader should adopt a number of significant traits which include intelligence, competence, forward looking, honesty and proactive behaviour. In addition it is essential to implement the most suitable leadership method depending on what is taking place in the business environment. According to Wayne, (2011) if these traits are effectively implemented in practice then it is possible to implement corporate sustainability in the organization. Barriers to Corporate Sustainability Although there are many driving forces behind Corporate Sustainability, the practice is also faced with several barriers, for instance absence of proper strategic visions relating to it. According to Haigh & Jones (2006), most corporate strategists emphasize profit. Yuen & Lim (2016) argue that in many cases, top managers do not believe in it, yet it requires leadership and formalization from them, and the typical orientation of firms towards short-term profits and goals makes sustainability unattractive because its benefits are relatively long-term. Stoughton & Ludema (2012) explain further that senior leadership is the one to infuse the sustainability culture. The issues raised here are quite significant, because if for instance goals of the teams involved in sustainability are not aligned, there could be a challenge posed because the financial and sustainability sides might fail to coordinate, possibly at the expense of sustainability. Corporate law is a notable barrier to sustainability. Olajide (2014) explains that apart from economic responsibility, where businesses are expected to provide the society with services and goods while maximizing profit, they also have a legal responsibility to obey all regulations and laws. However, Wilson (2005) notes that corporate law usually limits sustainability activities because within it, company directors are expected to serve the business’ best interests according to the Corporations Act, s 181 (2001), and also in line with general fiduciary principles. Unfortunately, it is only financial interests of these that are considered important, meaning that if directors decide to engage in sustainability, they might breach the provisions by compromising company profits and shareholder value. This is a reality in Australian case law, although with time there has been an additional qualification in terms of the reputation value of activities. Limited structural capacity can limit corporate sustainability. According to Yuen & Lim (2016), inadequacy of resources in the form of expertise, knowledge, finances or human capital is common and most firms will also not find it affordable for instance to have dedicated sustainability-related departments, and where it is under another department, performance is appraised basing on the original duties of the department. Haigh & Jones (2006) explain that sustainability reporting is for instance in many cases a function within the Public Relations Department and not within revenue or cost centers usually reviewed by accountants. Fulop & Hernadi (2014) argue that the structural barrier always exists until firms incorporate sustainability accounting into accounting practice, for instance by extending the accounting interpretation of stakeholders, to cover the society, natural environment, future employees and owners, the future environmental state and future generations of customers. Cost of the practice is a possible barrier. According to Yuen & Lim (2016), businesses often are not willing to pay for the efforts. Apart from the usual cost pressure on the business hence less profits, they link the lack of willingness to the absence of effective measurement systems for corporate sustainability. It is often difficult to quantify the benefits drawn from it. At the moment for instance, the environmental and social indicators available are limited and many not be universally endorsed or accepted. In many cases, companies do not have enough internal mechanisms for valuing sustainability, therefore minimal capital allocation is available for it. This is a valid argument because no regulatory body specifically dedicates itself to the determination of what needs to be measured, and sustainability initiatives do not make it easier because they only create impact at macro-levels that are difficult if not impossible to quantify. Flawed reward systems negatively affect sustainability efforts. According to Rahardjo et al. (2013), Corporate Sustainability Management is among the most important issues for businesses today. However, according to Haigh & Jones (2006), legal frameworks usually mandate corporations to focus only on their economic performance, with remuneration systems being tied to such performance. Reward systems therefore indirectly limit sustainability because for instance if there is provision of remuneration packages that attach rewards mostly on economic performance, there is the possibility of managers’ values being biased towards profitability with the intention of getting better pay or other benefits. The only way to avoid having reward systems that are barriers to sustainability is therefore seemingly ensuring that the net impact of any sustainability strategy in economic terms is estimated, even where there are no transparent metrics, leadership, capabilities or funds. Conclusion Corporate sustainability is a major issue in business management today. It is mainly motivated by a growing interest in environmental and other concerns within the globalised world. Some of its identifiable drivers are activism and regulatory requirements, a growing interest in its practice especially by key decision-makers, the pursuit of competitive advantage by firms as a means of survival, stakeholder interest in best practice for business in the modern world and a growing popularity of sustainability supporting functions in many major corporations. The notable barriers to its implementation however include inadequacies in strategic vision support, an economically-oriented corporate law framework, limited structural capabilities within firms, the cost implications of its implementation and reward systems that do not value non-monetary outcomes. The barriers however do not imply that the practice is doomed, because the practice is growing in popularity and firms have to adapt. Reference List Bansal, P and Roth, K 2000, Why Companies Go Green: A Model of Ecological Responsiveness. Academy of Management Journal, Vol. 43(4): pp. 717‐736 Broome, J 2008, The Ethics of Climate Change. Scientific American, pp.69-73 Fulop, G and Hernadi, B 2014, Sustainability Accounting: a Success Factor in Corporate Sustainability Strategy. International Journal of Economics and Management Engineering, Vol. 4 (1): pp. 1-21 Gladwin, T, Kennelly, J and Krause, T 1995, Shifting Paradigms for Sustainable Development: Implications for Management Theory and Research. Academy of Management Review, Vol. 20(4): pp. 874‐907 Haigh, M. and Jones, M 2006, The Drivers of Corporate Social Responsibility: A Critical Review. 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