By: Bart van Halteren, MDF Regional Director for Southeast Asia


Starting from 2013, MDF Pacific-Indonesia (MDFPI) has worked closely with Mars Global to address the sustainability of the company. Mars Global is one of the world’s largest food companies and is the world’s third largest cocoa buyer and represents the familiar brands of chocolate such as Snickers and M&M. MDFPI helped Mars set-up and its cocoa sustainability framework and M&E system. Furthermore, MDF PI assisted Mars and 10 other large cocoa buying companies, such as Nestlé, Hershey, Cargill, etc., to design a cocoa sustainability framework and metrics monitoring system called CocoaAction. Additionally, MDFPI was also commissioned to develop a better M&E system to ensure that the management of the Mars cocoa sustainability program is able to take strategic decisions and actions on the sustainable production of cocoa and to better understand the effects of Mars’ corporate sustainability initiatives worldwide. Corporate sustainability is a hot topic that continues to garner focus as private sector development initiatives across the globe place more emphasis on the issue of sustainability and development initiatives place more emphasis on the inclusion of the private sector. So what exactly is a Corporate Sustainability Strategy – why do we need it and how do we monitor it?

The need for a “business case”: Defining Corporate Sustainability (CS) and CS Governance

"Sustainability is the capability of an organisation to transparently manage its responsibilities for environmental stewardship, social well-being and economic prosperity over the long term while being accountable to its stakeholders".
ISO 26000 refers to Corporate Sustainability (CS) as a balanced approach of organisations to address economic, social and environmental issues in a way that aims to benefit people, communities and society (ISO, 2010). Sustainability does not simply mean a set of “do-good and feel-good initiatives” but it needs to be structurally integrated into the organisation's way of working and its value system. However, it is important to note that the objectives of creating a CS strategy should not only be related to fulfilling social objectives but it should also help to differentiate a company from its competitors and create a Unique Selling Point (USP) that might benefit the company itself. Organisational governance for sustainability is the system by which an organisation makes and implements decisions in pursuit of its sustainability objectives. ISO 31000 presents eleven sustainability principles that can be used in all organisations to guide their governance system.

  1. Sustainability needs to create and protect value for the organisation
  2. Sustainability must be an integral part of decision making at all levels of the organisation
  3. Sustainability is an integral part of all organisational processes, not maintained separately
  4. Sustainability must explicitly address uncertainty that is present in all organisations
  5. Sustainability must be systematic, structured and timely
  6. Sustainability must be based on the best available information (i.e. fact based)
  7. Sustainability should be aligned with the organisation’s external and internal context
  8. Sustainability must take human and cultural factors into account
  9. Sustainability must be transparent and inclusive
  10. Sustainability must be dynamic, iterative and responsible to change
  11. Sustainability facilitates continual improvement of the organisation.

 

Why are so many larger corporations embracing Corporate Sustainability?

The old fashioned practice of “naming and shaming”, practised by many civil society organisations, including large INGO’s, still pushes these larger corporations towards sustainability strategies. However, how sustainable are these types of “forced” sustainability strategies? These sustainability strategies only address the corporations’ responsibilities and not the benefits to the company and as such are not very sustainable at all; hence the change in name from Corporate Social Responsibility (CSR) to Corporate Sustainability (CS).

According to Blackburn, one of the most respected scholars on CS, a key question is whether “… business activities promote sustainable economic health for the company and the global community?” Seven key factors are driving companies’ profits and dividends and they should also be business drivers for sustainability: reputation and brand strength; competitive, effective, and desirable products, services and new markets; productivity; operational burden and interference; supply chain costs; costs of capital (lender and investor appeal); and legal liability.A recent study by the Boston Consulting Group and MIT confirmed that 67% of surveyed companies believe that a CS strategy is necessary to be competitive and an overwhelming majority of companies who have a CS strategy identified profit as a result.

The ‘Social License to Operate’ is not only for corporations

CS strategies and their successful implementation hinge on the ‘social license to operate’. What does a ‘social license to operate’ mean? As many companies discover, working with large, well-known international NGOs does not automatically create a social license to operate (winning the legitimacy, credibility and trust of stakeholders). A social license exists when the activities of an organisation, company or project have the ongoing approval of the local community and other identified stakeholders. Earning and maintaining this social license relies greatly on the establishment of good relationships with all stakeholders. The license can be tested through stakeholder engagement strategies such as: joint vision and mission setting, identifying stakeholders, drafting a materiality index (where stakeholders identify “material” issues) and making conscious choices of which strategies will contribute to the triple bottom line of the company (environmental stewardship, social well-being and economic prosperity) as well as the 11 principles of good governance as defined by ISO 31000 (see above).

The need to measure, monitor and report

Assessing organisational impact(s), often called ‘the organisation’s footprint’ (not only used for environmental assessments), can be done using various concepts and tools specifically designed for CS such as Life Cycle Inventory (LCI), Social Life Cycle Assessment (SLCA) and Sustainability Impact Assessments. Many organisations are now trying to align their sustainability goals with the Sustainable Development Goals (SDGs) and their measuring tools. In order to obtain support, transparency and accountability are key; including reporting on the results of the assessments, often using performance indicators. These can be designed using theories and concepts such as Baldridge (NIST, 2011), which provides guiding questions to determine how the organization designs, manages and improves its products, services, activities and work processes. ISO 55002, which states that “reporting … should extend beyond information that might be available through financial reporting as required by IFRS and GAAP” can be helpful too.

Many companies are now using the Global Reporting Initiative’s (GRI4) format for sustainability reporting. The GRI4 reporting format has been greatly improved and in the future will assist organisations in “integrated reporting”, which renders separate sustainability reporting obsolete. Essentially, the aforementioned is exactly what sustainability is all about: structural integration into the organisations’ way of working and value system.

Sustainability metrics measuring and monitoring of progress: the use of Key Performance Indicators (KPIs)
Many organisations working on CS strategies for the first time focus on defining Key Performance Indicators (KPIs) first. The question is: ‘key’ to whom and for what? Simply put, monitoring means conducting regular activities that will answer the question of whether we are on track to achieve our objectives. This means that companies will need to first identify their sustainability objectives both internally (within the organisation) and externally (with stakeholders). Central to sustainability is not achieving external (PR-related) targets and ‘KPI's’ only, but making sure that the day-to-day operations are sustainable and geared towards supporting the sustainability process. To monitor this, Sustainable Development Indicators (SDI's) are the most frequently used tools in this context. The correct selection, formulation, review and interpretation of lead and lag indicators (lagging indicators measure results and leading indicators measure efforts made) are crucial for a successful sustainability performance monitoring system. Only after this whole set of indicators have been defined, both for operational as well as management review purposes, ‘key’ performance indicators can be selected by the various levels of managers.

However, as mentioned above, KPI’s are not a substitute for measuring the overall sustainability of the organisation. KPI’s merely flag where more work needs to be done to achieve set objectives. It is advocated to look at sustainable ‘maturity’ not only in terms of set objectives to be achieved, but also in terms of more intangible processes within the organisational culture, interactions with stakeholders, and the like.

A maturity matrix can guide an organisation in assessing its ‘sustainability maturity’. The process of creating a maturity matrix starts by identifying the two axes of a maturity matrix. One axis is always the same and shows the level of 'maturity' (i.e. progress) on the sustainability issue mentioned. There can be various levels (as the number is arbitrary) but British Standards (BSI, 2006) uses four. On the other axis (the Y-axis) chosen sustainability topics and some of the SDI’s and KPI’s (explained above) are often used but can be substituted by any topic or sustainability policy, if so required.

 

Defining the phases in a Maturity Matrix will assist an organisation to set targets and measure against these accordingly. The Maturity Matrix should reflect (e.g. by means of shading the box) where the organisation is at the moment regarding the sustainability on the topic (the assessment), and what the next steps could be to 'mature' on its sustainability. These next steps will be the descriptions in the various boxes of the Maturity Matrix and hence provide a 'guide' (not a commitment, usually) for future sustainability actions and a benchmark for success.

 

A Maturity Matrix could look as follows:

A maturity matrix: assessment first, planning maturity steps later

Of course, these are only some of the first steps in a long but important process of developing and successfully implementing a corporate sustainability strategy.

If you need further information or inquire a service, please contact us at mdfpi@mdf.nl.