Sustainability in Business: Social, Environmental & Economic Aspects - Essay Sample

Introduction

Sustainability in business is all about the company's ability to operate maximumly while having the future in mind. Sustainability encompasses social, environmental, and economic aspects keeping in mind that some natural resources are non-renewable. Sustainability has mostly focused on ecological repercussions based on the current trend of fossil fuel exploitation, but there are also social and economic concerns. Sustainability is a relatively new school of thought that is tied to globalization, conservationism, social responsibility among other movements. Many of these movements were banded together to form a new call for 'sustainable development' at the end of the 20th century. The need for a sustainability discipline in academic and scientific circles is more significant than ever before. The discipline will be based on the sustainable development ideology that was first coined in the World Commission on Environment and Development of 1987. Sustainability is development today without affecting the subsequent generations chances of survival (WCED, 1990). The WCED report was widely supported for reinforcing the need to couple development with environmental responsibility.

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Key Sustainability Concerns

Sustainability today is generally categorized into three major parts: social sustainability, economic sustainability, and environmental sustainability. The environmental aspect is concerned with the welfare of the ecology, maintaining a proper rate of natural resource utilization while sustaining an appropriate level of environmental integrity. Environmental sustainability is considered the most prominent issue but not so pressing. Economic sustainability concerns the ability of the economy to maintain a certain level of production that provides the basic needs to the people. Economic sustainability seeks to provide financial freedom that translates to reduced poverty levels in all countries, but this has been hindered by several bouts of recession. Social responsibility seeks to distribute justice and human rights to all humans. Social injustices such as war, natural disasters, disease outbreaks, and poverty hinder the attainment of social sustainability. All these pillars are interconnected, and the effects of one ripple through all the others as they function as an ecosystem.

The ecosystem of interconnected pillars of sustainability is mostly made up of the biosphere that we exist in. This biosphere system holds the human factor that includes two other subsystems that are social and economic. It so happens that when people come together from different backgrounds and form a government, there is a contract to increase their social and economic wellbeing. The citizens of a government, who make up the social subsystem, work together with the guidance of the government to grow the economic subsystem. This goes to show the importance of environmental sustainability and how vital it is to the other systems. Negative impacts on the sustainability of the environment lead to unsustainable social systems that automatically translates to poor economic output.

The question is can we dissect the complex sustainability problem through the three pillars? Can the issues be resolved? The answer is yes; there are existing solutions to remedy the sustainability problem as there have been solutions to other historical matters. Food shortage is one of the historical issues that was solved by the widespread practice of agriculture. Another one is the short lifespan issue where the average lifespan of the British people, for example, was 40 years before the Industrial Revolution in 1800. The lifespan has improved to 78 years and 82 years for men and women respectively. The improvement was aided by the introduction of sewerage services, availability of clean water and advancement in medicine and construction. The other problem solved was the autocracy system of governance that allowed kings, chieftains, warlords, and dictators to control the fate of the world. The autocracy system of governance did not have room for general prosperity for the common folk. It was riddled with favoritism and classism, and it ended rather abruptly in the 16th century with the advent of democracy. The cold war is another problem that got solved eventually. The arms race that erupted at the end of the second world war led to increased tension with the threat of nuclear warfare imminent between the US and the Soviet Union. The world lived in fear as both countries continued to amass weapons of mass destruction, which would bring about great devastation. The climax of the cold war was the Cuban missile crisis that aggravated the issue almost to actual war in 1962. The cold war ended when the Soviet Union diminished in 1991. This goes to show that the sustainability problem can be solved as these problems were solved.

How the Above is Reflected on Organizations Performance

Economic theories suggest that the organizations' goal is minimizing expenditure while maximizing profit as the limiting factors would allow. The critical factor in these models is the remuneration of the shareholder who provides much needed financial assistance vital to the company's existence. However, how companies compete and seek profits is substantially different. Companies have been seen to emphasize on the long-haul benefits compared to the short-haul benefits (Bakan, 2004). Companies are generally neutral about the consequences their business has on the welfare of the stakeholders (Friedman& Miles, 2006). They focus more on the morality of their actions in relation to their impact on shareholders as opposed to the stakeholders (Heath, 2014). An example is Southwest Airlines, whose employees and customers are marked as their primary stakeholders. A relatively minor but generally increasing section of organizations has integrated willingly environmental and social aspects in their business designs over the last 20 years.

The inclusion of social and environmental aspects into a corporate's business design brings up some questions for scholars. First is how the governance structure of the companies that integrate some form of social and economic sustainability into their business model differs from that of other firms, and in what ways? Are the time frames for their choices different? Do they have distinct shareholder engagement processes? How differently do they measure and report? Lastly, how does integrating sustainability issues into the corporate design of a company affect performance? It has been argued that companies that try to incorporate sustainability welfare into their corporate design will be either eliminated by their competitors who are not civically inclined or survive at huge costs (Petit, 2008). Integrating sustainability issues into business structure may have adverse financial consequences (Ball, 2013). Companies that do not add such extra policies to their business models are argued to be a bit financially better off in the cut-throat business environment.

There are arguments by some scholars that companies can do well by doing good (Michalos, 2017). The general assumption is that meeting the needs of the stakeholders; value is directly created for the shareholders (Chartered Institution of Water and Environmental Management, 2005). The other assumption is that not meeting the stakeholders' needs destroys shareholder value incase of industrial actions such as boycotts, paying potentially punitive fines to the government, and losing or inability to hire talented workers (Steger, 2003). Other scholars have reiterated that adopting social and environmental sustainability policies can diminish stakeholders' returns due to sustainability being an agency cost in disguise (In Dorobantu, In Aguilera, In Luo, & In Milliken, 2018). The agency cost being managers get to gain additional benefits for incorporating social and environmental policies into the overall business strategy.

Corporate Social Responsibility

Corporate social responsibility and sustainability are entwined in what they try to achieve concerning society. Research conducted shows that CSR contributes to the overall agenda that sustainable development is trying to achieve. CSR is a growing concern with multinationals now expected to participate in the welfare of the society around as a stakeholder. Research has shown that people 75% of people in an online survey expect companies to do whatever it takes to increase profits while also improving the social and economic conditions of the areas that they operate in (Idowu & Leal, 2009). This has led to increased efforts by organizations especially multinationals, to have stronger CSR presence the communities that they operate all over the world. Studies have shown that multinationals with a strong CSR presence performed better financially (Sims, 2003). CSR seeks to ensure that the company is responsible for itself, the stakeholders and the general public in its operations. Multinationals have been on the frontline in CSR strategies; some have been actualized, such as the production of electric cars by Tesla help migrate from carbon fuel dependency. Companies such as Coca-Cola, Google, Toyota among others have various CSR practices in place to help grow their business and also help drive the world towards sustainability. This has, in turn, improved their standings with the people, with the current generation praising companies that adopt CSR. CSR has helped set these and other companies apart from their rivals who have no or less profound CSR drives.

Theories of CSR

Instrumental Theories

CSR can take many forms and in varying degrees, such as complying with regulations and philanthropy. Debates have proliferated the subject of CSR with different theories, themes and approaches being put forth. Economic achievements are the main agenda in the corporate world (Prasnikar, 2006). CSR should be used for wealth creation according to instrumental theories. The supporters of this theory suggest that companies should only engage in CSR when it is beneficial to the organization (Gomez, Vargas-Preciado, & Crowther, 2017). Instrumental CSR is the most practiced form of CSR (Windsor, 2001). However, concentrating on profits does not mean excluding the stakeholders with arguments suggesting that the satisfaction of stakeholders to a certain degree leads to increased returns (Prasnikar, 2006). Studies carried out over the years show a good relationship between CSR and financial wellbeing; however, the amount of CSR that translates to specific commercial improvements are hard to measure. There are three subgroups in this theory, and they are divided on the financial outcome that is to be achieved; the first group focuses on increasing shareholder value to maximum as seen by the price of shares. The economic benefits here short-term. The next group focus on achieving competitive advantages through strategic means, which leads to long-term financial returns. The last group focus on cause-related marketing where consumers are enticed by offers from the company that promises to give something in return for the consumers' expenditure (Prasnikar, 2006).

Political Theories

Another of CSR theorists focus on the connection between corporates and society and the power that an organization has in a community. Social institutions, including corporations, have power that must be exercised (Idowu, Frederiksen, Mermod, & Nielsen, 2015). There is power inherent in any social institution, and how the company seeks to use this power is to their discretion. A further two more theories were formulated by Davis; the theory of social power that states that businessmen have responsibilities that come from the amount of social power they have (Idowu, Frederiksen, Mermod, & Nie...