Journal of Environmental Sustainability

Sustainability
Volume 1, Edition 1 Rise and Fall of the Concept Sustainability Kroly Kiss Environmental Sustainability: A Definition for Environmental Professionals John Morelli Contradictions Inherent in the Management of Natural and Industrial Disasters Sndor Kerekes Corporate Environmental Sustainability Beyond Organizational Boundaries: Market Growth, Ecosystems Complexity and Supply Chain Structure as Co-Determinants of Environmental Impact Stefano Pogutz, Valerio Micale and Monika Winn Assessing Corporate Sustainability Through Ratings: Challenges and Their Causes Sarah Elena Windolph The Ecological Allowance of Enterprise: An Absolute Measure of Corporate Environmental Performance, its Implications for Strategy, and a Small Case Andr Reichel and Barbara Seeberg Sustainable Rural Entrepreneurship: A Case in Hungary Szilvia Luda Todays Environmental Managers Toolbox: Evaluating the EHS Attributes of Products Kathryn H. Winnebeck Environmental Sustainability and Supply Chain Management A Framework of Cross-Functional Integration and Knowledge Transfer Dorli Harms
Environmental
Journal of
ISSN: 2159-2519
Table of Contents
ISSUE 1: 2011 Rise and Fall of the Concept Sustainability Kiss Kroly Environmental Sustainability: A Definition for Environmental Professionals John Morelli Contradictions Inherent in the Management of Natural and Industrial Disasters Sndor Kerekes 7
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Corporate Environmental Sustainability Beyond Organizational Boundaries: Market Growth, Ecosystems Complexity and Supply Chain Structure as Co-Determinants of Environmental Impact 39 Stefano Pogutz, Valerio Micale and Monika I. Winn Assessing Corporate Sustainability Through Ratings: Challenges and Their Causes Sarah Elena Windolph The Ecological Allowance of Enterprise: An Absolute Measure of Corporate Environmental Performance, its Implications for Strategy, and a Small Case Andr Reichel and Barbara Seeberg Sustainable Rural Entrepreneurship: A Case in Hungary Szilvia Luda Todays Environmental Managers Toolbox: Evaluating the EHS Attributes of Products Kathryn H. Winnebeck Environmental Sustainability and Supply Chain Management A Framework of Cross-Functional Integration and Knowledge Transfer Dorli Harms 61
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Journal of Environmental Sustainability Rochester Institute of Technology Civil Engineering Technology, Environmental Management and Safety Fall 2011 ISSN: 2159-2519 2011 Rochester Institute of Technology, The Wallace Center and individual authors. Copyright 2011 by the author(s). John Morelli, Ph.D., Editor-in-Chief
Nick Paulus, Co-Managing Editor Erica MacArthur, Co-Managing Editor Sherlea Dony, Copyeditor Pamela S. Lamboy, Copyeditor Cover design by Corrinna Corrallo and Erica MacArthur Logo and website design by Justin Morelli Bee cover photograph by Anne Rodkin
International Review Panel

Chunguang April Bai Dongbei University of Finance Tim Benijts Lessius Hogeschool James Boretti Boretti, Inc Lionel Boxer Intergon Timo Busch ETH Zurich/ Duisenberg School of Finance Shawn M. Carraher Severson Entrepreneurship Academy Richard Chapas University of Delaware Carl Dalhammar Lund University Kathryn M. Davidson University of South Australia Kate Faulhaber Columbia University Deborah Gallagher Duke University Michelle Graymore University of Ballarat Nadja Guenster Maastricht University Iaki Heras-Saizarbitoria University of the Basque Countr Franz K. Hiebart ERM Sustainability Practice Leader Bob Hockman TAMKO Building Products Udayangani Kulatunga University of Salford Seong-Rin Lim University of California Richard MacLean Richard MacLean & Associates, LLC T. Madarsz University of Miskolc Michael Mesterharm University of Oldenburg J. Emil Morhardt Claremont McKenna College I. E. Nikolaou University of the Aegean Kathy Quillinan Nothstine National Association of Development Organizations Frans Padt Penn State University Batrice Parguel University of Crteil Robert Schneider University of North Carolina at Pembroke Cory Searcy Ryerson University
Aileen Ionescu-Somers IMD Corporate Sustainability Management John Sutherland Michigan Technological University Francisco Szkely University of Texas Jerry Welcome Reusable Packaging Association
Dalia Patino Echeverri Duke University Bruce Paton San Francisco State University J.M.B. (Jos) Potting Wageningen University
Jingfu Guo Dalian Nationalities University Rosa Maria Dangelico Polytechnic University Of Bari
Madeleine E. Pullman Portland State University
Journal of Environmental Sustainability Volume 1 2011
Letter from the Editor-in-Chief
DEAR READER, Bringing a new journal into existence is, in a small way, similar to doing the same for a child. There already exists an established environment into which it will come and a set of rules (whether genetic or journalistic) for it to follow along the way; consequently, there are expectations. Upbringing could be strict or liberal or anything in between and progenitors hopefully will seek the right balance so as to develop responsibility and cultivate imagination. There also are many outside influences. In spite of the presence of all these paths and walls, each will develop as a unique individual. The rules and upbringing style of this journal are to a significant extent influenced by the nature of its focus. As evidenced in this issue in the article by Kiss, the concept of sustainability has many interpretations with widely varying intended applications and claims, and indeed still remains well within its developmental stage. Conceptual terms that draw a wide audience, due either to favor or fear, are quickly adopted for exploitation. The essence of continuity embedded in this concept of sustainability has such broad appeal as to make it vulnerable to an almost equally broad range of exploiters, every one with an arguable rationale for its use. In response, an increasing number of constituent groups have developed and set forth meanings held in common for the concept of sustainability, incrementally defining the broader term and delineating boundaries for its use. In each case, there exists an identifying prefix to the word sustainability, e.g. ecological, economic, or social. It is an objective of the Journal to support development of a common meaning for the term environmental sustainability among a constituent group of environmental managers and Morelli puts forth such a proposal within this issue. Another objective of the Journal is to encourage and provide opportunities for us to periodically question underlying assumptions and to revisit status quo situations in view of new information. In this issue, Kerekes raises questions about responsibility in the face of extraordinary natural phenomena, highlights long-term risks and damages that are obscured by more immediate concerns, addresses action in the face of theoretical uncertainty, and illuminates a commonly missed dimension in the analysis of environmental risk. Pogutz, Micale and Winn identify critical constraints inherent in corporate sustainability efforts and here again bring to these light as missing profiles on the horizon of environmental management scholarship. Both papers emphasize the critical importance of taking a more expansive view of the corporate world. The Journal also seeks meaningful and credible measures of environmental sustainability. Windolph reveals that problems exist in various rating systems, including a lack of standardization, credibility of information, transparency and
independence, and a presence of bias and tradeoff imbalances, and suggests strategies for improving reliability. Reichel and Seeberg propose defining and applying global ecological allowances, e.g., CO2 emissions, to specific industrial sectors as a measure against which environmental performance could be calculated. Recognizing that no one single socioeconomic model will bring about environmental sustainability, the Journal welcomes reports on experimental efforts to meet societal and ecological needs in unique situations. In this issue, Luda presents a case study of the efforts of a small city in Austria to become more economically and environmentally sustainable, and examines the efforts and outcomes of a very small intentional agricultural community in Hungary dedicated to biodynamic farming. Over the past quarter century, the role of the environmental manager has been shifting from reactive to proactive. Along with this shift has been an evolution of tools to help us move toward a more environmentally sustainable future. These tools are used toward that end by environmental managers and increasingly by others in the organization. Winnebeck presents an effective set of tools for environmental managers to use in their work with product design teams. In this same time frame, the boundaries of environmental responsibility have expanded beyond the organizations environmental experts to include other functional units. As a first step in developing a framework for integrated, cross-functional transfer of sustainability related knowledge within an organization, Harms explores how environmental sustainability related knowledge now moves among functional units in an internal sustainable supply chain. The Journal encourages papers that introduce and evaluate effective tools for environmental sustainability. To accommodate a broad range of contributions and ideas, the Journal will accept
papers in four categorical styles, including: Original Research, Synthesis, Insights, and Visions. Additionally, commentaries or opinions on specific timely issues may be invited. I sincerely hope you will find the information presented in this and future issues helpful in moving us all toward a more environmentally sustainable future. Best regards, John Morelli
Rise and Fall of the Concept Sustainability

Kiss Kroly Corvinus University of Budapest karoly.kiss@uni-corvinus.hu
ABSTRACT: Sustainability is a key concept when we discuss the effects of human population and activity on nature and the biosphere. Still, especially in Europe, for years it has been used in many other senses both in economics and sociology. Its original meaning has been greatly distorted and extended; it has been misused and abused. This paper examines why this happened and what is the new meaning (if any) of the concept. It also discusses the interpretation of the concept sustainability on different levelsglobal, national, industrial, and corporateas the author sees it. Emphasis is placed on the difference between environmental protection and sustainability.
KEYWORDS Ecological Sustainability, Social Sustainability, Economic Sustainabilty, Levels of Sustainability, Misuse and Abuse of the Concept Sustainability I. SEMANTICS, MISUSE, AND ABUSE
Twenty years ago the concept sustainability was known only by ecologists and environmental economists, and its meaning was quite unambiguous: human population and activity should not surpass the carrying capacity of the biosphere, its renewing, resource, and sink capacities. Nowadays sustainability is one of the most frequently used words by economists and politicians. You can hardly read a text or an interview by a leading economist or politician where sustainability is not used several times. By now its original meaning has faded away and been forgotten. It simply means good, a synonym for everything that is positive. One can read and hear about a sustainable state budget, exchange rate, interest rate, exports, financing,
sustainable society, social health, and pension policies. The worst of everything is sustainable economic growth, which is the oxymoron of economics.1 According to environmental economics and ecological economics, permanent economic growth is unsustainable; it is development that can be sustained. The expression has been inflated, overused, misused, and abused. At the same time it crowds out decent adjectives like permanent, steady, balanced, just, continuous, and quick. On the top of everything, the term is used completely unrelated to the natural environment. You cannot object that, still, this is good because an important notion is spreading. To the contrary, as its inflated meaning is spreading, people think that everything is all right, we are sustainable, or at least heading for sustainability. II. THE CRITIQUE OF THE BRUNDTLAND DEFINITION See Daly 1991, Steady-State Economics.
A development which meets the needs of present generations without compromising the ability of future generations to meet their own needs (Our Common Future). The notion of sustainable development has been created with an inborn defect. The second part of the Brundtland definition (without compromising the possibilities of future generations to meet their demands) is all right, but the first part, to satisfy the needs of the present, is a criterion that cannot be met. Needs cannot be satisfied, partly because above a minimal-level characteristic for the given society. they are determined by motivation of social prestige. On the other hand the permanentand even acceleratingtechnological development generates newer and newer needs. This defect can be explained by political considerations. The concepts elaborated by the UN and its institutions are addressed to the whole world, including the developing countries (the number of which is five times more than the developed ones). In a world where the daily income of 1.2 billion people is less than $1, and 2 billion people get less than $2, economic growth and the satisfaction of basic needs are necessary. However, in the developed countries, where the daily income is between $50-100, sustainability should be interpreted in another way. Moreover, the Brundtland Commission had to take into consideration characteristics of the developed world as well. The West European citizen prefers to select the household waste according to its material and even color and collects it into different containers with satisfaction, well, I have made some sacrifice for the environment. However, the political party that wanted to convince the citizen about the negative side of economic growth, the necessity of consumption reduction, or less motorization would be doomed. As a result, from the political side, the Brundtland definition is understandable, but scientifically it cannot hold.
I am not sure that we have to be happy that the concept of sustainability has been spread this way. The misbelief that sustainability could be maintained even at this level of consumption involves serious negative consequences.2 III. THE ORIGINS OF THE THREE LEGS APPROACH
The damage emanating from the marketing character of and political concession to the Brundtland definition is dwarfed by the concept based on the so-called legs or pillars of sustainability. This approach can be traced back to the Earth Summits of 1992 in Rio and 2002 in Johannesburg. The concept differentiates the ecological, economic, and social dimensions (pillars or components) of sustainability. A common reference to this reads as follows: sustainability is not reached if the economy performs not properly and if basic social problems are not solved. If the discussion were about economic and social conditions of reaching sustainability, I would fully agree. If these legs or pillars were interpreted that the economy should develop in a local direction based on environmentfriendly alternatives, decreased consumption, a different way of thinking and living, and a changed attitude toward nature, that would be acceptable. However, I cannot agree when present day economic and social conditions are considered as equal to the ecological side of sustainability. A quotation from the Johannesburg Summit 2002, referring to the Agenda 21, endorsed by the former Rio Summit, reads as follows: The Agenda 21 has integrated in one unique political framework 2 Let us remember the conclusions of the Factor Ten, the Carnoules Declaration: In order to reach sustainability without decreasing consumption, a 10 fold efficiency improvement should be needed in the use of energy and resources. (Carnoules, France, 1994)
the ecological, economic and social concerns.3 However, this concept is not the same as is meant by the followers of the three leg approach. The definition of sustainable development by the Summit resolution is the following: to ensure a balance between economic development, social development and environmental protection as interdependent and mutually reinforcing pillars of sustainable development.4 According to a frequent interpretation, the equal importance of the three legs supposes that a trade-off could be done among them in the sense that economic success of a country may mitigate the damage done to the environment. This concept does not comply with the conditions of the so-called strong sustainability, which excludes trade-off between manmade and natural capitals. According to Pearce and Atkinson, Z = S/Y - dM KM/Y - dN KN/Y; if Z 0, we have the case of weak sustainability, meaning that savings can replace the amortization of manmade and natural capital. (S: savings, Y: GDP, KM: manmade capital, KN: natural capital.) For strong sustainability, dN KN/Y 0, the natural capital cannot decrease in time.5 Besides, it is quite evident that this three leg approach by the documents of the Rio and Johannesburg Summits should be related, first of all, to the third world. In a world summit where fourfifths of the 200+ countries are poor, underdeveloped states, one rightly argues that in their case economic growth and basic social rights are equally important. However, this argument should not be extended to countries of abundance and consumer societies. When this has been done, and the three pillars have been equalized, ecological sustainability sharply 3 4 5 Johannesburg Summit 2002, p. 6. Johannesburg Summit Resolution, 2002. Kerekes 2007, p. 26.
lost its importance. The Assistant General Secretary of the UN stated: Both the environmental activists and representatives of the industry have seen a false trade off between the protection of environment and economic growth. A new way of thinking should be introduced: one, which considers a healthy economy and a healthy environment as interrelating, mutually improving aims.6 Another definition from the Johannesburg Summit is in accordance with my thoughts: Sustainable development aims at improving the life quality of all people of the world, without increasing the usage of natural resources above the carrying capacity of the Earth.7 Following, it prescribes the integration of three fields of key importance. economic growth and equality, protection of natural resources and the environment, social progress. The first aim is responsible, long-term growth, when no country or community should lag behind. The protection of natural resources and the environment serves the interests of future generations. I cite the requirement of social development: People, all over the world, need employment, food, education, energy, health service, water and sewage canalization. Besides the satisfaction of these needs the world community has to ensure the acknowledgement of the rich tissue of cultural and social diversity and the rights of the workers and that all members of the society had the right to participate in the determination of the common future.8 It is needless to say that all these requirements refer to the third world. It is their case where backwardness, poverty, and deprivation are of high scale. In their case it is evidently justified to integrate ecological, economic, and social targets 6 7 8 Johannesburg Summit 2002, p. 2. I.e. p.4. I.e.
and the completion of the ecological sustainability with economic growth, equity, basic human needs, services, and rights, but is it justified to project these requirements on the rich countries? Conclusion: The three leg approach by no means could be interpreted as a trade-off among the ecological, economic, and social legs. When the documents of the Earth Summit speak about their integration, the aim is to have in mind the serious economic and social backwardness of the four-fifth parts of the world population. It would be hypocrisy to call them on the protection of the natural environment while their basic needs are not met. However, this approach should not be implemented vis--vis the developed countries. IV. ECONOMIC AND SOCIAL SUSTAINABILITY HAS IT ANY MEANING?
should be efficient, and resources should be raised for sustainable development. Also in the society, poverty, discrimination, and unemployment should be combated, big income differences narrowed, tolerance prevail, and equal chances available for all. No one can doubt the rightness and justification of these goals in the traditional sense. Nonetheless, we can challenge whether these goals have any relatedness to ecological sustainability. Besides, nobody could argue that if these goals were not reached, sustainability could not be achieved. (Again, we should be aware of the fact that these criteria have been prescribed for the third world.) The sustainable economy In the 60s and 70s Japan and the small Asian tigers had the most dynamic economic growth, and their competitiveness was outstandingly high. Since the80s, it is China that beats the growth records; in the 90s India also has accelerated growth. Have these countries approached ecological sustainability? To the contrary, they evidently have been departing from it. However, neither of the countries getting into the downward sloping phase of the pollution Kuznets curve have approached sustainability because their per capita energy and resource consumption is permanently growing, but their efficiency indicators are improving .9 Let us state that even if the dematerialization of a country is favorable, even if its environmental efficiency is improving, it is approaching toward sustainability only if its per capita energy and resource use are diminishing. (There is only one such a country among the developed ones: Germany. The 9 This process of decarbonisation or dematerialization should not be undervalued. But when per capita energy use and what is even more important CO2 emission is growing, no one can speak about even a trend towards sustainability; to the contrary: we are still heading for unsustainability.
From the previous point we could see that concerning the definition of sustainabilitythe aim of the UN Earth Summits was the integration of the ecological, economic, and social elements of sustainability. Namely, reference was made to the components of sustainability, but nobody was speaking about economic or social sustainability separately. Most leading politicians and economists are speaking about sustainable economy and sustainable society without any relation to the ecology. By now these two terms have an autonomous and independent existence. Then what is the meaning of a sustainable economy? In other words do sustainable economies or sustainable societies exist in a non-ecological sense? When the UN documents discuss the economic and social aspects of sustainability, they define simple requirements that are evidently suited to the developing countries. The economy should be stable, dynamic, and competitive, shortly successful, and healthy. Resource use
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reason is that after reunification the industry of the former GDR was collapsed.) In the countries that got into the downward sloping phase of the Kuznets curve, only the energy and resource efficiency are improving. This is important but not enough for the sustainability. As a result, the dynamic growth and the improvement of efficiency have nothing to do with sustainability. What about the fiscal and monetary stability? Do they have anything in common with ecological sustainability? In a paradoxical way, rather unstable countries do favor sustainability more than stable ones, because after instability, restriction packages are introduced that aim at reducing wages, budget outlays, and imports. However, as instability has been partly caused by former high liquidity and excessive spending, the result of the different swings from an environmental point is neutral.
In case of the developed countries, a sustainable economy should be an environment friendly economy with alternative production and consumption structures, a high share of renewables in the energy sector and an ecological tax reform. In the final instance, a sustainable economy in the non-ecological sense is the opposite of what has been said above; ecological sustainability demands a stationary economy, i.e., without growth.10 The sustainable society To speak about the social side or leg of sustainability is even a bigger attack on common sense. Does high unemployment, big differences in culture and incomes, and the lack of tolerance and nondiscrimination make a society unsustainable? From the ecological viewpoint, no. It is the
10
See Dailys Steady-State Economics.
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same for the natural environment; whether these characteristics do prevail or not, they are not relevant. Property and income distribution does not affect the state of the environment; low employment rather favors it. From the viewpoint of welfare economics, income differences do not count. The social welfare function can be maximized at both low and high income differences. From a non-ecological viewpoint it is a question of politics and ideology. Objectively, the above society is not sustainably, if it does not tolerate these characteristics and rises
up against them (= social revolution). This narrowing of the concept of sustainability leads to its unlimited use, misuse, and abuse. During the past years all European countries developed their so-called SDSs (Sustainable Development Strategies). However, a short review of these strategies reveals that they are ecologically unsustainable, and the expression is a mere lip service to the environmental expectations. The proper title for these strategies should be environment-friendly development strategies.
These figures contain the discussed topics of the SDSs of 11 European countries. For sustainable development the topics: 2) national economy and sustainable development, 12) environmental media and effects, 11) natural environment and resources, and 8) energy economy would be of high priority. Still, most attention is paid to 20) international processes and 1) basic social questions. (The 11 countries are: Austria, Germany, Ireland, Greece, Great Britain, the Netherlands, Sweden, Switzerland, Poland, Slovakia, and Hungary.) Source: Nemzeti Fejlesztsi Hivatal, FFS tervezsi segdlet, 2005.
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One could argue that, in the final analysis, this does not cause any harm because it stresses the importance of the environmental issue. Nonethless, this is untrue. These national development strategies suggest that if the economy and the society are all right, so is the environment. They pretend to appear as if we were in the right direction, but we are not. With all these national sustainable strategies, sustainable sectoral concepts, and sustainable corporations, we are heading for an unsustainable world. V. IS SUSTAINABILITY NEGOTIABLE?
Those individuals who are speaking about the economic and social legs or pillars of sustainability unintentionally have in mind an arrangement when, e.g., during wage negotiations, the trade unions, the employers, and representatives of the government reach a compromise. Such items as the volume of state budget deficit, pace of economic growth, and measure of inflation all may be subjects of negotiations and compromise. Hence a false conclusion comes. Ecological sustainability, although it can be either promoted or impeded by economic and social factors, basically is a term belonging to the natural sciences, and, as such, it cannot be a subject of negotiations. It could be negotiable: What will be the contribution of the different industries or social layers to sustainability? However, it cannot be negotiable that a certain level of environmental load will conclude at an irreversible damage, i.e., an ecologically unsustainable state. If I jump out from the third floor, I shall be inevitably smashed dead. I cannot negotiate a business with gravitation that it could affect me only a half or a quarter of its force. At the present pace of deforestation of rain forests, it cannot be negotiated that climate disorders should not increase and loss of biodiversity should stop. The achievement of certain
economic or social goals (a progress on the scale of economic and social sustainability) cannot neutralize the following environmental damage (unless it is reversible). A progress in the supposed economic and social sustainability cannot neutralize irreversible environmental damage. This is the reason it is dangerous to speak about the legs or pillars of sustainability. It raises the misbelief as if progress in the economic and social dimensions could reduce environmental risks and compensate environmental damage. But if an individual does not even know these environmental risks, that person has a good occasion to propagate his or her economic or social opinions or political views under the disguise of sustainability. VI. LEVELS OF SUSTAINABILITY
Global sustainability As the global ecosystem is one highly complex system with a self-regulating capacity and the capability to optimize living conditions for its components (see the Gaia hypothesis by Lovelock)11, we should speak of sustainability, first of all, as a global concept, as this is truly the case. Of course, the interpretation of the term is not so evident. For example, how much time do we give to the environment to renew itself or to process the waste? Furthermore, what damage scale is affordable in the local and small-scale ecosystems that does not endanger the global ecosystems? Whether excessive deforestation in one region may be mitigated by forestation in other regions, damage caused to a local ecosystem may be mitigated by harnessing similar ecosystems in other places, and whether the overuse and damage of a local ecosystem could be mitigated by the protection of a similar ecosystem elsewhere, namely, whether the different ecosystems are 11 Lovelock, 1987.
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capable of replacing each other. For the sake of simplicity, let us suppose that for these questions the answers are positive. (Of course, the case is more complicated; we have to suppose that the damage does not trigger irreversible processes in the neighbouring ecosystems and habitats.) The national level Nevertheless, we interpret sustainability on the national level. This is only justified by the fact that there exist sovereign states, and, therefore, the responsibility for the use and load of the biosphere is shared within them. There are no international authorities that could fully take the responsibility of protecting the global environment. (Hence the free ride in a global commons: as individual states cannot be neither closed out of using them, nor forced to comply with the requirements of global sustainability, they overuse it. This is why the introduction of a global emission trading scheme is so difficult; the original deal of the emission rights could be done according to several criteria, and each single criterion affects the different concerns and interests of nation states in a different way.) The poorest countries are the only ones that are ecologically sustainable. Thinking in global ecological footprints, developed and emerging countries all surpass the carrying capacity. The industrial level We frequently hear such expressions as sustainable transport, sustainable energy industry, sustainable agriculture, and sustainable consumption, referring to the industrial or sectoral levels of sustainability. If the concept of sustainability is used as an alternative to the environmentally unfriendly practices, it is acceptable (e.g., transportation with a higher share of railways and public transport; more renewable energy production and use; biofarming, avoiding the
use of disposable products, and vegetarianism). Even in this case the proper term would be environment friendly transport, industry, and agriculture consumption. However, if it is interpreted as a real sustainability requirement (namely that the activity of the given industry should observe the limits of ecological sustainability), the idea is not right. Countries have different natural endowments and economic structures, and they can achieve a balance on the national level (meaning that the activity of one industry that is unsustainable might be balanced by the activity of an environmental friendly sector). In this sense, we can disregard industrial sustainability. The requirement that each industry and field should be ecologically sustainable is unrealistic. Still, interpretation of sustainability on the industrial level (e.g., transportation) may make sense; it shows the individual environmental load of that industry. To strive for a sector-by-sector observation of the concept of sustainability would not be rational. For example, transportation would be sustainable only if it used exclusively renewable fuels, land use by highways should be mitigated by increasing natural absorption capacity in other fields, and vehicle wrecks should be completely recycled. (This latter requirement is even more difficult to comply with in the case of the construction industrythe reuse of demolition materials.) To expect the fossil fuel industry to be sustainable is foolish. This expectation could be met if the industry would develop renewables in a parallel way that could replace fossil fuel production. But for this purpose, the fuel production should have to be excessively expensive or of low level. VII. CORPORATE SUSTAINABILITY
Even more intriguing is the use of sustainability on the corporate level. In a time when new concepts and disciplines are born like Corporate Social
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Responsibility and The Sustainable Firm,12 and they aim at integrating the environmental and social imperatives of our age, it is difficult to argue against these concepts. However, I doubt whether firms other than those operating in alternative activities (such as producing renewables, organic farming, alternative sewage treatment) could be sustainable. In the overwhelming majority of the cases, when it is written sustainable firm, it should be read as environmental-friendly firm. Almost 30 years have passed since Alfred Rappaport, professor at Northwestern University, swimming together with the newly emerging neoliberal tide, stated that the main aim of a firm must be the increase of shareholder value. Since that time managers strive brutally for that purpose, disregarding employees interests, splitting firms, or liquidating, if shareholder value could be raised. As a natural reaction, the concept of socially responsible enterprise has been born (more exactly reborn, because this idea has been present in the American economy since the very beginning of the formation and activity of corporations as a reaction to the ruthlessness of anglo-saxonian capitalism). Also, as a new element, environmental responsibility has been added to the social one. Also in Europe the development has been different. The state had been playing welfare functions from the very beginning, which had been strengthened and institutionalized in the welfare state after the Second World War. Europe also followed the neoliberal tide from the beginning of the 80s,13 and as a reaction, the concept of CSR, involving environmental responsibility, emerged. However, by now CSR in Europe is derived from the macro-level sustainability, as its pendant on the 12 Corporate Citizenship, Corporate Social Responsiveness, Tripple Bottom Line, Stakeholder Theory; see at Mlovics 2011, p. 42. 13 More exactly since 1979, the first Government of Margaret Thatcher.
micro-level.14 The theoretical background is the cutting back of state functions, the demolition of the welfare state. In this case the question arises, if the intervention of the state both into the economy and the firms affairs has been minimized (to the function of the night guard state), how could the firms be disciplined? In such conditions does the ethical behavior and social and environmental responsibility of the firms come to the forefront? If the welfare state is demolished, it is the firms that have to play the functions of the welfare state, on a voluntary basis, on their own. Changes in the instruments of environmental protection show a good analogy: the preference of voluntary instruments. The firm tries to get rid of the state regulation and suggests that it is alone capable of protecting the environment, solely motivated by its consciousness and responsibility. In the context of a strong, responsible state, the voluntary charity of the firms is replaced by a redistribution of incomes through taxation; instead of the good treatment with the workers and employees, the strong trade unions validate their interests, and the environment is protected by strict government regulations, not by voluntary measures. As a result although I am not a Friedman-ite, and moreover have contradictory views to him in this respect I partly share his opinion (namely, that the firms main function is increasing profit and not taking care of social and environmental concerns). I add that what is needed is not so much the responsible firm but the responsible state. Returning to the ethical requirement of good treatment with the workers and employees, is there any system that equals the German Mitbestimmung or the Austrian Sozialpartnerschaft in this respect? A fashionable approach, the stakeholder theory, seems to be a different problem, but I think 14 Mlovics 2011, p. 43.
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it could be traced to the same roots.15 If markets were not so highly monopolized as they are today, and the economic playground were determined by a responsible state, the proper management of the stakeholder contacts would not mean a favor on the part of the firms, but it would emerge as an external market obligation. At last, let us consider the role of the firm in the given town or region, and its contribution to the improvement of local conditions and the life of the local society. If it is a big foreign company or part of an international retail chain, it is really a grace from its part. However, for a local small- or medium-size firm, it is a natural favor to contribute to the welfare of the local community. The creation of public goods like social cohesion, welfare, culture, and local development is the task of the government. A serious theoretical problem emerges if firms are charged with these tasks. In the last resort, this basic theoretical question should be asked: How could the representation and realization of social and environmental interests be more successful, either if they emerge vis--vis the firms as external government, social demands, and forcings, or if they are served by voluntary firm decisions? For me the answer is evident: we should choose the first path and the second could be only additional (second best). VIII. SUMMARY The concept sustainability should regain its original meaning of ecological sustainability. Spreading to include society and the economy creates confusion, and, instead of supporting a noble cause, it has negative consequences, although people think that we are heading in a good direction. The same holds true with the inflated use of sustainability. In the majority of the cases, it is environment friendly but not sustainable and, therefore, a misnomer. 15 See: Mlovics 2011.
Sustainability should be interpreted on a global level, but in the absence of a global authority responsible for it, we must accept its interpretation on national level (where de facto responsibility is allocated). The usage of the term on industry level is more of a marketing exercise; it has no scientific background. It is even more questionable on the firm level. Recently, great emphasis has been put on the social responsibility and environmental sustainability of the firms. Besides the misuse of the concept of sustainability, I do not believe in the voluntary achievement of these goals on the firm level. I think this is the consequence of liberal economic policies. In the past three decades government intervention to the economy was not fashionable. In such cases there is not enough pressure from top leadership in the firms to take care of the social sphere and the environment. As a result, corporate responsibility is a second-best solution. What really would be needed is the responsible state instead of the responsible enterprise. Also, the expression corporate sustainability itself is an extreme exaggeration. The most we should speak about is environmentalfriendly corporate management but by no means sustainable corporations. The background of the confusion concerning the concept sustainability is an economic theoretical one. Sustainability can be correctly interpreted in the context of ecological economics. (As a matter of fact, ecological economics is based on sustainability and carrying capacity.) But the endeavors of the neoclassical economics to spread its methodology on a problemnamely sustainabilitywhich originally did not make part of the discipline, results in very contradictory outcomes. These outcomes seem sometimes absurd.16
16
Mlovics 2011, p. 8.
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IX. ACKNOWLEDGMENTS This publication was supported by TMOP Funds: REF: 4.2.1/B-09/1 KMR-2010-0005. X. REFERENCES [1] Agenda 21. Earth Summit. The United Nations Programme of Action from Rio 1992. Carroll, A. B. A Three-Dimensional Conceptual Model of Corporate Performance. Academy of Management Review 4 1979. 497-505. Print. Daly, Herman E. Steady-State Economics. Island Press, Washington, DC, 1991. Print Development and the Environment. World Development Report 1992. World Bank, Washington, DC, 1992. Durning, Alan: How Much is Enough? The Worldwatch Environmental Alert Series. Norton, NY, London, 1992. ECSEC-EEC-EAEC.Towards Sustainability. A European Community Programme of Policy and Action in Relation to the Environment and Sustainable Development. Brussels, 1993. Environment 2010: Our Future, Our Choice. The Sixth Environment Action Programme of the European Community 2000-2010. Europes Environment. The Dobris Assessment. EEA, Copenhagen, 1995. The Second Assessment. EEA, Copenhagen, 1998. Johannesburg Summit 2002. World Summit on Sustainable Development. www.Johannesburg Summit.org. n.d. Web. 2002. Johannesburg Summit Resoution. 2002 web.
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Environmental Sustainability: A Definition for Environmental Professionals

John Morelli Rochester Institute of Technology john.morelli@rit.edu
ABSTRACT: While acknowledging the need for sustainability, this paper summarizes the problems that have been encountered in our understanding and use of this concept. It explores the efforts of others to define the concept within the context of specific disciplinary areas and sets forth a proposal for a basic understanding of the term environmental sustainability as an expansion of our common perception of the nature of human activity so as to more clearly connect it with the ecological concept of interdependence and to serve as a goal for environmental managers.
KEYWORDS Defining Sustainability, Ecological Services, Environmental Sustainability, Goals of the Environmental Professional, Principles of Environmental Sustainability I. INTRODUCTION In the middle of the 20th century, we saw our planet from space for the first time From space, we see a small and fragile ball dominated not by human activity and edifice but by a pattern of clouds, oceans, greenery, and soils. Humanitys inability to fit its activities into that pattern is changing planetary systems, fundamentally. Many such changes are accompanied by life-threatening hazards. This new reality, from which there is no escape, must be recognized - and managed (From One Earth). The need for sustainability There is no question regarding the need for
sustainability. In The Concept of Environmental Sustainability, Robert Goodland substantiates a history documenting this need, presenting proponents ranging from Mill and Malthus to Meadows and Brundtland et al., and puts forth a definition of environmental sustainability as the maintenance of natural capital and as a concept apart from, but connected to, both social sustainability and economic sustainability. These arguments are not repeated here but rather accepted as valid, supported, and used as a basis from which to proceed to further develop this concept. The problems with sustainability On October 6, 2010, the US Federal Trade Commission (FTC) proposed significant revisions to its Guides for the Use of Environmental Marketing Claims also known as its Green Guides, which exists to help marketers avoid making deceptive claims under Section 5 of the FTC Act. The proposal lists five terms that will not be addressed
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by the Guides. Number one on that list is the term sustainable. The reasons provided for this interesting decision include claims that there is no clear understanding of the term among experts, the term cannot be defined, and there are no accepted criteria with supporting test methods to measure it (Morelli et al., Sustainable Consumption). There has been more than a decade of struggle with the definition and relevance of the term among individuals in various professions (see Toman, Costanza, Mebratu, Vos). A debate exists between those who support a three-legged approach (i.e., simultaneously benefitting economy-societyenvironment), and those who view it as a relationship between human society and nature (Robinson). The result is that the concept is now more open to individual political and philosophical interpretations than to scientific definition (Robinson). Even less progress in defining this concept appears to have been made by the organizations that employ sustainability professionals. Sustainability was recently identified in an annual guide to corporate newspeak as one of the most abused terms in the corporate vernacular (Urban Intelligence Network). The term has become a corporate buzzword, applied so commonly and ubiquitously that it has become simply a synonym for everything that is positive, (Kiss). This is strongly evidenced in recent employment advertisements for sustainability managers and directors. In their analysis of posted job descriptions associated with employment opportunities for sustainability managers in US corporations, Greenwood and Bliss reported great diversity in expectations regarding the associated scope of duties (Greenwood and Bliss). The descriptions varied in emphasis from not much more than straightforward accounting to an almost evangelistic extreme of sustainability championing, (Morelli et al., Sustainable Consumption).
II.
DEFINING SUSTAINABILITY IN THE CONTEXT OF A PROFESSION
While the concept of sustainability is increasingly discredited as a useful concept by itself, it appears to be serving some purpose when preceded by a delineating modifier like ecological or agricultural or economic. Efforts have been made by members of various professions to give meaning to the term within the context of those respective professions. Callicott and Mumford, for example, develop the meaning of the term ecological sustainability as a useful concept for conservation biologists; In Ecological Sustainability as a Conservation Concept, these authors advance an ecological definition of sustainability that connects human needs and ecosystem services: meeting human needs without compromising the health of ecosystems. They propose this concept as a guiding principle for areas where human activities take place. In Economic Sustainability and the Preservation of Environmental Assets, Foy explains that from an economic standpoint, sustainability requires that current economic activity not disproportionately burden future generations. Economists will allocate environmental assets as only part of the value of natural and manmade capital, and their preservation becomes a function of an overall financial analysis. In contrast, the ecologist will seek to preserve minimum levels of environmental assets in physical terms. He suggests that since an ecological approach will better characterize the present situation, it should serve to limit conventional economic reasoning to ensure sustainability. Economic sustainability should involve analysis to minimize the social costs of meeting standards for protecting environmental assets but not for determining what those standards should be.
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In Social Sustainability: towards some definitions, McKenzie identifies several attempts to define social sustainability and concludes it generally to be, a positive condition within communities, and a process within communities that can achieve that condition. This definition is supplemented with a list of corresponding principles, including: equity of access to key services equity between generations a system of relations valuing disparate cultures political participation of citizens, particularly at a local level a sense of community ownership a system for transmitting awareness of social sustainability mechanisms for a community to fulfill its own needs where possible political advocacy to meet needs that cannot be met by community action Others attempt to capture its use for those working in agriculture (Harwood) or in the various functional units of business organizations (Morelli et al., Sustainable Consumption) Not surprisingly, environmental managers have identified environmental sustainability as a concept that has a professional meaning for them, (Morelli and Lockwood). There is ample evidence in the literature by Chan, Ionescu-Somers, Rothenberg, and others indicating that above and beyond all other pursuits, achieving regulatory compliance is the primary and principal role of the environmental manager in industry. Markusson enriches the related body of knowledge by exploring the characteristic of environmental championing, defined as any effort made by an (individual or collective) actor in a firm to promote environmental issues. However, until fairly recently, there had been little that discussed the professional goal of the
environmental manager as an independent and commonly held meaning of the profession itself. In 2009 Butler concluded that a common professional goal for environmental managers does exist separate from, though related to, that of the industries that employ them, and he tentatively identified that goal as ecological balance. His efforts were unique in that they were supported by a collaborative international research program, established at Rochester Institute of Technology, called the Environmental Management Leadership Initiative (EMLI), which was created specifically to define and develop the evolving role of the professional environmental manager in moving our social economic systems toward a more sustainable future, (Statement of Purpose). The author supported and has continued this work during the past four years toward further refining this goal and vetting the evolving results through presentations and corresponding workshops at a series of EMLI symposia hosted by Corvinus University in Budapest, Hungary; American College of Management and Technology in Dubrovnik, Croatia; Bocconi University in Milan, Italy; Leuphana University in Luneburg, Germany; and Rochester Institute of Technology in Rochester, New York in the US. The outcome of this process was a determination of strong support by members of the profession for establishing environmental sustainability as the professional goal of the environmental manager. III. A CASE FOR ENVIRONMENTAL SUSTAINABILITY
Whether one considers sustainability to exist as a three-legged table consisting of the environment, the economy, and society, or as a dualistic relationship between human beings and the ecosystem they inhabit, there should at least be agreement that
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ensuring the provision of clean air, clean water, and clean and productive land is foundational to a responsible socioeconomic system. Examining, for a moment, the three-legged model, the question might be raised, Do these legs provide equal support or is there some associated hierarchy of values among them? It is apparent that, without a sustainably productive environment to provide a resource foundation, it would be difficult or impossible to imagine having a sustainable society. Similarly, a sustainable economy depends upon a sustainable flow of material, energy, and environmental resources. Without it, economic systems will fail. However, a sustainable environment need not be dependent on the existence of either society or economy and, as evidenced in the wild, can stand alone as a sustainable system. As the only piece of the puzzle that can actually stand by itself, it should be the model to emulate, and indeed there have been attempts to do so. The human species, while buffered against environmental changes by culture and technology, is fundamentally dependent on the flow of ecosystem services. Such services include: Provisioning services, the products obtained from ecosystems, including food, fiber, genetic resources, biochemicals, natural medicines, pharmaceuticals, ornamental resources, fresh water, and all forms of energy resources; Regulating services, the benefits obtained from the regulation of ecosystem processes, including air quality regulation, water purification and waste treatment, pest regulation, disease regulation, climate regulation, water regulation, erosion regulation, pollination, and natural hazard regulation; Supporting services, including soil formation, photosynthesis, primary production, nutrient cycling and dispersal,
seed dispersal, and water cycling; and Cultural services, the nonmaterial benefits people obtain from ecosystems through spiritual enrichment, cognitive development, reflection, recreation, and aesthetic experiences (Ecosystems and Human Well-Being). If it can be agreed that a sustainable environment is a necessary prerequisite to a sustainable socioeconomic system, then it also should make sense that the actions we take to remove threats to and foster environmental sustainability should contribute to such a system. While ecosystems range from those that are relatively undisturbed, such as natural forests, to landscapes with mixed patterns of human use, to ecosystems intensively managed and modified by humans, such as agricultural land and urban areas, the environmental focus proposed here delineates the portion of that range where there exists significant patterns of human use (Ecosystems and Human Well-Being). A general definition of environmental sustainability can now be crafted in recognition of these linkages between human well-being and ecosystems and, in particular, ecosystem services. IV. A DEFINITION OF ENVIRONMENTAL SUSTAINABILITY
Understanding and use of the word environmental quite often tends to be associated with some kind of human impact on natural systems. This context distinguishes it from the word ecological, which can be characterized as a concept of interdependence of elements within a system. As discussed above in the essay, Ecological Sustainability as a Conservation Concept, the authors suggest that an ecological definition of sustainability be advanced that is in better accord with biological conservation.
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Their suggestion was that ecological sustainability is meeting human needs without compromising the health of ecosystems. This seems inappropriate in that the general perception of the word ecological is that it implies a broader context than just the human experience. The word environmental, however, is almost always used in reference to human interaction with the ecosystem. To increase precision, it thus seems reasonable to view environmental as a subset of the broader concept of ecological, i.e., the intersection of human activities and ecological systems. Understanding and use of the word sustainable or sustainability endured a period of accelerated evolution commencing in 1987 with the publication of Our Common Future, which was then followed by a more recent decline in coherency to become an often-abused term simply meaning good and sometimes used even without a connection to the natural environment or ecological health (Kiss). As discussed above, meanings for this concept of sustainability have been evolving as individual professions have attempted to develop definitions that make sense in the context of their respective areas of expertise and contribution. The basic understanding of the term environmental sustainability set forth in this paper essentially expands our common perception of human activity so as to more clearly connect it with the ecological concept of interdependence, thus delineating the boundaries of this use of sustainability to correspond to the overlay of human activity upon the functioning of the supporting ecosystem. Environmental sustainability, then, is limited to and, in fact, becomes a subset of ecological sustainability. Broadly speaking, this concept of environmental sustainability might be seen as adding depth to a portion of the meaning of the most common definition of sustainable development, i.e., meeting the needs of the current generation without compromising the ability of
future generations to meet their needs, by taking on the general definition meeting the resource and services needs of current and future generations without compromising the health of the ecosystems that provide them,(Our Common Future). More specifically, environmental sustainability could be defined as a condition of balance, resilience, and interconnectedness that allows human society to satisfy its needs while neither exceeding the capacity of its supporting ecosystems to continue to regenerate the services necessary to meet those needs nor by our actions diminishing biological diversity. V. SUPPORTING PRINCIPLES OF ENVIRONMENTAL SUSTAINABILITY
The primary purpose for this effort to develop a definition of environmental sustainability was to help environmental professionals and others operationalize a portion of the concept sustainable development as set forth in Our Common Future. The general understanding and conditions proposed in the preceding section do provide more clarity of purpose and direction but do not include instructions for serving that purpose or following that direction. The list below contains 15 guiding principles, collected from a variety sources by the author and his students and colleagues. They are sorted into five imperfect but helpful categories. They are included to stimulate thought as well as provide advice. Readers are encouraged to visit the original sources for greater depth and perspective. Societal Needs Produce nothing that will require future generations to maintain vigilance (Sustainability Report). Design and deliver products and services that contribute to a more sustainable economy (Moffat).
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Support local employment (Southampton City Concil) Support fair trade (Williams). Review the environmental attributes of raw materials and make environmental sustainability a key requirement in the selection of ingredients for new products and services (Global Sustainability Principles). Preservation of Biodiversity Select raw materials that maintain biodiversity of natural resources (Global Sustainability Principles). Use environmentally responsible and sustainable energy sources and invest in improving energy efficiency (Global Sustainability Principles). Regenerative Capacity Keep harvest rates of renewable resource inputs within regenerative capacities of the natural system that generates them (Goodland). Keep depletion rates of nonrenewable resource inputs below the rate at which renewable substitutes are developed (Goodland). Reuse and Recycle Design for re-usability and recyclability (Sustainable Living 101). Design (or redesign, as appropriate) manufacturing and business processes as closed-loop systems, reducing emissions and waste to zero (Robinson). Constraints of Nonrenewable Resources and Waste Generation The scale (population x consumption per capita x technology) of the human
economic subsystem should be limited to a level that, if not optimal, is at least within the carrying capacity and therefore sustainable (Goodland). Keep waste emissions within the assimilative capacity of receiving ecosystems without unacceptable degradation of its future waste absorptive capacity or other important ecological services (Goodland). Develop transportation criteria that prioritize low-impact transportation modes (Moffat). Approach all product development and product management decisions with full consideration of the environmental impacts of the product throughout its life cycle (Moffat). VI. CONCLUSION This paper defines environmental sustainability: as meeting the resource and services needs of current and future generations without compromising the health of the ecosystems that provide them, and more specifically,
as a condition of balance, resilience, and interconnectedness that allows human society to satisfy its needs while neither exceeding the capacity of its supporting ecosystems to continue to regenerate the services necessary to meet those needs nor by our actions diminishing biological diversity. It is intended to help operationalize the concept of sustainability by providing more clarity of purpose and direction, particularly regarding the importance of valuing ecological services and recognizing our interconnectedness.
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It is intended as an articulation of the professional goal of the environmental manager and other environmental professionals. VII. ACKNOWLEDGMENTS: The good work of many is reflected in the thinking that went into this paper. I would especially like to thank Brian Butler, Lisa Greenwood, and Stefano Pogutz, all the students in my Environmental Sustainability and Social Responsibility course and all those in Lisas Environmental, Health and Safety Management course during the 2010-2011 academic year. VIII. REFERENCES [1] Butler, Brian P. (2009). Ecological Balance: The Greater Goal of the Environmental Manager. (MS Thesis). Rochester Institute of Technology, Rochester, NY, USA. Callicott, J. Baird, and Karen Mumford. Ecological Sustainability as a Conservation Concept. Conservation Biology 11.1 (1997): 3240. Chan, K. K., C. M. Tam, Vivian W. Y. Tam, and S. X. Zeng Environmental Performance Measurement Indicators in Construction. Building and Environment 41 (2006): 164. ABI/Inform & ProQuest. Web. 31 Mar. 2008. Costanza, Robert, and Bernard C. Patten. Defining and Predicting Sustainability. Ecological Economics 15 (1995): 193-196. Fifth International Environmental Management Leadership Symposium. 8-9 Jun. 2009, Bocconi University, Milan, Italy. Fourth International Environmental Management Leadership Symposium. 11-12 May 2009, Rochester Institute of Technology, Rochester, NY, USA. Web.<http://www.environmentalmanager. org/wp-content/uploads/2009/05/2009agenda-revised-apr-03-091.doc>. Foy, George E. Economic Sustainability and the Preservation of Environmental
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Contradictions Inherent in the Management of Natural and Industrial Disasters

Sndor Kerekes Corvinus University of Budapest sandor.kerekes@uni-corvinus.hu
ABSTRACT: These days people keep wondering whether the world is more dangerous now than it was before. Do natural disasters really happen more frequently or is it just that the damage they cause that has become greater? The situation is not quite clear. As a result of the globalizing world and advanced communication infrastructure, the number of known / reported catastrophes is relatively high, but that does not necessarily mean there has been an actual increase in frequency. The red mud spill in Hungary was a special combination of industrial and natural disasters. This is one of the reasons why it is very hard to pinpoint who is responsible for the event. Natural disasters tend to raise questions about responsibility that are different from those concerning industrial catastrophes. Interestingly enough, however, nature often plays an important role in industrial disasters. The present article is concerned with how the issues of responsibility are handled in the case of industrial disasters.
KEYWORDS Environmental Risks, Managerial Responsibility, Industrial Accidents JEL-codes: P48, R11, H23, O13, Q16, Q5, Q50 I. INTRODUCTION Tom Massey, director of RWE Power, admitted in reply to a question that Fifteen years ago, companies were saying that climate change was not relevant to business. You could not measure it, companies had no individual responsibility for it and there were no global regulations to control it. Many companies argued it was not happening at all. Scientific evidence and government action have fundamentally changed this scenario.
Yet this is just the usual way in environmental protection. The carcinogenicity of asbestos had long been proven by science when large building material producers still insisted that slates and asbestos-cement pipes were harmless. It also took a long time to convince economic actors that halogenated hydrocarbons damage the ozone layer and to achieve limitation or prohibition of their production and use. The front page of the world-renowned economics periodical The Economist has hardly featured anything but climate-change-related news for the last couple of years. Still, I am rather certain that it is not these articles but rather extreme weather events (like the 2005 Hurricane Katrina that killed more than 1800 people and flooded the city of New Orleans) that will call the attention of the public to
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Figure 1: Historical overview of accidents the potentially disastrous impacts of climate change. The tsunami following the Great Sumatra-Andaman earthquake which killed 225,000 people has had a more significant effect on humanity than all the UN development summits that have been held for years. These phenomena made the public realize that, in spite of all our ingenuity, humanity does not rule over nature. It took more than 225,000 lives to make us consider that all we have achieved so far is to create a weapons stockpile which, even in case of an accidental misunderstanding, is powerful enough to destroy the entire Earth. We do not, however, have anything to protect us from drought-triggered famines, or AIDS, and even less from earthquakes,
the latter of which we cannot even forecast. Even the most sophisticated models fail at coping with natures inventiveness. We are surrounded by natural and industrial disasters. The threat is growing continuously despite humanitys enormous efforts to avoid risks. The figure below makes it obvious that even though international efforts have increased in number, industrial disasters have not become any less frequent. The waves stirred by Hungarys 2010 red mud catastrophe have not even settled yet, and still we are already in the middle of a nuclear crisis at Japans tsunami-stricken power plant. Risk, by definition, is the product of two factors, the amount of damage expected to be done by an event that threatens peoples lives and valuables and the probability of that event occurring. Given the continuous growth in the population of the Earth (and in the wealth it possesses), environmental risks are obviously increasing as well, no matter whether disasters are becoming more frequent or not. Still, the answer to the popular question whether todays world is more dangerous or not is rather unclear. Have natural disasters really become more common, or is it just the damage done that has grown? There is no definite answer. As a result of a globalizing world and advanced communication infrastructure, the number of known / reported
Image 1: Aznalcollar (Spain). Failure of tailings dam retaining wall, 25 April, 1998.
Image 2:Kolontar (Hungary). Failure of the red mud dam retaining wall, 12 October, 2010. .
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Figure 2. Columns show the numbers of victims in millions, while the dashed line represents the number of reported events. (Guha-Sapir D, Vos F, Below R, with Ponserre S. Annual Disaster Statistical Review 2010: The Numbers and Trends. Brussels: CRED; 2011. p.3. http://www.cred.be/sites/default/files/ADSR_2010.pdf.) catastrophes is relatively high but that does not necessarily mean there has been an actual increase in their frequency. The total number of victims also is not above the average of many years. Considering per capita damage, the picture is even more confusing. The population of the Earth continues to grow exponentially, thus the denominator also grows rapidly. Yet while the number and severity of disasters is fluctuating, there is no clearly visible upward trend. This would suggest a drop in relative risk. The increase in risk, consequently, is instead caused by rapid growth in accumulated wealth, which also is responsible for the increasing value of insured damage (see figure 3). Even conservative professionals have no doubt that the risks related to climate change have actually increased. Among other phenomena, floods are often associated with climate change and are apparently becoming more and more common in Europe as well. As evidenced by the two tables below, European statistics about the frequency of and the damage caused by floods do not fully support the former assumption though floods have indeed become more frequent, both the numbers of people affected and the amount of damage caused has fallen during the last ten years. The improvement indicated by these figures is, of course, a consequence of efficient flood control measures. As we can see, appropriate protection might offset or even reduce the growth in risk induced by accumulation of wealth. Nevertheless, the costs of protective measures are very high. Rich European countries already have appropriate flood protection systems in place, yet efforts still continue. In economically underdeveloped regions like Bangladesh, floods still cause incredible devastation. The 1970 storm took more than half a million lives; the storm in 1991
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Figure 3: Changes in Economic Losses (green columns) and Insured Damage (blue columns), 1950 to 2000. (Source: Munich Re: 2000 http://www.munichre-foundation.org/NR/rdonlyres/E7ED6B1D2D9F-4E64-9FB3-5C8A4539AD9B/0/20051116_Hoeppe_Hohenkammer_short_WEB.pdf) killed only 138,000, while the 2007 flood caused 1,042 deaths. Although flood control protection systems are being built in these regions, too, the 1980-2009 239 22 2000-2009 147 19 poor are more severely hit by natural disasters. Some storms and floods can at least be forecast in advance. There are, however, natural disasters that cannot be predicted, and there is no suitable way of ensuring protection against them. Earthquakes or tsunamis will follow some of them. II. COMBINATIONS OF NATURAL AND INDUSTRIAL DISASTERS
Number of floods Number of countries affected Number of people killed Number of people affected (millions) Economic losses (billion USD)
1309 3.0
511 1.3
92.3
45.0
Table 1: Floods and their Impacts (total) in European Countries. Source: EM-DAT The OFDA/ CRED International Disaster Database
The red mud spill in Hungary was a special combination of an industrial and a natural disaster. This is one of the reasons it is difficult to pinpoint who is responsible for the event. Natural disasters tend to raise questions about responsibility that are different from those of an industrial catastrophe. Interestingly, however, nature often plays an important role in industrial disasters. Extreme weather played a role in both the Exxon Valdez incident and the accident in the Gulf of Mexico. The role of exceptional weather conditionsrainfall amounting to ten times the average and a severe
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Countries Romania France Greece Italy UK Bulgaria Austria Hungary Czech Republic Germany
Number of floods Number of people killed 25 169 14 34 14 15 13 72 12 26 11 52 8 1 6 14 6 38 6 29
Number of people affected 1187,400 22,500 12,200 20,000 379,500 13,300 45,800 61,400 218,800 331,600
Economic losses (billion USD) 1.7 1.6 0.7 2.1 16.6 0.5 0.2 3.8 3.1 14.1
Table 2: European Countries most Severely Hit by Floods (2000-2009) Source: EM-DAT The OFDA/ CRED International Disaster Database windstormwas also mentioned in connection with the accident in Hungary. Yet do extreme rains and winds, as extraordinary natural phenomena, relieve corporate managers from their responsibilities or limit their extent thereof? How should the important principles of environmental protection, such as the principle of due diligence or the precautionary principle, be interpreted in the context of industrial disasters or activities associated with high ecological risks? The Harvard case study treated the Exxon Valdez incident as a human resource issue. According to the study written by the worlds leading business school, the problem was that the tankers captain was an alcoholic. Leaving the crew and the cargo to be transported by an alcoholic was no doubt an HR mistake as well. It is surprising, however, that the case study did not mention the continuous environmental catastrophe many huge oil tankers had been causing. They regularly pumped sea water into their tanks on the way back from port and then pumped the oil-contaminated water back into the sea near the oil port. No one intended to call to account the owners for this slow catastrophe. Also, the case study never mentioned that the size of the tankers represented an unjustifiable magnitude of risk. Those enormous tankers were only built to economize on oil transportation costs. Accordingly, fuel became a bit cheaper in the US, while corporations profits grew still larger. Whether the saving of a few cents per liter is worth the increased risk of a potential environmental disaster has, naturally enough, never been investigated. Morelli (1999) argue that business and industry are preparing for dramatic shift in responsibility. Recent decades have showed that trust has become a fundamental issue for both governments and economic actors. According to Eurobarometer surveys, politicians and corporate managers are no longer trusted by European citizens and neither are scientists. One could make the rather cynical argument that the public does not greatly trust NGOs either, even though the public establishes them. It was an apparent sign of mistrust that, besides Hungarian green organizations, two international NGOs Greenpeace and Robin des Bois from France also decided to have an on-the-ground presence at the site of the red mud catastrophe. Based on the work of respectable scientists and a number of studies, a significant number
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of Hungarian institutions concluded that neither drinking water sources nor the soil were endangered by the spilt material; nevertheless the two NGOs flooded the media with statements claiming quite the opposite. Robin des Bois can not really give credence to the statements of those Hungarian professors and scientists who claim that there is no risk of radioactivity, nor of heavy metal migration into the deep soil layers (36). This is despite the fact that they only sent two experts to the affected area who reported that The area flooded by the red mud spill in Hungary directly affects the lives of some 8,500 inhabitants. Only to mention a couple of examples: approximately 70 tons of arsenic, 70 t lead, 130 t nickel, 650 t chromium, 700 t vanadium, 1 600 t sulfur and 114 000 tons of aluminum were released into nature. Arsenic, nickel and chromium 6 have carcinogenic effects (3). And: On 4 October 2010, at 1:30pm, the western wall of one of a chain of red mud reservoirs operated by Magyar Alumnium ZRtMAL collapsed, freeing about 600 to 1,000 thousand cubic meters of red mud, a waste product of the bauxite refining process (4). I did not actually check whether these numbers are correct, but they do sound rather frightening. What I do know, however, is that those elements were not added to the mud during the process, but they were there originally, and their concentration could have doubled at most, and even then only if the bauxite had been of very good quality. (In this case sodium hydroxide would have dissolved at almost half of the bauxite ore only the aluminum oxide partthereby increasing the concentration of various other elements in the remaining mud.). Of course, that does not make those elements free either, as they are present in the mud in the form of insoluble compounds. A long citation such as the following may not be exactly appropriate, yet in this very case, it might
be worth knowing what the official statement (not really read by anyone outside Hungary) reports: Based on the independent examinations of the National Institute of Environmental Health and the experts of HAS, there are no significant amounts of metal contaminants in the red sludge and the concentrations of toxic metals do not exceed the standard limits in the soil, but the pH measured from an aqueous extract of the industrial waste is 11.8, which indicates a strong base. According to the analysis of the samples taken by the Institute of Materials and Environmental Chemistry of the Hungarian Academy of Sciences on October 5th, the red sludge contained cadmium, chrome, mercury, nickel, lead and zinc in concentrations smaller (in some cases considerably smaller) than the values allowed for waste mud. The arsenic content of the samples taken from the area of Kolontr and analyzed by the Institute of Materials and Environmental Chemistry was also less than the values allowed. The laboratory analysis of the soil samples taken on October 8, 2010 conducted by HAS Research Institute for Soil Science and Agricultural Chemistry has shown that heavy metals from the red sludge did not reach deeper than 10 centimeters into the soil, and even there their level did not exceed the values permitted for contaminants. Based on these results, it is safe to conclude that the deeper layers of the soil and the first water-table are not in immediate danger. Based on laboratory analyses, the Office of the Chief Medical Officer has issued a statement to the effect that the red sludge waste matter is dangerous to human health, living organisms, and the environment because of its highly basic effect. Experts of the National Service for Radiation Health Emergency Preparedness examined the radiation levels of the affected area, mainly in Kolontr and Devecser. The spilled red sludge is not radioactive. The so-called activity-concentration of the samples gathered is close to natural values of soil, so it is safe
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to say that they do not pose health risks. According to the official statement of the National Service for Radiation Health Emergency Preparedness, the red sludge does not pose any health risk for those living in the area as far as radioactivity is concerned. After the analysis of the samples taken according to strict regulations, The University of Pannonia and the National Public Health and Medical Officer Service announced that the amount of airborne dust in the affected areas has not exceeded the levels allowed since October 17, and the level of air pollution has decreased in every settlement examined. In order to continuously monitor the level of airborne dust in the affected areas, the National Service for Public Health and the Middle-DanubeValley Inspectorate for Environmental Protection, Nature Conservation and Water Management have been operating an integrated monitoring system since October 11. There is on-going quality control of drinking water in the area stricken by the disaster. Water can be safely consumed over the whole area. The Middle Transdanubian Regional Institute of the National Public Health and Medical Officer Service has conducted more than 120 examinations so far to monitor the quality of water, and all results are negative. (http://mta.hu/ mta_hirei/osszefoglalo-a-vorosiszap-katasztrofaelharitasarol-a-karmentesitesrol-es-a-hosszu-tavuteendokrol-125859/) An international NGO, some easyto-deceive Hungarians might think surely the government wants to do us some good. It is no wonder that societys trust has faded, a finding which is worsened by news broadcasts that reveal serious defects in our institutions, indicating, for example, that we could not even pinpoint the authorities responsible for licensing or operational supervision. In its ruling, the Budapest Court of Appeal named the Middle-Danube-Valley Inspectorate for Environmental Protection, Nature Conservation
and Water Management as the building control and construction supervisory authority responsible for the Ajka mud reservoirs, reported daily newspaper Npszabadsg. This recent final ruling put an end to the legal debate whether it was the local notary or the environmental authority that should have inspected the condition of the walls of the ruptured reservoir. In its decision, the court concluded that the red mud reservoir and similar facilities had required and still require special licensing and operational regulations which can not be handled in standard building control proceedings. Thus the Ajka alumina plant falls under the scope of authority of the environmental inspectorate. Following the red mud catastrophe, Secretary for Environmental Affairs, Zoltn Ills, declared that it was not the authority under the supervision of his own office but rather the local notary who acted as a building control authority in the case of the reservoirs. After the accident, the regional environmental inspectorate and the Public Administration Office of Veszprm County ordered several building control proceedings to be conducted by the notary of Devecser, who, however, declined to do so for lack of authority. (http://greenprofit.hu/forum/viewtopic. php?f=34&p=28048) The debate, of course, is still ongoing. Interestingly, society has begun to pay more attention to the role of authorities and other political aspects, while limiting the responsibility of the company operating the reservoirs to the question of material compensation, just as good taxpayers do. The big questions turn out to be,Who issued the permits and who supervised the operation of the reservoirs? In this case, the question of responsibility is a multi-faceted one. Concerning the responsibility of the local notary or the mayor, one might ask why there were people living near the dam and how and why their permits had been issued, or, if they did not have the necessary permits, why was it not ensured that
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they were prohibited from actually living there? It is hard to imagine, however, how a local notary could be responsible for the building permits for the reservoir itself. Having some knowledge about how environmental authorities operate, we know that they also do not have the necessary expertise. The Office of the Parliamentary Commissioner for Future Generations suggested that the Hungarian Office for Mining and Geology might be the competent authority. Although we know this now, it was not all that clear up until now. Had we known the competent authority, could we have avoided the disaster? Probably not. Supposedly, satellite measurements might be able to detect whether the soil is moving and how fast. If it is actually moving, this could lead to the failure of the dam. Who should conduct such examinations, the authorities or the company operating the reservoir? Both of them, I guess, but the principle of due diligence would rather assign that responsibility to the operating party, especially as the authorities, under the precautionary principle, hardly have a chance to know all the potential risks, technologies, and sources of human error. The operating company has the necessary means for that, and they, too, earn the profit and not (or just very indirectly) authority employees. Risk theory distinguishes between fair and unfair risks. A risk is considered fair if the accidental and material damage of the hazardous activity is borne by the same person who enjoys its benefits. This is, of course, merely rational (or maybe even emotional) reasoning. Most likely, legislation could never deal in practice with such concepts. International experience and practice, which may serve as a starting point in finding a solution, do, nevertheless, exist in this field. III. INDUSTRIAL DISASTERS AND HOW THEY ARE TREATED
Recently, the number of cases where managers have been subjected to criminal trial because of their companies environmentally harmful activities has been growing, primarily in Canada and the US. This is theoretically possible under Hungarian legislation as well. Managers usually react defensively to actual legal practice. First, professional reactions tend to emphasize the need for adjustments in legal practice and for providing improved personal protection to managers. Corporate managers, apparently, consider complex, bureaucratic, and overdocumented environmental management systems (typically developed by external consultants) to be the best method of defense in civil law proceedings, though it is quite obvious from American examples that this is not a sure-fire method of defense. The environmental risk of any activity is inherently uncertain, even theoretically. Wynne makes a convincing point about this with respect to hazardous waste materials, Scientific uncertainty is rather high about what is going on inside a waste dump site in chemical, physical and biological terms, while opportunities for examining and reducing this uncertainty are very limited. Therefore we can only make approximations about the impact a dumpsite has on the surrounding area, as the effects are always dependent on how the dumpsite is operated. The conditions under which waste is transferred to a dumpsite and which site it is transferred to is also a function of a number of unknown social factors (Wynne). Considering Wynnes thoughts, one might conclude that corporate managers practice the art of the impossible concerning environmental management. Yet we should not forget that the lack of a theoretical solution does not necessarily imply that there is no practical solution. Concerning the avoidance of environmental risks, scientific accuracy is not a requirement but on the contrary responsible conduct is (usually defined as due diligence in legal terms) (Bartman).
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For practical purposes, the environmental risks of any business activity can be analyzed along two dimensions. One of them, in our opinion, is a function of the materials, technologies, and human resources used, since these are the factors determining the companys inputs and outputs and also the frequency and the course of breakdowns. This dimension contains everything that depends on the internal systems of the company. The other dimension is the companys perception of the ever-changing outside world. We consider this dimension as including the companys geographical location, the ecological characteristics of the surroundings, biodiversity, prevailing winds in addition to demographics (population density, age, and income distribution), and other characteristics such as the existing infrastructure (roads, telecommunication networks, and the presence of hazard intervention systems), the populations educational level, environmental attitudes, employment levels, and political institutions. Obviously, both dimensions are rather complex, but making a distinction is important as both corporate managers and regulators tend to devote serious attention to the first dimension (environmental risks pertaining to the companys internal matters), while the effects on risk of all the external factors have an inclination to be forgotten by both directors and the authorities. Typically, it is only after a major catastrophe that they realize the existence of these phenomena. There are many examples that demonstrate the significance of these two dimensions. In Hungary, for instance, a number of chemical factories have found themselves enclosed by ever-expanding cities. Previously, while still located in the outskirts, not even a factory with serious pollution potential had caused a problem, as any pollution releases were diluted before reaching the more densely populated city areas. Later, however, the situation changed. Today, even a company strictly adhering
to all pro-environmental requirements might have environment-related conflicts and issues. IV. CONCLUSIONS Informing local citizens and preparing them for damage containment is at least as important to the future of the company as reducing the probability of occurrence. In the case of a potential accident, it is critical whether or not local inhabitants and disaster response organizations are prepared to reduce the adverse consequences of any accidents. Both the Bhopal and the Chernobyl disasters, and even this recent red mud catastrophe in Hungary, would have claimed far fewer lives if the authorities and inhabitants had been prepared for the possible occurrence of such an emergency. We believe that companies should not limit their theoretical and practical environmental risk prevention efforts to their own premises but also should have to take into account the constantly changing natural and social environment. Corporate environmental management, thus, must not be limited to within the companys own four walls. What we can learn from the red-mud accident in Hungary and from Bhopal and other above mentioned cases, that corporations very often prepared for accidents but even more often they are insured against them. Managers are ready to make any efforts which reduces their personal responsibility. They are often employing external experts preferable very highly respected ones, they are ready to pay for an expensive insurance and they are ready to cooperate with different authorities. All this will not protect them fully against the accidents. Any company has to meet with the strickest environmental and risk regulation and should have a good environmental performance record, and keep good communications with people living in the surrounding. But they have to understand, that the good communication and the implemented
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environmental management system, the experts and the advisers even the working permission issued by different legal authorities, can not protect them against their moral responsibility for the society and for the local community. Those who are directly gaining the benefit (profit) from an operation, they are and they should be the real experts, so they should take the full responsibility for it, even in a case of natural disaster or terrorist action against them. The moral responsibility of corporate leaders can not be shared with external actors. V. ACKNOWLEDGEMENTS
[10]
[11]
[12]
New York: Crc Press 1999. Print. Nithart, Charlotte, Bossard, Christine: A vrsiszap katasztrfa (The redmud chatastrophe) Robin des Bois. Magyarorszg, Paris France. December 2010: 46. Matthias and Steger, Ulrich Managing Outside Pressure, Strategies for Preventing Corporate Disasters John Wiley & Sons Chichester, New York etc. 1998. Wynne, B. Uncertainty and Environmental Learning-reconceiving science and policy in the preventive paradigm. Clean Production Strategies, Boca Raton, Florida: Lewis Publishers, 63-84. 1993.
This publication was supported by TMOP Funds: REF: 4.2.1/B-09/1 KMR-2010-0005. VI. REFERENCES [1] [2] [3] [4] [5] Bartman, Thomas R. Dodging Bullets FORTNIGHTLY, October 1, 1993, 21-22. EM-DAT The OFDA/CRED International Disaster Database Jackson, Tim Clean Production Strategies. Lewis Publishers, 1993, 73-74. http://greenprofit.hu/forum/viewtopic. php?f=34&p=28048 http://mta.hu/mta_hirei/osszefoglaloa-vorosiszap-katasztrofa-elharitasarola-karmentesitesrol-es-a-hosszu-tavuteendokrol-125859/ Guha-Sapir D, Vos F, Below R, Ponserre S. Annual Disaster Statistical Review 2010: The Numbers and Trends. Brussels: CRED; 2011. Hoeppe, Peter. Worldwide Natural Disasters Effects and Trends Web. n.d. Kerekes, Sndor, Vastag, Gyula, Rondinelli, Dennis A.: Evaluation of Corporate Environmental Management Strategies: A Framework and Application International. Journal of Production Economics, vol. 13, nos. 2-3 August 1996: 193-211. Morelli John Voluntary Environmental Management: The Inevitable Future, Rush,
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[7] [8]
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Corporate Environmental Sustainability Beyond Organizational Boundaries: Market Growth, Ecosystems Complexity and Supply Chain Structure as Co-Determinants of Environmental Impact
Stefano Pogutz Universit Bocconi stefano.pogutz@unibocconi.it Valerio Micale Universit Bocconi valerio.micale@unibocconi.it Monika J. Winn University of Victoria miwinn@uvic.ca
ABSTRACT: Corporate Environmental Sustainability has become a widely used term. It implies that an individual firm has the capacity to effectively manage and control the harm inflicted upon the natural environment by its processes, products and business models a notion we refer to as an organizations manageability of environmental impact. This paper argues that the organization-level concept of corporate sustainability cannot be meaningfully discussed unless it is understood in light of three conditions: market growth dynamics, ecosystems complexity, and supply chain structure. These economic, ecological and industry-organizational conditions outside the organizations boundaries severely limit an organizations manageability of its environmental impact, suggesting that the cheerfully optimistic connotations of the concept corporate sustainability must be tempered accordingly. Using market growth rates and environmental impact manageability, we develop four scenarios to further illustrate the dynamics and challenges to sustainability in each setting, and derive implications for management research and practice.
KEYWORDS Corporate Environmental Sustainability, Market Growth, Environmental Impact, Ecosystems, Eco-Efficiency I. INTRODUCTION Much has been written in the management literature over the last 20 years on the principles of corporate environmental sustainability and how to achieve it
(Etzion; Marcus and Fremeth; Schaltegger et al.; Schmidheiny; Shrivastava; Starik and Rands). At the same time, the growing attention to and pressure for environmental protection has pushed industries and firms to adopt a wide range of new organizational approaches, measures and technologies aimed at reducing and controlling pollution levels and improving their ecological efficiency (Haanaes et al.; Lacy et al.). Yet in spite of growing efforts and commitments by corporations to reduce their
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ecological footprint, environmental degradation not only continues, but is accelerating (IPCC; Hassan et al., WRI). Examining some global trends provides further context. The world economy has expanded, with global consumption expenditures growing at an average of 3% per year since 1970. Fueled by increases in energy demand of 2.2% annually from 1990 to 2005 (EIA, 2010a; EIA 2010b) and accompanied by unsustainable resource depletion and emissions trends, this growth requires an overall biological capacity (the worlds ability to absorb environmental impacts) estimated at about 18 billion global hectares the equivalent of 1.5 Earths (GFN). Carbon dioxide emissions have risen by 48% in the last two decades and are expected to increase by an additional 29% in the next 20 years. Thirty-six million hectares of forests have disappeared between 2000 and 2005, 15 million of these in Brazil alone (WRI). The portion of irrigated land used for agriculture reached 287 million hectares in 2007, or 18.5% of total cultivated land (FAO), which has significant consequences for the availability of water globally. According to WWF, populations of vertebrate species have declined by nearly 30% during the period 1970-2007 (WWF, 2010). And yet, in spite of the undeniable relevance and growing urgency of these alarming trends, it remains unclear how companies can contribute to environmental sustainability (Kallio and Nordberg; Marshall and Toffel) and to date, efforts of associating environmental sustainability with improvements in competitiveness and better financial performances have proven elusive. This paper examines barriers to implementing corporate environmental sustainability outside the corporation, and in doing so, it broadens the investigation of conditions under which firms can realistically aim for environmental sustainability. We argue that any efforts to effectively, i.e., sustainably, align the firms environmental impacts with the cycles and
dynamics of the natural environment must account for a number of factors that have been largely ignored in the literature on corporate environmental sustainability. We propose that a number of economic, ecological and industry-organizational factors act as critical constraints on a firms ability to sustainably align its impacts with nature, yet have received virtually no attention by environmental management scholars: (1) the evolution and dynamics of the markets in which the firm competes, specifically market growth and market size, and (2) the ability of a firm to manage its environmental impact as a function of the complexity of ecological systems and the position of a firm in the supply chain. Coupling the constraints from these partially exogenous factors with a firms limited capacity to control environmental impacts along its supply chain helps to explain how the effectiveness of corporate environmental strategies can be undermined to the point of eliminating any net-beneficial effect. Mapping high and low market growth rates against hypothetical high and low levels of an organizations ability to manage its environmental impacts further illustrates the importance of each variable for sustainability. A closer examination of the four resulting scenarios highlights the importance of developing more systemic as well as effective green governance approaches that support greater alignment between organizational strategies, market evolution and ecosystems dynamics, and thus make corporate environmental sustainability a more achievable goal. The paper proceeds as follows. First, we briefly review the literature on corporate environmental sustainability in management theory, then critically examine two of the leading environmental sustainability frameworks: ecoefficiency and the triple bottom line (De Simone and Popoff; Elkington). Second, we discuss several factors that act as major constraints on an organizations
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ability to reduce or eliminate its environmental footprint and, more generally, achieve corporate sustainability: growth dynamics and size associated with the evolution of markets, the complexities of ecosystems and associated challenges of assessing a firms impact, and finally a firms location and role in its supply chain. Third, drawing on these considerations, we generate four scenarios to probe more deeply into whether corporate (environmental) sustainability is a legitimate and credible concept at the firm level, and what is needed to make it a more meaningful concept. We conclude with implications for management and policymakers, and explore further directions for research. II. CORPORATE ENVIRONMENTAL SUSTAINABILITY IN THE MANAGEMENT LITERATURE Corporate environmental sustainability has gained increasing momentum within the business world since the term sustainable development was first popularized in the late 1980s (WCED). In the field of management and organization science, a growing stream of research has originated from this concept, addressing specific features of the relationship between companies and the natural environment (Etzion). The early 1990s were marked by the formation of international networks of scholars, such as The Greening of Industry Network (GIN) and the Organizations and Natural Environment (ONE) Interest Group in the Academy of Management, followed by the progressive diffusion of terms like greening and natural environment in the management literature. The pioneering research of that time raised attention to short-comings in earlier organization studies literature, which had de-naturalized the environment (Shrivastava) and developed knowledge and theorizing as if organizations
lack biophysical foundations (Gladwin et al.). In the path-breaking and foundational Academy of Management Review Special Issue on ecologically sustainable organizations in 1995, a group of scholars aimed to re-conceptualize organizational theories, stressing the centrality of the natural environment in management (Gladwin et al.; Hart; King; Jennings and Zandbergen; Purser et al.; Shrivastava; Starik and Rands). This ambitious effort marked a significant progress in the literature, planting the theoretical roots for the field and providing legitimacy for a number of scholars interested in investigating the relation between organizations and the natural environment. Over the years, researchers from various managerial disciplines such as strategy, organization theory, marketing, operations, finance, and accounting, have addressed the natural environment in management, drawing on different theories and paradigms from their respective domains. Despite a huge diversity in terms of contributions, research has consolidated around few dominant themes. At the firm level, studies have mainly focused on the organizational attributes that allow companies to attain improvements in their environmental and financial performances. Some scholars have investigated the role of resources and capabilities in the greening of companies (AragonCorrea and Sharma; Russo and Fouts; Sharma and Vredenburg). Another broad stream of literature has focused on the business case, investigating the impact of environmental management on firm competitiveness (Ambec and Lanoie; Christmann; Orsato; Porter and Van der Linde), and on the relation between environmental and financial performance (King and Lenox; Klassen and McLaughlin). By acknowledging the existence of win-win solutions, these scholars have contributed to further legitimate environmental management practices in organizational decision-making processes (Berchicci and King). The role of market
Corporate Environmental Sustainability Beyond Organizational Boundaries...
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growth garnered little scholarly attention, with one notable exception: Russo and Fouts found that the positive relationship between environmental and economic performance became stronger in highergrowth industries. Another stream of research on corporate sustainability has explored the relationship between the firm and the many actors of the organizational environment. Institutional and stakeholder theories have dominated this stream of contributions that look in depth at the types of environmental responses to exogenous stimuli or pressures (Bansal and Roth; Delmas and Toffel; Hoffman; Kassinis and Vafeas; Sharma and Henriques; Winn; Winn and Keller). Recent review articles on the state of the art of corporate greening in the management literature analyzed the main contributions published in leading management and organizational journals (Bansal and Gao; Berchicci and King; Etzion; Kallio and Nordberg), finding a theoretically rich and methodologically rigorous body of research. However, the review articles also highlight that most of this research is incremental with regard to management science, in that it draws on dominant organization theories to build knowledge in this new field. With this research providing only limited input for the discussion of the critical aspects of the environmental sustainability challenge, such as the economic-growth paradigm (Gladwin et al.; Banerjee; Kallio and Nordberg; Purser; Hahn, Kolk and Winn) or the complexity of ecological systems (Shrivastava, Pogutz and Winn), the opportunity for more disruptive contributions has been missed. Similar criticisms can be made of the most popular frameworks widely associated with corporate sustainability in practice. We now discuss two of them in more detail. III. ECO-EFFICIENCY AND THE TRIPLE-BOTTOM LINE: A CRITICAL REVIEW
In recent years researchers and practitioners have developed a number of approaches toward corporate environmental sustainability, including ecoefficiency (WBCSD), triple bottom line (Elkington), natural step (The Natural Step), ecological footprint and carbon footprint (Wackernagel and Rees), ecoeffectiveness, and cradle-to-cradle design (Braungart et al.). These frameworks provide principles, methodologies and guidelines, suggesting options to reduce the ecological damage from business organizations and offering measurement tools in support of managers decision making. To illustrate how corporate sustainability in practice suffers from similar shortcomings as scholarly work, we take a closer look at two of the better known and widely used corporate sustainability frameworks guiding companies actions with regard to the protection of nature: eco-efficiency and the triple bottom line. Eco-efficiency was first introduced by Schaltegger and Sturm in 1990 as a promising business link to sustainable development (Schaltegger and Sturm) and was promoted by the World Business Council for Sustainable Development in the early 1990s. It has been defined as the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life cycle to a level at least in line with the earths carrying capacity (DeSimone and Popoff: 47). Eco-efficiency aims to combine notions of ecological with economic efficiency such that firms are able to save money in the production and delivery of goods and services, while simultaneously reducing environmental impacts and resource intensity throughout the life cycle of a product. Over the years, the concept of eco-efficiency has become widely accepted, with a proliferation of different definitions in business and political communities (Braungart et al.). Scholarly research shows evidence that eco-efficiency can produce
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win-win solutions, improve firm competitiveness and reduce costs (WBCSD; Sinkin et al.). Initiatives toward eco-efficiency imply innovation in both technologies and practices at process, product, and system levels, allowing companies to integrate environmental concerns into their conventional business model. The idea of eco-efficiency has become popular both as a firm strategy and an indicator of the value generated per unit of environmental impact (Huppes and Ishikawa), as well as for its capacity to increase productive output per unit of resources used (Schmidheiny; Welford). On the other hand, eco-efficiency as a sole driver for corporate sustainability is insufficient (Dyllick and Hockerts). It has been criticized as a framework that legitimates conventional business models, favoring the search for incremental and efficiency-based innovations and the preservation of dominant business practices (Michaelis). Braungart, McDonough and Bollinger, for example, maintain that in the short-term eco-efficiency strategies offer opportunities to reduce costs and environmental impacts, but that in the long-term they are insufficient to achieve ecological sustainability since they: do not address the necessity for a fundamental redesign of industrial material flows, do not address the question of toxicity of materials, promote only incremental reductions of environmental impact per unit of production, without regard to absolute measures of impact, such as multiplier effects from production growth. These scholars further observe that eco-efficiency is based on the assumption of a one-way, linear and cradle-to-grave flow of materials. They argue that alternative principles like eco-effectiveness and cradle-to-cradle strategies must be pursued when designing products, organizations and industries,
if they are to exhibit a positive relationship with ecosystems and provide environmental, social and economic benefits. In this paper, we introduce and discuss yet another important aspect of sustainability not addressed by eco-efficiency. In fact, we argue that even when improvements in environmental performance correlate positively with the associated value-creating process the overall environmental performance of a firm can still decline. In other words, from an ecological perspective, doing less bad is not necessarily positive and can be far from enough. Schaltegger captures this dynamic in the broader principle of ecological effectiveness, which measures the absolute environmental performance of the firm (e.g. the tonnes of CO2 emissions generated or reduced by the company during a certain timeframe). In a situation where only relative, as opposed to absolute decoupling occurs, resource depletion increases, and ecosystem damage continues, as is true, for example, for carbon emissions (Holm and Englund). A second well-known approach to sustainability is the so-called triple bottom line. The conceptfirst theorized by Elkington in 1994 (Elkington)requires organizations to consider the societal impacts of their actions and strategies, emphasizing the need to balance economic goals with social and ecological goals (Hacking and Guthrie). In order to do this, companies should not only focus on the economic value that they add and on the legal responsibilities they have but also on the environmental and social value that they add or destroy. This approach has been promoted effectively by worldwide organizations such as the Global Reporting Initiative (Foran et al.). A growing number of multinational companies have adopted the approach, acknowledging the increasing attention of different stakeholders toward the environmental and social impacts of their daily decisions, and recognizing the importance
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of conforming to changing social norms and of voluntarily contributing to the community in which they operate in a transparent manner. Nevertheless, the triple bottom line has been criticized for the absence of a clear methodology, and the fact that in some cases it was no more than a vague commitment to social and environmental concerns, a catchphrase, that does not ultimately lead to sustainability (Marshall and Toffel; Schaltegger and Burritt). In addition, triple bottom line strategies are often unable to effectively balance and harmonize the three realms, leading to conflicts between them that complicate the measuring and achievement of the three goals, and can require difficult trade-offs between them. Furthermore, economic objectives remain paramount (Marcus and Fremeth; Hahn, Figge, Pinkse and Preuss), with environmental targets often marginal and with no comprehensive assessment of the absolute ecological impact of a firms activities. The two approaches, eco-efficiency and triple bottom line strategies, thus share the same, fundamental shortcomings: the weak correlation between the performances they measure, and the actual capacity of ecosystems to adequately respond to environmental pressures. Environmental sustainability is not concerned with relative improvements, but depends on absolute thresholds and on the capacity of ecosystems to absorb emission releases and rebound from external shocks (Arrow et al.). At the firm level, an effective or true incorporation of environmental sustainability into corporate sustainability should guide firm behavior to operate within the following parameters (Dyllick and Hockerts; The Natural Step): the rate at which a firm uses resources cannot exceed the rate at which these resources are replaced, replenished, or substituted by alternative resources; the rate at which a firm generates emissions
through transformation processes and products cannot exceed the rate at which these emissions can be assimilated by the natural environment. Corporate environmental sustainability thus depends on the effectiveness of the firms actions to comply with external targets such as the assimilative and regenerative capacity of specific ecosystems where the firm operates (Marshall and Toffel). Yet the ability to pursue this goal is challenged by many factors and dynamics endogenous and exogenous with respect to the individual firms boundaries and which reside at organizational, industryorganizational and ecosystem levels. IV. CONDITIONS OF IMBALANCE BETWEEN THE FIRM AND THE NATURAL ENVIRONMENT
Since the Rio de Janeiro Earth Summit in 1992, the business community has progressively acknowledged its responsibility for promoting the path toward a more sustainable society (Schmidheiny). Despite efforts to frame the concept of corporate environmental sustainability, managerial practices have ultimately proven to be only partially effective, with sustainability-driven strategies only marginally mitigating a firms negative impact on nature. The oil and gas industry serves as an example: despite the introductions of sustainability measures and technologies over the years, major accidents such as BPs oil spill in the Gulf of Mexico in 2010 continue to occur and absolute carbon emissions getting bigger, rather than smaller. Similarly, several leading multinational companies in the personal care and energy sectors have been accused of contributing to the rapid deforestation of large areas of Indonesian and Malaysian rainforest because of their activities related to palm oil production (Nellemann et al.).
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At the same time, multi-national corporations have, over recent decades, become extremely powerful organizations, rivaling countries in terms of productivity, employing millions of people, generating well-being, influencing political elections, and generally participating in shaping societal cultures and individual values (Suddaby et al.). In light of these developments, several questions arise: To what extent can companies individually contribute to turning this trend of natural deterioration around by contributing to environmental sustainability? To what degree are companies prisoners of larger economic and social systems and find themselves dominated by exogenous forces that limit any real possibility to pursue sustainable business models (Michaelis)? In response to these questions, we identify a number of conditions that are only partially controllable by the single firm, and which significantly limit the firms ability to align its impacts with natural environment dynamics: market growth and size, ecosystems complexity, and location and power within its supply chain. We examine the impact of each on a firms ability to manage its footprint and, more broadly, to broaden our understanding of the sustainability challenge. V. MARKET CHARACTERISTICS AS A CONSTRAINT ON CORPORATE SUSTAINABILITY
resources (Boulding; Daly and Cobb; Ehrlich; Georgescu-Roegen; Rockstrm). In the early 1970s, Meadows et al. raised the question of the (ecological) limits to growth, challenging the idol of modern capitalism and pointing out the risks of a societal model that is based on an intensive exploitation of natural resources. Their watershed study prompted much research and many publications, fuelling a huge debate that has engaged prominent scientists for four decades (Ayres; Kerschner), and leading to the development of alternative approaches such as Herman Dalys steady-state economy, Serge Latouches de-growth paradigm, and the WWFs One Planet Living. Market growth rate The concept of growth has been broadly discussed in the strategic management, business policy, and marketing literatures. The rate of development of a specific product market in which the company competes depends on the stage in the industry/product life cycle (PLC). Determining whether an industry is in the introduction, growth, maturity or decline stage helps gauge underlying market changes, assess different growth rates and trajectories associated with each stage and understand stage-specific competitive dynamics. Furthermore, market growth can be used as a predictor for the diffusion curve of a specific product or technology. New and developing markets are characterized by growing consumption patterns and primary demand, while mature markets are usually characterized by steady or declining consumption trends and replacement demand (Kotler and Armstrong). New markets develop during the geographical extension of markets (e.g. emerging markets in countries such as China, India, or Brazil) or as a result of new opportunities arising in response to unsatisfied needs involving sociological, psychological, technological, but also environmental issues (Sanne; Buenstorf and
Market characteristics. The discourse of growth is paramount in our capitalistic society, even more so in the current economic crisis, and involves multiple dimensions, including economical, political, cultural, psychological (Spangenberg). From an environmental viewpoint, and since Malthuss population growth theory, many scholars from different scientific fields have investigated the relationship between population dynamics, increase in the economys size and shortage of natural
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Cordes). Managerial interest in market growth varies with the attractiveness of a business, where fastgrowing markets are considered more attractive than mature or declining markets. The life cycle stage of an industry also affects the intensity of rivalry and profitability (Porter). Companies that do business in expanding markets need to capture the growth and increase sales as a key strategic option to maintain or gain competitiveness, thus taking advantage of market leadership positions and experience curves (Cho and Pucik; Wheelen and Hunger). The growth of markets is a condition that influences corporate environmental sustainability through different pathways. Recent studies (Jorgenson and Clark) have shown that market evolution, growing consumption, and economic development more generally, affect a firms ability to decrease its impact on nature and can easily offset any improvements achieved through eco-efficiency, cleaner production designs or green products (Clark; Mont and Plepys). Many markets in developing countries such as China, India, Brazil, Indonesia, and Russia are in the early stages, as new industries rapidly take shape. This is fostered by a rapidly growing primary demand for a wide range of products and services, such as energy. In China and India, energy consumption rose by 14.5% between 2005 and 2007, increasing these countries share from 10% in 1990 to 20% of the worlds total energy markets. Companies that are targeting these markets have to handle complex trade-offs between economic, environmental and social goals. Such high market growth rates can easily eclipse any gains in environmental efficiency obtained through innovations at process and product level. Mature markets, on the other hand, because of their slow growth rates and prevailing replacement demand, can benefit from technologies that capture environmental efficiency gains through the substitution of old products. We can expect that companies operating in these markets can align
more easily with the ecosystems absorptive and regenerative capacity as green technologies and clean products are developed. Market size A second aspect related to market growth is overall market size. Some categories of products target mass markets at worldwide level, while others focus on niche markets or small segments of consumers. Small market size can affect environmental sustainability positively, since ecosystems are exposed to lower levels of stress as a result of fewer total pollutants released and fewer total resources utilized. As long as ecosystems function within their assimilative and regenerative capacity, they can continue to provide crucial services. On the other hand, when perturbations to ecosystems exceed their carrying capacity, ecosystems are damaged and the supply of ecosystem services sharply decreases (Costanza). Familiar examples of large market size and associated overexploitation of natural resources are cod and tuna fisheries; influenced by globalization trends, changes in consumer demand have exhausted these ecosystems capacity to regenerate and maintain their vitality and productivity. Cars provide another example: driven by the economic growth of China and non-OECD countries, the market size for passenger vehicles is expected to double over the next two decades, with the associated increase in energy consumption and greenhouse gases emissions generating massively increased pressure on climate change (IEA). In summary, we argue that corporate environmental sustainability cannot be meaningfully discussed without considering the dynamics associated with a markets growth rate, as well as (relative and absolute) market size. Market conditions are often exogenous to the single firm, which operates with limited
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power to challenge taken-for-granted imperatives of increasing material production and consumption associated with certain industry cycles. Nonetheless, major companies can lead market evolution and technological transformation, drive consumption patterns and affect demand, or further amplify market changes as a result of their choices for competitive strategies. In either case, decisions in terms of product portfolio, segment targeting and internationalization strategies have major impacts on the effectiveness of the firms environmental strategy, and can increase or reduce the single firms alignment with the assimilative and regenerative capacity of natural ecosystems. VI. MANAGEABILITY OF ENVIRONMENTAL IMPACT AS A CONSTRAINT ON CORPORATE SUSTAINABILITY
The second broad variable we introduce to the debate on corporate environmental sustainability refers to the firms capacity to effectively manage and control the harm done to the natural environment by its processes, products and business activities in general. What does it mean for a firm to manage its environmental impact? How much can a single firm contribute to its environmental sustainability through pollution prevention techniques, cleaner production, managerial systems, green design, and innovation? Below we describe another major condition affecting the ability of the single firm to effectively manage its environmental impact, the ecosystem complexity which stems from characteristics of those ecosystems that provide the services the firm depends on. We also briefly touch on how the firms supply chain structure influences this variable. Ecosystem complexity
The complex nature of ecosystems is a major topic in the ecology literature (Levin; Holling; Folke et al.). Ecosystems emerge from the dynamics of the relationships between biological beings, organizations and the environment (Espinosa et al.). They consist of large numbers of heterogeneous components that interact in parallel and have a number of basic properties associated with any complex adaptive system (Levin). First, ecosystems are non-linear systems; transformations occur through complex paths primarily governed by reinforcing stochastic events, non-linear causation, and path dependency. Second, they are composed of a variety of species, and the generation and maintenance of this diversity is a fundamental condition for their functioning. Third, ecosystems are based on a range of different flows including nutrient, energy, material, and information flows that interconnect the single parts in a web of relations. Systems of nature (for example, forests, lakes, and rivers), systems of organizations (for example companies, agencies, governments, NGOs), systems of humans (for example, culture, settlements, cities and organizations) are interlinked in neverending adaptive cycles of growth, accumulation, restructuring, and renewal (Holling). As a result of this complexity, ecosystems generate services that are not homogeneous across landscapes or seascapes, nor are they static phenomena in terms of temporal scales (Fisher et al.). This is the case for a forest that provides a water regulation service downstream and over time, or a forest that provides a carbon sequestration service. In either case, temporal scales and spatial scales referring to ecological dynamics and organizational timeframes might differ (Kok and Veldkamp). Ecosystems, for example, could suddenly collapse as a result of many years of perturbations, with consequences for the firms and individuals that depend on their services (MEA). Moreover, ecosystems jointly provide multiple services that
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can be beneficial to different organizations, as in the case of regulated stream flows, generating benefits for recreation opportunities and providing water for agricultural irrigation and industrial purposes. Organizations may compete for the use of the same ecosystem service, such as forests that act as sinks for climate regulation for some, and as sources of wood and energy for other organizations (Fisher et al.). Based on these considerations, we argue that the level of an ecosystems complexity influences the likelihood for a single firm to effectively manage its environmental impact. Spatial and temporal trade-offs or joint benefits may occur, limiting the possibility for a company to clearly measure and monitor ecosystem responses to specific perturbations or environmental strategies (Cumming et al.). We have mentioned that firms generate impacts on the natural environment through the use of resources as inputs (services provided by ecosystems and non-renewable resources) and through the release of outputs (such as emissions, waste, toxins, and products) into different environmental media (air, water, soil) or ecosystems. Firms produce impacts from transformation processes that are part of their own business, be they extraction, production, or distribution, and via value-adding processes provided by other members of the supply chain along the entire life cycle of a product or service from raw material extractions to its final disposal (cradle to grave) or through re-introduction in closed loop systems (cradle to cradle) (Braungart et al.). Many of these types of impacts are now monitored and tracked by medium and large companies as a result of policies and regulatory requirements. Physical accounting and material flows diagrams are examples of how companies can monitor their mass balance. The question is how much this information actually contributes to understanding the harm generated by the single firm to the ecosystems. To
what extent do the perturbations generated by the activities of the single firm harm the ecosystems? Given the characteristics of complex adaptive systems, could meaningful metrics even be found? What is the resilience capacity of the ecosystem where the firm is releasing pollutants? How long does it take for a damaged ecosystem to recover? When we investigate the manageability of the single firms environmental impact, we should extend our approach from the firms mass balance (inputs utilized and outputs produced)1, which is a function of the product/process ecological efficiency and of the firms environmental capabilities (cleaner production, pollution prevention, green design, etc.), to the actual effects on the natural environment which depend on the ecosystems capacity to respond to the firms perturbations. The relationship between the ecosystems resilience and perturbations is uncertain and non linear, and is determined by the characteristics of complex adaptive systems. Clearly, the management of such complexity requires a holistic and systemic approach, which is largely incompatible with the way in which single business organizations operate. What is needed then is new types of governance and decision making processes that more effectively respond to the challenges of the complex system and which involve policy makers, local agencies and other participants beyond the individual firm (Costanza et al.). 1 Several companies have developed ecological accounting systems to measure their environmental impact by tracking material flows. The mass balance (or material balance) provides a representation of this impact in physical units, measuring the total inputs transformed (materials, components, energy, water, other resources) and the total outputs generated (final products, air pollutants, waste, etc.) at the plant or company levels. These measures do not, however, capture the effects on the effects on ecosystems dynamic.
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Supply chain structure Today, large firms with well-known and highly visible brands are expected to operate sustainably, protect the natural environment and respect social standards (Marcus and Fremeth). Consumers and nongovernmental organizations in particular hold firms responsible for their direct and indirect environmental impacts, and they include their upstream suppliers and downstream operations for product dismantling and disposal (Sarkis, Shrivastava). Such pressures on firms to accept extended product responsibility mean that organizational boundaries of the firm (Santos and Eisenhardt) are becoming less clearly defined, and that the firms supply chain, its structure, and the firms position within the supply chain need to be considered when investigating the concept of corporate environmental sustainability. The structure of the supply chain affects the ability of the firm to assess, manage and control its environmental impact, since different manufacturing operations or different supply chain phases are responsible for diverse impacts on ecosystems. Consider, for example, the different types of environmental impacts associated with the cultivation of cotton versus its manufacturing in the textile industry, or environmental risks associated with oil extraction versus those in its final distribution for oil and gas companies. Similarly, firms operating in the same industry, but offering products or services at different locations in the supply chain might generate different environmental impacts. This heterogeneity in terms of environmental impacts is often the consequence of corporate strategies, but may also be due to specific environmental strategies. For example, a company may decide to reduce its direct ecological impacts by outsourcing some phases of the production process, such as the ones directly involved with natural resources extraction, or the
disposal of the final product, or those that generate a high degree of environmental damage. As a result, environmental manageability also depends on the degree of environmental commitment and responsibility assumed by the company with regards to its environmental performance. To date, companies have mainly addressed their direct environmental impacts, focusing primarily on those environmental issues which directly involve the company (Malovics et al.). Nevertheless, there has been much discussion about how companies should extend their responsibilities to include indirect environmental impacts and implement approaches based on full life cycle management. Firms are, in fact, held increasingly accountable from cradle to cradle, that is, for operations taking place along the entire supply chain (Sarkis) and they are asked to adopt strategies and policies that facilitate their suppliers and their customers protection of ecosystems (Darnall et al.). Unfortunately, managing and controlling the various environmental impacts generated along the supply chain is not an easy task. First, there are structural features such as the length of the supply chain and the geographical and organizational distance to suppliers. With increasing numbers of tiers between the company and its partners, and increasing geographical dispersion of supply chains, the level of organizational complexity grows and lessens the ability of a single company to manage the environmental impact generated outside of its boundaries and to enforce its environmental policies. There are also internal organizational characteristics affecting the firms capacity to exercise control over other supply chain members and its portfolio of suppliers. Firms that are vertically integrated may be able to exert more pressure on their partners than companies with low level of integration. The ability of a single firm to manage and control its environmental impact along
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the entire value chain also depends on the power the company has to enforce environmental policies and induce its subcontractors to reduce their own environmental impact. To conclude, two major conditions affect corporate environmental sustainability: market characteristics, which can offset the effectiveness of the firms environmental strategy; and the manageability of the environmental impact, which is a function of the complexity of the ecosystems with which the company interacts, of structural characteristics of the supply chain, and of firm characteristics affecting its position and power within its supply chain. From the perspective of the single firm, market characteristics, ecosystem characteristics and supply chain characteristics are largely exogenous and beyond the control of managers of an individual company. Even key
market players and big brand names find it difficult to challenge the imperative of market growth and limit the exploitation of ecosystem services. And while intra-organizational features may appear to be more manageable and controllable, we know from organization studies just how difficult it is to orchestrate deliberate organizational change within an organization. It is also worth noting that, to date, we have no examples of firms that have demonstrated the ability to effectively neutralize their environmental impact in terms of ecological sustainability. VII. FOUR SCENARIOS FOR ENVIRONMENTAL SUSTAINABILITY
The broader debate about organizations and the natural
Market growth rate
High Innovation-based High risk Market growth rate offsets Market growth rate and ecosystems environmental improvements complexity requires new green governance, innovative business Innovative products, processes and models and new consumption patterns business models are required to balance growth Examples: Efforts to reach global agreements (Montreal Protocol on Examples: Some best practices in ozone depletion; Kyoto Accord on specialized markets climate change) Environmentally-based Env. strategy allows to keep env. impact within specific thresholds and aligns with ecosystems resilience Examples: Firms in mature markets and industries such as food, wood and forestry, etc. Low High Manageability of environmental impact Green governance Ecosystem complexity requires a supply chain and system focus Orchestrated governance is required to coordinate industrial initiatives and enforce measures Example: EU ETS for climate change and carbon emission reduction Low
Figure 1 - Four scenarios for environmental sustainability
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environment has guided scholars and practitioners in the attempt to define an environmentally sustainable corporation (Hart; Jennings and Zandbergen; Marshall and Toffel; Starik and Rands). Drawing further on two of the variables described, market growth and manageability of environmental impact, we construct a two-by-two matrix to generate four different scenarios (see Figure 1). For the purpose of developing scenarios, we focus on market growth rate only, and distinguish between high and low growth rates. While we realize that the capacity of ecosystems to assimilate external perturbations depends on the absolute amount of resources utilized (which correlates with the overall size of markets), our intention here is to focus on market growth more narrowly, in part to highlight its critical importance in the corporate sustainability literature. With regard to the second dimension, we distinguish between high and low manageability. High manageability represents the case where an individual firm has the capacity to implement effective environmental strategies, has some control over ecosystems dynamics and the effects of its own environmental impacts on the ecosystems perturbations. Low manageability suggests that the complexity of the ecosystem combined with the supply chain structure inhibit the possibility for the single firm to implement effective environmental actions. Below, we elaborate further on each of the four scenarios. Environmentally-balanced scenario The first scenario, which we name environmentallybalanced, is characterized by low market growth rates combined with the possibility to directly manage environmental impact. Firms that compete in mature markets dominated by a replacement demand are more likely able to both control their environmental impact and align their operations with ecosystem functionng and absorptive capacity. In this
scenario, the implementation of a green strategy, the introduction of environmental innovations and clean technologies, and the adoption of environmental management systems allow the firm to improve its overall environmental performance. Improvements can be both relative (eco-efficiency) and absolute (eco-effectiveness). At the same time, the firms environmental impact affects mainly local ecosystems (e.g. a forest, a river, a lake, a pond) with spatial scales and time scales compatible with the firms operational cycles. Competition over the utilization of ecosystem services is limited, for example because the services or benefits that the ecosystem provides are excludible from access or use to others. In sum, they are manageable by the single organization (Fisher et al.). Examples for this case come from firms operating at a local level, in sectors such as the food industry (e.g., organic foods) or forestry. These companies directly manage the ecosystems they rely on for the provision of natural resources, and directly pay for the mismanagement of resources. Green governance scenario Many industrial activities in the industrialized world fit with a scenario where conditions of low market growth are combined with low environmental manageability. The complexity of the ecosystems affected by the firms activities or products requires coordinated and extensive action and commitment, and the focus shifts from the individual company to the entire supply chain or economic system. We are again in a situation of mature markets with reduced growth, pointing to the possibility to reach a condition of balance with the assimilative capacity of ecosystems through the development of green governance mechanisms (e.g. policies, selfregulations, etc.). An example of this case is the European Union Emission Trading Scheme (EU-ETS),
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launched in January 2005 with the goal of reducing greenhouse gas emissions (GHG) by 8% from 1990 levels by 2012. Here the complexity of the climate change challenge, both in terms of ecosystems and organizational manageability, has imposed an orchestrated model of governance, involving heterogeneous stakeholders (Crona and Hubacek; Veldkamp et al.). The system covers 12,000 installations representing approximately 50% of total EU GHG emissions. Emission caps are defined based on the final environmental target (temperature as a function of GHG concentrations) and emissions permits are distributed according to the defined emission cap, with the possibility to trade them in a market. In a generally mature market such as Europe, which is characterized by low growth rates, the definition of a reduction target and adoption of a cap and trade system does not meet as much resistance from the industry as might happen in high-growth markets, and this measure can be seen as a credible and effective option for internalizing the external cost of carbon emissions and drive lowcarbon innovations. Innovation-based scenario Many markets in emerging counties or in innovative industries are characterized by high dynamism and sharp growth rates. Companies operating in these industries can manage their environmental impact by developing efficient environmental strategies, or by adopting clean technologies and environmental management systems. Nevertheless, market growth rates may offset the environmental efficiency gains the firm is obtaining: when sales grow rapidly, improvements in environmental efficiency need to occur at a rate faster than market growth in order to obtain absolute environmental benefits. This is a critical challenge that many companies have to face when they move from local to global markets, or from niche to mass markets. In this scenario,
product, process and business model innovation plays a key role in balancing growth. Lovins, Lovins and Hawken, in their work on natural capitalism, have suggested strategies for major shifts in business practice that can solve many environmental problems under profitable conditions. Well-known companies such as Patagonia (Fowler and Hope), the Body Shop, Interface (Stubbs and Coklin) or the Brazilian beauty-products provider Natura (Bonifacio), have introduced closed-loop factories, re-designed products, adopted innovative eco-friendly materials, and radically changed their business model in order to protect ecosystems and biodiversity. These companies provide examples of sustainable growth, acquiring market leadership in their segments, and becoming best practice examples. Cases like these relate to specialized market segments. We argue that problems shall still arise when such firms decide to move into global mass markets, globalize their supply chains, or are acquired by other multinational brands such as lOreal with the Body Shop. We conclude that even in these successful and celebrated cases, the myth of growth has never been contested, even as sustainability thinking has prioritized technology and business innovation as the ingredients to square the circle. High risk scenario Lastly, the conditions of low manageability and low market growth rates suggest a situation where environmental sustainability is an extremely difficult challenge. Many ecosystem services we all depend on are already seriously compromised. This is the case for climate regulation services, air quality regulation, erosion regulation and for provision services such as fisheries, to name a few (MEA; Rockstrm et al.). Complexity derives in part from the fact that these benefits are jointly produced (many ecosystems contribute to the generation of
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the same service), and from the fact that they are both spatially and temporally unrelated to industrial and organizational life-cycles. As a result, new green global governance is required to approach this complexity, involving multiple organizations from diverse institutional spheres, including politics, the economy, science, etc. We use an example typically considered to be a successful response: the reaction to the ozone depletion. Here, the release of anthropogenic ozone-depleting substances (chlorofluorocarbons or CFCs and halons) lead to the appearance of the Antarctic ozone hole, with serious risks for humans and ecosystems (the ozone layer protects from dangerous UV radiations). The enforcement of the Montreal Protocol (signed in 1987 by 25 nations) and subsequent amendments (today, the accord involves some 167 counties) have resulted in phasing out these substances, leading to a reduction of the concentration in the atmosphere of ozone-depleting gases and to some signs of ozonestratospheric recovery. In this example, major conditions of market growth for CFCs, including rapid development of this industry in emerging economies, and ecosystems complexity prompted the international community to join in a concerted effort to ban these dangerous substances and protect the natural environment. Single firms had to manage within this new regulatory setting and search for innovative solutions to substitute these chemicals while shutting down entire production plants. Other examples such as climate change or overexploitation and losses of the oceans and fisheries stocks, on the other hand, are evidence of failures of international green governance. Until now, for instance, the search for global green agreements for a post-Kyoto treaty has been crushed both by developing economies determined to undertake their own path of industrialization and development, and by industrial lobby opposition. Some individual companies competing in these markets, despite
their efforts to protect the natural environment and improve eco-efficiency, are probably contributing to increasing the exploitation of natural resources in absolute terms, pushing them beyond their resilience capacity. Forms of compensations, such as carbon emission offsets, appear insufficient in the face of these markets pace of growth. We argue that this is the scenario in which coordinated initiatives, new forms of super-national and local governance (Veldkamp ey al.), new business models and the search of innovative patterns of consumption are most urgently required. At the same time, we need to improve our knowledge of environmental conditions and dynamics, and of the effects on humankind (Folke and Gunderson). To sum up, corporate environmental sustainability entails different challenges under the different conditions discussed in this paper. Corporate environmental sustainability, in light of our exploration of constraining factors, appears to be a far less convincing or realistic concept. Exogenous and endogenous forces severely limit the ability of the individual firm to develop an effective environmental strategy, making this concept flawed and ambiguous. The environmental challenges before us require holistic approaches to monitor global and local ecosystems dynamics, call for new forms of green governance that can orient the behavior of firms and foster cleaner innovations, and necessitate far more radical reflections on the imperative of production and consumption growth and the relation with natures boundaries. VIII. IMPLICATIONS AND CONCLUSIONS
Our paper offers a number of contributions to the fields of management, policy and research. First, we have stressed the relevance of ecological effectiveness, and we have pointed out that firms have to abandon the safe waters of eco-efficiency (Dyllick
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and Hockerts). The focus on efficiency responds to the logic of productivity, and therefore easily fits with managerial routines that legitimize environmental investments, but nature does not respond to this logic. Environmental sustainability depends on the interaction between organizations, products, ecosystems and their characteristics (e.g. resilience). We argue that corporate environmental sustainability cannot start until firms acknowledge the complexity of the natural environment and try to incorporate natures boundaries into their strategy. We think that this topic deserves extensive additional research. Management studies and environmental science need to bridge the disciplinary distance that until now has characterized the two fields. There is a great need and urgency for further progress, and management theory must investigate the complexity of the relationship between organizations and nature in order to support firms in the development of effective environmental strategies (Pogutz and Winn). On a practical level, the availability of useful and useable data on the state of the natural environment will be critical in the next decade. The creation of accessible database and information systems that favor the integration of the firms environmental accounting with information on ecosystems dynamics will greatly improve the effectiveness of firm-level environmental strategy, not to mention increase stakeholder pressures for firms to act. In the domain of natural science, improvements are required both in the capacity of observing ecosystems and in forecasting their future conditions (Folke and Gunderson); in the field of management, new competencies and commitments will be required to usefully manage such information by, for example, supporting green innovation processes and the formulation of environmental strategies. Some scholars have pointed out that management practice until now has favored the massive amplification of the imperative of increasing production and consumption (Banerjee,
Shrivastava, Purser). Another contribution regards the relationship between industrial cycles, market growth and corporate environmental sustainability. We believe our analysis helps recognize the importance of these forces in shaping firm environmental impact, despite the scarce attention in the management literature to date (with the exception of very few contributions). We have been surprised by this lack of attention, both by scholars in the field of management, and in the subfield of organizations and the natural environment, as if the topic of growth was not part of the organization science domain. We think that management scholars have both a responsibility to start addressing these issues (as scholars from other disciplinary fields are doing) and are bound to find fertile ground for scholarly inquiry. However, we have noted that the rate of growth of markets affects the possibility for the firm to develop an effective environmental strategy, offsetting the benefits obtained with green innovation or environmental management systems. The question remains: Can a firm be called environmentally sustainable when its absolute environmental impact increases over time? In the current situation, when many ecosystems are already seriously damaged and their resilience is compromised both locally and globally, we suggest that the answer is probably not. Moreover, we have highlighted that market size matters as well. In absolute terms, firms competing in specialized markets have less impact than companies targeting mass markets serving millions of consumers. For these firms it is probably easier to implement a green strategy that fits with natures boundaries. Should we consider these firms more environmentally sustainable than companies that are focusing on large segment of consumers? Even in this case, more investigation is needed to better understand the linkages between growth, competitiveness and environmental sustainability. We think that an important avenue of
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research relates to the quest for innovative business models capable to create value and to challenge the dominant production and consumption patterns. Another critical area relates to growth in emerging economies and firms environmental strategies. In synthesis, these countries are facing two alternatives with different impacts on the global environmental challenge: to leapfrog to a postindustrial society or to transform through a more environmentally-intense (i.e., harmful) industrialization phase. Several questions arise: How are large multinational companies approaching these markets from the environmental perspective? How are these companies managing tradeoffs between local and global environmental aspects and between environmental and social issues? Can we find innovative business models in these countries that are based on local capabilities that reconcile market growth with environmental sustainability? In this paper, we hoped to draw attention to exogenous forces not previously studied, that limit the ability of the single firm to realistically target environmental sustainability. Indeed, we question not only the factual accuracy of the term corporate environmental sustainability, but suspect that its usefulness must be considered within very narrowly defined goals of prompting incremental improvements. We have also stressed the importance of a holistic perspective, deliberate and orchestrated green governance, and broader system innovations in the service of sustainability. We argue that in many situations, the individual firm is not the right unit of analysis for assessing environmental progress. Companies have many options to reduce their impact at the single organizational level (from clean technologies, to ecosystem restoration), but global ecological problems are not the result of a single firms action, despite its power or size. Ecosystem complexity over spatial and temporal scales requires close involvement and coordination across supply chains and industries as the appropriate
unit of analysis for facing environmental problems. We think that both management scholars and practitioners should pay more critical attention to the widespread use and faulty meaning of the term corporate environmental sustainability. IX. REFERENCES [1] Ambec, S., and P. Lanoie. Does it Pay to Be Green? A Systematic Overview. Academy of Management Perspectives 22.4 (2008): 45-62. Aragon-Correa, J. A., and S. Sharma. A Contingent Resource-based View of Proactive Corporate Environmental Strategy. Academy of Management Review 28.1 (2003): 71-88. Arrow, K., B. Bolin, R. Costanza, P. Dasgupta, C. Folke, C. S. Holling, B-O. Jansson, S. Levin, K-G. Maler, C. Perrings, and D. Pimentel. Economic Growth, Carrying Capacity, and the Environment. Science 268 (1995): 520-521. Ayres, R. U. On the practical limits to substitution. Ecological Economics 61.1 (2007): 115-128. Banerjee, S. B. Who Sustains Whose Development? Sustainable Development and the Reinvention of Nature. Org anization Studies 24.1 (2003): 143-180. Bansal, P. and K. Roth. Why Companies Go Green: A Model of Ecological Responsiveness. Academy of Management Journal 43.4 (2000): 717-736. Bansal, P., and J. Gao. Building the Future by Looking to the Past: Examining Research Published on Organizations and Environment. Organization and Environment 19.4 (2006): 458-478. Berchicci, L. and A. King. Postcards from the Edge. A Review of the Business and Environment Literature. The Academy of Management Annals, 11 (2007): 513-547. Bonifacio F. A lesson in sustainability: Naturas Marcos Vaz GCI Magazine, September (2010): 44-47. Boulding, K. E. The economics of the
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Assessing Corporate Sustainability Through Ratings: Challenges and Their Causes

Sarah Elena Windolph Leuphana University Lneburg windolph@uni.leuphana.de
ABSTRACT: Assessing corporate sustainability is increasingly practice-relevant, not least because the capital market and other markets have been paying growing attention to the topic. Recently, ratings have become an important assessment approach and nowadays a variety of organizations and financial service providers conduct their own ratings. Yet, despite their growing popularity, ratings are criticized in research and practice. Thus, the purpose of this paper is to systematize the challenges that corporate sustainability ratings face: lack of standardization, lack of credibility of information, bias, tradeoffs, lack of transparency, and lack of independence. Furthermore, the paper discusses the causes of these challenges and suggests possible ways to improve the reliability of ratings.
KEYWORDS Corporate Sustainability Assessment, Corporate Sustainability Measurement, Ratings, Socially Responsible Investment (SRI) I. INTRODUCTION Sustainability is a topic of growing significance for companies just like the contribution of companies is becoming essential for sustainable development (Dunphy, Griffiths, and Benn; Dyllick and Hockerts; Epstein; Schaltegger and Burritt). Corporate sustainability (CS) is understood here as an approach to systematically consider environmental and social issues and to integrate them into the economic management of a company (Dunphy, Griffiths, and Benn; Shrivastava and Hart). Increasingly, the demand for CS is not only driven by societal or political expectations, i.e. push factors, but also by the potential for internal organizational
improvements (e.g., cost reduction), as well as the demand of consumers and investors, i.e. pull factors (Dyllick, Belz, and Schneidewind; Meffert and Kirchgeorg; Schaltegger and Wagner). Examples of this latter market pull are the rising demand for organic food (Wier and Calverley) and the growing significance of socially responsible investment (SRI) (Beloe, Scherer, and Knoepfel; Moskowitz; Sparkes and Cowton). This increasing market demand entails the need for CS assessment and evaluation. But, since the corresponding information on individual companies is rarely publicly available, there is a substantial risk that sustainability-oriented companies are not recognized. Additionally, as sustainability commitments are hard to verify, less responsible companies may make use of this by greenwashing, that means intentionally providing incomplete or even false information (Darbi and Karny; Laufer; Ramus and Montiel). If consumers
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and investors are willing to make their purchase and investment decisions based on CS but only have information which is incomplete or which they do not trust, sustainability-oriented companies may in the worst case be crowded out of the market, although they actually offer what customers are looking for. This phenomenon is known as market for lemons (Akerlof): responsible companies cannot be identified; therefore consumers and investors are not willing to pay for their products or to invest in those companies. Consequently, those companies do not survive in the market. In order to prevent such a market for lemons, reliable information intermediaries with more resources to gather information and carry out an external CS assessment become important, for example consumer associations, non-governmental organizations (NGOs), and journalists (Chatterji and Toffel; Healy and Palepu; Lee and Cho; Rischkowsky and Dring). Recently, ratings have become especially important for CS assessment (Chatterji and Toffel; Schfer, Beer, Zenker, and Fernandes), not least because of the increasing interest of the capital market where ratings are an established tool to estimate the credit worthiness of, for example, companies (econsense; Finch; Healy and Palepu; Schfer, Beer, Zenker, and Fernandes). Assessing and benchmarking CS through ratings among other things serves to improve accountability and enables cross-company comparison (Graafland, Eijffinger, and Smid). However, despite (or perhaps because of) their increasing relevance, CS ratings are subject to a lot of criticism, especially regarding their transparency (e. g., Delmas and DoctoriBlass; Dillenburg, Greene, and Erekson; Fowler and Hope; Sadowski, Whitaker, and Buckingham, Rate the Raters. Phase One), their independence (e. g., Beloe, Scherer, and Knoepfel; Epstein; Graafland, Eijffinger, and Smid), and their variety (e. g., Chatterji and Levine; Chatterji, Levine, and Toffel; Schfer, Beer, Zenker, and Fernandes).
The fact that ratings try to fulfill a challenging task is revealed by the lack of standardization and best practice methods. Important reasons for this are the missing definition and the subsequent diverse perception of CS (Linnenluecke, Russell, and Griffiths; Schaltegger and Burritt; Seelos; van Marrewijk). This room for interpretation has not only led to a range of CS practices (e. g., philanthropic sponsoring activities or core business relevant sustainability management), but also to heterogeneity of assessment approaches not only of ratings and SRI research but of CS assessment approaches in general (Delmas and Doctori-Blass; Schfer, Beer, Zenker, and Fernandes). Table 1 offers an overview of CS assessments and lists examples. The variety of assessment approaches that consumers, investors, and further stakeholders are increasingly confronted with poses a problem in its own right. This not only holds true for the assessment of companies but also for products. The organic food sector, for instance, has generated a confusing multitude of certificates and labels (Wier and Calverley 54). Therefore, it is difficult for consumers to decide which labels to trust and how to compare competing labels (Jahn, Schramm, and Spiller; Wier and Calverley). Accordingly, stakeholders are still unable to judge whether products and companies are really oriented towards sustainability, and thus, depend on the assessment of intermediaries (Rischkowsky and Dring). Against this background, the research question of this paper is what challenges CS ratings face and what their causes are. The paper is structured as follows. Firstly, after a short introduction to the relevance of ratings, it displays and systematizes the challenges for CS ratings based on a literature review. Several ratings are included for illustration purposes. Secondly, the paper determines the causes of these challenges by reviewing more general literature on CS and CS assessment. Thereupon, the paper identifies ways to improve the reliability of CS ratings.
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CS assessment approach
Examples Sarasins Corporate Sustainability Rating (Bank Sarasin & Co Ltd.) ZKB Sustainability Research (ZKB)
SRI research (in-house)
Ratings MSCI (formerly KLD) Environmental, Social and Governance (ESG) Ratings (MSCI Inc.) oekoms Corporate Responsibility Rating (oekom research, oekom Corporate Rating) Indices Dow Jones Sustainability Indexes (DJSI) (SAMs Corporate Sustainability Assessment and Dow Jones Indexes; SAM; SAM Indexes GmbH; SAM and PwC) FTSE4Good (EIRIS sustainability research and Financial Times Stock Exchange Group, EIRIS) Ethibel Sustainability Indices (ESI) (Vigeos sustainability research and Standard and Poors, Vigeo and Forum Ethibel) Rankings Awards Assessments by NGOs, consultants, and research organizations
Assessments by NGOs, consultants, and research
Good Company Ranking (Balzer et al.) Global 100 Most Sustainable Companies in the World (Corporate Knights Inc.) German Sustainability Award (Stiftung Deutscher Nachhaltigkeitspreis e.V.) Guide to Greener Electronics (Greenpeace) Carbon Disclosure Project (Carbon Disclosure Project)
Guide to Greener Electronics (Greenpeace) Carbon Disclosure Project (Carbon Disclosure Project)
Table 1: Prevalent approaches to externally assess CS.

II. BACKGROUND: RELEVANCE OF RATINGS IN THEORY AND PRACTICE II.I. RELEVANCE OF RATINGS FROM A THEORETICAL PERSPECTIVE
This section elaborates on the relevance of external CS assessment from a theoretical perspective, and then highlights the practical importance of ratings in particular.
An important difficulty when assessing CS externally lies in information asymmetries (Lyon and Maxwell; Rischkowsky and Dring). Consumers, investors, and other stakeholders are not able to verify the sustainability claims made by companies, because they do not have access to the relevant information
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(Ramus and Montiel). This not only affects products (Jahn, Schramm, and Spiller) but also processes inside companies and along supply chains (Chatterji and Levine; Epstein). Reliable third party institutions with resources to gather the needed information become important players (Healy and Palepu; Lee and Cho; Rischkowsky and Dring). Ratings or rating organizations are one example of such information intermediaries. Another important aspect is that CS is socially desired (de Boer; Epstein). Ongoing discussions in the media as well as the increasing meaning of sustainability-oriented products, for example in the financial market, illustrate that society and markets are increasingly concerned with the topic (Hansen, Groe-Dunker, and Reichwald; Meffert and Kirchgeorg; Sparkes and Cowton; Wier and Calverley). This fact may not only motivate companies to get involved with sustainability issues and to communicate about them, but also to exclusively communicate positive and leave out negative information. In an extreme case, companies may even perceive an incentive to pass on false information in order to improve their reputation or market share (Darby and Karni; Laufer, Rischkowsky and Dring). The risk of such opportunistic behavior, known as greenwashing, is increased by the lack of a definition of CS and the large scope of different interpretations (van Marrewijk). The outcome of such a situation may be a market for (organic) lemons: stakeholders cannot identify sustainability-oriented companies (hidden characteristics) because of a lack of information or of trust in the offered information. This leads to a diminished willingness to pay for the companies products or a lower readiness to invest. Ultimately, sustainability-oriented companies may be crowded out of the market (adverse selection) (Akerlof; Rischkowsky and Dring). This market failure probably causes negative effects on the environment and society when sustainability-oriented companies
are replaced by exclusively economically-oriented ones. Accordingly, the contribution of companies to sustainable development of the economy and society will diminish even more. Both Economics of Information (e. g., Shapiro; Stigler; Stiglitz) as well as the principalagent theory (Jensen and Meckling) (and related approaches like the stakeholder-agency theory, see Hill and Jones) deal with ways to overcome asymmetric information or adverse selection in markets. They offer two basic approaches to this problem. The first approach is signaling (Spence). Signaling in this context means that companies emit credible signals indicating their sustainability orientation. Examples are the publication of sustainability reports offering stakeholders information on sustainability efforts, and the establishment and use of brands or labels transporting and substantiating sustainability related messages about products or companies (de Boer; Finch; Kolk). However, these signals only fulfill their function if the addressees perceive them as reliable (Mller; Rischkowsky and Dring). Yet, reliability is not always given due to the climate of general distrust towards social organizations (Renn and Levine 212) and the risk of opportunistic behavior. Therefore, signaling may be insufficient in the context of CS. An alternative approach to overcome information asymmetries is screening, which here means that consumers, investors, or other stakeholders actively search for and evaluate information on the sustainability performance of companies (Rischkowsky and Dring; see also Stiglitz). Compared to earlier times, the Internet allows for much more transparency and information access today (Rezabakhsh, Bornemann, Hansen, and Schrader; Seelos). Yet, consumers and investors cannot access all relevant data as a matter of resource constraints (time and data access). Hence, information intermediaries come into play (Healy and Palepu; Lee and Cho; Rischkowsky and Dring).
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Ratings are an important example of this kind of external assessment, although screening for CS is complicated by the diverse perception of the concept. Yet, although several challenges have to be met in order to reliably assess CS by screening, it still appears more promising than signaling which makes opportunistic behavior easier (Graafland, Eijffinger, and Smid). Furthermore, screening simplifies the comparison of companies which could be relevant to consumers and investors. Therefore, this paper focuses on ratings as a practice-relevant application of screening. Nonetheless, when differentiating between signaling and screening it has to be kept in mind that one approach cannot be seen separate from the other. On the one hand, the assessment made through screening can be used to substantiate companies signaling approaches, which might be perceived as more reliable than information without external verification (Rischkowsky and Dring). Audits, labels, and certificates also follow this procedure. On the other hand, in order to carry out their assessment, ratings at least partially depend on the disclosure of information by companies, and thus, on suitable internal metrics (Chatterji and Levine). For these reasons, CS signaling and screening are interdependent. Intermediaries carry out the screening process for stakeholders and substantiate companies signals. II.II. PRACTICAL RELEVANCE OF CS RATINGS
CS ratings have become increasingly practicerelevant (Chatterji and Toffel; Schfer, Beer, Zenker, and Fernandes). Whereas conventional, finance-related ratings are used to estimate the credit worthiness of companies (Healy and Palepu), CS ratings serve to systematically and regularly analyze the environmental, social, and economic performance of companies, and, furthermore, allow the comparison of companies (Chatterji, Levine, and Toffel; Finch; Graafland,
Eijffinger, and Smid; Schfer, Beer, Zenker, and Fernandes). Sustainability ratings are carried out by a variety of organizations, for example specialist rating agencies, analyst departments in banks, operators of (securities) indices, classic credit rating agencies, and few NGOs (Delmas and Doctori-Blass; Finch; Schfer, Beer, Zenker, and Fernandes) (see Table 1). Most CS ratings have been launched within the last ten to fifteen years, mainly because institutional investors are increasingly interested in sustainability-related or socially responsible investments (Moskowitz; SAM and PwC; Schfer, Beer, Zenker, and Fernandes). Today, an independent market for the services of CS intermediaries has developed, and it is expected to grow due to the rising social awareness of environmental and social issues and related market demands. For example, the number of assessed companies for Sustainable Asset Managements (SAM) Corporate Sustainability Assessment increased from 468 in 1999 to 1,237 in 2009 (SAM and PwC). Among the variety of CS assessment approaches ratings play a special role, since they not only constitute an assessment approach themselves but also form the basis for further benchmarking approaches like rankings and indices (for more details on ratings see Schfer, Beer, Zenker, and Fernandes; for the methodologies of major sustainability indices see Fowler and Hope). Therefore, the procedures that ratings apply have consequences for subsequent approaches. Despite the visible efforts to assess CS, related approaches and particularly ratings are criticized in both research and practice (Beloe, Scherer, and Knoepfel; Chatterji and Levine; Chatterji, Levine, and Toffel; Delmas and Doctori-Blass; Dillenburg, Greene, and Erekson; Fowler and Hope, Graafland, Eijffinger, and Smid; Hansen; Sadowski, Whitaker, and Buckingham, Rate the Raters. Phase One; Schfer, Beer, Zenker, and Fernandes). Hence,
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Beloe, Scherer, and Knoepfel (29) conclude that many research organizations will have to fundamentally review many aspects of their research methodology and approach, and Sadowski, Whitaker, Lee, and Ayars (5) conclude that the market will settle on a few winners. The challenges that come along with CS ratings will be discussed in the following. Several practice-relevant ratings are drawn upon for illustration purposes. III. CHALLENGES FOR CS RATINGS AND THEIR CAUSES
on a review of academic literature as well as practice-relevant publications on ratings, indices, and related assessments of CS and identifies those aspects that are discussed in several publications. Table 2 offers an overview of the challenges and their meaning. Building on this, section 3.2 identifies the causes of the challenges and discusses them on the basis of more general CS literature. III.I. III.I.I. CHALLENGES FOR CS RATINGS LACK OF STANDARDIZATION
CS ratings are dealt with in research and practice. Although a certain amount of literature deals with the challenges for CS ratings, they have not been systematized so far. In section 3.1 six important aspects will be identified and elaborated: lack of standardization, lack of credibility of information, bias, tradeoffs, lack of transparency, and lack of independence. The synthesis builds Rating challenges Lack of standardization
Although CS ratings have spread, little standardization has been achieved. This is the result of the varying interests and perceptions that raters and stakeholders have in terms of CS. Beyond that, even those ratings that actually do address the same issues and interests apply varying measures and use
Meaning Diversity of approaches and results, no evaluation of approaches, no comparability (Beloe, Scherer, and Knoepfel; Chatterji, Levine, and Toffel; Graafland, Eijffinger, and Smid) Rarely full disclosure of methodology, criteria, threshold values, etc. (Chatterji, Levine, and Toffel; Delmas and Doctori-Blass; Dillenburg, Greene, and Erekson; Fowler and Hope) Emphasis on economic, environmental, or social dimension; focus on investors needs; focus on larger companies (Beloe, Scherer, and Knoepfel; Chatterji and Toffel; Fowler and Hope) Aim at single score, possible compensation of unsatisfactory partial results (Delmas and Doctori-Blass; Graafland, Eijffinger, and Smid) Companies can influence rating results, missing information verification (Beloe, Scherer, and Knoepfel; Fowler and Hope; Healy and Palepu) Relation between rating organizations and companies (AI CSRR; Beloe, Scherer, and Knoepfel; Healy and Palepu)
Lack of transparency
Bias
Tradeoffs Lack of credibility of information Lack of independence
Table 2: Challenges for ratings assessing CS.
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their own methodology (Sadowski, Whitaker, Lee, and Ayars). The competing approaches have rarely been evaluated in academic research so far, although this is regarded as crucial for the construction of ratings (Chatterji, Levine, and Toffel; Sharfman) and indices (Fowler and Hope). Exceptions are for example works by Chatterji and Levine; Chatterji, Levine, and Toffel; Chatterji and Toffel; Knoepfel; and Sharfman. Furthermore, whereas the assessed companies may aim at standardization where possible (econsense), this is not desirable from the stakeholders point of view because of their different perception of and interest in CS (Beloe, Scherer, and Knoepfel; Dillenburg, Greene, and Erekson; Graafland, Eijffinger, and Smid). Hence, standardization of ratings and the establishment of best practices are unlikely for the time being. Another cause for the lack of rating standardization is company-internal CS accounting and reporting (Schaltegger). Ratings use publicly available information as well as data disclosed by companies. Yet, the ways that companies gather and communicate information are typically very different. Especially the measurement of social issues as well as the evaluation of the influence of CS on companies success is difficult and not organized systematically. Therefore, the data that ratings build upon is not necessarily comparable and quality might differ. This fact can distort the rating result. III.I.II. LACK OF CREDIBILITY OF INFORMATION In order to assess CS, ratings depend on suitable information. As already discussed earlier, there is a significant lack of data availability. Thus, besides publicly available data (like company or media reports), raters at least partially depend on self-disclosure of companies. A lot of companies acknowledge the signaling function of ratings
and take part in surveys (Dillenburg, Greene, and Erekson; Fowler and Hope; Schfer, Beer, Zenker, and Fernandes), for example through investor relations departments which communicate with analysts and investors (Healy and Palepu). For instance, inclusion in the DJSI requires companies to fill in a detailed questionnaire covering a wide range of weighted economic, environmental, and social factors (Fowler and Hope). Yet, the credibility of company information may be questioned, [b]ecause managers have incentives to make self-serving voluntary disclosures that will not negatively affect their competitive position (Healy and Palepu 425; see also Laufer). That is one reason why many rating organizations use additional publicly available information to verify data (Beloe, Scherer, and Knoepfel). For example, EIRIS refers to the information of government and regulatory agencies, industry organizations, trade publications, campaigning bodies, academic and specialists reports, and the output of other research bodies (Schfer, Beer, Zenker, and Fernandes 72). However, this information does not necessarily have to be credible either. The verification of information remains a significant challenge for research organizations (Beloe, Scherer, and Knoepfel 29; see also Laufer; Ramus and Montiel). Additionally, Beloe, Scherer, and Knoepfel (29) observe that companies are still by far the most important source of information for research organizations. SAM states that their company questionnaire is the most important source of information for the assessment leading to the Dow Jones Sustainability Index (DJSI) (SAM Indexes GmbH). EIRIS declares that their survey serves to provide the most recent and accurate information available. During the oekom rating procedure considerable importance is attached to the cooperation with companies (oekom research, oekom Corporate Rating). Despite the inclusion of additional information and the fact that many rating organizations today fill in large parts of the
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questionnaires based on public data themselves (Beloe, Scherer, and Knoepfel), these examples demonstrate that companies are to some extent still able to influence rating results. Another important argument for the increased inclusion of publicly available data is questionnaire fatigue resulting from the intensive surveying of companies (Beloe, Scherer, and Knoepfel; Chatterji and Levine; econsense). Companies have to spend considerable resources to take part in surveys and to interact with research organizations (Fowler and Hope, Chatterji and Levine). Besides the increasing unwillingness to participate in surveys, another possible negative sideeffect can be that inexperienced employees like interns accomplish the rating survey process. This questions the credibility of information even more (Hansen). III.I.III. BIAS Another challenging aspect for CS ratings are biases. Schfer, Beer, Zenker, and Fernandes state that many CS ratings are biased, meaning that they put special emphasis either on the environmental, social, or economic dimension. However, overemphasizing either one of the three dimensions is inconsistent with the integrative character of CS. According to that, companies are required to simultaneously take account of and harmonize the environmental, social, and economic dimension (Schaltegger and Burritt). The particular economic bias is especially strong in conventional ratings that use only selective CS measures as add-on. However, the same bias exists in well-established assessment approaches like the DJSI, and thus, SAMs rating (Fowler and Hope). Fowler and Hope find that SAM does not consider the three dimensions of sustainability in a balanced way. SAMs assessment aims at identifying industryspecific best in class companies and focuses on those that are most likely to turn sustainability into shareholder value (Schfer, Beer, Zenker,
and Fernandes 101). Accordingly, social and environmental criteria weigh less than economic ones (Fowler and Hope). This also applies to KLD Research and Analytics, Inc. (now part of MSCI Inc.) whose declared objective is to serve investors (Chatterji and Toffel). Dillenburg, Greene, and Erekson (169) describe the consideration of social criteria in the assessment of large investment firms as just a collateral service. This undifferentiated approach is criticized by many authors who highlight that ratings should be suitable for various stakeholders with different interests (Beloe, Scherer, and Knoepfel; Dillenburg, Greene, and Erekson; Graafland, Eijffinger, and Smid). In contrast, special interest ratings may put more emphasis on ethical (or normative) and/ or environmental issues while neglecting other dimensions. One example is the sustainability analysis of the Calvert Social Index, in which social and ethical aspects are analyzed in more detail than environmental aspects (Calvert Group, Ltd.; Schfer, Beer, Zenker, and Fernandes). Biases are also relevant for the type of companies to be rated. A lot of ratings, rankings, and indices aim at identifying sustainability leaders, for instance the DJSI. However, most ratings focus on larger companies and include neither small and medium enterprises nor companies from emerging countries (Beloe, Scherer, and Knoepfel; Fowler and Hope; Schfer, Beer, Zenker, and Fernandes). Consequently, sustainability leaders may not be identified by this procedure, since the raters possibly do not even include them in the sample (Fowler and Hope) or they do not take part in the rating (self-selection bias) (Finch). Another difference in the selection process is the usage of an existing index as underlying universe versus actively screening for sustainability-oriented companies. For example, the Dow Jones Indexes (DJI) serve as parent indices for the DJSI (SAM Indexes GmbH) and several MSCI indices for the MSCI ESG Indices (MSCI Inc.), whereas the oekom universe also
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contains smaller companies and significant non-listed bond issuers (oekom research, oekom universe). III.I.IV. TRADEOFFS Closely connected to biases are tradeoffs. Most ratings ultimately aim at producing one single score that is a number or letter as result of the rating process. For example, oekoms rating uses categories between A+ and D- (oekom research, oekom Corporate Rating), and SAMs rating works with percentages (SAM and PwC). Expressing the performance of companies in such a simple way makes it easy to understand companies positions and to compare them (Graafland, Eijffinger, and Smid). Nonetheless, when creating a single score of the individual measures across the triple bottom line, raters assume that values can be reduced to one dimension (Graafland, Eijffinger, and Smid 151) although they are pluralistic in nature (Graafland, Eijffinger, and Smid 140). Aiming at one single score means that shortcomings in one dimension may be compensated by a better performance in another (Delmas and Doctori-Blass). Hence, single scores probably result in a distorted picture of the actual sustainability performance of a company because it is hardly taking into account all facets of CS. Companies are required to embed sustainability management in conventional management instead of dealing with it in parallel. This implies that CS has to be linked to the strategy, core business, and day-to-day processes in all organizational units (Stubbs and Cocklin). This integration challenge complicates the assessment of CS, since activities, outcomes, and budgets are the more difficult to identify as sustainability-oriented the better they are integrated. One single score is hardly able to reflect these interdependencies properly. Furthermore, CS is not a state to be reached (de Ron; Epstein; Schaltegger and Burritt). Instead, the concept occupies the demand for continuous
improvement which shows its process character. Hence, an evaluation of CS should be carried out in relative terms and requires the comparison to a benchmark. One single score can only accomplish this by relating to other scores, for example of other companies or earlier ratings of the same company. Graafland, Eijffinger, and Smid even demand not to conduct cross-sector benchmarking but to limit comparisons to one industry. In fact, rating results often consist of an additional comparative score. For example, SAM translates sustainability scores into a relative industry measure (SAM and PwC). Vigeo and Forum Ethibel state in their rulebook on the Ethibel Sustainability Indices that they intentionally do not calculate a global company score or compile a ranking based on the results of the individual research fields. Still, especially rankings normally oversimplify CS assessment. III.I.V. LACK OF TRANSPARENCY When discussing the lack of transparency it has to be pointed out positively that most of the criteria accounted for in ratings are not determined by the raters alone but together with third parties like NGOs or academia. This first step in the direction of tripartism (Laufer 259) serves to ensure that ratings are more balanced and accepted and increases transparency and accountability (Fowler and Hope). Nonetheless, the research components leading to rating results are rarely made fully available, sometimes except for key clients (Beloe, Scherer, and Knoepfel). This refers to the way information is collected, the methodology, assumptions, calculations, weightings, threshold values, and the specific criteria of the analysis (Beloe, Scherer, and Knoepfel; Chatterji and Levine; Chatterji, Levine, and Toffel; Delmas and Doctori-Blass; Dillenburg, Greene, and Erekson; Fowler and Hope; Graafland, Eijffinger, and Smid). Of course, this does not apply for all ratings to the same extent, but, generally,
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academics as well as companies criticize these black box approaches (AI CSRR; Delmas and Doctori-Blass; econsense). For example, the general part of the questionnaire used for SAMs Corporate Sustainability Assessment rating is open to the public, while the sector-specific questions are not (SAM and PwC; Boms). Graafland, Eijffinger, and Smid point to the importance of disclosing methods and assumptions of benchmarks to stakeholders. Dillenburg, Greene, and Erekson (169) criticize the missing transparency of ratings as troubling. As long as rating processes are not transparent, their reliability may be questioned just like the reliability of the companies to be examined. This is especially important for solicited ratings where ratings customers, for example institutional investors, choose their own criteria and weightings (Finch). III.I.VI. LACK OF INDEPENDENCE The relationship between companies and raters established in order to get the necessary information raises the question whether ratings are independent. Research organizations increasingly depend on the personal interaction with companies (Beloe, Scherer, and Knoepfel). This is especially true when the rating process is carried out repeatedly over time, which is usually the case. For example, oekom emphasizes the importance of the cooperation with companies during their rating (oekom research, oekom Corporate Rating) and SAM describes to proactively engage with companies (SAM and PwC 21). The close relationship to companies might call for even more criticism in cases where ratings are conducted by financial service providers which already have or intend to establish further business relations with the companies (e. g., consultancy, financial analysis, or mandated risks assessments) (AI CSRR; Beloe, Scherer, and Knoepfel). These aspects might create conflicts of interest. They are
discussed in the European Corporate Sustainability and Responsibility Research Quality Standard (CSRR-QS), a quality standard for CS and SRI research (see www.csrr-qs.org). Another potential conflict brought up by Healy and Palepu is the personal interest of financial analysts in screening outcomes: analysts are rewarded for providing information that generates trading volume and investment banking fees for their brokerage houses (Healy & Palepu 417). This may encourage upward biases of rating results. One more relevant aspect in this context is the distinction between solicited and unsolicited ratings. Solicited ratings are carried out for a particular client and paid for (Finch). This fact also puts into question the independence of the ratings. So far the paper has identified six important challenges that come along with CS ratings. Of course, more challenges can be found in the literature, for example in the Rate the Raters publications (Sadowski, Whitaker, and Buckingham, Rate the Raters Phase One) or from a philosophical point of view (Graafland, Eijffinger, and Smid). Still, the six challenges described here together form the most prominently discussed aspects. In the following, the paper analyzes the causes of these challenges and suggests ways to tackle them. III.II. WHAT ARE THE CAUSES OF THE IDENTIFIED CHALLENGES?
The six challenges that CS ratings face have been identified as lack of standardization, lack of credibility of information, bias, tradeoffs, lack of transparency, and lack of independence. In the following, the paper discusses the causes of these challenges based on general literature on CS and CS assessment.
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III.II.I. LACK OF RATING STANDARDIZATION AND THE COMPLEXITY OF CS The lack of rating standardization is not only the outcome of the competitive market for ratings but also the result of the complexity of CS. Even if there were a commonly accepted definition of the concept, it would still be highly complex. However, research and practice have widely agreed upon the triple bottom line approach requiring the mutual consideration of environmental, social, and economic aspects (Elkington). According to this approach, CS comprises a contribution to sustainable development of companies on the one hand and to the environment, society, and economy on the other (Loew, Ankele, Braun, and Clausen; Schaltegger and Burritt). CS therefore has to be assessed not only with regard to its various constituent parts, but also to long-term or rebound effects and further interdependencies (Stahlmann and Clausen; Wiedmann, Lenzen, and Barrett). Furthermore, the results of CS cannot be traced by focusing on what goes on within the factory fences, farm gates, or company premises (Wiedmann, Lenzen, and Barrett 362). CS typically crosses companies boundaries, which implies that their sustainability performance is not only to be assessed in terms of internal measures but also of impact (Epstein; Wiedmann, Lenzen, and Barrett). Assessment on the impact level is dealt with more closely for example in development agencies, and despite those agencies long experience it remains a complex issue (Roche). The consequence is that companies sustainability performance is very difficult to assess (Graafland, Eijffinger, and Smid). That is why a large variety of internal and external approaches exist that deal differently with the assessment of CS. Of course, this applies for ratings and their varying methodologies, too, and makes standardization efforts like the CSRR-QS (AI CSSR) or SustainAbilitys
Rate the Raters research program (Sadowski, Whitaker, Lee, and Ayars) necessary. Accordingly, missing standardization does not only affect ratings but all CS assessment approaches since it results from the concept of CS itself. III.II.II. LACK OF CREDIBILITY OF RATING INFORMATION AND THE LACK OF DATA AVAILABILITY The question of credibility of the information that ratings use and offer is directly related to the lack of CS data availability. This problem affects internal as well as external CS assessment. Whereas internally the major problems are mostly matters of knowledge, information systems, and other management tools (Schaltegger), externally the question is rather one of limited data access. Most of the information required by ratings, if collected at all, is sensitive and rarely made publicly available (Lyon and Maxwell). Thus, not only rating organizations but all providers of CS assessments depend on self-disclosure of companies in addition to publicly available data. Therefore, suitable internal assessment is indispensable for the accomplishment of external assessment (Chatterji and Levine). Furthermore, due to the complexity of CS the question remains which data to measure. Accordingly, the lack of credibility of information results from the lack of CS data and therefore affects every CS assessment. III.II.III. RATING BIAS AND THE FINANCIAL BACKGROUND OF RATINGS USERS Another aspect is the bias of ratings. As already described, the emphasis on economic issues is a result of the increasing interest of conventional analysts in sustainability. These actors probably have only little interest in the mutual consideration
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and integration of the economic, environmental, and social dimension because of their finance-oriented background. Investor-focused ratings rather regard environmental and social issues as add-on. Other CS assessment approaches may face different biases. For example, organic food labels and consumer-focused ratings may mainly consider environmental aspects. Thus, biases opposing the integrative assessment of CS are a challenge that other assessment approaches have to face alike. Still, the bias to the financial dimension is a problem that affects ratings in particular because of their use within the financial market and their stakeholders demands. III.II.IV. RATING TRADEOFFS AND THE DEMAND OF RATINGS USERS Tradeoffs also result from the demands of ratings users. Most ratings are designed to primarily fulfill the needs of their main users, investors, who focus on traditional financial analysis (Beloe, Scherer, and Knoepfel; Delmas and Doctori-Blass; Dillenburg, Greene, and Erekson; econsense). Presenting the rating results in form of single scores makes them easy to compare and communicate, and thus, suitable for investment decisions. Additionally, many ratings also serve for rankings and indices which makes it inevitable to have a single, comparable figure. Beyond that, the communication of the results of CS assessments in a comprehensive, and at the same time, complete manner is challenging for other approaches, too. III.II.V. LACK OF RATING TRANSPARENCY AND THEIR COMMERCIAL USE A widely discussed challenge for ratings is their lack of transparency. When rating organizations do not disclose their methodology, weightings, etc.,
stakeholders cannot tell what it is that they measure. As long as ratings lack transparency, their credibility and reliability may be questioned just like the reliability of the companies to be examined. This particular challenge results primarily from the young, dynamic, and competitive rating market and the aim to maintain commercial advantage (Beloe, Scherer, and Knoepfel; econsense). Since it can be expected that only a few winners will remain in the market (Sadowski, Whitaker, Lee, and Ayars 5), raters try to generate and maintain unique selling propositions, and undisclosed methodologies are hard to imitate. However, it has to be pointed out that some rating organizations are already more transparent than others. For example, Beloe, Scherer, and Knoepfel refer to Ethibel, SAM Research, and Vigeo as best practice organizations, and Sadowski, Whitaker, and Buckingham (Rate the Raters. Phase One) point to Corporate Knights Inc. Furthermore, transparency does not only affect ratings, but is also discussed with regard to other quality assurances and the substantiation of socially relevant claims (de Boer 261), for instance certification processes for labels and audits (de Boer; Jahn, Schramm, and Spiller; Mller) . III.II.VI. LACK OF RATING INDEPENDENCE AND THE INTERMINGLED BUSINESS OF RATERS The last aspect is the missing independence of ratings. Contact between raters and companies may be unavoidable, but in order to guarantee an objective assessment the relation should not be closer than necessary. In order to reliably assess CS, rating organizations should especially not have further bonds with companies because that may in the worst case offer an incentive to manipulate rating results. Graafland, Eijffinger, and Smid (139)
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argue that researchers should carry out the analysis in a disinterested way. This problem is a matter of governance. As rating organizations often do not only carry out ratings but have intermingled relations to the assessed companies, their independence and objectivity have to be questioned. This aspect is reflected in a recent survey conducted among sustainability experts by Globescan. The survey shows that among different raters, NGOs are most trusted, followed by companies employees. Rating and ranking organizations come only in the third place, mainstream investors even later. When asked about the trust in particular ratings and rankings, the highest ranked approach, the DJSI, was classified as highly trusted by not more than 48 per cent of the respondents (Sadowski, Whitaker, and Buckingham, Rate the Raters. Phase Two). This lack of belief in the credibility of ratings is incompatible with their purpose to increase transparency and reliably reduce information asymmetries. The situation is comparable to that of certifiers and auditors (Epstein; Finch). Epstein (246) states that some observers have wondered whether, as with financial auditors, verifiers should act as both consultants and auditors []. Finch (17) finds that the provision by auditors of nonaudit advisory services to companies undermines the independence of the audit. In the context of the food market, Jahn, Schramm, and Spiller describe the necessity of reducing auditors dependency on the companies to be certified with regard to quality labels. The challenge of independence particularly affects organizations or businesses that have further relations to companies. The six challenges identified and described may have different causes, but combined they diminish the reliability of ratings. Against the background of their causes, the upcoming section discusses possible improvements for each challenge.
IV.
WAYS TO IMPROVE CS ASSESSMENT THROUGH RATINGS
In summary, and as Table 3 shows, the identified challenges have different causes and thus have to be tackled differently. Some of the challenges can be ascribed to the concept of cs itself and constitute general challenges when assessing CS (lack of standardization and lack of credibility of information). Furthermore, some challenges for CS ratings result from the financial background and demands of the ratings users (bias and tradeoffs), whereas other challenges result from the commercial use of ratings and the intermingled business relations of raters (lack of transparency and lack of independence). In the following, recommendations are given to improve the reliability of ratings. IV.I. GENERAL CHALLENGES WHEN ASSESSING CS
The lack of standardization and the lack of credibility of information of ratings are results of the complexity of CS and the lack of availability of CS data. Meeting these general challenges requires the contribution of various disciplines and actors in research and practice. On the one hand, the concept of CS itself still is hard to grasp. It can be expected and is desirable for the various actors involved to come to an agreement on a basic common definition in the near future. Furthermore, a more precise understanding of CS could be generated within the realm of ratings in particular, ideally in collaboration with third parties to include various perspectives on CS. A common understanding could enable coordinated research like the one of the Sustainable Investment Research International Group (SIRI) (Chatterji and Levine; Schfer, Beer, Zenker, and Fernandes). This is one way to reduce the large number of ratings, which could positively influence
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data availability and the credibility of data since fewer inquiries of greater quality would be directed at companies. NGOs and other third parties could furthermore be included in the data generation for external verification. So far, each rating uses their individual measures, which is at least inefficient (Sadowski, Whitaker, Lee, and Ayars). IV.II. THE FINANCIAL BACKGROUND AND DEMANDS OF RATINGS USERS
the acceptance of ratings and to promote sustainable development. So far, most ratings, especially those used in the financial market, are not designed to handle this evaluative character of CS. The same holds true regarding tradeoffs: the publication of detailed information on the calculation of a final score could serve to increase the interest of further stakeholders and to promote the use of ratings. Furthermore, biases in the units of analysis of ratings could be reduced by their extension to small and medium-sized enterprises. IV.III. THE COMMERCIAL USE OF RATINGS AND THE INTERMINGLED BUSINESS RELATIONS OF RATERS
Furthermore, some CS rating challenges result from the interest and demands of ratings users: bias and tradeoffs. The particular bias towards financial issues and the demand for single, comparable scores in part even oppose the idea of CS. These challenges derive from the expectations of investors, financial analysts, and other ratings users with financial background. Instead of using CS as addon to conventional ratings, financial markets have to learn and acknowledge its integrative character which entails more balanced assessments than what is common practice. This could be achieved by opening ratings for a wider audience (Sadowski, Whitaker, Lee, and Ayars) and the cooperation with stakeholders, especially NGOs and (potential) customers, which represent the environmental and social dimension of sustainability and thus bring in new perspectives (Laufer). In the context of the financial market, identifying further Business Cases for Sustainability (Schaltegger and Wagner) might also help to accomplish a shift in the perception of CS from knock-out criterion to a more (economically) relevant aspect. Furthermore, it is desirable to enable stakeholders with differing interests to make use of ratings (Sadowski, Whitaker, Lee, and Ayars). Rating results should be offered to stakeholders in a way that enables them to carry out their own evaluation according to their perceptions of and interests in CS. This could be a way to enhance
The lack of independence and the lack of transparency of ratings result from the characteristics of the rating organizations and the commercial use of CS assessment. As the Globecan results show, NGOs are trusted more than rating organizations, possibly because NGOs are less directly trying to make commercial use of CS assessments and because they rarely have further business relations with companies. A possible improvement for the reliability of ratings thus could be the prominent cooperation with one or more NGOs in the rating process (Laufer). However, independence and transparency are also relevant for other CS assessment approaches like audits, certificates, and labels. Similar recommendations apply here, for example consultants should not be auditors at the same time (Epstein). In order to increase their transparency, rating organizations could furthermore (alone or together with an NGO) disclose their methods, measures, and the content of their surveys. This applies to other assessment approaches like audits and labels, too. A further possibility to increase the reliability of ratings is to make use of independent assurance to verify commitments, ideally with
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Rating challenge Lack of standardization Lack of credibility of information Bias
Cause Complexity of CS Lack of data availability Financial background of ratings users Demand of ratings users Intermingled business of raters
Possible improvements Find a common CS understanding including several perspectives, coordinate research Include NGOs and third parties for external verification Sensitize ratings users for the integrative character of CS, open ratings for a wider audience See above Disclose methodology Avoid business relations to companies, include independent third parties
Tradeoffs Lack of independence
Lack of transparency Commercial use of ratings
Table 3: Rating challenges, causes, and possible improvements an NGO due to their higher credibility (Laufer; Ramus and Montiel). Additionally, in order to provide reliable information and to enhance their credibility, rating organizations could, at least, disclose potential conflicts and how they are handled. At best, of course, those conflicts should be avoided and analysts completely independent. This applies for other intermediaries carrying out audits or assessments, too, be it on the general capital market (Healy and Palepu) or regarding CS in particular. Besides self-imposed principles, the establishment of standards, such as the CSRR-QS (AI CSRR), might help to increase trust in those research organizations. Further research in this area should be a sound combination of practice demands and theoretical contributions. Table 3 offers a summary of the aspects discussed in this part. V. CONCLUSION Fostering sustainable development and CS in particular depends on suitable CS assessment approaches. The paper has shown that ratings, on the one hand, are a practice-relevant approach to assess CS externally. On the other hand, several characteristics of ratings are criticized in research and practice. This paper served to assemble and systematize the main rating challenges described in the literature: lack of standardization, lack of credibility of information, bias, tradeoffs, lack of transparency, and lack of independence. An analysis of these challenges reveals that they have different causes. Some general challenges when assessing CS result from the concept of CS itself (lack of standardization and lack of credibility of information). Other challenges result from the demand side of ratings and show the financial background and demands of the ratings users (bias and tradeoffs). Last but not least, some challenges result from the supply side of ratings, namely the commercial use of ratings and the intermingled business relations of raters (lack of transparency and lack of independence). They also affect other CS assessment approaches like audits and labels. Improving the reliability of CS ratings is relevant, since they fulfill an important function with regard to overcoming the information asymmetry in the context of CS. Beyond that, ratings are able to positively influence companies sustainability efforts, foster
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the institutionalization of information management, and stimulate competition between companies (Chatterji and Levine; Dillenburg, Greene, and Erekson; Fowler and Hope; Graafland, Eijffinger, and Smid). And despite the somewhat negative effects that it may have on the understanding of CS, [t]he financial industry is in a unique position to move corporations towards corporate sustainability (Delmas and Doctori-Blass 245). What is needed now is a second generation of ratings and related research (Beloe, Scherer, and Knoepfel 3) including NGOs and thereby other perspectives (Laufer). Especially those challenges resulting from the supplier side of ratings (see 4.3) should be tackled proactively in order to increase the reliability and acceptance of ratings as CS assessment approach. Overcoming CS assessment hurdles can be achieved by several first improvements suggested in this paper. But, due to the interdisciplinary character of CS, these problems cannot be entirely solved by one actor, like raters, but require further research and contributions from several disciplines in research and practice. CS assessment is a process in its own right just like CS itself. VI. ACKNOWLEDGMENTS I would like to thank Stefan Schaltegger, Erik Hansen, Jan-Hendrik Lbben, two anonymous reviewers, as well as Stefano Pogutz, John Morelli, and the other participants at the Environmental Management Leadership Symposium 2011 for their helpful comments on this paper. VII. REFERENCES [1] AI CSRR (Association for Independent Corporate Sustainability and Responsibility Research). CSRR-QS 2.1. Voluntary Quality Standard for Corporate Sustainability & Responsibility Research (CSRR) Groups.
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The Ecological Allowance of Enterprise: An Absolute Measure of Corporate Environmental Performance, its Implications for Strategy, and a Small Case
Andr Reichel Zeppelin University, Germany andre.reichel@zeppelin-university.de Barbara Seeberg Universitt Stuttgart, Germany barbara.seeberg@gsame.uni-stuttgart.de
ABSTRACT: In order to determine the sustainable ecological scale of business activities, the measure ecological allowance is introduced in this contribution. Its main idea is that every enterprise owns a certain allowable ecological impact that can be calculated through relating impact and economic performance. This measure then enables the evaluation of absolute environmental performance of a business enterprise, compared to only relative measures as in most other approaches. The measure is explained and detailed with a case from the German automotive industry and complimented by a scenario analysis of different configurations of self-owned and carsharing cars, including technological and economic parameters.
KEYWORDS Ecological Allowance, Degrowth, Sustainable Development, Business Strategy I. INTRODUCTION The revival of economic growth skepticism in recent years in policy research on sustainable development (Stiglitz, Sen, and Fitoussi) as well as the rise of the degrowth movement in Europe and beyond (Latouche) questions the central paradigm of todays economy. The debate however focuses almost exclusively on the macroeconomic level, with little regard for the business enterprise. Only scant research has been carried out here, and mostly on a rather conceptual level (Reichel, ONeill, and Bastin). What can be derived from that is a reminder
of the importance of size or scale (Daly), not only on the global level but also on the firm level. In order to determine the sustainable ecological scale of business activities, the notion ecological allowance (Reichel and Seeberg) is introduced, the idea that every enterprise owns a certain allowable ecological impact. To some extent this is a top-down procedure, moving from globally sustainable ecological impact to the industry and firm level, thus complementing ecological footprint approaches and measures from lifecycle assessment (Huijbregts, Hellweg, Frischknecht, Hungerbhler, and Hendriks). With ecological allowance a measure and a method is developed, that enables the evaluation of absolute environmental performance of a business enterprise, compared to only relative measures as in most approaches, via the means of
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relating allowable ecological impact and economic performance, that is acting as an allocator variable. In the first part of this contribution, the measure is explained and detailed with a case from the German automotive industry. The second part derives a strategic framework from the reasoning behind the measure of ecological allowance. Whereas in the third part, some insights from an empirical study on an alternative strategy for car manufacturers, the car2go concept, are used for a prospective case on how a change in the strategic position of an enterprise can change its ecological and economic impact. The result is a small scenario analysis of different configurations of self-owned and carsharing cars, including technological and economic parameters. The findings of the paper regarding measure, strategy, and scenarios will be discussed and in the end, some conclusions are drawn for a future research agenda on absolute corporate environmental performance indicators and their connection to business strategy in an economy beyond growth (Daly). II. DEVELOPING ECOLOGICAL ALLOWANCE
II.I.
DEFINE A GLOBAL ALLOWANCE OF THE PROXY
In order to limit global temperature rise to the 2 C-guardrail, the maximum sustainable yield for CO2 in the Earths atmosphere is at around 750 billion metrical tons (Gt) from 2010 until 2050 (Messner, Schellnhuber, Rahmstorf, and Klingenfeld). This would give us a 67%-probability to stay below the limits that have never been breached since the dawn of modern humankind around 150,000 years ago (cf. Nordhaus). After 2050, emissions would need to stay at an extremely low rate and the later reduction occurs, the lower the after 2050 rates need to be. For ease of use the 750 Gt are evenly distributed until 2050, thus resulting in 18.75 Gt per year. II.II. APPLY ALLOWANCE TO INDUSTRY SECTOR
In order to develop the measure of ecological allowance (EA), the nature of the impact has to be defined and here it appears to be most feasible to start with carbon dioxide (CO2). Not only is CO2 very easily measurable, it is also the most discussed emission in the current climate debate and firms turn towards it in matters of e.g., their carbon footprint. Additionally, CO2 is closely connected to all production and use activities of a firms products and thus provides a reasonably well working proxy for its overall ecological impact. Secondly, the chosen proxy for ecological impact needs to be transformed into a cap for an individual firm and this requires several calculation steps.
At least two options appear to be feasible. Either the allowance is calculated with reference to the global scale of the industry in focus or it is broken down to the national industry level. In both cases gross value added (GVA) coming from standard GDP calculation can provide guidance for allocating ecological allowance to the industry of the firm in focus. Also, we apply the proxy completely to industry, i.e., consumers are out of the equation. The reason behind this is both simple and complex. The output approach to calculating GDP, as one of the three approaches in GDP calculation, does not involve consumption. At the same time, it is difficult to make consumers responsible for their ecological impact. Not only do they hardly change their behavior patterns, despite all the information given by eco-labeling and CSR communication, but to place the burden on them implies lifting it from the producers (Carrington and Neville). Producer responsibility, however, cannot end at
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the factory gate. This is our normative assumption, and it is also very practical for it alleviates the calculus to become overly complex when incorporating consumption behavior as well. II.II.I. ALLOWANCE AT GLOBAL INDUSTRY LEVEL
Using Worldbank data for 2007, and focusing on gross value added, world total has been at 50 trillion USD in current prices. The manufacturing sector accounted for roughly 18 percent of that. The yearly ecological allowance of carbon dioxide emissions for all manufacturing firms would then be around 3,375 million tons. To break this number down further to different industries, data becomes a scarce resource. For the global automotive industry, no gross value added is available. However, as an end-consumer industry, we can take sales to be the best proxy for it and use data from the Fortune Global 500. Here, the 2008 figures of motor vehicles and parts amount to 2,075,407 million USD. Given the general lack of data we use it as a first rough estimate, which gives us a gross value added contribution of 4.15 percent and a yearly allowance for the global automotive industry of around 778 million tons of CO2 per year. Given some 873 million private cars worldwide in 2007 this would then set the global industry allowance per vehicle at 891 kg CO2 per year, including production, use and end of life. II.II.II. ALLOWANCE AT NATIONAL INDUSTRY LEVEL Turning to the national level and staying with the automotive industry, the gross value added in 2006 was at 110 billion EUR, combining the statistical items C34 (Motor vehicles. trailers and semitrailers) as well as C50 (Sale, maintenance and repair of motor vehicles and motorcycles retail sale of
automotive fuel), which are roughly 137.5 billion USD at average 2006 exchange rates (Statistisches Bundesamt). Following the same reasoning as on the global level, German automotive industry then has about 0.275 percent of global gross value added and is thus allocated with 51.56 million tons of CO2 per year. According to the German Kraftfahrtbundesamt there are about 50 million passenger cars in Germany, thus setting the allowance per vehicle at 1,031 kg per year (KBA). Both global as well as national figures are within a margin of error of around fifteen percent and, as a first rough estimate, appear to be valid for further use. II.III. COMPARING TO ACTUAL ECOLOGICAL IMPACT
As a special case, we take the German car manufacturer Daimler AG and use their available data on environmental performance, especially from sustainability and environmental reporting (Daimler AG). Following the data, the carbon intensity per vehicle is 1,833 kg on average (Mercedes-BenzCars). The average kilometers travelled per year in Germany remain stable at around 12,000, whereas average car use is twelve years, amounting to 144,000 km over a cars lifecycle (KBA). Fuel consumption of Mercedes-Benz cars from Daimler is 7.35 liters per 100 km, which can be calculated into roughly 170 g CO2 per km. That equals 2,040 kg per year and almost 24.5 tons of carbon dioxide emissions during the lifetime of the vehicle. Average end-of-life CO2 emissions for an automobile are approximately 0.43 tons. Note that some of the figures can be taken more or less directly from the manufacturer while others are more general and thus should be considered with care in the calculation of ecological impact. Adding up the numbers, the lifecycle CO2 emissions are 26.7 tons or 2,228 kg per year. By comparing actual impact and ecological allowance it is clear that in the case of Daimler, an overshooting of its
The Ecological Allowance of Enterprise: An Absolute Measure of Corporate...
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allowance by 53 to 60 percent occurs. That means that Daimler is overusing ecological space with its products compared to the gross value added its industry is providing for society. III. STRATEGIC FRAMEWORK FOR ECOLOGICAL ALLOWANCE
equation, reduction strategies come into focus. Although most apparent, the other side of the coin should not be missed: increasing allowance. III.I. REDUCING ECOLOGICAL IMPACT
Taking a strategic perspective on EA, several implications follow. First, in combining EA reasoning with more traditional views on the economic conditions of business success, such a framework spans along two dimensions, the economic dimension relating revenue and costs, and the ecological dimension relating allowance and impact. In other words: economic as well as ecological bottom line make up the strategic space for evaluating the environmental performance of enterprise. Table 1 shows this framework (cf. Reichel and Seeberg):
Ecological Bottom Line Economic Revenue Costs Impact Allowance Impact > Allowance 2.Ecological Excess 4.Eco-Eco Disaster
1.Rightsize Business
At least three strategic options can be found in order to reduce impact. Probably the most preferred option is technology i.e., reducing impact by means of eco-efficiency (OECD; Alkemade, and Hekkert) and eco-effectiveness (Dyllick and Hockerts; Young and Tilley; Braungart, McDonough, and Bollinger). However valid the technological path to reducing impact is and will remain (Reichel) the shortcomings and limitations are not to be underestimated, especially when single-handedly focusing on efficiency increases (Polimeni, Mayumi, Giampietro, and Alcott; Russo). The far easier way in terms of reducing impact with no further investment is reduction of sales and production capacity. It is clear that such a strategy can only be communicated to stakeholders, and more crucially to shareholders, if accompanied by an increase in profit margins e.g., by focusing on high end markets and extended revenue creation through product use over a longer product lifecycle (Reichel, Goll, and Scheiber). III.II. INCREASING ECOLOGICAL ALLOWANCE
Revenue < Costs
3.Economic Loss
Table 1: Strategic Framework for Ecological Allowance In the example of building EA as detailed in this contribution, Daimler would most certainly find itself in the second quadrant of Ecological Excess, meaning that although the economic bottom line is met, it is missing the ecological bottom line, thus being an environmental underperformer. Turning the attention to EA itself, two strategic levers can be identified. To tackle the problem of impact as one elemental part of the
At first, an increase in EA appears to be odd. However, when closely examining the way it is calculated, several options arise for business strategy. As EA is determined by gross value added as allocator, one strategic move is to increase the companys GVA share compared to its industry. Another option, requiring some form of collusion or joint operation either economically or by means of political lobbying, is to increase ones industry GVA share compared to other industries and economic
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sectors. Although this contribution started with reference to growth skepticism, the line of argument as developed here clearly points into the direction of selective growth of certain business and industries at the expense of others. We thus conclude that if taking environmental performance and EA as its measure serious, the result will be an increased competition for ecological space. Of course, another strategy for increasing allowance is also the reduction of sales and capacity, which might be a dominant strategy with significant leverage effects on the ecological position of a company. However, as has already been noted this requires some economic compensation and in the next section, a prospective case for this option will be developed. IV. THE PROSPECTIVE CASE OF CAR2GO
Staying with Daimler and turning towards its recent move into the market for carsharing, this business model innovation (Johnson 55-57) can act on both strategic levers of reducing impact and increasing allowance. Car2go is a limited liability company owned by Daimler, operating an open-ended, oneway carsharing system in Germany (Ulm and Hamburg), Canada (Vancouver, BC) and the United States (Austin, TX) with Daimlers Smart vehicles (Reichel et al.). The revenue model behind car2go does not require any sort of membership, just a onetime registration fee and an electronic chip attached to the drivers license. After that, users can select any Smart vehicle in the system, pick one up, drop it off anywhere within the geographical limits (normally within the municipality) and pay on a per-minute basis. Access is given either via phone, the internet or so-called smartphone apps. The importance of this new business model in the automotive market is echoed by the move of carsharing into the commercial mainstream, with significant and growing financial returns in the future (Shaheen,
Cohen, and Chung). Firnkorn and Mller conducted the first empirical survey on how the introduction of a system like car2go would change behavior patterns of consumers. They also modeled different CO2 reduction scenarios based on the empirical findings.1 The willingness not to replace their own car by a new one within the next five years and instead use car2go is very high with 14 percent and high (five-point Likert scale) with another 14 percent of the sample, consisting of citizens in the city of Ulm (including both car2go users and non-users). What is even more compelling is the finding that 20 percent of the sample (nine percent very high and eleven percent high) are willing to dispose a car they are currently using by car2go. The authors conclude the empirical survey that the introduction of car2go will in fact not increase CO2 emissions through some kind of rebound effect (Binswanger) but contribute to a significant CO2 reduction. IV.I. ECOLOGICAL IMPACT OF CAR2GO
In order to evaluate the ecological impact of the car2go business model, we abstract from figures concentrating on the user of car2go, but focus on the physical product itself, the Smart vehicles in use per year. The car2go fleet in Ulm has about 200 cars in operation. Given the 120g CO2 per km of a Smart, and otherwise sticking to the figures above, the product impact per year amounts to 1,628 kg CO2. There is some uncertainty in those numbers as there is no data available on the lifecycle of a car2go Smart, so we decided to go with the numbers for a standard Mercedes-Benz. For ease of use and a first approximation of impact, this can been seen as sufficient for further inquiry. One carsharing vehicle, as other empirical research shows, can 1 Credit has to be given to Prof. Martin Mller from Ulm University for sharing his insights on the car2go project.
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remove between 4.6 to 20 cars from the roads, and consistent with the car2go study, up to 32 percent of carsharing users gave up their own car through carsharing, with more than 25 percent of users avoiding the purchase of a new car (Shaheen et al.). For Germany, it can be shown that between four and eight privately owned cars are replaced by carsharing (BCS). Out of cautiousness and not to exaggerate the implications of this business model for the automotive industry, we chose to stay at the lower band and calculate with a removal rate of 1:4. That would imply a net change in the amount of vehicles on the road through car2go of about 600 cars taken off the roads in Ulm. Assuming that all 800 cars substituted by the 200 Smarts had the same ecological impact as a standard Mercedes-Benz of 2,228 kg CO2 per year, this would then amount to a reduction from 1,782,400 kg per year to 325,600 kg of the car2go fleet i.e., a reduction of more than 80 percent. It is important to note that this reduction is achieved not from the point of view of the consumer i.e., that it is a reduction in the personal CO2 account, but from the point of view of the producer. To calculate the new impact in comparison to EA, we just need to multiply the initial product impact with the removal rate, thus resulting in a new virtual impact of 407 kg CO2 per year, assuming that one car is owned and used by only one person. The higher we estimate the removal rate of car2go, the greater the impact reduction. However, even with the most conservative estimate of 1:4 the impact reduction brings Daimler well below its EA if its business model would solely rest on the car2go concept and ceteris paribus. Of course, ceteris is never paribus, especially when demanding a complete change in the business model of a company. The transition towards the car2go concept would mean an abandonment of most of Daimlers production capacity and product lines, which in turn would result in a reduction of GVA from car sales, thus lowering its EA. As shown
above, there is some ecological space for lowering EA through GVA reduction up to 60 percent , however in order to manage such a transition, GVA needs to be retained from the car2go market segment. Also, as there is indeed ecological space, a complete transition appears to be unnecessary. The gap between the 407 kg coming from car2go and the 891 or 1,031 kg from the classical model of doing automotive business, can be filled by maintaining to be a car manufacturer and seller, while at the same time moving into more service-oriented business models. Actually, this would be the move towards product-service-systems yielding large potentials for improving environmental performance (Mont). IV.II. MODELING FOR ECOLOGICAL ALLOWANCE
We will conduct a scenario analysis by using a simple spreadsheet model in order to better understand the implications of EA and its connection to corporate degrowth and sustainable business strategies. Our model is a static model i.e., there are no dynamical aspects taken into account. It cannot be used for any kind of transition scenarios from an actual state towards an ecological more feasible state. The main model assumptions are the same as in the car2go example above: Removal rate is 1:4 i.e., one carsharing car substitutes for four self-owned cars. CO2 emissions of carsharing car are 120 g/ km, self-owned car 170 g/km. Emissions from production (1,833 kg) and recycling (430 kg) are identical between carsharing and self-owned cars. Annual mileage of a self-owned car is 12,000 km. Average lifecycle of a self-owned car is twelve years. In addition to these assumptions, the mileage of
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a carsharing car is set at roughly 34,000 km per annum (Sperling and Shaheen), i.e., switching towards carsharing does not only reduce the number of cars on the road, but also the average mileage per car. Also, the lifecycle of a carsharing car is roughly one fourth of a self-owned car due to its increased use i.e., four years on average. This is calculated within the model by comparing the 144,000 km lifecycle mileage of a self-owned car with the 34,000 km per year of a carsharing car. What is also newly introduced in the model in order to calculate gross value added, are some economic assumptions: Price of a Smart car is roughly around 12,000 EUR (Smart). Price of a self-owned car is estimated to be three times as much i.e., 36,000 EUR (which seems feasible for a Mercedes-Benz C-type according to Daimlers own price listings). Per-minute rate of car2go is at 0.24 EUR (car2go). Automotive industrys share from global gross value added remains fixed at 0.275 percent, thus resulting in a fixed per year allowance of the industry of about 51.54 Mt CO2. Initial self-owned car inventory is 50 million (figure for Germany, KBA).
results are summarized in table 2.

IV.II.I. SCENARIO 1: BUSINESS AS USUAL Scenario 1 displays the current situation in Germany, where carsharing amounts to only 0.04 percent of the entire car fleet. With the given average CO2 emissions, the total allowable emissions of the automotive industry are overshooting the global cap more than twice as much, roughly about 2.16 times, with a total annual impact of 111.4 million tons. The economic output of the German automotive industry is taken as a base line for comparison with all the other scenarios. IV.II.II. SCENARIO 2: BUSINESS AS USUAL WITH EFFICIENCY INCREASE Scenario 2 shows a possible trajectory for industry evolution that is in line with the dominant paradigm of efficiency increase. This is the most likely path the automotive industry will take, as e.g., the first tentative step toward more efficient vehicles was achieved with regulation regarding the emission limit of cars in the European Union with 120 g/ km (European Commission). In our model we take this one step further and reduce the emissions of self-owned and carsharing cars by fifty percent i.e., a reduction to 85 g/km and 60 g/km. This drastic reduction brings down product impact, averaged across both self-owned and carsharing cars, to 1,209 kg CO2 per annum. However, this is still exceeding the product allowance of 1,031 kg by factor 1.17.
We will research five scenarios: the business as usual case with about 5,000 carsharing cars (figure for Germany, cf. Loose); the same case but with an efficiency increase in CO2 emissions of fifty percent; a case with only carsharing cars substituting the entire German car fleet; a mixscenario of carsharing and self-owned cars with an efficiency increase of fifty percent; another mixIV.II.III. SCENARIO 3: 100 PERCENT scenario with increased efficiency and increased CARSHARING prices for both carsharing and self-owned cars that turns out to be the rightsize business scenario. The This is the most radical scenario, with a complete
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substitution of 50 million self-owned cars with 12.5 million carsharing cars. Three out of four cars would be taken off the road, a dramatic change in everyday life, especially in urban areas. But even such a scenario would not bring economic activities of the automotive industry in line with its ecological allowance. Product allowance per car increases due to the lower fleet numbers less vehicles, described as a reduction strategy in chapter 3.2 but impact is still higher by thirteen percent. There are fewer cars in use, but use intensity of carsharing cars is three times higher than that of a private car (12,000 km/year vs. 34,000 km/year), notwithstanding the fleet effect of actually removing cars. Regarding the total emissions, a decrease of 47.9 percent could be realized, however at a high economic price: an industry degrowth of almost 90 percent. The political and social disruptions caused by such a scenario cannot be estimated.
VI.II.IV. SCENARIO 4: MIX-SCENARIO WITH EFFICIENCY INCREASE Scenario 4 takes a step back and looks at a situation where there are 5 million carsharing cars and 30 million self-owned cars, both with an efficiency increase as in scenario 2. Product impact is within allowance, it undershoots by roughly four percent, with an overall reduction of CO2 emissions of about 55.8 percent. The degrowth of the automotive industry would be much less severe than in scenario 3, as it retains about two thirds of its original size, thus degrowing in accordance with the reduction in fleet size. IV.II.V. SCENARIO 5: RIGHTSIZE BUSINESS The final scenario aims to combine both ecological as well as economic bottom-line. In going beyond scenario 4, we increase prices of car sales by one third and thus doubling the per-minute rate of carsharing. For a situation with 4 million carsharing
3 100 % Carsharing -74.99 12,500,000 11.3 58,071,875 -47.9 4,646 4,124 1.13 4 Mix, 50 % more efficient -29.98 30,000,000 5,000,000 64.6 49,286,250 -55.8 1,408 1,473 0.96 5 Mix, 50 % more efficient, increased gross value added -23.98 34,000,000 4,000,000 98 51,514,833 -53.8 1,356 1,356 1
Scenario Name Change in fleet size in percent Self-owned cars Carsharing cars Industry gross value added level in percent CO2 emissions in t Reduction compared to Scenario 1 in percent Product impact in kg CO2 Product allowance in kg CO2 Overshoot
1 Business as usual 49,980,000 5,000 100 111,407,824 2,229 1,031 2.16
2 Business as usual, 50 % more efficient 49,980,000 5,000 100 60,418,023 -45.8 1,209 1,031 1.17
Table 2: Modeling scenarios
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cars and 34 million self-owned cars, this scenario produces an exact matching of product allowance and impact. What is even more interesting is the industry level. There is almost no degrowth as regards gross value added involved, the automotive industry applying such a rightsize business strategy would stay at around 98 percent of its initial size. V. DISCUSSION Three lines of thought developed in this paper will be discussed: the measure of ecological allowance, the strategic framework arising from it, and the prospects described in the modeling scenario. In calculating ecological allowance, the even distribution of CO2 over the forty-year time period is questionable. There are at least two other distributions feasible: a linear decrease and an s-shaped decrease. The s-shaped decrease might be the most realistic case, turning the global allowable cap into a dynamically changing variable, starting at a high level and decreasing over time towards some value shortly above zero. However, the calculation of a companys strategic position in the framework in table 1 would then require a constant updating of the value of EA. Also, the product impact could not be calculated on actual, yearly data as this would be outdated with next years EA calculation. It would probably be more accurate to calculate for an average EA spanning the products lifecycle. If the increased realism of other distribution paths for CO2 benefits the overall reasoning behind the measure of ecological allowance it needs to be examined in further studies. What is also arguable is the exclusive focus on producers by using gross value added and thus neglecting consumers. An inclusion of consumers would add to the measures realism; however it would also add complexity. The benefits on the other hand are very uncertain. Despite the rhetoric consumers too often do not walk their talk (Carrington) and abstain from sufficiency-oriented behavior patterns.
Therefore a key indicator on a companys absolute environmental performance can be seen as a valuable instrument to bring the natural case for sustainability back into business (Dyllick). What surely is a severe critique in calculating EA and the position of companys within the strategy framework is the calculation of an industrys GVA. On different aggregate levels (industry, national, global), different statistics apply, often with huge time lags in presenting actual data. The real difficulties however arise from the need to draw a boundary and the decision where exactly the boundary should be drawn. We have included, in chapter 2.2.1, sales figures from the Fortune Global 500 in the industry section motor vehicles and parts whereas, in chapter 2.2.2, we have chosen not only product-based figures but also data from vehicle maintenance and fuel sales. In a certain way this mirrors the problems lifecycle assessment faces when calculating product impact. The boundary question will be a key research area for measuring EA and an absolute necessity to strengthen it methodologically. The strategic framework suggests two clear generic strategies. The first strategy is the increase of ecological allowance through a zerosum competition i.e., at the expense of others in the industry or as a combined effort of one industry against another. On the microlevel this strategy leads to a certain concentration of economic power, while on the macrolevel there is structural change within the economy. The second strategy, the decrease of ecological impact, cannot be exclusively followed by adhering to efficiency means but requires a negative-sum competition based on the contraction of product base. We have called both strategies generic as this reasoning appears to match very closely the industrial economic approach of Michael E. Porter and his market-based view of the firm. The two strategies could be seen as the result of what happens if the natural environment is introduced as
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a sixth force of competition. The focus on position, however, is not sufficient for the demand for business model transformation. In order to clarify the theoretic connection of EA reasoning and its results to management thought, more elaboration of its possible theoretical contributions are needed. Especially the resource-based view, that has been formulated in taking the natural environment into account (Hart), could be of use here if the focus of attention is on organizational change and learning. Turning towards the model, several assumptions have to be criticized. First of all, the fixed share of the automotive industry of global gross value added. If this number increases, the allowance of the automotive industry, and each individual automotive company, increases and thus other rightsize business positions can emerge. However, given the overall development of the automotive industry, this number is just as likely to decrease significantly over the next decades (Roland Berger). For Germany e.g., Roland Berger projects that the automotive industry will give way to the environmental industry as the new leading industry regarding both employment and gross value added within the next decade (BMU). Scenarios 2, 4 and 5 are assuming a fifty percent efficiency increase in CO2 emissions. Given that the average rate of efficiency increase as regards CO2 in the automotive sector is roughly 1.6 percent per annum i.e., it would take almost 44 years to arrive at such low emission rates (Meyer and Wessely). Even if technological breakthroughs are taken into account as for e.g., Daimler is doing in their technology outlook, there is only a slight possibility to see widespread decrease in emissions to such low rates within the next decade (Daimler AG). But ten years from now, the climate neutral amount of CO2 left will then demand much lower emissions than just fifty percent. So the most favorable scenario 5 needs to be carefully reconsidered with much lower efficiency increases. This would most likely make
some form of more severe degrowth necessary. The overall surprising results of scenario 3, the total substitution of self-owned cars with carsharing cars, namely that it cannot deliver enough ecological benefits, have to be viewed in the light of two critical assumptions: the lifecycle of a carsharing car is severely shorter than that of a self-owned car and its annual mileage remains fixed. A change in both assumptions e.g., lifecycle extension to that of a self-owned car and a reduction in annual mileage of about ten percent brings this scenario within the limits set by ecological allowance. Similar reductions in scenarios 2, business as usual with efficiency increase, would also produce an ecological beneficial result, but only if we assume a 20-year lifecycle of a self-owned car. However, longer lifecycle tend to slow down diffusion of technological progress unless accompanied by some form of ongoing remanufacturing and renovation of the product. In general, all of the scenarios except the business as usual case would require time to become reality. Not only does any technological advance in engine technology need time, the transition towards an individual mobility provider, instead of just producing cars, also needs time. This means that the actual achievement of CO2 reductions would be stretched across some transition period. However, as has been briefly sketched in the previous paragraph, this would then demand an even lower ecological impact in order to stay in line with the absolute cap on CO2 formulated in chapter 2.1. For a better understanding of the transition towards a rightsize business along the lines sketched in this contribution a more dynamic model needs to be built that not only explicitly takes strategic decisions and investment choices, but also employment strategies into account. What can be derived from the model and the scenarios, as limited as they are, is that no business as usual approach following the established
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trajectory of efficiency increase can really bring corporate environmental performance in line with the limits of a finite planet. For the automotive industry the results are overwhelming, and maybe overwhelmingly dramatic. The transition towards mobility provision and services is not a fashion fad; it is a necessary requirement for any sustainability strategy that deserves to be named as one. VI. CONCLUSIONS The need for adequate indicators in order to determine the right size of business can be met by the calculus for ecological allowance. It provides an absolute yardstick for measuring environmental performance and provokes strategic discussion in directions not encountered. For the first time, the notion of beyond growth or even degrowth can be captured for the business enterprise in a single indicator. The implications stemming from EA are multifold. On the side of the ecological bottom line, research needs to connect the top-down reasoning of EA with the more bottom-up reasoning of the many footprinting methods (e.g., carbon footprinting) and lifecycle assessment. The allocation of absolute caps on emissions remains difficult, as GVA might not be available for all industries on all levels. Also, the concentration on CO2 is debatable; especially as the entire resource debate from industrial ecology is excluded, or at best, approximated. However, EA connects to existing methods of lifecycle assessment and refocuses attention towards producer responsibility beyond the point of sale. On the side of the economic bottom line and strategy, the reciprocal dependencies of EA and GVA (and thus impact) require clarification. The sketched strategies of reducing impact and increasing allowance have to be further elaborated and substantiated by case studies. For the small case of carsharing in the automotive industry and the findings of the model scenarios, it has been shown that some form of both
physical as well as economic degrowth is inevitable under absolute ecological limits. One possible future lies in a combination of efficiency strategies and a dramatic change to a sharing-economy business model. This will not mean the end of economic reasoning or earning decent profits as the scenario analysis has shown. What it does mean is a great transition in the way we do and evaluate business in front of the reality of a finite Planet. VII. REFERENCES [1] [2] Alkemade, Floortje, and Marko Hekkert. Coordinate Green Growth. Nature, 468.7326 (2010): 897. Print. BCS. Der Beitrag des CarSharing zur Klima- und Umweltentlastung. (2008), Press release 14 May 2008. Web 1 Feb. 2011. Binswanger, Martin. Technological Progress and Sustainable Development: What about the Rebound Effect? Ecological Economics, 36.1(2001): 119 132. Print. BMU. GreenTech made in Germany 2.0 Umwelttechnologieatlas fr Deutschland. Mnchen: Vahlen Verlag, 2009. Print. Braungart, Michael, William McDonough and Andrew Bollinger. Cradle-to-Cradle Design: Creating Healthy Emissions A Strategy for Eco-effective Product and System Design. Journal of Cleaner Production, 15.13-14 (2007): 13371348. Print. Car2go. 2011. Web 28 Apr. 2011. . Carrington, Michael J., Benjamin A. Neville and Gregory J. Whitwell. Why Ethical Consumers Dont Walk Their Talk: Towards a Framework for Understanding the Gap Between the Ethical Purchase Intentions and Actual Buying Behaviour of Ethically Minded Consumers. Journal of Business Ethics, 97.1 (2010): 139158. Print. Daimler AG. Sustainability Report 2010. Web. 11 Jan. 2011 . Daly, Herman E. Steady-state Economics. 2nd ed. Washington, DC: Island Press, 1991. Print.
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Sustainable Rural Entrepreneurship: A Case in Hungary

Szilvia Luda Corvinus University of Budapest szilvia.luda@uni-corvinus.hu
ABSTRACT: Hungary, along with the other member states of the EU, is making efforts to diminish the social and economic gap between the different regions of the country. EU cohesion funds are designed to serve this goal. However, the utilization of these resources is not efficient enough. The problem is exacerbated by how the disadvantaged regions are supported. Support is provided on the basis of various indicators, such as per capita GDP, life expectancy, residents educational status, etc. Omitted from this indicator set is reference to the environment or other structural characteristics of the region (such as proximity to big cities; cultural heritage, etc.). This is partly why these developments are not entirely successful. This paper describes some positive cases that may serve as examples for the rural development of poorer regions, both in terms of economy and society. The description of the well-known case of Murau (Austria) is followed by a description of a new experiment which is taking place in the small village of Herencsny in Hungary. It is stated in conclusion that through the help of a guiding holistic vision not only the single issue of poverty can be targeted but a model is created which can facilitate the achieving of numerous ecological and societal goals. KEYWORDS
Collaboration, Cohesion, Guiding Vision, Holistic View, Sustainable Rural Development

I. INTRODUCTION The majority of sustainable development experts agree that, even though eco-efficiency usually positively correlates with economies of scale, globalization tends to have a negative effect on the state of the environment, as opposed to the positive impact of the appearance of self-sufficient microregions. From amongst all types of micro-regions, rural areas are of special significance. According to the European Charter for Rural Areas, the
expression rural area stands for a stretch of inland (in a broad sense) or coastal countryside where the agricultural and non-agricultural parts including small towns and villages form a whole both in economic and social terms, where the concentration of population and that of the economic, social and cultural structures is significantly lower than in urban areas and where the majority of territory is used for agriculture, forestry, natural reserves and recreational purposes (European Charter). The countryside fulfills a number of environmental functions without which the healthy existence of human societies would hardly be possible. The preservation of cultural heritage is not the only reason why the existence of the countryside
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is crucial. The countryside also creates economic and social patterns which might facilitate the recognition, and potentially, the healing of anomalies in the development of the global economy. Studies of sustainable development devote special attention to rural lifestyles and the development of the countryside. Ecologists and sociologists have been trying for decades to establish self-sufficient model settlements, which could serve as an alternative to modern materialist lifestyles. According to the literature, social support and the existence of a clear guiding vision have a crucial role in the success of rural development strategies. Lately, renewable energies have started to become such a vision in a number of regions. Spth and Spth and Rohracher (Spath and Rohracher) among others (Dierkes, Hoffmann and Marz), [4], demonstrate the necessity of such a vision in successful development programs (citing the example of Murau in Austria), and earlier, we also reported favorable experiences in Hungary, using Szedres as an example (Luda). The context of sustainable development provides for a new interpretation of the urban / rural categorization. Partly because people in rural areas do not necessarily have to make a living out of agriculture any more, and the service sector has also grown in importance there. Concerning the population, two trends exist. There are people who live in the countryside and strive to move into a city (urbanization) and there are some who want to leave the city for the outskirts, or for some suburban town. The last couple of decades have witnessed an interesting tendency: a significant outflow of people from the big cities to smaller rural areas has started which later brought about radical changes in rural life and caused various conflicts. Recently, people have begun, once again, to realize the significance of the country-city relationship both in Europe and in North America. Even Michael Porter, the world-renowned professor
at Harvard Business School underlined in his article that rural areas now play a greater role in a countries competitiveness. The performance of rural regions is lagging behind, and the gap between the performance of the cities and the countryside seems to be widening, as well. This triggered serious efforts from the US government, which set aside billions of dollars in its budget for the revival of rural areas (Porter, et al). Midgley et al. (Midgley, Ward, and Atterton) suggested that so-called urban regions, and more broadly, rural areas might be developed in two ways. Within a given region, one might develop the rural part by separate programs and initiatives aimed at reducing the differences between rural and urban areas. If we strengthen the separation of rural areas and fail to develop urban-rural relationships through well-focused programs, then the development of these rural areas will have no link to the cities and thus might even lead to an increased degree of separation. Obviously, the other alternative is to regard rural areas as an integrated and far more comprehensive and holistic form of regional development, which focuses on the bonds between rural and urban areas. In that case, one has to find those development opportunities which maximize common benefits for both (rural and urban) areas. The city and the countryside need to be treated as a whole, in an integrated, holistic way. They need development projects where both the city and the countryside can perform at their maximum. Instead of creating separate rural development programs, they accept existing links and implement integrated development strategies. Naturally enough, these various positions are in competition with each other in Hungary, as well. Environmentalists talk about the importance of the population retaining ability of the countryside and of the preservation of rural lifestyles (Bodorks, and Pataki), (Kelemen, Megyesi, and Nagy). Consequently, many would prefer that each service
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(school, nursery school, post office, hairdresser, etc.) remain available in all townships. Others, on the contrary, suggest that a country child may only have a fair chance if they attend a school good enough to make them competitive in the education market, and later on, in the labor market. Accordingly, rural development should focus on smaller units, so-called districts (characterized by analogies in terms of size or functions; jrs in Hungarian), where both the countryside and the city have their own specific roles (niche). One might also establish a good educational system by locating a school of appropriate qualities in one of the larger villages (whichever the communities can most easily access), while another township hosts the health care center and a third one provides some other service. If it has, for instance, favorable natural endowments (spectacular scenery, well-suited for excursions, etc.) then it will be home to restaurants and entertainment facilities. The main point is not trying to establish everything everywhere, as that will most probably use up all the resources and forego economy of scale benefits The rethinking of rural development is inevitable, and if all projects focus on cities because of economies of scale, that will lead to villages being abandoned and slowly dying away. One of the mistakes present in the majority of Hungarian ecological experiments was that most of them preferred the first model (Separable Rural Periphery) and did not want the countryside to change. They wanted it to remain as it used to be long ago. People should, as far as possible, live, work, earn a living, become self-sufficient and selfsupporting in the very same place where they were born. Such initiatives, however, only represent an alternative to those fed up with todays busy lifestyles (city people, that is), while they are totally unacceptable to the youth living in the countryside, who would very much like to join the whirl of city life. Each and every idea born with sustainability
in ones mind is worth of respect. Yet those formulating such sustainability theories usually live in big cities and imagine countryside life as an idyllic form of human existence (Cloke). II. BASIC CHARACTERISTICS OF COUNTRY LIFE
According to a German study (Duenckmann), rural inhabitants can be divided into three groups based on what they think about the countryside. The first group has an idyllic view of the countryside. This is where green city leaders and politicians belong. After the days work, most of them return to their small, beautiful, quiet villages, to the suburban towns which we nowadays call sleeping towns. The second group (reform-oriented view) features those open to new initiatives and reforms, to organic farming. Those in the third group (anti-conservationist view), however, believe intensive agriculture to be the one and only hope for the countryside. All over Europe, the proportion of elderly people is higher and that of the youth is lower in the countryside. Newcomers to rural areas do not usually come from the same region. An interesting fact about employment is that the proportion of selfemployed people (private entrepreneurs) is much higher in true rural areas and significantly lower in urban areas. A large number of urban employees work in the financial and business services sectors, while these professions can hardly be found outside urban regions. It seems strange, however, that the proportion of managers and senior officials is above the average among those living in the countryside. Some of the senior managers can already afford to work in a big city but live in a village. Which, in turn, leads to a contradiction: income is not generated in the countryside and it is not spent there, either. They live in the countryside but that is not where they make a living, which also means that their taxes go
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somewhere else. A major share of regions incomes comes from external sources. Concerning development strategies, a remaining question is why a given town might become a tourist destination. It might not be the best choice, for instance, to locate the hotel in the city even though that is what the majority of cities want. In a holistic approach, a countryside town, maybe a village that has tourists might count as a more suitable location. This could be an important consideration in evaluating development alternatives. It is a strange paradox that food products (vegetables, fruits, etc.) are often brought back to the countryside from outside either because they are not produced locally or the supply chain does not allow for the local sale of locally-produced food items. As we all know, a transport project may change the situation of rural areas dramatically. Transport developments do not necessarily improve employment locally, as it might very well happen that people convert to working (and maybe even shopping) somewhere else. Infrastructural development could eventually lead to the abandonment of villages. A radical increase in the prices of public utilities may also have a similar effect (Kerekes). By now, the processes of urban-based globalization has made villages extremely vulnerable to these very same processes. The links of rural inhabitants even those living relatively far away from the city to cities are getting stronger and more numerous, thus they live a more and more urban life, and demand a matching standard of living. Through the development of the local economy, we need to create opportunities for rural inhabitants to live a more comfortable life, not to be citizens of second order (Kajner). It is a common experience that even though rural development is focused on villages, it is specifically abandoned villages which are developed through various tenders with not much success.
There should be no individual, special development strategy for the countryside, but it should rather be developed holistically, along with the nearby city. Newly announced government plans aim at reestablishing districts, which is indeed an effort to promote a more holistic logic. III. REGIONAL INNOVATION SYSTEMS (RIS) AND SUSTAINABILITY
Back in the 80s, theories which examined the revival of the countryside usually focused on technology. They all started out from the issue that the most significant problem for rural areas is the lack of an appropriate economic background and the resulting lack of appropriate experts. In the beginning of the 90s, after the Brundtland definition (Broundtland) of sustainable development was established, everything that businesses had thought about innovation in the countryside changed. Consequently, they started to integrate all social and individual knowledge that seemed to be potentially useful in the region. This was also acknowledged by the various EU support programs which aimed at the setting of social, economic and ecological targets in rural development projects instead of the previously prevailing focus on technology only. While innovation, earlier, had been narrowed down to technical content, they then started to realize that increasing the potential for innovation in rural areas could only be achieved through integrated thinking and that focusing on a single element only (e.g., economy or technology) would not produce the desired results. Because of the weak regional economy, there are no jobs for highly qualified employees, workforce mobility is low, and consequently, the country lags behind in attractiveness which again leads to a lack of qualification opportunities. This
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results in a hard-to-break vicious circle. By analyzing the strengths and weaknesses of a region, one might discover the opportunities which may facilitate the development of the area (Gerstlberger). Those authors (e.g. Danielzyk et al. cited in (Gerstlberger)) who have been studying regional innovations related to sustainable development usually take it for granted that so-called regional innovation systems, being focused on sustainability, indeed open up new opportunities for regional development and do actually differ from what has been experienced so far. The success stories described in relevant case studies, however, feature an incredibly high number of rare and favorable coincidences. It is coincidence rather than effort that decides whether a project turns out to be successful. IV. THE ROLE OF A GUIDING VISION IN THE SUCCESS OF DEVELOPMENT
of the 90s. The leitbild means the coordination of the participants of technical progress. It describes the coordinative and behavioral role of the key actors. They expected the leitbild to build a bridge between experts of highly differing professional cultures (Mambrey and Tepper; cited in (Spath and Rohracher). V. THE LITERATURE CASE, MURAU (AUSTRIA)
A very ambitious target has been set both on a national and on an EU-wide level; namely that the energy system needs to be steered in a far more sustainable direction (Spath and Rohracher). The target of securing the energy supply and ensuring the sustainability of the energy sector has stirred significant debate among both politicians and industry experts. Nowadays, renewable energy production is a popular regional development vision, upon which the future of an entire region might be built. If the guiding vision is accepted by the inhabitants of the region, it might guide the region onto a development path towards revitalization. Guiding visions play a very important role in regional governance strategies. In transforming the social technical system, the (hopefully) guiding vision serves to steer the region towards an appropriate, desirable outcome. Dierkes et al. (Dierkes, Hoffmann and Marz) coined the concept leitbild, meaning guiding image in the beginning
Murau is a city of approximately 31,000 inhabitants, located in the Alps in Upper Styria. Its population is declining at a rate above the Styrian average. The region boasts enormous reserves of wood, with forests primarily in private hands. The area is highly suitable for establishing smaller hydroelectric plants and wind farms. Economically, the region is on the periphery, and the utilization of bio energies is at the heart of its development strategy. In 2003, the Energy Agency of Upper Styria in cooperation with a few other experts developed a process based on community participation in order to realize the Energy Vision of Murau. They started out the process by recruiting energy activists (most of them representatives of organizations interested in local energy matters) who then developed initiatives for improving participation in the regions various renewable energy and energy efficiency projects. The core idea was that an increased interest in biomass heating might be a decisive step towards a far more comprehensive approach to both the transformation of energy systems and regional development and that it might be able to create synergies in a wide range of projects. Initiators invited organizations, businesses and residents to various workshops. In the beginning, this meant a mere 30 people. Participants formulated their ideas about the energy vision in order to ensure sustainability in the energy sector and in climate protection. These discussions revealed stories about the unique ability of fossil energies to literally cause
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peoples money to go up in smoke. Participating parties concluded that the amount of biomass the residents of Murau own is enough for them to become self-sufficient in heating and in electricity as well. Each participant had the opportunity to express their opinion. Active participation and the understanding of the objectives were facilitated by a moderator. Basically, this process is what led to the formulation of the vision which, by now, means energy autonomy for the area. Five objectives were developed, all to be accomplished by 2015. The three most important of themare: (1) the district of Murau is energy autonomous with regard to heat and electricity; (2) the balance of renewables in primary energy consumption is positive, and; (3) a surplus of value is created by a net export of energy carriers. Residents are now strongly committed to maintaining a circular energy flow. The basic priorities and measures necessary to achieve Muraus energy objectives by 2015 have also been developed (Spath and Rohracher). VI. THOUGHTS ON GUIDING VISIONS
Guiding visions, as regional development principles, are employed in a number of European countries and have already facilitated impressive achievements in developing certain undeveloped or less developed regions. A number of similar attempts were made in Hungary, such as the first Szchnyi Development Plan launched by the Hungarian government in 2001. In certain towns, thermal water spas were established, while others, more recently, opted to invest in biodiesel production: namely oilseed rape production and oil milling. Somewhere deep, one might recognize the presence of a guiding vision beyond these undertakings, yet it is only a couple of them which have become really successful. The Villny wine region might be cited as a
positive example. In this case, the product and the technology were well supported by society, thus implicitly making use of the wisdom from social sciences. The individual investors were not left on their own but realized that - even though from a strictly economic point of view they might even be considered competitive - the success of their own undertaking was still dependent on whether they were willing to strengthen each others businesses. The decisive question is whether they cooperate and whether they realize that a cost/ benefit analysis is not the only thing they should base their business decisions upon, but they also have to win the support and commitment of their local community. Additional values should finally be taken into account. In a utility analysis, the expected profit still needs to be calculated, but it might not be the direct gains that make the project worth implementing. Instead, it might be some other effects (usually as by-products) which result in a kind of additional value that the simple calculations in a cost/benefit analysis are unable to detect. Most probably, investors profits will not be the same as they would be with some other type of business or with stock exchange investments, yet the area and the community where they live will enjoy benefits that compensate for the lesser profit. New employment opportunities, for example, might result. The streets become more livable, real estate values increase and thus the value retaining ability of the community and the population-retention capacity of the village improves. Most Hungarian development initiatives lacked awareness of these dimensions, resulting in an abundance of alienated, left-to-themselves businesses. This kind of independence precludes generation of any additional benefits and additional welfare improvement potential, and most of the time, business success as well. A common characteristic of such undertakings is that they focus
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too much on technology. There were a number of wineries, for instance, each one of which had nurtured a highly talented viniculturist (a hero) and managed to produce even nationally-enowned wines. The product had become marketable from a marketing perspective, yet their focus on technology drove the owner towards a high degree of automation. These businesses found them owning a whole lot of machines with low capacity utilization, and consequently, their capital ratio and labor productivity rose to excessively high levels. Countryside businesses should have taken a totally different development path. They should have, for example, created jobs for local residents. Instead of bottling machines, it would have been more beneficial to opt for bottling humans, thereby creating value for the village, as well. The majority of businesses concentrated on capital investments while ignoring the human side, which resulted in the burdens of underutilized capital equipment which caused the companies to become indebted. Cooperation might become a kind of a vision. Collective benefits from collective efforts may turn out to be an integrating force. Interestingly, Western literature reports that business success (in Austrian Murau, for example) is brought about by priorities and action plans being determined by the community. It is the community that is able to focus on accomplishing the objectives. commitment and the will of the community are of more value than can be revealed by cost/benefit analysis. VII. THE CASE OF HERENCSNY A BRIDGE BETWEEN CITY LIFE AND THE RURAL WORLD
Magyar kotrsuls Kulturlis Nonprofit Kft. (roughly translated: Hungarian Eco-partnership Cultural Non Profit Ltd.) was founded by 24
families from Budapest with the intention of using their financial and intellectual capital to establish, through gradual transition, an organic/biodynamic model farm in Herencsny, Ngrd County. The approximately 5 hectare plot is located in an agricultural area, bounded and sheltered on three sides by the village it; previously, it was used for conventional, primarily chemical-free farming. Today, multi-cultural organic farming methods are employed to produce native cultivated plants and native species of livestock. The principles of biodynamic farming are based on the rhythm and the repetition of life phases, observations of the cosmic world and the exploration of the relationships between all these. A biodynamic farmer intends to realize this organic system as a whole through the cultivation and the manuring of the soil, by using spraying preparations, by nursing the plants and by letting in herbs and even weeds (Mezei). In order to determine the exact date of the various farming tasks, they explore the scientific background of traditional countryside rules of thumb, and take into account the rhythm of cosmic constellations. Sowing, for instance, is scheduled according to the lunar cycle (Sntha). The primary goal of the members is to receive, in return for their present investment, organic food products in the future. Their vision however, being the basis for their unity, has deeper roots and clearly points in one direction: the ecological and social balance of Hungarian society. Members form a community based on self-organization and mutual trust. They are everyday people who consider the following important priorities in their lives: Creating a livable, ecologically more harmonious future for themselves and their children Contributing to the world with their positive, constructive powers Supporting the unfolding of Hungarys healing powers
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Reducing their ecological footprint The spiritual way, a healthy lifestyle and ecologically sustainable development being important cornerstones of their life Bottom-up social development and taking individual responsibilities are their own personal objectives Being open to forming communities with others Supporting not-for-profit undertakings, where making profit is not an objective, but the fulfillment of individual interests is. Community interest is the most important, and it is to become the basis for social interests in a broad sense. The community intends to operate in cooperation with local residents and other regions. They plan on hiring the necessary workforce from the disadvantaged labor base of the region. The citycountryside cooperation results in a win-win situation, as it facilitates the production, processing and consumption of good quality, healthy local products. Thanks to the communitys philosophy and its not-for-profit organization, local residents will not become servants to external capital. Owing to the continuous development and the mutual cooperation between city and countryside, local inhabitants do not need to fear that their own resources and opportunities will be utilized by others (Gyulai). This form of mutual cooperation provides a way for countryside people to earn a living. As the European Charter for Rural Areas states, the city and the countryside share the same fate, and the backbone of the countryside is agriculture. Town hall meetings in the Bereg, the Borsodi Mezsg, in Nagykr and in Szeged [19] suggest that actual farmers believe plant cultivation alone is not viable: animal farming has always been and will always be necessary. They clearly agreed that a structure similar to the sometime croft system
(a form of small-scale agriculture called hztji in Hungarian) would be necessary, yet stressed the need to avoid people incurring financial losses on it. Lastly, I would like to refer to the thoughts of Klra Hajnal: Thus the guiding principles for the realization of sustainable development are the principle of locality, and analogously, the principle of subsidiarity in addition to cyclicity, biodiversity and cooperation. The basis for implementation is the local farm, being a local-regional farm: a smallscale operation processing local resources to satisfy local needs, in accordance with the principle of local responsibility (Hajnal). VIII. ACKNOWLEDGMENT:
This publication was supported by TMOP Funds: REF: 4.2.1/B-09/1 KMR-2010-0005. IX.
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Bodorks, B. and Pataki, Gy. Linking academic and local knowledge: community-based research and service learning for sustainable rural development in Hungary. Journal of Cleaner Production 17 (2009): 1123-31. Broundtland, G.H. Our common future: the world commission on environment and development. Oxford: oxford University Press; 1987. Print. Broup, M.; Brown, N.; Konrad, K. and Lente, H. The sociology of expectations in science and technology. Technology Analysis & Strategic Management 18 (2006): 285-98. Cloke, P. Country Visions. N.p.: Pearson Education Limited, 2003. Print. Dierkes, M.; Hoffmann, U. and Marz, L. Visions of Technology. Social and Institutional Factors Shaping the Development of New Technologies. Campus, Frankfurt/New York, 1996. Print
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Duenckmann, F. The Village in the Mind: Applying Q-Methodology to Reconstructing Constructions of Rurality. Journal of Rural Studies 26 (2010): 284-295. European Charter for Rural Areas. Council of Europe. Doc. 7516. 12/04/1996. In: http://assembly.coe.int/Main.asp?link=/ D o c u m e n t s / Wo r k i n g D o c s / D o c 9 6 / EDOC7516.htm (2010.08.28) Gyulai, I. Gmrszls, a szerves kultra szigete. In Plvlgyi, T.; Nemes, Cs. and Tams, Zs. (eds.) Vissza vagy hova. tkeress a fenntarthatsg fel Magyarorszgon. Tertia, Budapest, 2009. Print Gerstlberger, W. Regional Innovation Systems and Sustainability - Selected Examples of International Discussion. Technovation 24 (2004): 749-58. Hajnal, K. Rethink A fenntarthat fejlds lnyegi krdsei. In Kiss, T. and Somogyvri, M. (eds.) Via Futuri, Fenntarthat fejlds a gyakorlatban. Interregionlis Megjul Energiaklaszter Egyeslet, Pcs, 2006. Print Kajner, P. Vgkirusts eltt - A magyar vidk elmlt nyolc ve s egy vidkpolitikai fordulat krvonalai. In: Lnyi, A. and Farkas, G. (eds.) Mirt fenntarthatatlan, ami fenntarthat? Krnyezet s trsadalom XXI. szzadi forgatknyvek. 2010. Print. Kelemen, E.; Megyesi, B. and Nagy. K.I. Knowledge Dynamics and Sustainability in Rural Livelihood Strategies: Two Case Studies from Hungary. Sociologia Ruralis 48 (2008): 257-73. Kerekes, S. A magyar gazdasg krnyezeti teljestmnye az tmenet korban. MTA Doktori rtekezs. 2003. Print Luda, Sz. A vision of sustainable regionalism. Pannon Egyetem, Georgikon Kar, Keszthely, 2009. Print Mezei, O. Biodinamikus kertgazdlkods. Mezgazda Kiad, Budapest, 2000. Print. Midgley, J.; Ward, N. and Atterton, J. City Regions and Rural Areas in the North East of England. Centre for Rural Economy Research Report, 2005. Print
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Molnr, G. and Vgvlgyi, G. A fenntarthat tjhasznlat fel. Gazdlkodk vlemnye a fenntarthatsgrl. Working paper, unpublished. Porter, M.E.; Ketels, C. H. M.; Miller, K. and Bryden, R.T. Competitiveness in U.S. Rural Regions: Learning and Research Agenda. Institute for Strategy and Competitiveness, Harvard Business School 25 Feb. (2004) In: http://www.isc. hbs.edu/pdf/EDA_RuralReport_20040621. pdf (2010.08.21). Sntha, A. Krnyezetgazdlkods. Nemzeti Tanknyvkiad, Budapeset, 1996. Print. Spath, P. and Rohracher, H. Energy Regions: The Transformative Power of Regional Discourses on Socio-technical Futures. Research Policy 39 (2010): 44958.
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Todays Environmental Managers Toolbox: Evaluating the EHS Attributes of Products

Kathryn H. Winnebeck Rochester Institute of Technology kmhasp@rit.edu
ABSTRACT: In response to the publics interest, companies have expanded their focus on reducing their environmental footprint through designing environmentally preferable products. Corporate environmental managers typically work with product design teams on this effort. This paper explains three tools available to assist in the assessment of EHS attributes of products, namely risk assessment, alternatives assessment, and life cycle assessment. An overview, process appropriate uses, and limitations of each tool are discussed.
KEYWORDS Alternatives Assessment, Environmental Impact, Life Cycle Assessment, Product, Risk Assessment I. INTRODUCTION Now more than ever, companies are realizing the benefits associated with ecodesign concepts, including improved resource and process efficiencies, potential product differentiation, reduction in regulatory burden, and cost savings (Lee). Focus has expanded from the environmental impacts of manufacturing operations to the entire product life cycle, encompassing all operations from cradle to grave. There is significant benefit from integrating environmental aspects into the product as early as possible in the product design and development process. Addressing environmental aspects early allows process and material modifications to be more easily made. There are three main reasons why the shift has occurred. First, there is a heightened interest by the
public and other stakeholders in the environmental attributes of products. Many customers, including individuals and businesses, consider attributes such as recyclability, use of biobased materials, and energy use when making purchasing decisions. Consumer interest has further expanded from the physical safety to the environmental health of products. For example, consumers are now concerned about the presence of potentially toxic endocrine disruptors and the toxicity of packaging components (Ruoff), whether or not the product can be recycled at the end of life (MarketingCharts), and waste and emissions associated with use of the product (Sunderland). Second, in order to accurately communicate the environmental impact of products and show significant improvement, key retailers and purchasers are developing environmental requirements for suppliers. In order for manufacturers to sell their product on store shelves or be a preferred supplier, they are required to lower their energy use, reduce packaging, or comply with other retailer environmental impact requirements.
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Manufacturers are forcing these environmental impact requirements onto their suppliers to ensure their products meet retailer requirements. Lastly, there has been a fundamental shift in thought and the importance of the environmental impact of products throughout their life cycle has been realized. Consumer, retailer, and government focus has shifted from the manufacturing plant to the design, use, and end of life of the product itself. The end of life management strategy is especially important as the impact on the environment can change significantly when the product is landfilled, incinerated, recycled, or remanufactured. This shift from production based environmental impacts to life cycle thinking has also spawned an increasing number of ecolabels, used to differentiate environmentally friendly products from those of their conventional (i.e., not environmentally friendly) counterparts (Schumacher). Ecolabels are typically developed by independent third party organizations and strive to provide a valid measure of a products environmental attribute(s). As companies realize the importance of ecolabels, it is critical that product design teams understand the environmental aspects and impacts, the limitations of them, and how to design products to meet their requirements. In order to respond to the markets request for environmentally friendly products, corporations are incorporating ecodesign concepts into their products now more than ever. Product design teams work to meet these requirements and many have minimal experience designing for the environment. In many corporations, environmental managers are called on to provide vital environmental expertise to the design process. A plethora of tools have been developed to assist in the evaluation of the environmental health and safety attributes of products. The purpose of these tools ranges from assessing the environmental health and safety attributes of one product,
comparing the attributes of multiple products, and quantifying the attributes throughout the entire life cycle of a product. The depth and breadth of the tools vary as well, from high level screening assessments to in-depth detailed calculations. It is important for todays environmental manager to understand the purpose of tools in order to use them appropriately. The goal of this paper is to provide an overview of three tools used to evaluate the environmental health and safety attributes of products, namely product based risk assessment, alternatives assessment, and life cycle assessment. II. TOOLS FOR EVALUATING THE ENVIRONMENTAL HEALTH & SAFETY ATTRIBUTES OF PRODUCTS PRODUCT BASED RISK ASSESSMENT
II.I.
Risk is the chance of harmful effects to human health or ecological systems resulting from exposure to some environmental stressor (US EPA). The goal of a product based risk assessment is to understand the potential human health and environmental impacts resulting from use of the product, with consideration for the different types of product users and the levels at which they may be exposed to impacts resulting from the product. Product based risk assessments typically focus on the inherent impacts of the finished product, impacts throughout the entire life cycle of the product, or a selection of life cycle stages. Product life cycles are divided into six stages: material extraction, material processing, product manufacture, product use, packaging and distribution, and end of life. Product based risk assessment may focus on inherent hazards of the product, potential impact during manufacture, and potential impact at the end of life, as these three phases typically impact total life cycle impact the most.
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The first step in conducting a risk assessment, as seen in Figure 1, is to determine the scope and intent of the risk assessment. This includes limiting the assessment to a set of product users or specific life cycle stages. The intent, or purpose, of the risk assessment is then determined and could range from assessing a product for compliance with an environmental performance standard, such as an eco-label, to understanding the potential environmental impact of a product. Once the scope is set, a set of human health and environmental impact criteria included in the assessment are developed as well as the structure of the assessment. Scoping the assessment and developing the criteria is an iterative process, as the scope of the assessment may indicate the criteria to include, and vice versa. When designing the criteria, it is important to consider criteria important to the company/product developer, criteria important to the product user, and criteria important to the greater good of the environment and human health. Threshold levels may be included in the risk assessment such that results are presented on a relative scale, such as high, medium, and low, or risk assessment results may present raw results, allowing the user to prioritize the impacts. In a similar manner, weighting factors may be included in the risk assessment in order to prioritize impacts. The structure of the risk assessment tool can vary, and examples include checklists, matrices, and formal reports. Once the risk assessment tool is developed, the impacts are assessed. Results show characteristics of the product with high and low impact and can be used many ways. First, allowing product designers Process to understand the Figure 1. Risk Assessment product attributes which contribute significant and
insignificant impact can be used to inform future designs of the same or similar products. Second, the results provide a roadmap to design teams to focus their efforts in order to reduce impact of the highest impact attributes, rather than spending time and resources focused on low impact attributes. Last, the results indicate the environmental and human health attributes that are impacted the most and least. This also provides a roadmap for product designers to concentrate their design efforts to reduce the highest EHS impacts. The risk assessment process is typically performed by product design teams when developing a new product or redesigning a current product and is integrated in the design process. The role of environmental managers to assist product design teams is threefold. First, design teams are commonly tasked with designing environmentally preferable products. The definition of environmentally preferable can change from business to business depending on the needs of the customer, behaviors of competitors, and nature of the product manufactured. Environmental managers can help the design team determine what is considered environmentally preferable for their situation. In addition, while product designers may understand aspects of eco-design, environmental managers can assist with defining the criteria to be included in the risk assessment. Last, environmental managers can assist in identifying the environmental impacts and aspects of products in order to complete the risk assessment. Defining attributes which are environmentally preferable and placing them on a continuum from less preferable to most preferable will assist the design team in making decisions and
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Define the scope & intent
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Develop Assesment Criteria & Format
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Assess Impacts
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Present Results
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Take Action
Figure 1: Risk assessment process
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understanding environmental impact. II.I.I. RISK ASSESSMENT IN PRACTICE
II.I.I.II. WALMART GREENWERCS GreenWERCS is a software tool designed to assess the environmental and human health impacts of the composition of chemical products. The tool evaluates data available for individual ingredients, including determining if the ingredient is a persistent, bioaccumulative, and toxic substance (PBT); carcinogen, mutagen, or reproductive toxicant (CMR); potential hazardous waste; and endocrine disruptor. A pre-identified scoring and weighting algorithm is used to translate the ingredient data into more user friendly information. First, each product receives a green score or numerical value. Second, a visual analysis shows how the product ranks in relation to others. Lastly, the tool presents ways to reformulate the product without hazardous chemicals (The WERCS). II.I.II. USES AND LIMITATIONS OF PRODUCT BASED RISK ASSESSMENT
Progressive private companies are embracing environmental risk assessment, incorporating it into their current business models. SC Johnson and Walmart have developed internal tools to both assess and numerically score the environmental health and safety risks of their product ingredients. Numerical scores allow companies to prioritize those ingredients with the highest risk and are therefore the priority for substitution or restriction. II.I.I.I. SC JOHNSON GREENLISTTM SC Johnson developed GreenlistTM in 2001 to more easily classify the environmental and human health impact associated with raw materials used in the companys products. GreenlistTM is a process for rating raw materials on a numerical scale, with 0 no viable alternatives, 1 acceptable, 2 better, and 3 best (SC Johnson). As a result, product designers understand from the initiation of the design process which ingredients are best to use. Reformulated products must have a higher score than current products in order to move forward with the design process. GreenlistTM has been successful, as SC Johnson has seen an increase in best ingredients from 4% in 2001 to 18% in 2010 (SC Johnson). SC Johnson does not disclose the specific environmental and human health impacts integrated in GreenlistTM. GreenlistTM is an example of a tool which translates a significant amount of highly scientific, highly technical information to a format nonenvironmental experts can use. Furthermore, the goal of GreenlistTM is to support the product research and development function at SC Johnson, further illustrating the emerging importance of environmental and health issues in the product design process.
Product based risk assessment at the company level provides a casual, relatively quick method to identify and assess the environmental health and safety risks associated with products to assist with internal decision making. The structure and format of the risk assessment is flexible, allowing the user to determine the scope, boundaries, and impacts included in the assessment. This ensures the assessment meets the needs of the user and the user does not spend time and resources collecting data that does not map back to the goals of the assessment. Flexibility of the risk assessment structure also means that results are typically used for internal purposes only and cannot be used to support marketing claims. Risk assessment results can be used to (1) identify individual components of a product which contribute significant and insignificant impact and (2) identify the type of environmental and/or
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human health impact resulting from the product. This information is invaluable to product design teams as understanding the processes or materials that contribute significant impact and the types of impact occurring can drive future designs decisions to lower those impacts. Results can also be used to educate other business units, such as marketing and manufacturing, about environmental impact of their products. II.II. ALTERNATIVES ASSESSMENT
A common product risk assessment recommendation is to replace the product or a component with a counterpart with less impact. The difficulty lies in identifying alternatives that are technically feasible, cost effective, and have less impact than the initial component. Whereas risk assessment is used to identify the potential impacts of one product, alternatives assessment is a tool used to compare the environmental, human health, and performance attributes of a set of products which perform the same function to ensure potential replacements are indeed less impactful and that the replacement does not have an unforeseen side effect. It is also used to assess potential alternatives to a toxic or hazardous component of a product to ensure the replacement has a lower impact while performing the same or better than its counterpart. Alternatives assessment can be used in the product design or redesign phases to evaluate alternatives and prioritize them for use. Alternatives assessment is typically performed in a four step process, as depicted in Figure 2. The first step is to define the problem and Figure 2 . Alternatives Assessment Process understand why an alternative is being sought. The
functional requirements of potential alternatives are identified. At this stage, the alternatives assessment criteria begin to take shape. The assessment team determines which attributes the alternatives will be assessed against and attributes are prioritized. Potential alternatives are then identified through a variety of methods including engineering knowledge, internet research, and benchmarking of competitor products. The number of potential alternatives identified can vary significantly, and will be based on the depth and purpose of the assessment. Potential alternatives are screened by assessing the environmental attributes of each alternative and alternatives are prioritized for implementation. Results of the assessment are used to determine what action, if any, should be taken. Numerical or relative scoring systems are typically developed to express results of the assessment and prioritize alternatives for implementation. There are two main types of alternatives assessment methods. Screening methods apply decision rules and weighting factors built into the model so the results prioritize the alternatives for implementation. Screening method results are typically expressed as a single numerical score. The advantage of screening methods is that the prioritization of alternatives is subjective, based on requirements built into the assessment method. In contrast, hazard data display methods display the raw results of the assessment. It is the users responsibility to apply decision methods and weighting factors to rank the alternatives. The benefit of hazard display methods is that the user has control of the data and can apply weighing factors to those attributes which are the most
Define the Problem
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Identify Potential Alternatives
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Screen Alternatives
Take Action
Figure 2: Alternatives assessment process
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important (Civie et. al.). II.II.I. ALTERNATIVES ASSESSMENT IN PRACTICE
In practice, private companies, governments, and non-governmental organizations are developing guidelines and methodologies for performing alternatives assessments. At a minimum, alternatives assessment methods include a set of human health and environmental health impacts. Methods may also incorporate technical feasibility requirements, cost and economic impact, exposure routes, or other attributes specific to the products assessed. In the last decade, state governments across the country have integrated alternatives assessment into chemical regulation in order to ensure that when a specific chemical is banned, less toxic counterparts not only exist, but will function the same or better than the toxic chemical. Maine and Washington have successfully developed and used alternatives assessment in their legislative process while Massachusetts has used it to focus efforts statewide on reducing high hazard chemicals. At the same time, industry workgroups, such as the Interstate Chemicals Clearinghouse, and non-governmental organizations, such as Clean Production Action, have also developed publically available alternatives assessment methodologies. While many current alternatives assessment processes focus on a specific chemical rather than a product, the process, concepts, and attributes assessed also apply to assessing product alternatives. Winnebeck illustrates how chemical based alternatives assessment methodologies can be modified to assess products when she developed a three step process for identifying and assessing alternative mattresses for a childrens product manufacturer. Winnebeck provides a summary of a number of alternatives assessment frameworks, including those developed by universities
(University of Massachusetts Lowell), government (the Massachusetts Toxics Use Reduction Institute, California Department of Toxic Substances Control), and non-governmental organizations (Clean Production Action, McDonough Braungart Design Chemistry, LLC). While each of these frameworks incorporates a number of environmental and human health effects, the specific attributes included in each framework vary. In January 2011, University of California at Santa Barbara compiled a number of resources, models, and tools to assist with alternatives assessment and presented it to the California Department of Toxics Substances Control. The UCSB benchmarking paper highlights the process of alternatives assessment, includes practical examples, and is a resource for in-depth alternatives assessment information. II.II.I.I. FIVE CHEMICALS ALTERNATIVES ASSESSMENT STUDY, MASSACHUSETTS TOXICS USE REDUCTION INSTITUTE In 2005, the Massachusetts government requested the Toxics Use Reduction Institute (TURI) assess safer alternatives for five higher hazard chemicals in Massachusetts. TURI researched potential alternative chemicals for specific uses in Massachusetts and assessed the EHS, performance, and cost attributes of the alternatives and compared them to determine a preferable alternative. A number of criteria were established for comparison, based on the chemical analyzed. The criteria were grouped into four categories: human health, environment, finance, and performance/ technical. The human health and environmental criteria remain the same and unique financial and performance/technical criteria were established for each of the five chemicals. Financial criteria
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included cost per unit and performance/technical criteria included availability, appearance, and fire resistance. II.II.I.II. SAFER CONSUMER PRODUCT ALTERNATIVES, CALIFORNIA DEPARTMENT OF TOXIC SUBSTANCES CONTROL (DTSC) The California Safer Consumer Product Alternatives proposed regulation outlines a six step process to identify chemicals of concern and identify which consumer products use the chemicals. Manufacturers which use chemicals of concern must complete an alternatives assessment and develop an action plan based on the results. DTSC is taking a life cycle approach to the assessment as impacts in various stages of the product life cycle must be included in the alternatives assessment. DTSC has identified a total of thirty six criteria under the categories in minerals and resource consumption; public and occupational health impacts, including potential impacts to sensitive subpopulations; environmental impacts; and economic impacts that must be included in the alternatives assessment. The proposed regulations do not include a decision making or prioritization scheme, so it is the manufacturers decision to implement an alternative. II.I.I.III. US ENVIRONMENTAL PROTECTION AGENCY DESIGN FOR ENVIRONMENT (DFE) PROGRAM The US EPA DfE program helps industries choose safer chemicals by researching alternatives and evaluating them for specific applications, such as flame retardants in furniture and bisphenol A alternatives in thermal paper (EPAa). The EPA
has developed a set of assessment criteria and accompanying very low, low, moderate, high, and very high thresholds for each criterion. Results are displayed as a matrix, providing the user with a visual display of the high and low potential impacts and hazards associated with alternatives. Weighting is not incorporated in the method, and it is the responsibility of the user to determine which attributes are more important than others, if any, and ultimately how to prioritize the alternatives for action. II.I.I.IV. INTERSTATE CHEMICALS CLEARINGHOUSE (IC2) SAFER ALTERNATIVES ASSESSMENTS WIKI The wiki is a joint project of a number of alternatives assessment experts throughout the US working to assist state technical assistance providers and chemical policy makers in performing alternatives assessment by creating a universally agreed upon process to perform alternatives assessment at the state level. While the wiki seeks to help state governments perform chemical alternative assessments to support regulatory action, the process and a number of criteria are also applicable for manufacturers looking to assess chemicals or products. II.I.I.V. GREEN SCREEN FOR SAFER CHEMICALS, CLEAN PRODUCTION ACTION The GreenScreen is an open source method developed by Clean Production Action to rank chemicals using a comparative hazard assessment process which incorporates the twelve Principles of Green Chemistry (see Anastas for more information) in the criteria and the US EPA Design for Environment Program assessment structure. The environmental and human health attributes of a chemical are assessed and based on the results, the chemical falls
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into one of four benchmarks: avoid chemical of high concern, use but search for safer substitutes, use but still opportunity for improvement, and prefer safer chemical. A set of criteria is defined for each benchmark and the chemical and its breakdown products and metabolites must pass all criteria in order for the chemical to move to the next benchmark. Because multiple criteria exist at each benchmark, multiple alternatives can fall within the same benchmark. The GreenScreen does not provide a method to rank alternatives which fall within the same benchmark, leaving the user ultimately responsible for decision making. II.II.II. USES AND LIMITATIONS OF ALTERNATIVES ASSESSMENT Product based alternatives assessment provides a relatively quick method to identify and assess the environmental health and safety risks associated with a set of products which perform the same function. Like risk assessment, alternatives assessment results are used to inform product designers to assist with internal decision making. Alternatives assessment is similar to risk assessment in that the structure and format of both tools is flexible, allowing the user to determine the scope, boundaries, and impacts included in the assessment. This also means that results are used for internal purposes only and cannot be used to support marketing claims. Alternatives assessment results show which product components contribute significant and insignificant impact as well as the type of environmental or human health impact that results from the product, similar to risk assessment. Whereas risk assessment presents the results for one product, alternatives assessment allows the results from multiple products to be compared in order to select the component with the least environmental impact. Another main difference between risk
assessment and alternatives assessment is the integration of performance and economic impacts in alternatives assessment that are absent from risk assessment. In alternatives assessment, it is important to consider the performance of each alternative to ensure alternatives are adequately compared. For example, it is not fair to compare the environmental impact of a single use disposable plastic cup to a glass cup, as the glass cup can be used and reused multiple times whereas the plastic cup can only be used once. When evaluating materials or chemicals as alternatives, it is important to determine if alternatives are drop in replacements, or if more of one alternative is needed to perform as well as others, if alternatives meet set durability requirements, and other internal requirements which may affect how the alternatives are compared. It is also important to consider economic impacts associated with alternatives, both internal to the company (ie. increased raw material cost, significant renovations to manufacturing operations required) and to the product user or customer (ie. increased energy usage which translates to increased cost). Cost and performance impacts may outweigh potential environmental and human health benefits of one alternative over others, deeming it inappropriate for use. Similar to risk assessment, alternatives assessment results can also be an educational tool for other internal business units to understand how changes in processing and raw materials may affect the products impact. While the results may be presented as a numerical score, alternatives assessment does not quantify the environmental and human health impact of the product throughout its life cycle. Numerical scores are typically used to translate environmental and human health impacts to make results easier to compare, especially for audiences which may not be versed in environmental language.
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II.III.
LIFE CYCLE ASSESSMENT
Life cycle assessment (LCA) is a tool used to quantify the environmental impact of a product from cradle to grave. LCA results are commonly used to identify environmental improvement opportunities throughout the life cycle of the product or to compare the environmental impact of two products which perform the same function. LCA results are commonly used to validate environmental marketing claims, such as product x uses less energy than product y. The most widely recognized standardized guidelines for LCA have been developed by the International Organization of Standardization (ISO). ISO 14040:2006(E) Environmental management life cycle assessment principles and framework and ISO 14044:2006(E) Environmental management life cycle assessment requirements and guidelines outline the four step process by which life cycle assessments are performed, as shown in Figure 3. The LCA begins by defining the goal and scope of the LCA and determining how the results will be used. Any assumptions used in the assessment Figure 3. Life Cycle Assessment and limitations of the assessment are also discussed.
The functional unit is a critical component of comparative LCAs and is defined. The functional unit is a measure of the functions of the system to be studied. For example, when comparing the life cycle of a disposable diaper to a cloth reusable diaper, and it is determined that a reusable diaper will last 20 uses, the functional unit is defined as 20 diaper changes. In this example, one reusable cloth diaper will be compared to twenty disposable diapers. At this stage, the life cycle analysts determine which environmental and human health impact categories will be included in the assessment. Once the goal and scope are defined, the product is divided into six life cycle phases, similar to risk and alternatives assessments. In life cycle inventory analysis, the inputs and outputs of resources, energy, and wastes at each stage (such as pounds of polypropylene used, tons of carbon emitted) are quantified. Figure 4 shows the types of input and output inventory data collected. Life cycle inventory data can be collected either by taking actual measurements of the mass of materials used or through engineering diagrams and product tolerances. In many cases, information from both sources is used. For example, a manufacturer can
Define the Scope
2
Life Cycle Inventory Analysis
3
Life Cycle Impact Assessment
4
Report Results
Figure 3. Life cycle assessment process

Input Inventory raw materials energy
Figure 4. Life Cycle Assessment

Life Cycle Stages material extraction material processing product manufacture product use packaging and distribution end of life Output Inventory wastes manufacturing scraps air & water emissions products
Figure 4: Life cycle inventory process
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simply weigh a part to determine how much material is used for the part and scrap rates are normally built in to the manufacturing process, rather than calculated specifically from actual manufacturing operations. The result of the life cycle inventory is a quantified list of inputs and outputs throughout the product life cycle. In the life cycle impact assessment, raw life cycle inventory data are classified according to the type of environmental impact caused. This is a five step process shown in Figure 5. First, a fate analysis is performed on the inventory data to determine and calculate which environmental compartment the inventory data is most likely to end up. Results of the fate analysis are determined by properties of the chemical and how it degrades in air, water, and soil. An exposure-effect analysis then takes the results of the fate analysis and quantifies potential damage to human health and the environment by exposure
Figure 5. Impact analysis process

Life Cycle Inventory
NOx SOx pesticides heavy metal CO2 VOCs Particulates Chemicals
to the chemical at levels determined by the fate analysis. The results of the exposure-effect analysis are called category indicators. Common category indicators include: carcinogens, respiratory organics and inorganics, climate change, radiation, ozone layer, ecotoxicity, acidification/eutrophication, land use, minerals, and fossil fuels. Impact category results are then translated to damage categories which indicate the potential damage caused by the inventory data on specific environmental media, represented by a numerical score. Common damage categories include ecosystem damage, human health, and mineral and fossil fuel resources. Many impact assessment methodologies use weighting factors to convert the damage category results into one numerical score. The environmental impact of products are commonly compared based on the damage category results and single score results. The life cycle cumulative energy demand
Impact Categories
concentration in air, water,food concentration greenhouse gasses changed pH & nutrient availibility change in habitat fossil fuel availibility
Category Indicators
local effects on species climate change ozone layer depletion radiation respiratory effects cancer cases & types surplus energy
Damage Categories
human health ecosystem quality mineral & fossil rescources
Single Score Indicator
Fate Analysis
Exposure & Effect Analysis
Damage Analysis
Normalization & Weighing
Figure 5: Impact analysis process
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(CED) can be calculated in a similar manner. The life cycle inventory is compiled and the associated energy requirement is calculated for each input and output. Energy requirements are summed to determine the CED. LCAs are typically performed using commercially available software using third party validated data sets. This significantly reduces the amount of data the LCA practitioner must collect to perform the LCA. For example, when performing a LCA of a polypropylene cup, scientifically acceptable data sets exist which identify and quantify the chemical inputs and outputs to polypropylene production; it is not necessary for the LCA practitioner to collect this data. Data sets also exist for polypropylene sent to landfill, incineration, and recycling at the end of life. The availability of this data significantly reduces the workload of the LCA practitioner. There are instances where a data set does not currently exist for a material or process or the existing data set does not represent what is actually happening in the manufacturing process that is being modeled. For example, if the plastic cup is instead made of polylactic acid (PLA) from corn,
data on the inputs and outputs of materials from PLA production does not exist. In this instance, the LCA practitioner must compile the inventory itself. LCA results are reported in multiple ways. Total life cycle impact, or single score, is commonly used to compare the environmental impact of two products which perform the same function. Impact of specific life cycle processes allow product designers, supply chain managers, and others involved directly in the manufacturing processes to understand the impact contributed by each process. Understanding the relative impact of processes allows those processes which contribute the most impact to be identified and prioritized for reduction. Specific damage category impact, as shown in Figure 6, allows the manufacturer to understand which environmental compartment will be affected the most as a result of both the life cycle as a whole and the specific processes within the life cycle. Understanding impact throughout the life cycle can help decision-makers ensure the proper environmental indicators are measured over time.
Figure 6: Sample impact assessment results
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II.III.I. COMPARATIVE LCAS Comparative LCAs are those which compare the environmental impacts of multiple products which perform the same function. Results are commonly used to support marketing claims and can also be used to identify impact categories in which the products differ. For example, the total environmental impact of two products may be the same, but one may have
significantly less damage to human health than the other. Results comparing the life cycle stage impact of multiple products (i.e., the impact of landfilling two products) pinpoint the contribution of stages to the total impact and help visualize the difference between products. II.III.II. USES AND LIMITATIONS OF LIFE CYCLE ASSESSMENT Whereas risk assessment and alternatives assessment are relatively quick tools to identify the potential impacts of a product, life cycle assessment is a resource intense, detailed, rigorous process to quantify the impacts of a product. Risk and alternatives assessment may consider all or a selection of the products life cycle and life cycle assessment considers all aspects in all life cycle stages of the product. Life cycle assessment is useful to (1) determine the relative impact of all life cycle stages, processes, and materials to total environmental impact; (2) pinpoint the impact of a specific operation in the life cycle in order to identify opportunities to improve the environmental performance of products; (3) provide credible evidence for marketing claims and compliance with eco-labels; (4) select relevant indicators of environmental performance, and (5) instill life cycle thinking within business (Williamson). Understanding the relative impact of life cycle stages and the ability to pinpoint the contribution of processed to impact allows the user to more accurately understand where efforts should be concentrated to ensure time and resources are spent reducing those processes which contribute the most impact. Furthermore, understanding which indicators are impacted the most can assist the company develop environmental goals. For example, if LCA results show that a product line contributes significantly to water impacts, the company may concentrate its efforts on reducing
Figure 7: Sample LCA damage category results
Figure 8: Sample LCA life cycle stage results
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water use and wastewater throughout all product lines. Where risk assessment and alternatives assessment methodologies are flexible, international guidelines for completing life cycle assessments provide a universally agreed upon methodology. Following the guidelines also means that results can and are typically reported externally and can therefore be used by customers to assist in their decision making and can provide credible evidence for marketing claims. Similar to risk and alternatives assessments, LCA results can also be used to educate decision makers and other business units internally about the contributors to product impact. LCA results can also be used externally to inform decision makers, such as purchasers, about the environmental impact of a business products. One important limitation of LCA is that the results are only applicable to the (1) specific product models included in the study (2) based on the boundaries and scope of the study. For example, results of a comparison LCA of a laptop and desktop computer may indicate the laptop has a lower impact than the desktop. These results are only applicable to the two computer models included in the study. While the results may imply all laptops have a lower impact as compared to desktops, this cannot be concluded from the study. Second, the LCA results are representative of the manufacturing operations, wastes, and other operations included in the study and do not apply to future or past product versions where life cycle inventory data varies. For example, a life cycle assessment of a 2010 model laptop not have the same results of the same 2011 model laptop, assuming the 2011 laptop is not an exact replica of the 2010 model. Another limitation of the LCA is that results from one LCA cannot necessarily be compared to the results of another LCA. For example, if two laptop manufacturers independently perform LCAs of their
laptop models, the results of those LCAs cannot be compared. Each LCA practitioner sets the scope and boundaries of their LCA, so both of the LCAs may be compliant with the ISO 14040 and 14044 LCA guidelines and have different boundaries, rendering a comparison inappropriate. III. CONCLUSION With the heightened interest from consumers, the marketplace, governments, policymakers, and other stakeholders around the environmental impact of products throughout the life cycle, the role of the corporate environmental manager is expanding. Environmental managers are not only responsible for ensuring environmental compliance, but are now frequently called upon to provide technical assistance to other functions within the corporation. Now more than ever it is important for environmental managers to be aware of whats going on in the marketplace as corporations respond to the publics request for more environmentally friendly products and environmental information, retailers environmental impact requirements, and government and other purchaser environmental purchasing policies. A new set of tools are emerging to help corporations assess the environmental health and safety risks and impacts of products. It is imperative that todays environmental managers familiarize themselves with these tools in order to excel. Table 1 summarizes the uses and limitations of the three product based risk assessment tools presented in this paper. Risk assessment and alternatives assessment are most useful for providing a relatively quick assessment of a products impacts, modified to the needs of the user. Often times the assessment is performed by collecting a small set of life cycle impact data in order to complete the assessment. In alternatives assessment, the assessment may consist simply of evaluating if the impacts of alternatives are greater, less, or the same as the chemical targeted
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Tool Risk Assessment
Uses Identify potential environmental health & safety risks of products Identify opportunities to improve the environmental performance of products at various points in their life cycle Results inform product designers to target aspects for future designs Results educate business units about environmental impact Identify potential environmental health & safety risks of products Compare potential environmental health & safety risks of products that perform the same function Identify opportunities to improve the environmental performance of products at various points in their life cycle Results inform product designers to target aspects for future designs Results educate business units about environmental impact Quantify environmental benefits of products Provide credible evidence for marketing claims Identify opportunities to improve the environmental performance of products at various points in their life cycle Inform decision-makers in industry, government or non-governmental organizations Select relevant indicators of environmental performance, including measurement techniques Instill life cycle thinking within businesses Educate business units about environmental impact
Limitations Not used to compare a portfolio of products that perform the same function Does not integrate performance and economic impacts Does not quantify impacts
Alternatives Assessment
Does not quantify impacts May require more time and resources than risk assessment
Life Cycle Assessment
Detailed analysis is time and resource intense Not useful as a screening tool Results are applicable only to the product models included in the study LCA study results are not comparable as the scope and boundaries vary between studies LCA experts are needed to accurately and adequately perform assessments Methodologies and impact assessments are constantly evolving, requiring LCA practitioners to stay up to date
Table 1: Summary of product based risk assessment tools 118 Journal of Environmental Sustainability Volume 1 2011
for replacement. Results are used internally to assist with decision making and the results do not quantify environmental impact. Life cycle assessment is a resource intense, detailed process involving collecting raw data on the inputs and outputs at each life cycle stage of a product. This raw data is then converted into damage to the environment, human health, and resources typically using mathematical models build into commercially available software packages. Because impact is quantified, the results indicate the amount and type of impact each life cycle process contributes. Life cycle assessment results can also be used to validate marketing claims and may validate compliance with an eco-label. Risk and alternatives assessments are more appropriate as material or product screening tools than LCA, as LCA is resource intense and provides significantly more information which may not be necessary to make the screening decision. III.I. STUDY IMPLICATIONS
IV. REFERENCES [1] [2] Anastas, P. T.; Warner, J. C. Green Chemistry: Theory and Practice, Oxford University Press: New York, (1998). Braungart, M. et al. Cradle-to-Cradle Design: Creating Healthy Emissions-A Strategy for Eco-Effective Product and System Design, J Clean Prod., 2007. California Environmental Protection Agency, Department of Toxic Substances Control. Outline of Draft Regulations for Safer Products. Web. 1 May 2010. Civie, P., Rossi, M., Edwards, S., Alternatives Assessment for Toxics Use Reduction: A Survey of Methods and Tools. Massachusetts Toxics Use Reduction Institute (2005). Clean Production Action. The GreenScreen for Safer Chemicals. Version 1, January 2009. IC2 Safer Alternatives Assessment wiki, Web. 7 Aug 2011. Kuczenski, B. and Roland, G. Safer Product Alternatives Analysis: Methods, Models, and Tools, Report to the Department of Toxic Substances Control Web. (2011). Lee, Kun-Mo, Environmental Management: Integrating environmental aspects into product design and development ISO Bulletin, Sept. 2002. MarketingCharts. Environmental Concerns Affect Packaged Beverage Purchases. N.p., August 2010. Web. 14 April 2011. Massachusetts Toxics Use Reduction Institute. Five chemicals alternatives assessment study. University of Massachusetts Lowell (2006). McDonough Braungart Design Chemistry, LLC., Cradle to Cradle Certification Program. Version 2.1.1, 2008. Ruoff, Larisa, et al. Safer Packaging: Ranking Packaged Food Companies on BPA. Green Century Capital Management & As You Sow. (2009). SC Johnson, Greenlist Fact Sheet, September (2009). Web. 19 Apr. 2011. SC Johnson, Investing for the Planet: 2010 Public Report. (2010).
[3]
[4]
[5] [6] [7]
It is crucial that todays environmental manager stay up to date with the industry, government, and public interest in the environmental health and safety attributes of products. Risk, alternatives, and life cycle assessments described in this paper are a set of tools every environmental manager must be familiar with as their responsibilities further expand from industrial operations into the supply chain and life cycle of products. It must be noted that these assessment tools are only three tools in a toolbox spanning any number of tools environmental managers may use regularly. The goal of this paper is to provide an overview of the tools such that environmental managers understand their purpose and when it is appropriate to use each tool.
[8]
[9] [10]
[11] [12]
[13] [14]
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[15] [16] [17]
[18] [19] [20] [21]
[22]
Schumacher, Ingmar. Ecolabeling, Consumers Preferences, and Taxation. Ecological Economics, 69.11( 2010). Sunderland, Faye. Interest in CO2 emissions doubles among car buyers, IBTimes UK, Mar 22, 2011, Web. 14 Apr. 2011. The Institute for Occupational Safety (BIA). The Column Model. German Federation of Institute for Statutory Accident Insurance and Prevention, (2009). Print. The WERCS. A Green Assessment Tool for Formulated Products. Web. 19 Apr. 2011. United States Environmental Protection Agency, Design for Environment Program, Basic Information, Web, 7 Aug 2011. United States Environmental Protection Agency, Risk Assessment, Basic Information. Web. 7 Aug 2011. Williamson, AA, and Winnebeck, KH. Tools to Measure Sustainability: Life Cycle Assessment, webinar (2011), National Pollution Prevention Roundtable. Winnebeck, KH. An abbreviated alternatives assessment process for product designers: a childrens furniture manufacturing case study. J Clean Pro,19(2011):464-476. doi:10.1016/j. jclepro.2010.10.008.
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Environmental Sustainability and Supply Chain Management A Framework of Cross-Functional Integration and Knowledge Transfer
Dorli Harms Leuphana University Lneburg dharms@uni.leuphana.de
ABSTRACT: The purpose of this paper is to discuss mechanisms of intra-organizational knowledge transfer within sustainable supply chain management (SSCM). Through a conceptual study design, the focus of this paper is on the transfer of SSCM-associated information and knowledge between functional units. Furthermore, the external stakeholder perspective is taken into account. To support this conceptual framework, the knowledge-based theory provides a theoretical foundation in order to study a companys ability for knowledge sharing. Within this perspective one approach distinguishes between internal and external structures and the individual competence. These findings will be used as a basis to further develop a framework of intra-organizational SSCM knowledge and information transfer as well as cross-functional integration.
KEYWORDS Conceptual Paper, Cross-Functional Integration, Knowledge-Based Theory, Sustainable Supply Chain Management I. INTRODUCTION The linkage between sustainability management and conventional supply chain management (SCM) has gained an increasing amount of interest in the academic and business community (Carter and Rogers; Sarkis, Zhu, and Lai; Seuring and Mller) to the extent that sustainable supply chain management (SSCM) is now seen as an established research field (Seuring). Theoretical approaches refer, for instance, to the differentiation between product- and
process-oriented perspectives on SSCM (Bowen et al.) or internal and external relationships (Harland; Lambert, Cooper, and Pagh). Nevertheless, current studies still address the need for further research, in particular with regard to an advanced building of SSCM theory and development of new concepts (Carter and Easton; Seuring). Overall, research indicates (Pagell, Wu, and Wassermann) that there is a potential shift from conventional SCM and purchasing to more sustainability-oriented efforts. This shift can be described as a decisive move for a companys current and future procurement and supply management activities because a company often faces a high level of complexity. Such complexity can be triggered by the necessity to manage a large number of suppliers in diverse
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socio-economic contexts or by a growing demand for an integration of environmental and social criteria in supply chain management (Halldrsson, Kotzab, and Skjoett-Larsen; Seuring and Mller). This integration is demanded, for instance, by customers or media (Andersen and Skjoett-Larsen; Carter and Dresner; Walker, DiSisto, and McBain). If a company is not able to meet these requirements, it may risk a reputation loss. In contrast, however, SSCM can also create opportunities such as product and process innovations, which fit the increasing market for environmental-friendly and socially responsible products and services (Carter and Jennings; Geffen and Rothenberg; Kassinis and Soteriou). As a consequence of these challenges and opportunities, the purchasing department is involved in a dialogue not only with its suppliers, but also has to exchange information and knowledge with other departments within the same company such as research and development (R&D), production, or the sustainability department. In this process, supply chains can be divided into external (inter-organizational) and internal (intra-organizational) components. External supply chains (upstream and downstream; Vachon and Klassen, Extending Green Practices) are characterized by the flow of materials, capital, and information between the different external partners (e.g. suppliers, focal company, retail, consumers, disposal/recycling), whereas internal supply chains encompass the interaction among the different functional units within the (focal) company (Harland; Lambert, Cooper, and Pagh; Seuring and Mller). Combining both supply chain perspectives implies that functional units have to exchange sustainability-relevant information internally to meet the requirements of external stakeholders (e.g. information about human rights compliance) or to comply with internal quests (e.g. reduction of CO2 emissions across the supply chain). In this paper, focusing on the necessity of
transferring internal SSCM-related information and knowledge raises the following question: How does cross-functional integration play a role in intra-organizational transfer of SSCM-relevant information and knowledge? To answer this question, a conceptual framework has been developed. Although, there is a considerable interest for SSCM and for new theoretical approaches from both academic and practitioner sides (Matos and Hall; Reuter et al.; Simpson, Power, and Samson), the SSCM literature is limited with regard to a discussion of intra-organizational alignment from a theorybased perspective (e.g., Gattiker and Carter). In order to help fill this gap and to investigate SSCM with the focus on cross-functional collaboration and knowledge transfer, the knowledge-based theory (Grant; Sveiby) has been deemed suitable for this paper. This theory emphasizes the role and relevance of knowledge for a companythe creating, storing, and applying knowledge (Dyer and Nobeoka 345)to gain competitive advantage (Grant; Spender). Sveiby applies this knowledgebased approach of the firm (in the following simply referred to as the knowledge-based view) to explore a companys internal and external transfer as well as conversion of knowledge. However, Sveiby does not explicitly portray the intra-organizational integration or refer to sustainability issues so his model will be modified conceptually with regard to intra-organizational SSCM characteristics. The paper is divided into five sections. After the introduction, the second section gives an overview on the background literature regarding sustainable supply chain management and crossfunctional integration. The third section sketches the knowledge-based view with focus on intraorganizational aspects. In the fourth section, a conceptual framework of cross-functional integration in intra-organizational SSCM is developed and discussed with regard to corresponding
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measurements. The final section draws a conclusion and points out areas for future research. II. SUSTAINABLE SUPPLY CHAIN MANAGEMENT AND CROSSFUNCTIONAL INTEGRATION
As SSCM is already seen as an established research field (Seuring) and cross-functional collaboration has been discussed since the 1980s (Takeuchi and Nonaka), the following section provides an overview on related literature and findings in these two fields so far.
II.I.
SUSTAINABLE SUPPLY CHAIN MANAGEMENT
SSCM can be understood as a further development of the conventional SCMextended by the integration of the three (environmental, social, and economic) dimensions (Carter and Rogers; Seuring and Mller). In order to outline the underlying meaning of the management concepts, this section sketches their main characteristics. The traditional notion of supply chain management encompasses both the demand-oriented (downstream) and supply-oriented (upstream) processes (Cooper and Ellram; Esper et al.; Vachon and Klassen, Extending Green Practices), although the term literally focuses on the suppliers side. SCM aims at delivering enhanced customer service and economic value (Mentzer et al, with reference to LaLonde). This term refers to the management of the activities associated with the flow and transformation of goodsas well as the associated information flows. Supply chain management (SCM) is the integration of these activities through improved supply chain relationships, to achieve a sustainable competitive advantage (Handfield and Nichols 2).
This definition implies that SCM can be rather complex, especially when regarding the different stages of the supply chain. The focal company has to manage not only the flow of materials and goods but also the flow of information. To achieve a proper flow, a company can use information system tools, such as enterprise resource planning (ERP) software or face-to-face interaction with external and internal members of the supply chain (Pagell). External members are the different suppliers (1st tier, 2nd tier, etc.) on the supply side, whereas customers (e.g., wholesalers), consumers, and waste disposal recycling companies, respectively, are members on the demand side. Furthermore, the buying, producing, moving, storing and selling of a company are core activities that characterize the internal supply chain (New; Sweeney). All departments that require purchased products or services are, in the wider sense, a part of the internal supply chain. In a narrower sense, these are the functional units that participate in the internal supply chain (e.g. purchasing, manufacturing, sales, and distribution) (Harland S63). In addition to these internal supply chain members, Lambert, Cooper, and Pagh (2) included the departments R&D as well as finance. First and foremost, the purchasing and logistics departments play the central role in the management of supply chains since they create an interface with external suppliers (Cooper and Ellram). For several years, SCM also has been discussed with regard to environmental and social issues (e.g., Carter and Easton; Carter, Ellram, and Ready; Sarkis, Zhu, and Lai). Referring to Jayaraman, Klassen, and Linton as well as Cruz, the authors Pagell, Wu, and Wassermann (58) argue with regard to SSCM that evidence is growing that the field is reaching a critical tipping point where wide-scale adoption of sustainable sourcing practices may potentially become a dominant dynamic in the supply chain context.
Environmental Sustainability and Supply Chain Management A Framework...
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This further development of SCM leads to a more comprehensive understanding of SSCM. In line with the triple bottom line approach and the notion of sustainable development (Elkington; Kleindorfer, Singhal, and van Wassenhove; Schaltegger and Burritt, Corporate Sustainability), Seuring and Mller (1700) define sustainable supply chain management as the management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, environmental and social, into account which are derived from customer and stakeholder requirements.
In sustainable supply chains, environmental and social criteria need to be fulfilled by the members to remain within the supply chain, while it is expected that competitiveness would be maintained through meeting customer needs and related economic criteria. Their definition is illustrated in Figure 1. As shown, there are several internal and external stakeholders who deal with sustainable supply chain management issues. For instance, there are external stakeholders such as the (national and international) legislation (Carter and Dresner; Walker, Di Sisto, and McBain) and competitors (Klassen and Vachon; Zhu and
Figure 1: Sustainable internal and external supply chain (according to the understanding of Harland S63; Salzmann et al. 15; Seuring and Mller 1700).
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Sarkis), investors and rating agencies as well as NGOs and the general public (Koplin, Seuring, and Mesterharm; Salzmann et al.; Svensson; Wycherly). In addition, suppliers and customers are external stakeholders (Carter and Dresner; Klassen and Vachon). Due to the fact that in recent years the amount of stakeholder requirements has increased for corporate responsibility as well as for environmental-friendly and socially responsible products and services (Carter and Jennings; Kassinis and Soteriou; Sarkis, Zhu, and Lai; Seuring and Mller), the importance of the company internal knowledge transfer between functional units such as public relations (PR) or the sustainability also has risen. After a summary of different elements and links within sustainable supply chains, an overall objective of SSCM can be formulated as to make the supply chain more sustainable with an end goal of creating a truly sustainable chain. When we refer to a sustainable supply chain we are in essence referring to an outcome for that supply chain (Pagell and Wu, Building Theory 38). This goal seems to besimilar to the one of sustainabilityrather abstract, since it cannot easily be defined in terms of form and extent (Haake and Seuring). In order to put SSCM in more concrete terms, Halldrsson, Kotzab, and Skjoett-Larsen evaluated related issues, such as the carbon management in the supply chain, and developed possible generic SSCM strategies. The integrated strategy is considered when sustainability issues become consistent with SCM. Within the alignment strategy, sustainability is complementary to SCM, and in the replacement strategy, the conventional SCM is substituted by full implementation of a sustainability-oriented approach. Whereas these strategies differ widely with regard to the extent of change, the integrated strategy currently seems to be
the most probable in terms of practicability. According to the above-mentioned SSCM definition by Seuring and Mller, companies have to manage material, information, and capital flows within their internal and external sustainable supply chains. This means the various stakeholder requirements, such as the customers demand for more sustainable products and services or the need for compliance with norms and regulations on sustainability issues have to be taken into account (e.g. Bowen et al.; Seuring and Mller). These requirements are relevant since they are linked to risks such as possible reputation damages or they are related to opportunities, such as a market potential due to sustainability-oriented innovations and product developments. As a consequence, the different functional units are supposed to work together in order to meet the mentioned requirements and to take the different disciplinary perspectives (Wagner). Such cross-functional cooperation (Hsu and Hu) demands a transfer of information and knowledge. According to Schaltegger and Burritt (Contemporary Environmental Accounting 404), such management of information can be understood as the creation of purpose-oriented knowledge. Key characteristics of cross-functional integration are displayed in the next section in order to improve the understanding of how and which information can be transferred between the functional silos. II.II. CROSS-FUNCTIONAL INTEGRATION IN THE CONTEXT OF SSCM As previously described, SSCM is not just an issue that affects procurement but also departments such as marketing, R&D, or production (Carter and Dresner; Sarkis, Zhu, and Lai). Addressing several sustainability issues (e.g. waste reduction, health protection, or energy savings) that can be relevant for more than just one functional unit, this
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phenomenon is, in fact, encompassing sustainability measures since these often cover at least two of the three (environmental, social, and economic) aspects (Darnall, Jolley, and Handfield; Schaltegger et al. 6). For instance, waste reduction can be both a matter handled by the purchasing and in the human resources departments since the employees might have to be trained how to avoid waste in the most efficient and effective way. Nevertheless, every functional unit within a company covers its own area of specialization in order to fulfill particular tasks that are associated with appropriate qualifications. From the perspective of the knowledge-based view, specialization is needed since bounded rationality is recognition that human brain has limited capacity to acquire, store and process knowledge. The result is that efficiency in knowledge production requires that individuals specialize in particular areas of knowledge (Grant 112). However, it has to be taken into account that specialization increases interdependencies and the need for coordination between the separate functional units (Olson, Walker, and Ruekert). As a consequence, a balance should be kept between benefits derived from specialization and the integration costs incurred (Galbraith 118119; Thompson, 64; Turkulainen 16). Looking at the SSCM literature, some scholars emphasize that SSCM may be facilitated by cross-functional collaboration and with the partners working in unison (Bowen et al.; Gold, Seuring, and Beske). However, there is indication that cross-functional collaboration sometimes is just wishful thinking (Pagell) and barriers do exist (Carter and Dresner; Moses and hlstrm). These barriers lower the potential of transferring internally or externally (sustainability-oriented) information from one member of the supply chain to another. Moses and hlstrm found problems in cross-
functional processes of sourcing decision making, such as the interdependency between the functional units, strategy complications, and functional goals that are not aligned. In order to hurdle these barriers, Moses and hlstrm recommend that all functional goals should be strategically coordinated so that the purchasing strategy is in line with the sourcing decision processes. Regarding these sourcing decision processes, they also stress the necessity of updated information (Leenders, van Engelen, and Kratzer; Pagell) as well as the risk of information overload (Olson, Walker, and Ruekert). Therefore, it has to be assumed that the right management of information and knowledge is crucial for a successful SSCM. A lack of knowledge might be an explanation for no or partial cross-functional integration (Pagell). For this reason, the knowledge-based view is used to expose the potential of cross-functional interaction. Moreover, the application of this theory-based approach is an attempt to help overcome the mentioned challenges within sustainable supply chains, such as risk of a reputation loss and demand for environmentalfriendly and socially responsible products. III. KNOWLEDGE-BASED VIEW FROM AN INTERNAL SSCM PERSPECTIVE
The importance of knowledge transfer is discussed in inter-organizational contexts (e.g., Dyer and Nobeoka; Martinkenaite), intra-organizational contexts (e.g., Gattiker and Carter), or both (e.g., Cousins and Spekman; Frazier). Information can be defined as purpose-oriented knowledge (Schaltegger and Burritt, Contemporary Environmental Accounting 404), whereas knowledge can be understood as which is known (Grant 119). Although there are various definitions of knowledge and of associated concepts (e.g., for a typology of knowledge management, cf. Geisler, Lavergne and Earl), this paper refers principally
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to the understanding of knowledge provided in Grants knowledge-based view. Based on the resource-based theory (Barney; Wernerfelt), knowledge is considered a very important strategic resource that can promise competitive advantage to the firm (Gold, Seuring, and Beske; Grant; Kogut and Zander). For setting up the foundations of the theory, Grant (110112) describes five characteristics of knowledge that are relevant for the application within a company: Transferability: The knowledge has to be transferrable with regard to time, space, and between individuals. For a more precise determination regarding transferability, knowledge can be distinguished into tacit and explicit. Tacit knowledgealso known as knowing howis what implicitly exists through its application. Its transfer is uncertain and can be costly and slow (Kogut and Zander). Explicit knowledge, in contrast, is the knowing about. Regarding SSCM issues within a company, corresponding explicit knowledge can be transferred by communication between the different functional units. Capacity for aggregation: Knowledge can be transmitted, receipted, and aggregated. However, knowledge transfer is dependent on the recipients capacity to gain knowledge. If there is a common language, this capacity is expanded. A companys internal job rotation system can be a possible way to increase a persons capacity to acquire new knowledge. For instance, job rotation can mean that a purchasing manager works in the sustainability department or in marketing and sales. By rotating jobs, he or she will have the chance to better understand the tasks and processes within the other functional units. Furthermore, he or she can
become familiar with the specific language and culture in the other functional units (Turkulainen 136). Appropriability: Regarding the appropriability of knowledge, a distinction should be made between the already mentioned tacit and explicit knowledge. Tacit knowledge cannot be appropriated, as it is stored within individuals; however, explicit knowledge might be acquired. As a consequence for cross-functional integration, Matos and Hall recommend that collaborative teams should use both tacit and explicit knowledge so that they cover a diverse spectrum of skills and expertise (Matos and Hall 1097). Specialization in knowledge acquisition: As already mentioned (cf. II.II.), individuals have limited capacities for acquisition, storage, and processing knowledge. Hence, specialization helps persons and organizations to manage profound knowledge. However, this specialization requires coordination between the different employees and functional units within a company (Turkulainen 58). Knowledge requirements of production: Finally, the knowledge transfer starts from the assumption that the critical input in production and primary source of value is knowledge (Grant 112). This statement refers to the understanding that knowledge is a prerequisite for people to be productive. Therefore, they have to possess and apply knowledge to, for instance, construct or operate a machine (Grant). As indicated, these five described characteristics of knowledge have to be taken into account when SSCM-relevant information and knowledge are exchanged between the different members of the
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internal supply chain. Knowledge within sustainable supply chains Regarding sustainable supply chains, detailed information about environmental, social, and economic impacts and performance across the entire (external and internal) chain has to be collected and processed (Foster and Green). This requirement is due to the fact that external stakeholders, such as customers or media, are interested in product properties (e.g. product carbon footprint) or production conditions at the companys and suppliers sites (e.g. human rights compliance). As a consequence, the different functional units have to exchange corresponding information (Carter and Dresner; Foster and Green). For example, the purchasing department requires environmental information from its suppliers, such as left out hazardous substances. This information has to be submitted to the production department, and finally, sales and marketing can provide this information to the companys customers. Such typical information flow within a supply chain can be associated with the product life cycle perspective (Birou, Fawcett, and Magnan; Carter and Dresner; Hayes and Wheelwright). According to this perspective, several members of the internal and external supply chain are aligned so that there is a greater cooperation across functional boundaries (Birou, Fawcett, and Magnan 37). This collaboration requires transmitting and receiving knowledge within the cross-functional cooperation.
Transfer of knowledge in SSCM

In order to coordinate the transfer of knowledge, Grant points out that the differences between tacit and explicit knowledge (Nonaka) have to be considered. As a consequence, the more informal knowing how and the quite formal knowing about have to be merged so that the specialized
knowledge of the different functional units can be integrated. Here, Grant (114115) suggests four mechanisms, where the first three aim at reducing communication and learning costs and the last one aims at relying on communication: Rules and directives: These mechanisms present a standardized format of communication (Van de Ven, Delbecq, and Koenig). In the context of SSCM, there exist the European directives on hazardous substances in the electronics industry (Preuss). In another example, some companies have created internal rules concerning purchasing restrictions to suppliers who exploit child labor (Koplin, Seuring, and Mesterharm). Furthermore, rules can convert tacit knowledge into explicit (Grant). Sequencing: According to Thompson, sequencing can be coordination by plans, meaning that knowledge and other issues such as capabilities and activities can develop gradually and dynamically (Helfat and Raubitschek). Regarding a logistical integration, production planning or inventory management could be measurements that affect energy consumption across the entire supply chain (Vachon and Klassen, Supply Chain Management). Routines: In comparison to the mechanism sequencing, routines can be understood as simple sequences (Grant 115). They can differ greatly (Pentland and Rueter) and, within a company, they can be used for simultaneous activities (Hutchins). Examples are assessment or monitoring routines that help to evaluate the environmental performance within a company (Klassen and Vachon; Simpson, Power, and Samson).
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Problem solving by groups and decision making: Since problem-solving processes by groups are communication intensive, they can be rather resource consuming (regarding time and capital). Thus, the building of cross-functional task force teams should focus on unusual, complex, and important tasks (Grant 115). Product development (Pagell) or crisis management (Hutchins) are two such examples of crossfunctional teams. With reference to product development activities, Pagell states there are a considerable number of related studies that emphasize the importance of cross-functional team work (e.g., Wheelwright and Clark). Although Pagell expresses a need for internal cross-functional integration in such occasional tasks, he also stresses that repetitive tasks require other approaches. Such approaches, in turn, can be connected to Grants first-mentioned mechanisms, the rules and directives, sequencing, and routines. Based on Grants knowledge-based view, Sveiby aimed at expanding the field of knowledge transfer by focusing on strategy formulation. His work will be outlined in the following section.
the knowledge transfer can occur in different kinds of activities within the internal structure. For instance, such activities can focus on using comprehensive database or ERP software (Pagell; Sveiby). The enabling of these activities is the backbone of a knowledge strategy (Sveiby 348). In the following section, Sveibys model (347) will be used and adjusted in such a way as to focus on the particularities of sustainable supply chains and the companys internal perspective. After having set this framework on intraorganizational SSCM, potential measurements will be discussed in regard to facilitating knowledge transfer in internal SSCM. IV. FRAMEWORK OF INFORMATION AND KNOWLEDGE TRANSFER IN SSCM
Strategies toward knowledge transfer

In his work, Sveiby distinguishes between three dimensions of intangible assets (Sveiby 346 347) of a company: external structures (e.g. relationships with suppliers, customers, and the companys image), internal structures (e.g. staff, infrastructure, and patents), and individual competences (e.g. competences of the companys employees). All three dimensions are linked reciprocally to each other. When knowledge is transferred within a company, its value can be created (Lavergne and Earl; Sveiby). Furthermore,
When Sveibys model is modified with regard to SSCM, three different kinds of knowledge transfer can be depicted (Figure 2): (1) the intra-organizational knowledge transfer within the companys internal structure; (2) the interorganizational transfer of knowledge with external stakeholders; and (3) the transfer between individuals and the internal structure. Knowledge transfer within internal structures (1) implies that SSCM-relevant tacit and
Figure 2: Knowledge transfer in sustainable supply chains (modified from Sveiby 347).
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explicit knowledge can be shared and spread within the internal boundaries of the company. Activities such as using a common database (Sveiby), tools to improve interactive IT communication (e.g. intranet, companys internal wiki), or holding meetings on a regular basis can support such knowledge transfer. Furthermore, cross-functional collaboration can facilitate the transmission and receipt of information and knowledge. Since an internal structure is related to a manifoldness of economic, environmental, and social problems and solutions, the integration of different functional units is proposed (Sweet, Roome, and Sweet). The idea is to capture this system complexity by integrating information from different sources, and relating this information to the unique environmental and business contexts within which it arises (Sweet 266; with reference to Roome, Sustainability Strategies, Taking Responsibility). Furthermore, information and knowledge transfer is not only necessary within the internal structure but also with external stakeholders (2). Regarding the entire supply chain, a company has to consider both direct stakeholders, such as suppliers and customers, and indirect stakeholders, such as legislative bodies, NGOs, and media (cf. II.I., Figure 1). While Foster and Green focus on the information flows and links for sustainability-oriented innovation processes, they also refer to consultants and universities as possible external collaboration partners for innovations. Thus, it is worth noting that a lot of different flows generally are related to sustainabilityoriented product and process innovations (Hansen, Groe-Dunker, and Reichwald). Furthermore, in addition to the sheer quantity of information, the variety of information and knowledge flows to and from the different stakeholders has to be taken into account. For the purpose of transferring knowledge, collaborative teams can be built by internal and external supply chain members (Matos and Hall).
These cross-boundary spanning teams are able to combine their expertise and exchange ideas, and they have to develop specific goals and strategies as well as tasks. Nevertheless, such extensive team work can consume many resources (e.g., time, capital). This option is only of interest if the efforts are reasonable with regard to the benefits, such as new product development and effective crisis management (Hutchins; Pagell). The information and knowledge transfer from individuals (3) to internal structures might involve the integration of an individuals competences in the companys structure (Sveiby). Since every employee possesses his or her own skills, knowledge, and experiences (Bowen et al.; Mller and Gaudig; Sweet, Roome, and Sweet), these skill sets can lead to a great diversity of capabilities, which, in turn, can create competitive advantage (Gold, Seuring, and Beske). With regard to the diversity of capabilities and company size, research indicates that larger companies do not only have more resources, but also a wider variety of them at their disposal (Gupta and Govindarajan; Van Wijk, Jansen, and Lyles). Nevertheless, it can be more challenging than in smaller companies to manage these different kinds of specialized knowledge (Turkulainen 141). After having outlined the constituent parts of the framework of information and knowledge transfer in internal SSCM, the section below focuses on measurements on how the transfer can take place. IV.I. MEASUREMENTS TO FACILITATE KNOWLEDGE TRANSFER IN INTERNAL SSCM
The measures that facilitate knowledge transfer within and into internal SSCM can be structured as levels of knowledge transfer in SSCM and coordination mechanisms (Table 1). Whereas the levels of knowledge transfer refer to the
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classification proposed by Sveiby, the categorization of the coordination mechanisms is based on the work of Grant. Within this paper, both perspectives are placed in the context of internal SSCM. Given the matrix above, 12 categories can be distinguished with regard to how SSCM-relevant information and knowledge can be transferred within and into a company. In order to relate these categories to practical application, the set of potential measurements will be discussed by using appropriate examples in the following. (a) Within internal structures / Rules and directives In cross-functional collaboration, rules and directives can serve as coordination mechanisms that minimize communication (Grant). These mechanisms can be useful if there is no or little need for coordination. For instance, internal rules can refer to how IT
Levels of knowledge transfer in SSCM Coordination mechanisms Rules and directives (a) Setting rules on the use of IT systems for transferring SSCM information (1) Within internal structure
should be used. In such a way, internal policy can govern how and when ERP systems are in operation and what kind of SSCM-relevant information should be integrated into the system. Furthermore, Bowen et al. (177) suggest detailed purchasing policies and procedures to formulate guidelines as to how sustainability issues can be implemented in dayto-day purchasing decisions. Rules and directives do not only help to organize recurring tasks, they also can facilitate an efficient mode of working in collaborating with other functional units. Although rules and directives might be used with little effort and less communication once they have been issued, it can take time and can create a need for deliberation for establishing them in the first place. (b) Within internal structures / Sequencing Sequencing means it is already planned how different functional units can share their expertise on SSCM(2) From external to internal structure (3) From individual competence to internal structure
(e) Issuing directives for suppliers about information transfer between suppliers and the focal company
(i) Establishing rules on how individuals should behave in case of difficult SSCM decisions (j) Transmitting new knowledge (obtained in seminars, trainings, etc.) into a database (k) Behaving sustainabilityoriented (waste/energy reduction)
Sequencing
(b) Transfer of infor- (f) Learning from suppliers (e.g., job mation from internal rotation between suppliers and focal experts company) (c) Holding regular meetings of different functions (specific to management level) (d) Setting up a task force group for internal improvements (waste reduction, health protection, energy cost savings) (g) Establishing knowledge-sharing routines (exchange of information between the focal company and its suppliers on regular basis)
Routines
Group solving
(h) Developing sustainability- (l) Providing experiences (with oriented products; stakeholdercrisis management) advisory boards/stakeholder committees
Table 1: Measurements to facilitate internal knowledge transfer in sustainable supply chains
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relevant issues. For instance, if a new product has to be assessed with regard to its environmental impact, the different functional units, such as purchasing, R&D, and manufacturing, can transfer their specific knowledge into a database. Since some of this information is dependent on background data from other departments, this data collection can be organized sequentially, meaning that a work flow is generated. Alternatively, an (electronic) route card can be used to inform the several functional units about the new product and its environmental, social, and economic characteristics so that the individual departments can also process this information within their unit. (c) Within internal structures / Routines Within internal structures, routines can help to share knowledge between the various functional units. Brief daily meetings of employees from different departments can facilitate the transfer of up-to-date information. In such cases, the emphasis is on basic information and on exchanging information between functional units, such as purchasing, sustainability department, PR, manufacturing, R&D, marketing, and sales. In addition to such daily cross-functional activities, monitoring and assessment routines also can help to estimate the environmental performance within a company (Klassen and Vachon; Simpson, Power, and Samson). (d) Within internal structures / Group solving Product development and crisis management are potential application areas of group solving processes (Hutchins; Pagell) within a company. Group problem solving and decision making are measurements that require the most coordination and interaction, when compared to the three activities explained above (Grant). Therefore, it is reasonable to set up task force groups, whenever this effort
proposes a balance between the associated benefit and the expenditure of time and capital. In this context, Grant (115) cites unusual, complex, and important tasks as examples of problem solving by groups and decision making. However, it is worth mentioning that task force groups can generate and exchange SSCM-relevant tacit and explicit knowledge. When they are brought together as a cross-functional team, members can learn from each others expertise and specialization. (e) From external to internal structure / Rules and directives In the context of transferring knowledge from the external structure to the internal, rules and directives can be used to integrate the knowledge from external stakeholders (e.g. suppliers, customers, NGOs, universities). When a company negotiates a cooperation agreement with one of these stakeholders, the company can set rules that stipulate what kind of information and knowledge should be transferred to the company. For instance, a company can be forced by its customers to transmit related information with regard to carbon footprint management (e.g., the retail sector, which has begun to label products with information about the carbon footprint; Halldrsson, Kotzab, and SkjoettLarsen). As a consequence, the focal company itself can force its suppliers by directives to provide such information. (f) From external to internal structure / Sequencing In order to obtain external knowledge by sequencing, companies and suppliers can establish a system of transferring staff knowledge across firm boundaries. This knowledge transfer may involve people actually working temporarily in the other company (Dyer and Nobeoka). The particular know-how of a
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staff member from the supplier can be used while he or she works within the focal company, or his or her (explicit) knowledge can be stored in documents and IT systems. The latter alternative offers the chance to integrate the knowledge sequentially at the time it is required. (g) From external to internal structure / Routines Dyer and Singh (1998) understand knowledgesharing routines as one potential source to gain competitive advantage. Referring to Grant, they define a routine as a regular pattern of interfirm interactions that permits the transfer, recombination, or creation of specialized knowledge (Dyer and Singh 665). More specifically a company and its suppliers, in the context of SSCM, can create routines by informing each other on a regular basis about the latest developments in product innovation or about relevant legislative projects. Such institutionalized processes can be advantageous due to fact that the partners share unique and detailed knowledge. (h) From external to internal structure / Group solving In order to stimulate the development of sustainability-oriented products, a focal company can form cross-organizational teams with its suppliers and customers (Stank, Keller, and Daugherty; Vachon and Klassen, Supply Chain Management; Zhao, Selen, and Yeung). Moreover, companies can establish groups with other stakeholders such as the local community or NGOs. Stakeholder advisory boards or corporate responsibility committees (Hansen 215) also are possible institutions to integrate external knowledge of sustainability-related issues and concerns. The purchasing department can
organize these committees directly at the suppliers sites to better understand the local conditions. This acquired knowledge, in turn, can improve risk and opportunity estimating of purchasing requirements and supply chain matters (such as product quality, working conditions, and avoidance of hazardous substances). However, it has to be taken into account that such inter-organizational collaboration might be challenging to organize since several companies (e.g. focal company, 1st tier, 2nd tier suppliers, etc.) and organizations (e.g. NGOs, universities, etc.) can pursue their own goals and strategies to achieve product improvements. Furthermore, the external stakeholders have their own organizational culture and structure that can considerably differ from the focal companys traits. As a consequence, these mentioned barriers have to be considered whenever there are joint efforts to develop more sustainable products and processes. One option to avoid these hurdles might be an open and regular communication between the internal and external stakeholders. (i) From individual competence to internal structure / Rules and directives Based on the assumption that critical SSCM decisions exist, such as termination of the supplier relationship due to noncompliance with environmental or social guidelines, a directive can require that multiple parties are involved for these crucial decisions. This approach can be applied by employees of one single department, or, in order to improve knowledge transfer between functional units, it can also be used as a rule so that employees from different departments such as purchasing and R&D have to decide collectively. Adopting such a directive might allow a transfer of individuals knowledge to the internal structure and across the internal supply chain. However, it has to be taken into account that an individuals perception and acceptance of such a directive can be different depending on the personal
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and organizational context or situation he or she is in. As a consequence, it has to be considered that a successful application of rules and directives is dependent on the attitude and behavior of every single employee, although in general, rules and directives might be of help to facilitate the transfer of knowledge between functional units. (j) From individual competence to internal structure / Sequencing With regard to SSCM and to the transfer of individual competences to internal structures, sequencing implies that an employee passes on information that he or she has obtained in SSCM-associated seminars (such as seminars about handling toxic substances, evaluation of suppliers based on sustainability criteria, or using codes of conduct). In order to process this information sequentially, the employee is enabled to transmit his or her knowledge into a database that offers open access for all employees in other departments across the internal supply chain, or the employee is appointed as a contact person for transferring the specialized knowledge. As a consequence, these knowledge transfer methods can encourage cross-functional collaboration since it supports other employees to possess SSCM-relevant know-how. (k) From individual competence to internal structure / Routines Measurements, such as waste reduction or energy savings, can be SSCM-related routines of individuals that have an impact on the internal structure. On one hand, this might be understood as a kind of tacit knowledge since it is revealed through its application (Grant 111). On the other hand, this can demonstrate explicit knowledge provided the employee informs colleagues about his or her activities.
(l) From individual competence to internal structure / Group solving If, for instance, an employee has gained experiences in an exigency, such as an environmental accident within the supply chain, he or she may transfer his or her acquired knowledge to others within the same organization. This knowledge might refer to how the problem was solved, what kinds of measurements were taken to minimize the risk within the supply chain, and how this environmental accident harmed the company. A pragmatic approach to convert this knowledge can be that the employee plays an active role in a companys internal training programs (e.g. during seminars that deal with crises management). Although such seminars are be provided by external service companies, an additional companys internal seminar can be more specific with regard to the peculiarities of the company such as its culture and structure. Furthermore, employees can be trained in specific skills, such as being a mediator or intermediary, so that they can contribute to problem-solving processes by their specialized knowledge and experience. After proposing the application of the 12 different measurements of knowledge transfer in internal SSCM, the following section addresses some practical implications for cross-functional integration in the context of knowledge transfer. IV.II. IMPLICATIONS FOR CROSSFUNCTIONAL INTEGRATION IN INTERNAL SSCM
Based on the discussion of mechanisms to facilitate internal knowledge transfer, this conceptual paper offers practical implications. The outcome of the widely conducted discussion can provide suggestions concerning the role of cross-functional integration with regard to the transfer of SSCMrelevant information and knowledge.
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Knowledge sharing Knowledge-sharing routines with suppliers are seen as one potential source to gain competitive advantage (Dyer and Nobeoka). This sharing of knowledge also can be beneficial in the intra-organizational context. If the different functional units across the internal supply chain spread their know-how and experiences among each other, they can improve their understanding for internal and external SSCMrelevant information. Furthermore, these units can learn to speak a common language so that sustainability-relevant information (e.g. about the product carbon footprint, necessary information for cause-related marketing activities, or details about standards and norms) can be transferred more easily between the different functional units. Since efficiency of knowledge aggregation is greatly enhanced when knowledge can be expressed in terms of common language (Grant 111), it is useful to take such appropriate measurements. Potential measurements can be holding brief daily meetings, where persons of different functional units come together (cf. c), or setting up a task force group for internal improvements (cf. d). In addition, incentive systems can be an appropriate measurement with regard to integration since incentives can encourage individual employees of the different departments to pursue one common goal (Pagell and Wu, Enhancing Integration). Such reward systems might include remunerations (e.g., when waste reduction is achieved within the company through the internal supply chain) or incentives when SSCM goals (e.g., establishing a carbon management system across the entire supply chain) are reached commonly by the different functional units. Informal and formal communication Cross-functional integration and knowledge transfer can occur in different modes of communication.
Grant points out the difference between explicit and tacit knowledge: explicit knowledge can be transferred by communication, whereas tacit knowledge cannot. Tacit knowledge, in fact, is transferred via its application. Tacit knowledge in cross-functional collaboration refers to knowledge of an individual person, e.g. an employee from purchasing can know how he or she is able to find the most suitable supplier for components when a new product is developed and how to reach a compromise together with other departments such as R&D as well as marketing and sales when there are conflicting goals between the different functional units about the components. In this context, the employee from purchasing applies this specific knowledge without making it explicit, e.g. through documented guidelines useable through other individuals. Explicit knowledge, in contrast, refers to knowing about; this type of knowledge is more easily transferred. Consequently, purchasing may have knowledge about the properties of the purchased component (e.g. its recyclability) and is able to transfer it to other departments. Thus, practitioners may wish to consider this difference when establishing communication channels between the various functional units. This implies, on the one hand, that cross-functional meetings are useful so that knowledge can be applied more easily and, on the other, that communication tools such as a database are helpful to store explicit knowledge and make it retrievable. Furthermore, research suggests distinguishing informal and formal communication. Informal communication is seen as an effective way to address problems in real time that occur in the different functions across the supply chain. In contrast, formal communication such as reporting systems can help to exchange information in a more structured way (Daft 582; Pagell; Pagell and Wu, Enhancing Integration). This recognition of communication differences results in the fact
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that information and knowledge transfer might be communicated formally and be organized by mechanisms such as decision making (cf. d, h, l), but informal communication also is necessary to cover all communication levels. V. CONCLUSION AND FUTURE RESEARCH
This conceptual paper argues that cross-functional integration assumes a substantial role in the intra-organizational transfer of SSCM-relevant information and knowledge. The knowledge-based view is used to discuss different mechanisms and levels of information and knowledge transfer. In the context of SSCM, there are various internal and external stakeholders whose requirements are of relevance. In addition, to better understand the implications with regard to cross-functional integration in SSCM, the differences between tacit and explicit knowledge, as well as the distinction of formal and informal communication, need to be considered. For example, when a new environmentally friendly and socially responsible product has to be developed, the different functional units need to know how they can work together in order to meet the requirements adequately. Furthermore, they need to know about the demanded properties of the new product. For such a product development, on the one hand, formal communication can be of help to make knowledge transfer across the internal supply chain explicit, on the other, informal communication can be beneficial for establishing a common language across the various functional units. However, this conceptual framework, like other research papers, also suffers from limitations. First, there are limits regarding the theoretical underpinning of the knowledge-based view. Knowledge cannot be common between all functional units (Grant). This fact involves the
assumption that every employee has his or her individual background, and it might be difficult to develop a similar understanding of what is relevant information in SSCM. In addition, sustainability issues have a value-laden character, meaning every individual will have his or her own perception of sustainability and related knowledge (Seelos; Linnenluecke, Russel, and Griffiths). Since entire supply chains are rather complex, this papers approach to develop a theoretical framework cannot cover all the specific aspects such as the interdependencies between internal and external stakeholders, the balance of power, or the individuals ability to learn and acquire new knowledge. Also, it should be noted that sustainability is a rather complex construct (Seelos) that involves a great range of environmental, social, and economic concerns and knowledge. Therefore, in order to investigate more thoroughly the knowledge transfer and crossfunctional integration in SSCM, future research could focus on the unique characteristics of knowledge that is to be exchanged between the different functional units. Hence, the question can be raised, what are similarities and differences of environmental, social, and economic-related information in the internal and external supply chain? Furthermore, the transfer of information and knowledge might be influenced by the individual peculiarities of the transmitters and recipients. Hence, it is worth asking who are the particular persons and organizations that exchange information? Within which structures and cultures do they act? Based on the theoretical framework developed in this paper, a case study or an action research approach might be fitting to better understand the complex structures of knowledge and information transfer between different functional units in SSCM.
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VI. ACKNOWLEDGEMENTS The author would like to thank the Department of Civil Engineering Technology, Environmental Management and Safety (CETEMS) at Rochester Institute of Technology (RIT) and, in particular, John Morelli and his team for providing the opportunity to participate in the Seventh International Environmental Management Leadership Symposium 2011 at RIT. In addition, the carefully helpful inputs made by participants of the Symposium on an earlier version of the paper are acknowledged with great thanks. The author would also like to thank the anonymous referees for the valuable comments which helped to improve the paper. VII. REFERENCES [1] Andersen, M. and T. Skjoett-Larsen. Corporate social responsibility in global supply chains. Supply Chain Management. An International Journal 14.2 (2009): 7586. Barney, J. B. Firm Resources and Sustained Competitive Advantage. Journal of Management 17.1 (1991): 99120. Birou, L. M., S. E. Fawcett, and G. M. Magnan. The Product Life Cycle. A Tool for Functional Strategic Alignment. International Journal of Purchasing and Materials Management 34.2 (1998): 3752. Bowen, F. E., P. D. Cousins, R. Lamming, and A. C. Faruk. The Role of Supply Chain Capabilities in Green Supply. Production and Operations Management 10.2 (2001): 174189. Carter, C. R. and M. Dresner. Purchasings Role in Environmental. Cross-Functional Development of Grounded Theory. Journal of Supply Chain Management 37.3 (2001): 1227. Carter, C. R. and P. L. Easton. Sustainable Supply Chain Management. Evolution and Future Directions. International Journal of Physical Distribution and Logistics Management 41.1 (2011): 4662. Carter, C. R., L. M. Ellram, and K. J. Ready. [11] [8]
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Sustainability

International Review Panel

Madeleine E. Pullman Portland State University

Journal of Environmental Sustainability Volume 1 2011

Letter from the Editor-in-Chief

Journal of Environmental Sustainability Volume 1 2011

Rise and Fall of the Concept Sustainability

Journal of Environmental Sustainability Volume 1 2011

Rise and Fall of the Concept Sustainability

Journal of Environmental Sustainability Volume 1 2011

See Dailys Steady-State Economics.

Rise and Fall of the Concept Sustainability

Journal of Environmental Sustainability Volume 1 2011

Rise and Fall of the Concept Sustainability

Journal of Environmental Sustainability Volume 1 2011

Rise and Fall of the Concept Sustainability

Journal of Environmental Sustainability Volume 1 2011

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Rise and Fall of the Concept Sustainability

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Journal of Environmental Sustainability Volume 1 2011

Environmental Sustainability: A Definition for Environmental Professionals

DEFINING SUSTAINABILITY IN THE CONTEXT OF A PROFESSION

Journal of Environmental Sustainability Volume 1 2011

Environmental Sustainability: A Definition for Environmental Professionals

Journal of Environmental Sustainability Volume 1 2011

Environmental Sustainability: A Definition for Environmental Professionals

Journal of Environmental Sustainability Volume 1 2011

[4] [5] [6]

Environmental Sustainability: A Definition for Environmental Professionals

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Journal of Environmental Sustainability Volume 1 2011

Environmental Sustainability: A Definition for Environmental Professionals

Contradictions Inherent in the Management of Natural and Industrial Disasters

Journal of Environmental Sustainability Volume 1 2011

Contradictions Inherent in the Management of Natural and Industrial Disasters

Journal of Environmental Sustainability Volume 1 2011

Number of floods Number of people killed 25 169 14 34 14 15 13 72 12 26 11 52 8 1 6 14 6 38 6 29

Contradictions Inherent in the Management of Natural and Industrial Disasters

Journal of Environmental Sustainability Volume 1 2011

Contradictions Inherent in the Management of Natural and Industrial Disasters

Journal of Environmental Sustainability Volume 1 2011

Contradictions Inherent in the Management of Natural and Industrial Disasters

Journal of Environmental Sustainability Volume 1 2011

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

The broader debate about organizations and the natural

Market growth rate

Figure 1 - Four scenarios for environmental sustainability

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

Journal of Environmental Sustainability Volume 1 2011

Corporate Environmental Sustainability Beyond Organizational Boundaries...

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