- Email: [email protected]
FORUM: The business of sustainability
Ecological Economics 29 (1999) 37 – 43
COMMENTARY FORUM
The business of sustainability Larry Onisto * Centro de Estudios Para la Sustentabilidad, Uni6ersidad Ana´huac de Xalapa, Xalapa, Veracruz, Mexico Received 5 June 1997; received in revised form 29 December 1997; accepted 10 March 1998
In 1987, the Brundtland Report popularized the term, sustainable development. A total of 5 years later, AGENDA 21 attempted to provide an action framework for it. In spite of this and the significant momentum of both science and rhetoric behind the concept of sustainable development, governments and businesses continue to avoid implementing a clear understanding and measurable definition of sustainability. Since the conference in Rio, 1992, Governmental organizations and global business interests have been making a concerted effort to demonstrate their movement towards sustainability. The result has been the growing array of eco-indicators and a rapid increase in the effort invested in development of environmental management systems policies, principles, conventions, charters and the now ubiquitous corporate environmental and sustainability reports. To date, few (if any) business environmental initiatives elaborate a clear mea* Tel.: +52 905 2743461; e-mail: [email protected]
surable baseline for sustainability (Gray, 1994). The world at present is hurtling away from environmental sustainability at a dangerous rate (Goodland et al., 1993). Recent studies have shown that in 1992 the global economy had overshot the capacity of the Earth to sustain us by 25% and in 1997, the overshoot grew to 35% (Wackernagel et al., 1997). Physical evidence that humans have exceeded global limits is also a matter of record exemplified by unabated increases in global CO2, clear evidence of climate change, collapse of 13 out of 15 major global fisheries, the ozone hole and biodiversity loss. The list is long and growing. This record speaks so clearly that we do not need our science to tell us that something is wrong. In contrast, global business interests continue accelerating us into higher more unsustainable levels of growth without arousing a requisite sense of risk. Without a measure and a value attached for the rates at which an economy consumes nature, there is no possibility for the market to act in any other interest than economic.
0921-8009/99/$ - see front matter © 1999 Elsevier Science B.V. All rights reserved. PII: S0921-8009(98)00077-9
38
L. Onisto / Ecological Economics 29 (1999) 37–43
The role of biophysical assessments in assessing sustainability is to establish the ecological ‘bottom line’. This would act as a clear baseline. Derived by the same basic principles of accounting used by economists, measurement by natural capital flows would provide counterpoise to economic analysis. Others have more ably established the case for this in economic accounting (Wackernagel and Rees, 1996; Goodland et al., 1993; Hall, 1992). The economy is a subsystem of nature. All profit derived through human activity is extracted from costs borne by the physical environment. As such, there exists an obligate dependence by the economy on the services of nature (Wackernagel and Rees, 1996). However, the economy has disconnected itself from the biophysical reality of our dependence on natural systems. This constitutes a human dynamic which is more appropriately defined as a ‘loss of situational awareness’. It is a dynamic that worsens as human economic systems become more complex and natural capital stocks decline. It constitutes a form of profound risk that is not factored into decision-making, Nor is it addressed on any meaningful level that would invoke a perception of risk sufficient to activate the need for precaution. Loss of situational awareness (SA) is best illustrated through an example of a class of aircraft accident commonly described as ‘controlled flight into terrain’ (FAA, 1997). The example is the final minutes of Eastern Flight 401, the crew was preoccupied with a nose-wheel indicator light which resulted in a fatal crash in the Florida everglades. In spite of all of the complex cockpit instrumentation and active warning systems, the attention of the crew was diverted from the most immediate danger and fixed on a minor problem. This example demonstrates the danger of what is called ‘functional fixation’ where preoccupation with indicators or minor factors that do not directly relate to the fundamental dynamic of the system, leads to a situation where lethal changes go unnoticed until it is too late. This dynamic is commonly referred to as ‘loss of situational awareness’. In the case of flight 401, multiple warning systems functioned properly but had no effect in redirecting the attention of the flight crew back to the larger more lethal context in which they existed.
The purpose of this example is to illustrate the main point of this discussion: in spite of the clear body of evidence of global decline of our natural support systems, there exists a dynamic in human thinking which fails to differentiate appearance and reality. The growing preoccupation by business on indicators, indices, benchmarks and measures which do not address sustainability is a dangerous form of functional fixation that continues to go unchallenged. The global preoccupation with unrestricted growth, competitiveness and efficiency is being undertaken while growing and unsustainable economic systems are already causing visible decline of natural systems world-wide. This decline is a matter of record; so too are the trends in growth in both consumption and population which are the root cause of the unsustainable dynamic in which we find ourselves. This loss of situational awareness manifests itself in a variety of ‘environmental measures’ undertaken by business. These measures take the form of beliefs in the effectiveness of compliance, good environmental management and the gradual inclusion of measures which at best only incrementally improve efficiency and environmental performance. They are further qualified by an arbitrary prerequisite for first considering cost-effectiveness and competitiveness on an economic basis which makes no provision for the true value and role of natural capital. The value of natural capital is masked by the financial system that gives us improper information (Hawken, 1997). These measures are clearly evident in the content of the many corporate environmental reports. Environmental reporting has become an industry filled with indicators and indices of sustainability, none of which directly measure the natural capital business consumes in order to provide their goods and services. The corporate environmental literature is filled with a mixture of vague principles that allude to the Brundtland definition of sustainability and make broad statements in their corporate policies regarding their commitment to sustainability. Corporate reporting has yet to establish a basis to measure what is sustainable and how near or far business is from the mark. A total of 25 award-winning environmental reports, (CICA, 1996; Knight, 1997) which included
L. Onisto / Ecological Economics 29 (1999) 37–43
both national and transnational corporations, cited the need to achieve sustainability. However, none used any form of measurement of biophysical flows (natural capital throughput) to establish what was sustainable. Instead, these ‘award-winning reports’ tended to show a profusion of competing indices and benchmarking protocols, life cycle analyses, and a great deal of attention on adherence to international protocols for environmental management systems and associated policies, strategies and environmental management programs. All of this information is directed toward establishing credibility and is presented by many businesses as a means of enhancing corporate reputation and identity. However, little of the information presented in the reports is easily compared since measures are based on performance indicators and indices, indirect measures of voluntary disclosures and on factors that do not address natural capital consumption. There is no single baseline established or measured from which to measure on a comparative basis. Economists use indices to assist in understanding market dynamics and performance but the bottom line is based on absolute measures of flows of capital. If more is taken away from capital than added, a deficit is created. If the deficit is sustained it accrues into debt. If the debt is sustained it means the end of the enterprise. Once the balance sheet is established, indicators have context and begin to make sense. No credible economist or financial officer would attempt to prepare a corporate financial report which was filled with indicators, benchmarks, and management initiatives without first establishing the fiscal bottom line. The same line of thinking must be applied to consideration of sustainability. Business must begin to recognize that measuring sustainability is not a matter of measuring how bad things are but rather, how they are (Wackernagel et al., 1997). The ecological bottom line then provides a basis from which to plan, improve and create new strategies, targets and goals. Most importantly, it provides a basis from which to fully consider risks, costs, recognize opportunity and develop competitive strategies. In business, the principle of management is founded on measurement, hence the saying ‘what
39
gets measured gets done’. The ‘bottom line’ for sustainability can only be provided by measuring the use of natural capital stocks. Sustainability will remain unknown and unmanageable until natural capital accounting is directly factored into corporate reporting. Business efforts to address environmental issues and performance standards has been the creation of the ISO 14000 family of standards. ISO 14001 specifies the voluntary standard for environmental management systems and is the focus of a rapidly growing business-driven movement for the adoption of an international set of minimum standards. In 1992, the International Organization for Standardization (ISO) formed the Strategic Advisory Group on the Environment (SAGE) to evaluate the necessity for international standards, and quickly focused in on environmental management systems. ISO 14001 is intended to harmonize global environmental management practices, which will include a common basis for measurement of material or waste releases and labeling practices. Conforming to this standard is widely accepted as a basic element of corporate environmental due diligence (corporate responsibility and integrity). Other standards also exist such as EMAS (the European Commission’s Eco-Management and Audit Scheme) which is a voluntary European Commission scheme to register sites which have established an environmental management system (such as ISO 14001, the international standard) and produced an independently verified public statement about the site’s environmental performance. In Britain, there is similar specification for environmental management systems called BS 7750. The suitability of the management system and the selection of environmental aspects to be measured and audited is left to management organizations to define and review. Simply adhering to the procedural ISO 14001 requirements does not necessarily ensure compliance. New measurement standards under ISO 14000 include the 14040 series which specify life cycle assessment standards. They do not, as yet, include the requirement for biophysical assessments. Environmental management standards enhance the environmental credibility of a business and
40
L. Onisto / Ecological Economics 29 (1999) 37–43
offer better management of defined environmental aspects but will not add anything substantive to moving towards sustainability. Regular environmental audit is a key specification of ISO 14001 but it only covers verification by examining how information is collected and validation of the accuracy of the claims made in corporate statements. Compliance to an environmental standard under these criteria creates a false perception that environment is duly and diligently served. In reality, it is a process which does not safeguard the environment and serves only to hide a huge business risk exposure. Consultants, third party assessors, ethical funds brokers and international business organizations are advancing a profusion of ‘sustainability indices’ which often measure a company’s environmental performance compared to an ‘industry average’. The World Business Council for Sustainable Development (WBCSD) has created a new vocabulary and industry around the latest business initiative called eco-efficiency. The comprehensive definition of eco-efficiency defined by WBCSD is: eco-efficiency is reached by 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 Earth’s carrying capacity. In principle, the eco-efficiency movement is promising but it fails in any substantive way to place any priority on first establishing what is sustainable and then, whether the level of eco-efficiency practised addresses it meaningfully. WBCSD has elaborated the definition of ecoefficiency by identifying seven elements of eco-efficiency, these include: (a) reducing the material intensity of goods and services (b) reducing the energy intensity of goods and services, (c) reducing toxic dispersion (d) enhancing material recyclability (e) maximizing use of renewable resources (f) extending product durability and (g) increasing the service intensity of goods and services (NRTEE, 1996). Aggregates of these eco-efficiency indicators are now finding their way into use as sustainability indices for measuring corporate performance compared to industry or sectoral averages, evaluating
green funds and calculating environmental dividends (Goodman, 1996). While these measures are useful tools for business, deriving a sustainability index from the seven elements of eco-efficiency only adds to the confusion, none having anything to do with, either individually or collectively, deriving a clear measurable definition of sustainability. While the introduction of eco-efficiency indicators improve the apparent environmental performance and efficiency of material utilization for businesses, they completely fail to address sustainability. Furthermore, their implementation is promoted entirely on the basis of efficiency gains, cost reduction, pollution control, increased earnings, avoiding costs on present or future noncompliance and brand equity (the value of company image). None of these factors mean anything in the context of substantively achieving sustainability or knowing how sustainable the current business may be. In an economic context, it would be similar in example to a Chief Financial Officer producing an annual financial report using only indicators to summarize profitability and financial performance. The focus of environmental practices on ensuring compliance is perhaps the most dangerous form of situational awareness since no current regulation is based on any objective or measure related to sustainability. Rather, they are founded in regulated limits derived from a reductionist toxicological interpretation of risk which are based on measures of acute toxicity to humans. Business performance, which uses compliance as a basic standard, is lawful but not sustainable. This distinction is not well understood by the public or regulators and is perhaps one of the larger sources of functional fixation. When the appearance or perception of doing the right thing becomes indistinguishable from the reality of doing the right thing, we must begin to question the means by which both the current principles and measures of sustainability are derived. The recent RIO + 5 review held in March 1997 concluded that governments have made too little progress in fulfilling the commitments they made to achieve ‘sustainable development’. James Gustave Speth, head of the UN Development Program, commented at the Rio+ 5 conference that: ‘‘The world’s largest countries have failed
L. Onisto / Ecological Economics 29 (1999) 37–43
utterly to honor the pledges they made at the 1992 Rio Earth Summit’’. The time has come to vigorously challenge the direction that an ever growing global business is taking us. Other warnings include those issued by the Union of Concerned Scientists calling for a need for fundamental change in the way human enterprise is conducted. This is one of a litany of warnings both scientific and from observed global decline. After five major global meetings on climate change, there is still no positive international action by the developed nations for curbing CO2 emissions. Over 2500 economists and eight Nobel Laureates recently (1997) issued the Economist’s Statement on Climate Change: ‘the balance of evidence suggests a discernible human influence on climate—as economists, we believe that global climate change carries with it significant environmental, economic, social and geopolitical risks, and that prevention is justified’. These warnings do not appear to be effective in influencing how nations practice their business or perceive risk. Corporate reporting, standards, indicators and benchmarks are an important tool and are a vital part of a transition to business-driven sustainability. However, if we do not first clearly understand what is sustainable, all of these measures are only an abstraction and distraction and serve only as more ‘greenwash’ (Greer and Bruno, 1996). The inherent danger around this confusion about sustainability is that it becomes harder to differentiate between a good and bad actor; we could lose considerable public interest and support, provoke sustainability fatigue and demotivate the genuine sustainability promoters at a time when we need them most. This applies equally to the role of private investment in the case of green funds where even the greenest monetary measures are not indicators of environmental sustainability (Ahlroth, 1997). The greatest danger comes from the appearance that something substantive is being done. It lulls people into feeling that the environment has been, and is adequately, considered, that regulations have been met, that regulation is adequate and that corporate conduct is appropriate. It also makes leaders in business, who want to do more for the environment, believe that they have done
41
something good while, in reality, they have done nothing at all. This is not a conscious malevolence at work but rather human dynamics as illustrated by Eastern flight 401. Global business is enacting its rendition of a controlled flight into terrain. Loss of situational awareness in business comes from a fundamental failure to account for natural capital. It is for these reasons that the mainstream business-sustainability movement may be taking us in the wrong direction while making it more difficult to detect that anything is wrong. This is not to say that initiatives such as eco-efficiency cannot provide a useful set of metrics and should not be used. However, it is the context of sustainability in a systems level that provides a basis for the indicators. The same principles need to be applied for understanding what we need to do to achieve sustainability. How much nature do we use and how much nature do we have. These measures require that we account for out use of natural capital by measuring biophysical throughput through the economy. Efficiency and eco-efficiency are important principles but without the context provided by first establishing what is sustainable, they exacerbate current incrementalism. Incremental improvements in performance are irrelevant in processes that may already be many times beyond sustainable. Promoting efficiency of unsustainable processes serves only to apply the accelerator to further expansion of unsustainable practices (Wackernagel and Rees, 1996). The current preoccupation of business on efficiency and eco-efficiency does not address, nor provide meaningful intelligence, on sustainability. Competitiveness still means optimizing for least cost while maximizing output at a minimum of time and expending the minimum labor energy and capital (Rifkin, 1995). It creates a dynamic which differentiates on the basis of economic value that discounts and trades off on social and natural capital values. Rifkin (1995) alluded to the fact that the invisible hand of business is running a model in which the dynamic is geared to maximize rates of expropriation of resources, profit and capital at the expense of environment and human society. The new business religion is
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L. Onisto / Ecological Economics 29 (1999) 37–43
efficiency and restructuring for global competitiveness. This is not only changing business, but it is also transforming society. The result is unprecedented change biased towards the growth of economy at the expense of people and the environment. Soros (1997) argues that this economic bias undermines the very values on which open and democratic societies depend. Issues of sustainability are not just an offspring of the environmental agenda. They are constraints based on physical laws of nature (thermodynamic principles) that govern human enterprise and life. Human society is a subsystem of nature sustained entirely by natural capital. Sustainability is a system planning context that must involve business, politics, and economics which reflect this reality. What would be the benefits if business was to embrace sustainability? Hawken (1997) makes the case that if business practiced ‘natural capitalism’ it would open up new opportunities to create new markets and more jobs, restore the environment, promote social stability and remain competitive and profitable. The Natural Step (TNS) promotes a principle of business driven sustainability which is intended to help business see new future opportunities working with the concept of natural capital and with the cycles of nature (Robert et al., 1995). These principles are at the forefront of the concept of Industrial Ecology (Graedel and Allenby, 1994). It would provide new perspectives cost containment opportunities, suggesting new businesses, stimulating new classes of products and service development, offering new directions to develop brand image, increasing value to the customer and a means to secure their own long term survival. Knowing the ecological bottom line, that is, how much nature is consumed per unit of production will become a strategic basis upon which to differentiate products and services. Sustainable production will reduce long-term costs and exposure to risks like climate change, pollution damage or resource exhaustion (Robert et al., 1995). The role of business to provide leadership in developing and driving a transition to sustainability is a significant contribution they can and must play for making the transition to sustainability possible. It is also, if missed, the most lethal of
exposures not accounted for in contemporary risk practice (Coopers and Lybrand, 1996; USEPA, 1996). Shumacher (1989) said that: ‘‘if you call a thing immoral or ugly, soul destroying, or a degradation of man to the peace of the world or future generations, as long as you have not shown it to be uneconomic you have not really questioned its right to exist, grow and prosper’’. Sustainability is about accounting for natural capital. Full cost accounting using money as the criterion of value fails to provide any meaningful situational awareness for the risks posed by the growing global unsustainability (Soros, 1997; Adams, 1994; Hall, 1992; Goodland et al., 1993; Wackernagel and Rees, 1996). In order for sustainability to become a business reality, biophysical assessments of natural capital must be used to provide a basis from which to create a complete picture to frame economic analysis and risk assessment. Once this is accomplished, the situational awareness, vision, the requisite sense of urgency, the resources will come freely from the balance sheet and the boardrooms. The business of sustainability can then become a force for positive change rather than a functionally fixated economic machine unable to alter its lethal trajectory into the ground.
References Adams, J.G.U., 1994. Environmentalists with the Midas touch. Glob. Ecol. Biogeog. Lett. 4 (1994), 62 – 64. Ahlroth, S., 1997. Accounting for Change. Environment, 39 (2). CICA, 1996. The Financial Post: Annual Report Awards — Leaders in Environmental Reporting. The Canadian Institute of Chartered Accountants, Toronto. Coopers and Lybrand, 1996. Generally Accepted Risk Procedures. Goodland, R.J.A., Daly, H.E., El Serafy, S., 1993. The urgent need for rapid transition to global environmental sustainability. Env. Cons. 20 (4), 297. Goodman, A., 1996. Green Funds: Fuzzy No More. Tomorrow: Glob. Environ. Bus. 6 (5):24. Graedel, T.E., Allenby, B.R., 1995. Industrial Ecology. Prentice Hall PTR. Gray, R.H., 1994. Corporate reporting for sustainable development : accounting for sustainability in 2000 AD. Envir. Values 3 (1994), 17 – 45.
L. Onisto / Ecological Economics 29 (1999) 37–43 Greer, J., Bruno, K., 1996. GREENWASH: The Reality Behind Corporate Environmentalism. Third World Network and The Apex Press, Penang/New York. Hall, C.A.S., 1992. Economic Development or Developing Economics: What are our Priorities? In: Mohan, K. Wali (Ed.), Ecosys. Rehab., vol. 1: Policy Issues, SPB Academic, The Hague, pp. 101 –126. Hawken, P., 1997. Natural Capitalism. Mother Jones, March/ April, 1997. Knight, P., 1997. The eco elite: tomorrow and the Storebrand – Scudder Environmental Fund choice for six of the best and greenest European companies. Tomorrow 7 (3), 32. Nikiforuk, A., 1993. Editorial on Sustainable Development Rhetoric. Harrowsmith, Fall Issue 1993. NRTEE (National Roundtable on Environment and Economy, Canada), 1996. Measuring Ecoefficiency in Business: Developing a Core Set of Eco-effficiency Indicators. Background Paper, Eco-efficiency Workshop, April 2, 1997, Washington, DC. Ornstein, R., Ehrlich, O. 1989. New World, New Mind: Mo6-
.
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ing Toward Conscious E6olution. Doubleday, New York. Rifkin, J., 1995. The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. G.P. Putnam and Sons, New York. Robert, K-H, Daly, H., Hawken, P., Holmberg, J., 1995. A Compass for Sustainable Development. The Natural Step. Shumacher, E.F., 1989. Small is beautiful: Economics as if People Mattered. Harper-Collins. Soros, G., 1997. The Capitalist Threat. The Atlantic Monthly. February, 1997. USEPA, 1996. Ecological Risk Assessment. United States Environmental Protection Agency. Wackernagel, M., Rees, W., 1996. Our Ecological Footprint: Reducing Human Impact on the Earth. New Society Publishers, Gabriola Island/Philadelphia. Wackernagel, M., Onisto, L., Caliejas Linares, A., et al., 1997. Ecological Footprints of Nations: How Much Do They Have — How Much Do They Use?. Focus Report for the RIO +5 Forum, March 15, 1997, Earth Council, Rio de Janeiro, Brazil.
COMMENTARY FORUM
The business of sustainability Larry Onisto * Centro de Estudios Para la Sustentabilidad, Uni6ersidad Ana´huac de Xalapa, Xalapa, Veracruz, Mexico Received 5 June 1997; received in revised form 29 December 1997; accepted 10 March 1998
In 1987, the Brundtland Report popularized the term, sustainable development. A total of 5 years later, AGENDA 21 attempted to provide an action framework for it. In spite of this and the significant momentum of both science and rhetoric behind the concept of sustainable development, governments and businesses continue to avoid implementing a clear understanding and measurable definition of sustainability. Since the conference in Rio, 1992, Governmental organizations and global business interests have been making a concerted effort to demonstrate their movement towards sustainability. The result has been the growing array of eco-indicators and a rapid increase in the effort invested in development of environmental management systems policies, principles, conventions, charters and the now ubiquitous corporate environmental and sustainability reports. To date, few (if any) business environmental initiatives elaborate a clear mea* Tel.: +52 905 2743461; e-mail: [email protected]
surable baseline for sustainability (Gray, 1994). The world at present is hurtling away from environmental sustainability at a dangerous rate (Goodland et al., 1993). Recent studies have shown that in 1992 the global economy had overshot the capacity of the Earth to sustain us by 25% and in 1997, the overshoot grew to 35% (Wackernagel et al., 1997). Physical evidence that humans have exceeded global limits is also a matter of record exemplified by unabated increases in global CO2, clear evidence of climate change, collapse of 13 out of 15 major global fisheries, the ozone hole and biodiversity loss. The list is long and growing. This record speaks so clearly that we do not need our science to tell us that something is wrong. In contrast, global business interests continue accelerating us into higher more unsustainable levels of growth without arousing a requisite sense of risk. Without a measure and a value attached for the rates at which an economy consumes nature, there is no possibility for the market to act in any other interest than economic.
0921-8009/99/$ - see front matter © 1999 Elsevier Science B.V. All rights reserved. PII: S0921-8009(98)00077-9
38
L. Onisto / Ecological Economics 29 (1999) 37–43
The role of biophysical assessments in assessing sustainability is to establish the ecological ‘bottom line’. This would act as a clear baseline. Derived by the same basic principles of accounting used by economists, measurement by natural capital flows would provide counterpoise to economic analysis. Others have more ably established the case for this in economic accounting (Wackernagel and Rees, 1996; Goodland et al., 1993; Hall, 1992). The economy is a subsystem of nature. All profit derived through human activity is extracted from costs borne by the physical environment. As such, there exists an obligate dependence by the economy on the services of nature (Wackernagel and Rees, 1996). However, the economy has disconnected itself from the biophysical reality of our dependence on natural systems. This constitutes a human dynamic which is more appropriately defined as a ‘loss of situational awareness’. It is a dynamic that worsens as human economic systems become more complex and natural capital stocks decline. It constitutes a form of profound risk that is not factored into decision-making, Nor is it addressed on any meaningful level that would invoke a perception of risk sufficient to activate the need for precaution. Loss of situational awareness (SA) is best illustrated through an example of a class of aircraft accident commonly described as ‘controlled flight into terrain’ (FAA, 1997). The example is the final minutes of Eastern Flight 401, the crew was preoccupied with a nose-wheel indicator light which resulted in a fatal crash in the Florida everglades. In spite of all of the complex cockpit instrumentation and active warning systems, the attention of the crew was diverted from the most immediate danger and fixed on a minor problem. This example demonstrates the danger of what is called ‘functional fixation’ where preoccupation with indicators or minor factors that do not directly relate to the fundamental dynamic of the system, leads to a situation where lethal changes go unnoticed until it is too late. This dynamic is commonly referred to as ‘loss of situational awareness’. In the case of flight 401, multiple warning systems functioned properly but had no effect in redirecting the attention of the flight crew back to the larger more lethal context in which they existed.
The purpose of this example is to illustrate the main point of this discussion: in spite of the clear body of evidence of global decline of our natural support systems, there exists a dynamic in human thinking which fails to differentiate appearance and reality. The growing preoccupation by business on indicators, indices, benchmarks and measures which do not address sustainability is a dangerous form of functional fixation that continues to go unchallenged. The global preoccupation with unrestricted growth, competitiveness and efficiency is being undertaken while growing and unsustainable economic systems are already causing visible decline of natural systems world-wide. This decline is a matter of record; so too are the trends in growth in both consumption and population which are the root cause of the unsustainable dynamic in which we find ourselves. This loss of situational awareness manifests itself in a variety of ‘environmental measures’ undertaken by business. These measures take the form of beliefs in the effectiveness of compliance, good environmental management and the gradual inclusion of measures which at best only incrementally improve efficiency and environmental performance. They are further qualified by an arbitrary prerequisite for first considering cost-effectiveness and competitiveness on an economic basis which makes no provision for the true value and role of natural capital. The value of natural capital is masked by the financial system that gives us improper information (Hawken, 1997). These measures are clearly evident in the content of the many corporate environmental reports. Environmental reporting has become an industry filled with indicators and indices of sustainability, none of which directly measure the natural capital business consumes in order to provide their goods and services. The corporate environmental literature is filled with a mixture of vague principles that allude to the Brundtland definition of sustainability and make broad statements in their corporate policies regarding their commitment to sustainability. Corporate reporting has yet to establish a basis to measure what is sustainable and how near or far business is from the mark. A total of 25 award-winning environmental reports, (CICA, 1996; Knight, 1997) which included
L. Onisto / Ecological Economics 29 (1999) 37–43
both national and transnational corporations, cited the need to achieve sustainability. However, none used any form of measurement of biophysical flows (natural capital throughput) to establish what was sustainable. Instead, these ‘award-winning reports’ tended to show a profusion of competing indices and benchmarking protocols, life cycle analyses, and a great deal of attention on adherence to international protocols for environmental management systems and associated policies, strategies and environmental management programs. All of this information is directed toward establishing credibility and is presented by many businesses as a means of enhancing corporate reputation and identity. However, little of the information presented in the reports is easily compared since measures are based on performance indicators and indices, indirect measures of voluntary disclosures and on factors that do not address natural capital consumption. There is no single baseline established or measured from which to measure on a comparative basis. Economists use indices to assist in understanding market dynamics and performance but the bottom line is based on absolute measures of flows of capital. If more is taken away from capital than added, a deficit is created. If the deficit is sustained it accrues into debt. If the debt is sustained it means the end of the enterprise. Once the balance sheet is established, indicators have context and begin to make sense. No credible economist or financial officer would attempt to prepare a corporate financial report which was filled with indicators, benchmarks, and management initiatives without first establishing the fiscal bottom line. The same line of thinking must be applied to consideration of sustainability. Business must begin to recognize that measuring sustainability is not a matter of measuring how bad things are but rather, how they are (Wackernagel et al., 1997). The ecological bottom line then provides a basis from which to plan, improve and create new strategies, targets and goals. Most importantly, it provides a basis from which to fully consider risks, costs, recognize opportunity and develop competitive strategies. In business, the principle of management is founded on measurement, hence the saying ‘what
39
gets measured gets done’. The ‘bottom line’ for sustainability can only be provided by measuring the use of natural capital stocks. Sustainability will remain unknown and unmanageable until natural capital accounting is directly factored into corporate reporting. Business efforts to address environmental issues and performance standards has been the creation of the ISO 14000 family of standards. ISO 14001 specifies the voluntary standard for environmental management systems and is the focus of a rapidly growing business-driven movement for the adoption of an international set of minimum standards. In 1992, the International Organization for Standardization (ISO) formed the Strategic Advisory Group on the Environment (SAGE) to evaluate the necessity for international standards, and quickly focused in on environmental management systems. ISO 14001 is intended to harmonize global environmental management practices, which will include a common basis for measurement of material or waste releases and labeling practices. Conforming to this standard is widely accepted as a basic element of corporate environmental due diligence (corporate responsibility and integrity). Other standards also exist such as EMAS (the European Commission’s Eco-Management and Audit Scheme) which is a voluntary European Commission scheme to register sites which have established an environmental management system (such as ISO 14001, the international standard) and produced an independently verified public statement about the site’s environmental performance. In Britain, there is similar specification for environmental management systems called BS 7750. The suitability of the management system and the selection of environmental aspects to be measured and audited is left to management organizations to define and review. Simply adhering to the procedural ISO 14001 requirements does not necessarily ensure compliance. New measurement standards under ISO 14000 include the 14040 series which specify life cycle assessment standards. They do not, as yet, include the requirement for biophysical assessments. Environmental management standards enhance the environmental credibility of a business and
40
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offer better management of defined environmental aspects but will not add anything substantive to moving towards sustainability. Regular environmental audit is a key specification of ISO 14001 but it only covers verification by examining how information is collected and validation of the accuracy of the claims made in corporate statements. Compliance to an environmental standard under these criteria creates a false perception that environment is duly and diligently served. In reality, it is a process which does not safeguard the environment and serves only to hide a huge business risk exposure. Consultants, third party assessors, ethical funds brokers and international business organizations are advancing a profusion of ‘sustainability indices’ which often measure a company’s environmental performance compared to an ‘industry average’. The World Business Council for Sustainable Development (WBCSD) has created a new vocabulary and industry around the latest business initiative called eco-efficiency. The comprehensive definition of eco-efficiency defined by WBCSD is: eco-efficiency is reached by 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 Earth’s carrying capacity. In principle, the eco-efficiency movement is promising but it fails in any substantive way to place any priority on first establishing what is sustainable and then, whether the level of eco-efficiency practised addresses it meaningfully. WBCSD has elaborated the definition of ecoefficiency by identifying seven elements of eco-efficiency, these include: (a) reducing the material intensity of goods and services (b) reducing the energy intensity of goods and services, (c) reducing toxic dispersion (d) enhancing material recyclability (e) maximizing use of renewable resources (f) extending product durability and (g) increasing the service intensity of goods and services (NRTEE, 1996). Aggregates of these eco-efficiency indicators are now finding their way into use as sustainability indices for measuring corporate performance compared to industry or sectoral averages, evaluating
green funds and calculating environmental dividends (Goodman, 1996). While these measures are useful tools for business, deriving a sustainability index from the seven elements of eco-efficiency only adds to the confusion, none having anything to do with, either individually or collectively, deriving a clear measurable definition of sustainability. While the introduction of eco-efficiency indicators improve the apparent environmental performance and efficiency of material utilization for businesses, they completely fail to address sustainability. Furthermore, their implementation is promoted entirely on the basis of efficiency gains, cost reduction, pollution control, increased earnings, avoiding costs on present or future noncompliance and brand equity (the value of company image). None of these factors mean anything in the context of substantively achieving sustainability or knowing how sustainable the current business may be. In an economic context, it would be similar in example to a Chief Financial Officer producing an annual financial report using only indicators to summarize profitability and financial performance. The focus of environmental practices on ensuring compliance is perhaps the most dangerous form of situational awareness since no current regulation is based on any objective or measure related to sustainability. Rather, they are founded in regulated limits derived from a reductionist toxicological interpretation of risk which are based on measures of acute toxicity to humans. Business performance, which uses compliance as a basic standard, is lawful but not sustainable. This distinction is not well understood by the public or regulators and is perhaps one of the larger sources of functional fixation. When the appearance or perception of doing the right thing becomes indistinguishable from the reality of doing the right thing, we must begin to question the means by which both the current principles and measures of sustainability are derived. The recent RIO + 5 review held in March 1997 concluded that governments have made too little progress in fulfilling the commitments they made to achieve ‘sustainable development’. James Gustave Speth, head of the UN Development Program, commented at the Rio+ 5 conference that: ‘‘The world’s largest countries have failed
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utterly to honor the pledges they made at the 1992 Rio Earth Summit’’. The time has come to vigorously challenge the direction that an ever growing global business is taking us. Other warnings include those issued by the Union of Concerned Scientists calling for a need for fundamental change in the way human enterprise is conducted. This is one of a litany of warnings both scientific and from observed global decline. After five major global meetings on climate change, there is still no positive international action by the developed nations for curbing CO2 emissions. Over 2500 economists and eight Nobel Laureates recently (1997) issued the Economist’s Statement on Climate Change: ‘the balance of evidence suggests a discernible human influence on climate—as economists, we believe that global climate change carries with it significant environmental, economic, social and geopolitical risks, and that prevention is justified’. These warnings do not appear to be effective in influencing how nations practice their business or perceive risk. Corporate reporting, standards, indicators and benchmarks are an important tool and are a vital part of a transition to business-driven sustainability. However, if we do not first clearly understand what is sustainable, all of these measures are only an abstraction and distraction and serve only as more ‘greenwash’ (Greer and Bruno, 1996). The inherent danger around this confusion about sustainability is that it becomes harder to differentiate between a good and bad actor; we could lose considerable public interest and support, provoke sustainability fatigue and demotivate the genuine sustainability promoters at a time when we need them most. This applies equally to the role of private investment in the case of green funds where even the greenest monetary measures are not indicators of environmental sustainability (Ahlroth, 1997). The greatest danger comes from the appearance that something substantive is being done. It lulls people into feeling that the environment has been, and is adequately, considered, that regulations have been met, that regulation is adequate and that corporate conduct is appropriate. It also makes leaders in business, who want to do more for the environment, believe that they have done
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something good while, in reality, they have done nothing at all. This is not a conscious malevolence at work but rather human dynamics as illustrated by Eastern flight 401. Global business is enacting its rendition of a controlled flight into terrain. Loss of situational awareness in business comes from a fundamental failure to account for natural capital. It is for these reasons that the mainstream business-sustainability movement may be taking us in the wrong direction while making it more difficult to detect that anything is wrong. This is not to say that initiatives such as eco-efficiency cannot provide a useful set of metrics and should not be used. However, it is the context of sustainability in a systems level that provides a basis for the indicators. The same principles need to be applied for understanding what we need to do to achieve sustainability. How much nature do we use and how much nature do we have. These measures require that we account for out use of natural capital by measuring biophysical throughput through the economy. Efficiency and eco-efficiency are important principles but without the context provided by first establishing what is sustainable, they exacerbate current incrementalism. Incremental improvements in performance are irrelevant in processes that may already be many times beyond sustainable. Promoting efficiency of unsustainable processes serves only to apply the accelerator to further expansion of unsustainable practices (Wackernagel and Rees, 1996). The current preoccupation of business on efficiency and eco-efficiency does not address, nor provide meaningful intelligence, on sustainability. Competitiveness still means optimizing for least cost while maximizing output at a minimum of time and expending the minimum labor energy and capital (Rifkin, 1995). It creates a dynamic which differentiates on the basis of economic value that discounts and trades off on social and natural capital values. Rifkin (1995) alluded to the fact that the invisible hand of business is running a model in which the dynamic is geared to maximize rates of expropriation of resources, profit and capital at the expense of environment and human society. The new business religion is
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efficiency and restructuring for global competitiveness. This is not only changing business, but it is also transforming society. The result is unprecedented change biased towards the growth of economy at the expense of people and the environment. Soros (1997) argues that this economic bias undermines the very values on which open and democratic societies depend. Issues of sustainability are not just an offspring of the environmental agenda. They are constraints based on physical laws of nature (thermodynamic principles) that govern human enterprise and life. Human society is a subsystem of nature sustained entirely by natural capital. Sustainability is a system planning context that must involve business, politics, and economics which reflect this reality. What would be the benefits if business was to embrace sustainability? Hawken (1997) makes the case that if business practiced ‘natural capitalism’ it would open up new opportunities to create new markets and more jobs, restore the environment, promote social stability and remain competitive and profitable. The Natural Step (TNS) promotes a principle of business driven sustainability which is intended to help business see new future opportunities working with the concept of natural capital and with the cycles of nature (Robert et al., 1995). These principles are at the forefront of the concept of Industrial Ecology (Graedel and Allenby, 1994). It would provide new perspectives cost containment opportunities, suggesting new businesses, stimulating new classes of products and service development, offering new directions to develop brand image, increasing value to the customer and a means to secure their own long term survival. Knowing the ecological bottom line, that is, how much nature is consumed per unit of production will become a strategic basis upon which to differentiate products and services. Sustainable production will reduce long-term costs and exposure to risks like climate change, pollution damage or resource exhaustion (Robert et al., 1995). The role of business to provide leadership in developing and driving a transition to sustainability is a significant contribution they can and must play for making the transition to sustainability possible. It is also, if missed, the most lethal of
exposures not accounted for in contemporary risk practice (Coopers and Lybrand, 1996; USEPA, 1996). Shumacher (1989) said that: ‘‘if you call a thing immoral or ugly, soul destroying, or a degradation of man to the peace of the world or future generations, as long as you have not shown it to be uneconomic you have not really questioned its right to exist, grow and prosper’’. Sustainability is about accounting for natural capital. Full cost accounting using money as the criterion of value fails to provide any meaningful situational awareness for the risks posed by the growing global unsustainability (Soros, 1997; Adams, 1994; Hall, 1992; Goodland et al., 1993; Wackernagel and Rees, 1996). In order for sustainability to become a business reality, biophysical assessments of natural capital must be used to provide a basis from which to create a complete picture to frame economic analysis and risk assessment. Once this is accomplished, the situational awareness, vision, the requisite sense of urgency, the resources will come freely from the balance sheet and the boardrooms. The business of sustainability can then become a force for positive change rather than a functionally fixated economic machine unable to alter its lethal trajectory into the ground.
References Adams, J.G.U., 1994. Environmentalists with the Midas touch. Glob. Ecol. Biogeog. Lett. 4 (1994), 62 – 64. Ahlroth, S., 1997. Accounting for Change. Environment, 39 (2). CICA, 1996. The Financial Post: Annual Report Awards — Leaders in Environmental Reporting. The Canadian Institute of Chartered Accountants, Toronto. Coopers and Lybrand, 1996. Generally Accepted Risk Procedures. Goodland, R.J.A., Daly, H.E., El Serafy, S., 1993. The urgent need for rapid transition to global environmental sustainability. Env. Cons. 20 (4), 297. Goodman, A., 1996. Green Funds: Fuzzy No More. Tomorrow: Glob. Environ. Bus. 6 (5):24. Graedel, T.E., Allenby, B.R., 1995. Industrial Ecology. Prentice Hall PTR. Gray, R.H., 1994. Corporate reporting for sustainable development : accounting for sustainability in 2000 AD. Envir. Values 3 (1994), 17 – 45.
L. Onisto / Ecological Economics 29 (1999) 37–43 Greer, J., Bruno, K., 1996. GREENWASH: The Reality Behind Corporate Environmentalism. Third World Network and The Apex Press, Penang/New York. Hall, C.A.S., 1992. Economic Development or Developing Economics: What are our Priorities? In: Mohan, K. Wali (Ed.), Ecosys. Rehab., vol. 1: Policy Issues, SPB Academic, The Hague, pp. 101 –126. Hawken, P., 1997. Natural Capitalism. Mother Jones, March/ April, 1997. Knight, P., 1997. The eco elite: tomorrow and the Storebrand – Scudder Environmental Fund choice for six of the best and greenest European companies. Tomorrow 7 (3), 32. Nikiforuk, A., 1993. Editorial on Sustainable Development Rhetoric. Harrowsmith, Fall Issue 1993. NRTEE (National Roundtable on Environment and Economy, Canada), 1996. Measuring Ecoefficiency in Business: Developing a Core Set of Eco-effficiency Indicators. Background Paper, Eco-efficiency Workshop, April 2, 1997, Washington, DC. Ornstein, R., Ehrlich, O. 1989. New World, New Mind: Mo6-
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ing Toward Conscious E6olution. Doubleday, New York. Rifkin, J., 1995. The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. G.P. Putnam and Sons, New York. Robert, K-H, Daly, H., Hawken, P., Holmberg, J., 1995. A Compass for Sustainable Development. The Natural Step. Shumacher, E.F., 1989. Small is beautiful: Economics as if People Mattered. Harper-Collins. Soros, G., 1997. The Capitalist Threat. The Atlantic Monthly. February, 1997. USEPA, 1996. Ecological Risk Assessment. United States Environmental Protection Agency. Wackernagel, M., Rees, W., 1996. Our Ecological Footprint: Reducing Human Impact on the Earth. New Society Publishers, Gabriola Island/Philadelphia. Wackernagel, M., Onisto, L., Caliejas Linares, A., et al., 1997. Ecological Footprints of Nations: How Much Do They Have — How Much Do They Use?. Focus Report for the RIO +5 Forum, March 15, 1997, Earth Council, Rio de Janeiro, Brazil.