Cleaning up

Balancing financial performance and corporate sustainability is a challenge, especially in today’s economic environment. Based on the idea that there’s a trade-off between what’s “good for the business” and what’s “good for the environment and society,” companies sometimes perceive corporate sustainability and corporate social responsibility (CSR) as an add-on cost, or they may perceive sustainability as an opportunity for “green PR.” By doing so, they may miss significant opportunities for business growth, innovation, and organizational change. In this article, we describe how General Electric (GE) and Procter & Gamble (P&G) have operationalized corporate sustainability initiatives using management control and management accounting systems. Current forces of change are driving a general rethinking of business in a more sustainable direction. Pressures come from national and international regulatory bodies as well as from business partners, stakeholders, and activists. For instance, many companies require their suppliers to comply with standards for environmental management systems certification, such as the ISO 14000 series or the European Union’s Eco-Management and Audit Scheme.Moreover, thanks to new technologies, customers are increasingly informed, empowered, and active, and their demand for products that are clearly identified as sustainable is growing. Employees are also looking for companies that operate in a socially responsible way, which can impact the ability of an organization to recruit and retain talent. In addition, the financial community is paying closer attention to socially responsible investments (SRI) and investment rating systems such as the Dow Jones Sustainability Index. These internal and external stakeholder views shouldn’t be neglected by companies aiming to achieve superior corporate sustainability performance. As suggested in the May 2009 Strategic Finance article “Co-Creating Strategic Risk-Return Management” by Mark Frigo and Venkat Ramaswamy, “Sustainable wealth creation requires balanced risk taking by focusing on co-creation opportunities that can generate superior returns while simultaneously reducing risks for companies and their stakeholders.” Since shareholder value creation is driven from creating value for others (customers, employees, suppliers, and other stakeholders), organizations can think in terms of how these stakeholders can be engaged to help define and achieve sustainability performance. This process can help identify new sustainability opportunities that will create mutual value with internal and external stakeholders. The current drivers of change and the economic downturn provide an opportunity for more integrated, strategic, and value-creating sustainability efforts.