Introduction
Recently, the term sustainable development has become increasingly common in business communication. To some extent, it is even a trend in modern business.
So is this a tribute to fashion or an objective necessity, without which further development simply does not seem possible?
And to what extent does this concern only business or does it apply to everything that is connected with human life?
In recent decades, humanity has faced a series of negative impacts associated with natural disasters, man-made accidents and political conflicts, which have led to material losses, huge human casualties, and damage to nature and biodiversity, in some cases not subject to renewal. Unfortunately, the “effect” of this will fully affect the future generation.
According to the UN, over the past 20 years from 2000 to 2020, there have been 7,348 global cataclysms that have claimed the lives of 1.23 million people.
As a result of the disasters, the global economy has lost 2.97 trillion dollars. Over the previous 20 years, from 1980 to 1999, there were almost half as many natural disasters – 4,212. They claimed the lives of over 1.19 million people, and the global economy lost 1.63 trillion dollars.
The main reason for the increase in natural disasters is climate change. There is currently a risk that the average temperature will rise by 3.2 degrees Celsius or more unless industrialized countries can reduce greenhouse gas emissions by at least 7.2 percent annually over the next 10 years.
The reasons are the satisfaction of current human needs without orientation towards the future.
A common understanding of the problems of preserving resources to enable future generations to meet their own needs has led to the need to develop basic principles of sustainable development, and in 2015, at the UN summit, leaders of 193 countries agreed on 17 sustainable development goals.
Discussion
So what is meant by the term sustainable development?
The current understanding of sustainable development was approved in 1983, when the UN convened the World Commission on Environment and Development, later called the Brundtland Commission (after the name of its chairman [Gro Harlem Brundtland was the Prime Minister of Norway (1981-1996), Director-General of the World Health Organization (1998-2003), Co-Chair of the Global Preparedness Monitoring Board, and Special Envoy of the UN Secretary-General on Climate Change.]). The term “sustainable development” approved by the commission and its explanation are widely used to this day.
Sustainable development is a set of measures aimed at meeting current human needs while preserving the environment and resources, that is, without compromising the ability of future generations to meet their own needs.
The concept of sustainable development is based on the principle of balance between three main components: economic growth, social responsibility and environmental balance.
Economic component
The economic approach to the concept of sustainable development is based on the theory of maximum flow of aggregate income of Hicks-Lindahl (Sir John Richard Hicks ( 1904-1989 ) – English economist. Laureate of the 1972 Nobel Memorial Prize in Economics “for his pioneering contributions to the theory of general equilibrium and welfare theory.
Continuer of the Marshallian tradition. Representative of neo-Keynesianism. Erik Lindahl (Swedish Erik Robert Lindahl ; 1891-1960) – Swedish economist, representative of the Stockholm school in economic science, creator of the Lindahl model), which can be produced under the condition of at least preserving the total capital with the help of which this income is produced.
This concept implies the optimal use of limited resources and the use of environmentally friendly, nature-, energy- and material-saving technologies, including the extraction and processing of raw materials, the creation of environmentally friendly products, the minimization, recycling and destruction of waste.
The fundamental goal of business is profit. After all, profit is the measure of the “added value” created by a company, the “net value” it creates in the economy. In the absence of created value, a business simply “pours from empty to empty”, grinds up resources, adding nothing to the economy.
Any business starts with the goal of making a profit, as it is essential for the survival and growth of the company. From the point of view of economic theory, generating cash flows (i.e. making a profit) should be considered the main goal of any business unit.
The need for profit is determined by the need to cover production costs, as well as the expansion and development of the enterprise. The survival of a business without profit will simply be impossible.
Currently, in most large companies there is a stable tendency that business should first and foremost be socially responsible.
Improving the quality of life of people, society as a whole, the environment, participation in solving acute social problems – this is the list of tasks facing socially responsible business.
A key event that gave new impetus to business’s understanding of its social responsibility to society and future generations was the signing of a joint statement by the heads of 181 of the largest American companies on corporate goals: “From now on, our main goal is not just profit, not just the well-being of the owners – but also the well-being of customers, suppliers, company personnel and the surrounding society”.
The document was signed by, in particular, the head of Amazon and the richest man on the planet Jeffrey P. Bezos, the executive director of the world’s largest airline American Airlines Doug Parker, the heads of the largest American banks Brian Moynihan (Bank of America), JPMorgan Chase James Dimon, the heads of oil corporations Robert Dudley and Bernard Looney (BP), Michael K. Wirth (Chevron corporation), Darren W. Woods (Exxon Mobil, James Quincey (Coca-Cola) and Ramon Laguarta (Pepsico), Tim Cook (Apple), James P. Hackett (Ford motor company) and others.
Social component
The social component of sustainable development is focused on people and is aimed at maintaining the stability of social and cultural systems, including reducing the number of destructive conflicts between people.
To achieve sustainable development, it is necessary to create a more effective decision-making system that takes into account all stakeholders.
Ecological component
From an ecological point of view, sustainable development must ensure the integrity of biological and physical natural systems. Of particular importance is the viability of ecosystems, on which the global stability of the entire biosphere depends.
In order to achieve sustainable development, it is necessary to focus on the relevant priorities when developing and making decisions, taking into account the impact of implementing these decisions in the environmental sphere, the most complete assessment of costs, benefits and risks, and also in compliance with the following criteria:
- no economic activity can be justified if the benefit from it does not exceed the damage caused;
- damage to the environment must be as low as can reasonably be achieved taking into account economic and social factors.
Unity of concepts
All three elements of sustainable development must be considered in a balanced manner.
The mechanism for coordinating these three components with the development and implementation of specific measures that are the means of achieving sustainable development goals is the key to sustainable development.
All three of these components form the ESG factors according to which companies ensure Sustainable Development Management.
What is ESG? The abbreviation ESG can be deciphered as “ecology, social policy and corporate governance”.
In a broad sense, this is the sustainable development of commercial activities, which is built on the following principles:
- E — Environmental responsibility;
- S – Social high social responsibility;
- G — G overnance high quality of corporate governance.
In their modern form, ESG principles were first formulated by former UN Secretary-General Kofi Annan (https://www.un.org/sg/ru/content/kofi-annan). He suggested that managers of large global companies include these principles in their strategies, primarily to combat climate change.
This is not just a declaration in an effort to appear socially responsible to the outside world. ESG factors are associated with real risks and opportunities that can be exploited to achieve competitive advantages and the company’s ability to create long-term value.
More and more companies are incorporating ESG factors into their business processes, integrating sustainability goals into long-term strategies.
In general, ESG factors characterize:
E-factor:
- the company’s impact on the planet’s climate (carbon emissions into the atmosphere, carbon footprint);
- use of natural resources (pollution of soil and water sources, negative impact on biodiversity, flora and fauna);
- environmental pollution (toxic and radioactive emissions and waste, use of chemically harmful packaging for products, electronic waste);
- use of “green” technologies (energy from renewable sources, restoration of the company’s operating area).
S-factor:
- human capital – attitude towards personnel (labor safety, health, career opportunities, working conditions);
- responsibility in the production of products (product quality, protection of personal data and information security, reliability, responsible investments);
- social benefits (provision of staff communication, financial assistance programs, accessible health care, provision of food).
G-factor:
- company management (board of directors composition, independent audit, company openness to shareholders)
- the company’s line of conduct (corporate ethics, transparency in the tax sphere, absence of corruption, fair competition)
Sustainability Report
Due to the increasing attention of society to the environmental and social aspects of business activities, more and more companies are introducing an annual Sustainable Development Report into the mechanism of public activity.
A sustainability report that defines the company’s Sustainable Development Goals and verifies their compliance with ESG criteria becomes a competitive advantage for the organization.
There is a clear link between corporate sustainability and value creation, as by investing in environmentally and socially responsible projects, companies can maximize profits and minimize risks, while contributing to the achievement of the UN Sustainable Development Goals.
The Sustainability Report discloses information on the organization’s progress in the field of sustainable development, the results of its activities in the economic, environmental and social areas.
Sustainability reporting helps an organization set goals, measure performance, and manage changes to make its operations more sustainable and competitive.
A sustainability report discloses information about an organization’s impact (both positive and negative) on the environment, society and the economy.
The preparation of the report allows for the analysis and monitoring of the impact of changes in the field of sustainable development on the Company’s activities and strategy.
The main benefits of sustainability reporting are:
- identification of factors influencing long-term strategy, management policy and business plans;
- a deeper understanding of risks and opportunities;
- determining the relationship between financial and non-financial performance results;
- process optimization, cost reduction and increased business efficiency;
- defining benchmarks and assessing business development sustainability indicators over the long term;
- improving access to capital;
- increasing reputation and brand loyalty;
- creating conditions for external stakeholders to understand the true value of the organization, as well as its tangible and intangible assets.
Conclusion
It is advisable to prepare a sustainability report in accordance with Russian and international standards GRI G4 (Guidelines for reporting in the field of sustainable development of the GRI (Global Reporting Initiative)), IRC (Integrated Reporting Council – an international standard for integrated reporting) with subsequent registration in the international database of public reporting on sustainable development of the Global Reporting Initiative (GRI).
Following the principles of balance of three main components – economic growth, social responsibility and environmental balance with the publication of annual Reporting on its activities is the key to achieving sustainable development by business in the long term.
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