Question

Chapter 3 concludes with an article titled "Sustainability, ROA, and the Golden Rule." Please read that article and discuss why it may be profitable in the long-term to operate a firm in a sustainable manner. Give examples of sustainability practices being used in industry today and discuss their profitability or lack thereof.

The article: "Sustainability, ROA, and the Golden Rule”

Perhaps “sustainability” isn't the first word that comes to mind when someone thinks about the garbage business. However, today's waste industry leaders not only develop sanitary landfills with synthetic liners and ground water monitoring wells, but they are often at the forefront of community recycling and renewable energy efforts.

When Lonnie Poole started Waste Industries in 1970, he didn't know that the company would grow to be one of the country's largest waste companies, but like most entrepreneurs, he did believe that he could build a business for the long haul. Focused on a commitment to service, Poole knew that his company had to find ways to offer service options that were both economically viable and environmentally sustainable. Sometimes projects provided an adequate near-term return on assets (ROA), and they also made sense from a sustainability perspective. Other times, doing the right thing from a long-term sustainability perspective meant Waste Industries needed to find a way to overcome short-term financial considerations.

Take the company's recycling effort as an example. Waste Industries has been engaged in recycling since the 1970s. From an ROA perspective, it was hard to justify the firm's recycling efforts. At first, there was no market for the recyclables. Instead of selling recycled paper, the firm had to pay paper companies to haul recycled paper away. Over time, Waste Industries' investments in sustainability began to pay off. Due to their early investments, today an infrastructure has developed to recycle more waste at lower costs.

Based purely on a short-run ROA, the firm's long-term commitment was not justified, but Poole's commitment to recycling and other sustainable practices were part of a wider corporate culture focused on treating customers, employees, and the broader community with respect.

Now business researchers are finding that Poole may have simply been ahead of his time. When Harvard researchers examined the impact of corporate sustainability initiatives on long-term firm performance, they discovered both higher ROA and higher ROE (return on equity) for firms whose executives promoted sustainability within their firms.

Philosophers and religious leaders have long touted the “golden rule” as a basic ethical code, which states one should do to others what they would wish done to themselves. Like many successful business people, Poole believed sustainability meant making a positive difference in the communities his company served, enriching the lives of employees, and forging meaningful relationships with vendors and suppliers. In the long run, these values paid off. Perhaps this is why a basic rule for ethical behavior is called “golden.”

Answer 1

Sustainability in operating a business may be profitable in the long-term as for the following reasons:

Operational effciency: Running a responsible business and achieving high levels of growth and proftability do not have to work against each other. Sustainability issues and processes should be a natural part of your overall performance management practice. Integrating sustainability considerations into your business model can actually create shareholder value. Benefits include cost savings derived from limiting waste of natural resources such as energy and water, growth opportunities through developing innovative products, better risk management and increased brand reputation with your customers and employees.

Increase productivity and reduce costs: Detractors of sustainability claim that sustainable business practices eat into corporate profit. Development of sustainable business practices lends itself to efficient operation that streamlines effort and conserves resources, which enhances employee productivity and reduces cost. Reducing cost also encompasses energy conservation strategies that can be as simple as turning off unnecessary lights and insulating walls to more sophisticated efforts such as installation of geothermal heating and cooling systems. Those efforts having greater overall impact will likely be more expensive to implement, but the long-term results justify the investment.

Improved brand image and competitive advantage: Surveying more than 53,000 U.S. consumers, the Natural Marketing Institute discovered that 58 percent of consumers consider a company’s impact on the environment in considering where to purchase goods and services and are more likely to purchase from companies that practice sustainable habits. That translates into a client base of 68 million Americans who are favorably predisposed to companies showing positive track records in personal, social, and environmental values. The Cause Marketing Forum reports that consumers also favor companies that actively support their communities.More importantly, though, consumers increasingly don’t shop for products, but instead they shop for companies. Businesses that have a mission of environmental sustainability can build a reputation with consumers as eco-friendly. And as much as 25% of consumer behaviour is led by reputation. As awareness and activism around environmental issues increases, businesses that are proactive in building sustainable practices are the most likely to find themselves succeeding.

Sustainable employment: Businesses with strategies that are sustainable in the long run pay their workers salaries and benefits that allow them to live a sustainable life within their community. This builds loyalty within the organisation, benefiting the company through increased productivity and creativity, as well as lower levels of fraud and mismanagement. Employees are also more likely to develop and take part in longer term projects that have higher payoffs. With a sustainable income, employees are able to stay with the organisation longer and are more motivated to actively market products and services with consumers in their community, as well as sell the organisation to potential job seekers. This in turn leads to a workforce with greater skills and more motivation.

Access to Investment Capital: One out of every eight dollars under professional management in the Unites States in involved in socially responsible investing. That $3.07 trillion represents a huge pool of money that is being invested in companies that have been found to be sustainable.

Sustainable practices followed in the industry:

• Coca-Cola

The drinks company has improved the efficiency of its water use by 20% and identified the need for a rigorous third-party evaluation of its water management approach.

• Ford Motor Company

The car company has established requirements for first-tier suppliers to drive its environmental and social expectations further down the supply chain and works with suppliers to establish GHG emission reduction and energy efficiency targets.

• Adobe: Greenhouse gas emission reductions

The software company aims to achieve a 75% reduction, from 2000 levels, in company emissions by 2015. It is using renewable energy technologies, including hydrogen fuel cells and solar arrays, and is also focused on reducing energy needs by improving the cooling efficiency of its data centers and "virtualising" many of its systems, platforms and devices, this may save a lot of money in years to come.

• Walmart: Transportation

The retail giant is committed to doubling its truck fleet efficiency in the US by 2015. To achieve this goal, it is replacing nearly two-thirds of its fleet with more fuel-efficient trucks, including hybrids. The company is also collaborating with truck and component manufacturers to build energy-efficient prototype tractors.

• Dell: Design

The computer company's integrates alternative, recycled and recyclable materials in its product and packaging design, improvements in energy efficiency, and design for end-of-life and recyclability. One of the company's commitments is to reduce the energy intensity of its product portfolio by 80% by 2020. It will be win - win situation for both the company and customers.

Success Stories of companies execution in past:
Companies that are looking for ways to be more environmentally, socially and economically responsible are driving innovations in products, services and sourcing as well as financial acumen. In the first months of 2012, electric (including hybrid, extended range and ‘pure’ electric) vehicles sold in the United States reached 4,637,337 vehicles or 3.39 percent market share — according to the Electric Drive Transportation Association. Sales of compact fluorescent bulbs initially faltered due to the color of the light emitted.

Today’s bulb not only provide the same light spectrum as classic incandescent bulbs, they use 75 percent or 80 percent less electricity to do so — paying for themselves in about half a year in energy savings. In 2006, Wal-Mart, the world’s largest retailer, announced plans to sell one bulb to every consumer in its 100 million customers. Not only does the planet benefit from the reduction in energy use, but companies like General Electric that produce the bulbs also benefit from increased sales (and reputation). Companies that are seen as innovative tend to attract innovative employees, and the cycle accelerates.