S ustainability Australian business

principles and practice

Sustainability Australian business

First published 2013 by John Wiley & Sons Australia. Ltd 42 McDougall Street. Milton Qld 4064

Typeset in 1O.5/12pt Minion Light

© John Wiley & Sons Australia. Ltd 2013

The moral rights of the authors have been asserted.

National Library of Australia Cataloguing-in-Publication entry

Title:

ISBN: Notes: Subjects:

Other Authors/Contributors: Dewey Number:

Sustain ability in Australian business: principles and practice/Gianna Moscardo ... let al.). 9780730300311 (pbk.) I neludes index. Social responsibility of business - Australia. Business - Environmental aspects - Australia. Environmental auditing - Australia. Industries - Environmental aspects - Australia. Moscardo. Gianna, 1962-658.4080994

Reproduction and Communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of 10% of the pages of this work or - where this work is divided into chapters - one chapter, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes proVided that the educational institution (or the body that administers it) has given a remuneration notice to Copyright Agency Limited (CAL).

Reproduction and Communication for other purposes Except as permitted under the Act (for example. a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced. stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher.

Cover and internal design images: © Shutterstock.coml grafvisionl Petoo

Typeset in India by Aptara

Printed in Singapore by Craft Print International Ltd

10987654321

CHAPTER 1) Sustainability, economy and society by Professor Giamla Moscardo 1

CHAPTER 2) Sustainability, stakeholders and the nature of the firm by Dr Wayne Fallon 35

CHAPTER 3) Business ethics, corporate governance and corporate social responsibility by Professor Gianna Moscardo 67

CHAPTER 4) The economics of sustainable development by Dr Philip Lawn 99

CHAPTER 5) Sustainable business models by Dr Geoff Lamberton 133

CHAPTER 6) Carbon management by Dr Geoff Lamberton 161

CHAPTER 7) Strategy by Dr Don Clifton and Dr Geoff Wells 187

CHAPTER 8) Sustainability accounting and reporting by Dr Anna Rowe 219

CHAPTER 9) Finance by Dr Jacquelyn Humphrey 249

CHAPTER 10) Marketing and sustainability by Professor Gianna Moscardo 273

CHAPTER 11) Sustainable production by Will Kershaw and Marguerite Renou! 315

CHAPTER 12) Human resources and sustainability by Dr Retha Wiesner 343

CHAPTER 13) Global environment by Dr Brad Pettitt 367

CHAPTER 14) Global development by Professor Gianna Moscardo 397

CHAPTER 15) Social business by Dr Geoff Lamberton 427

Applications at a gJatlCe ix

Acknowledgements xi

CHAPTER 1) Sustainability, economy and society 1 Evil corporations, green celebrities and sustainability in popular culture 2 Introduction 2 Defining sustainability 3

Quality of life, consumption, sustainability and forms of capital 5

Weak versus strong approaches to sustain ability 8 Core principles of sustainability 8

A brief history of sustainability 9 S P 0 TlI G H T Cadbury Fairtrade chocolate 13 Current forces for business sustainability 14

Idea generators and opinion leaders 15 Rulemakers and watchdogs 15 Business partners and competitors 16 Investors and risk assessors 16 Consumers and community 17

SPOTlIGHT The MBA Oath 18 The environmental, economic and social pillars of

sustainability 19 Environmental dimensions 21 Economic dimensions 22 Social dimensions 23 Corporate governance: a fourth sustainability

dimension? 25 S P 0 TlI G H T McWillIams Wines 25 Why sustainability is good business 26 Overview of this book 27 Summary 29

Key terms 30 Review questions 30 Discussion questions 30 Case study 31 Notes 32

CHAPTER 2) Sustainability, stakeholders and the nature of the firm 3S

Sustainabmty and accountability at NBAD 36 Introduction 36 Stakeholder theory and practice 38

Stakeholders and sustainability 39 Stakeholder salience 41 Stakeholder management strategies 43

SPOTLIGHT Sustainability at Pacific Brands 45 Sustainability in internal and external business contexts 46

Factors influencing implementation of sustainability 46

Dynamic influences of government and civil society sectors 49

Business associations and industry groups 53 SPOTLIGHT Conservation Volunteers - 'connecting people with our environment' 54 Sustainability, sustainable development and paradigm

change 55 Sustainability through accountability 56

SPOTLIGHT Increasing energy costs for Australian business 58 Frameworks for supporting business sustainability 59

Government frameworks 59 Civil society frameworks 59 International frameworks 60

Sustainability business indexes 60 Summary 61 Key terms 62 Review questions 62 Discussion questions 62 Case study 62 Notes 64

CHAPTER 3) Business ethics, corporate governance and corporate social responsibility 67

The myth of the amazing Nepalese porter 68 Introduction 68 S POT L I G H T The corporation: bad apples, psychopaths or civic citizens? 70 Business ethics 71

Changing conceptions of business: from shareholders to stakeholders 71

Philosophical approaches to ethics 72 Ethical decisions 74 Building an ethical business culture 75 Ethics codes 76

SPOTLIGHT James Hardie: lessons in avoiding responsibility 77 Corporate governance 78

Principles of good corporate governance 79 The importance of partnerships 83 The importance of sound risk assessment and

management 84 SPOTLIGHT ISO 26000: guidelines for social responsibility for business 86 Corporate social responsibility (CSR) 87

Definitions and dimensions of CSR 88 Types of CSR actions 89

Summary 91 Key terms 91

Review questions 92 Discussion questions 92 Case study 92 Notes 94

CHAPTER 4) The economics of sustainable development 99

Sustainable development and climate change 100 Introduction 100 What is sustainable development? 101

The mainstream view of the economy: the economy as an isolated system 102

The economy as a subsystem of the natural environment 103

Ecological and economic limits to growth 105 The linear throughput model 105 Ecological sustainability: environmental rules of thumb 107 Optimal and maximum sustainable scale of the economy 108

Sustainable development indicators 109 What is gross domestic product? 110 An indicator of economic welfare: the genuine progress

indicator 112 An indicator of ecological sustainability: ecological footprint

versus biocapacity 115 SPOTLIGHT Sustainable development in China: myth or reality? 116

Sustainable development: policy goals and instruments 117 Three major policy goals to achieve sustainable

development 118 Three major policy instruments to achieve sustainable

development 120 Cap-auction-trade systems to facilitate sustainable

development 120 SPOTLIGHT Eco-taxes versus cap-auction-trade systems: which is best? 122 Sustainable development: potential business

implications 123 S POT L I G H T How a sustainable production philosophy can increase the profits of a business and benefit society 125 Summary 127 Key terms 128 Review questions 129 Discussion questions 129 Case study 129 Notes 131

CHAPTER 5) Sustainable business models 133 Ecostore 134 Introduction 134

Industrial ecology 136 Industrial ecosystems 136

SPOTLIGHT An industrial ecosystem in China 138 Barriers to forming industrial ecosystems 140 Biomimicry 141 Biomimetic design 141

Natural capitalism 143 Critique of natural capitalism 146

Cradle to cradle 147 SPOTLIGHT City Farm 149

The Natural Step 150 5 P 0 TL I G H T Rocky Mountain Flatbread Company 151

Model of a sustainable business organisation 153 The Natural Edge sustainability model 154 Summary 156 Key terms 157 Review questions 157 Discussion questions 157 Case study 157 Notes 159

CHAPTER 6) Carbon management 161 Turning waste into energy 162 Introduction 162 Carbon emissions in Australia 163 A systematic approach to carbon management 164

Carbon footprint analysis 165 SPOTLIGHT Australian small business carbon footprint 169

Climate risk and opportunities 170 Energy efficiency 171 Renewable energy 172

SPOTLIGHT AGL 173

SPOTLIGHT Sustainable Dance Club 175 Emissions trading 176 Carbon offsets 177

SPOTLIGHT Coopers Brewery 179

Sustainable climate management 179 Summary 182 Key terms 182 Review questions 182 Discussion questions 182 Case study 183 Notes 184

CHAPTER 7) Strategy 187 The Body Shop 188

Introduction 188 Defining strategy 189

contents.

~

A sustainable world and sustainable business 190 A sustainable world 190 Sustainable business 191

The four levels of strategy 194 Enterprise strategy 194 Corporate strategy 195

SPOTLIGHT Better Place and electric cars in Israel 19] Business strategy 198

SPOTLIGHT McDonald~ and waste 198

Functional strategy 199 SPOTLIGHT Marketing strategies: green wash, deep greenwash, and bluewash 200 The phases model 20 I

Compliance strategy 202 Efficiency strategy 207

SPOTLIGHT 3M and the Pollution Prevention Pays (3P) program 210

Strategic proactivity strategy 210

Sustaining corporation strategy 212 Summary 214 Key terms 215 Review questions 215 Discussiofl questions 215 Case study 216 Notes 217

CHAPTER 8) Sustainability accounting and reporting 219

Sustainability data wanted 220 Introduction 220 Financial accounting and reporting 221

Environmental accounting 222 Reasons to undertake environmental accounting 222 Environmental reporting 226

S POT L I G H T Corporate reporting breakthrough with initial results from Puma's environmental profit and loss account 229 Environmental management accounting 229

Physical information 230 SPOTLIGHT Wesfarmers sustainability scorecard 231

Monetary information 232 Linking physical and monetary information under

EMA 233 Sustainability accounting and the Global Reporting

Initiative 235 Linkage bern'cen sustainability accounting and

reporting 236 Global Reporting Initiative (GRI) 238

SPOTLIGHT BHP Bil/iton sustainability reporting 240 Summary 244 Key terms 244

Contents

Review questions 244 Discussion questions 245 Case study 245 Notes 246

CHAPTER 9) Finance 249 Oil spill damages BP's share price 250 Introduction 250 The development of the sustainable finance market

United Nations Principles for Responsible Investment Global Reporting Initiative 251 Carbon Disclosure Project 252 Equator Principles 252 Market exchanges and legislation 252

SPOTLIGHT Westpac 253

Measuring sustainability 253 Some providers of sustainability information 254

5 PO T II G H T Sustainable Investment Research Institute (SIRlS) 255

2SI 251

Sustainability factors in valuation and investment 256 A review of some relevant concepts 256 ImpJications for sllstainability 258 The relationship between sustainability. risk and

returns 259 Why bother with sustainability? 261

Socially responsible investment 261 How socially responsible investing works 262

SPOTLIGHT Socially responsible superannuation 264 The size of the socially responsible investment market 265 Returns to socially responsible investments 265 Accusations of 'greenwashing' 265

Summary 267 Key terms 267 Review questions 268 Discussion questio1lS 268 Case sllldy 268 Notes 269

CHAPTER 10) Marketing and sustainability 273 How many planets does it take to support your lifestyle? 274 Introduction 274 Marketing basics 276

The four As of sustainable consumer behaviour 277 SPOTL IGHT Sustainable tourism 2]9 Assessing market demand for sustainable goods and

services 279 Understanding consumer demand for sustainable

products and businesses 280

Barriers to sustainable consumption 282 Eco-Iabelling and greenwashing 285 Emerging and alternative markets for sustainability 286

SPOTliGHT Toyota Prius 290 Sustainable marketing strategy and practice 291

Sustainability challenges for traditional marketing 291 Core features of sustainability marketing strategy 292

SPOTLIGHT Sustainability marketing at Henkel 293 Elements of the sustainability marketing mix 294

SPOTLIGHT Ergon Energy's '10% less' campaign 298 Principles of effective social marketing 298

Understanding stakeholders 300 Effective persuasive communication 302 Solutions that cut costs and support convenience 305

Summary 307 Key terms 308 Review questions 308 Discussion questions 309 Case study 309 Notes 311

CHAPTER 11) Sustainable production 315 Changing responsibilities of producers 316 Introduction 316 Basic environmental responsibilities of producers 318

Compliance with environmental laws 319 Self-regnlation 321 Expectations of continual improvement 321 Environmental reporting 323

SPOTLIGHT Environmental management systems at Tyco Water 324 Eco-efficiency: doing more with less 325

The theory and application of eco-efficiency 325 Implementing eco-efficiency 326 Examples of eco-efficiency opportunities and

clean technology 330 SPOTLIGHT Eco-efficiency for the Australian dairy industry 332 Life cycle perspectives on production 333

Life cycle assessment 333 Extended producer responsibility 335 Eco-redesign 336

SPOTLIGHT Fuji Xerox: at the forefront of sustainable production 336

Summary 338 Key terms 338 Review questions 338 Discussion questions 339 Case study 339 Notes 341

CHAPTER 12) Human resources and sustainability 343

The Good Guys: sustainability leadership at work 344 Introduction 344 The human foundations of the sustainable organisation 345

Setting the foundations for sustainability success 349 Developing the business case for sustainability 351 Establish a strategic orientation to sustainability 352

SPOTLIGHT Qprint: even small organisations can do it 353 Organisational change and sustainable business 354

Utilise change capabilities 354 SPOTLIGHT Yarra Valley Water: building a sustainable future 355

The internal dimension of sustainable business 357 Developing a sustainability culture 357

SPOTLIGHT Leadership for 5ustainability 361 Summary 363 Key terms 363 Review questions 363 Discussion questions 364 Case study 364 Notes 365

CHAPTER 13) Global environment 367 The global environment - the biggest sustainability chal/enge 368 Introduction 368 The global environment and sustainability 369

Mapping approaches to environmental sllstainability 370 Sustainability and the global environment today 372 The ecological footprint: a tool for understanding the health

of the global environment 373 SPOTLIGHT Peak food 375 Climate change and carbon emissions 375

The science of climate change 376 Climate change impacts 378 Responding to climate change 379

5 P OT L I G H T Renewable energy businesses - opportunities in Australia and New Zealand 382 SPOT L I G H T Overview of carbon-reduction schemes around the world 384 Biodiversity 385

What does biodiversity do for us? 386 Biodiversity loss 386 Key strategies to protect biodiversity 388

SPOTLIGHT Water sanitation in Bangladesh 390 Summary 392 Key terms 392 Review questio1ls 392

Contents ta_ ....

Discussion questions 393 Case study 393 Notes 395

CHAPTER 14) Global development 397 If the world were a village of 100 people... 398

Introduction 398 Effective global governance for sustainable

development 400 The evolution of development approaches 402 The role of MNCs in development 403

S POT L I G H T The Forest Stewardship Council: developing new models of global governance 404

Approaches to global governance 406 New models of global governance 407

SPOTLIGHT Shades of green: cultural differences;n attitudes towards sustainable behaviour 408

Culture and sustainability 409 Defining culture 410 Culture and sustainable business practice 410 Implications for business sustainability 415

SPOTllGHT 10000 Tuvaluans 415

Sust.inability on the peripheq 416 Defining the periphery 416 Barriers to sustainable outcomes for peripheral regions 417 Future options for sustainable development 419

Summary 420 Key terms 420 Review questions 420

Discussion questions 421

Case study 421 Notes 423

CHAPTER 15) Social business 427 Westpac in Cape York 428

Introduction 429 A brief history of social business 430

S POT L I G H T Grameen Danone Foods 433

Social entrepreneurship 434 Describing the social entrepreneur 434 Evaluating success of social business 435 Microfinance 436 Hybrid social business models 438

SPOTLIGHT The Song Room 440 The Fairtrade system 441 SPOTLIGHT Fairtrade organic cacao in Belize 444

The Bottom of Pyramid model 445 SPOTLIGHT Mobile phones in Africa 447

Social business resources 447 Summary 449 Key terms 449 Review questiDns 449 DiscussiDn questions 450 Case study 450 Notes 451

Glossary 453

Illdex 461

1 Sustainability, Evil corporations • Cadbury Fairtrade chocolate Ecotourism in Botswana economy and green celebrities • The MBA Oath society and sustainability in • McWilliams Wines

popular culture

2 Sustainability, Sustainabilityand • Sustainability at Pacific Brands From 'No dams' to 'No stakeholders accountabi lity at • Conservation Volunteers- native-forest logging': and the nature NBAD 'connecting people with our the influence of the of the firm environment' Tasmanian environmental

• Increasing energy costs for movement Australian business

3 Business ethics, The myth of the • The Corporation: bad apples, HSBC: setting CSR corporate amazing Nepalese psychopaths or civic citizens? standards in Asia governance and porter • James Hardie: lessons in avoiding corporate social responsibility responsibility • ISO 26000: guidelines for social

responsibility for business

4 The economics Sustainable • Sustainable development in China: Sustainable development of sustainable development and myth or reality? across the Asia-Pacific development climate change • Eco-taxes versus cap-auction-trade region

systems: which is best? • How a sustainable production

philosophy can increase the profits of a business and benefit sOciety

5 Sustainable Ecostore • An industrial ecosystem in China CSL Ltd business models • City Farm

• Rocky Mountain Flatbread Company

6 Carbon Turning waste into • Australian small business carbon Yalumba Winery management energy footprint

• AGL • Sustainable Dance Club • Coopers Brewery

7 Strategy The Body Shop • Better Place and electric cars in Interface Global Israel

• McDonald's and waste • Marketing strategies: greenwash,

deep greenwash, and bluewash • 3M and the Pollution Prevention

Pays program

8 Sustainability Sustainability data • Corporate reporting breakthrough Lighting cost benefit accounting and wanted (CPA) with initial results from Puma's analysis reporting environmental profit and loss

account • Wesfarmers sustainability scorecard • BHP Billiton sustainability reporting

Applications at a glance -.....

9 Finance Oil spill damages BP's • Westpac The fall of Babcock &

share price • Sustainable Investment Research Brown Institute (SIRIS)

• SOcially responsible superannuation

10 Marketing and How many planets • Sustainable tourism Food sustainability: sustainability does it take to • Toyota Prius challenges and responses

support your • Sustainability marketing at Henkel lifestyle? (ecological • Ergon Energy's '10% less' campaign footprint calculator)

11 Sustainable Changing • Environmental management systems Visy Recycling production responsibilities of at Tyeo Water

producers • Eca-efficiency for the Australian dairy industry

• Fuji Xerox: at the forefront of sustainable production

12 Human The Good Guys: • Qprint: even small organisations can Rockcote: sustainability resources and sustainability do it leadership sustainability leadership at work • Yarra Valley Water: building a

sustainable future • Leadership for sustainability

13 Global The global • Peak food Climate change and environment environment - the • Renewable energy businesses- biodiversity in Cambodia:

biggest sustainability opportunities in Australia and NZ integrating conservation challenge • Overview of carbon-reduction and development for a

schemes around the world sustainable future • Water sanitation in Bangladesh

14 Global If the world were • The Forest Stewardship Council: The Millennium Villages development a village of 100 developing new models of global Project: opportunities for

people ... governance effective corporate social • Shades of green: cultural differences responsibility

in attitudes towards sustainable behaviour

.10000 Tuvaluans

15 Social business Westpac in Cape York • Grameen Danone Foods The Homeless World Cup • The Song Room • Fairtrade organic cacao in Belize • Mobile phones in Africa

Applications at a glance

The authors and publisher would like to thank the following copyright holders, organisations and individuals for their permission to reproduce copyright material in Sustainability in Australian business: principles and practice.

Images • Copyright Clearance Center: 6, 7 R. Costanza, j. Cumberland, H. Daly, R. Goodland & R. Norgaard (1997), An introduction to ecological economics, p. 139, TAYLOR & FRANCIS GROUP LLC: 39 T. Donaldson & 1. Preston (1995), 'The stakeholder theory of the corporation', Academy of. Management Review, vol. 20, no. I: 42 R. Mitchell, B. Agle & D. Wood (1997), 'Toward a theory of stakeholder identification and salience: Academy of Management Review, vol. 22, no. 4 .• Yale

University Press: 40, 326 © D. Esty & A. Winston (2006), Green to gold: how smart companies use environmental strategy to innovate, create value and build competitive advantage. Yale University Press. • Taylor & Francis Inc. (USA): 46 © 2011, Eastern Academy of Management, from K.' Fairfield, J. Harmon & S. Behson (2011), 'Influences on the organizational implementation of sustainability: an integrative model: Reproduced by permission of Taylor & Francis Group LLC, www.taylorandfrancis.com .• Springer: 69 With kind permission from Springer Science+Business

Media, M. Van Merrewijk (2003), 'Concepts and definitions of CSR and corporate sustainability: between agency and communion: Journal of Business Ethics, vol. 44, Issue 2, May, p. 101, figure 2. • Wiley Blackwell Publishers: 83 D. Rodin (2005), 'What's wrong with business ethics?: International Social Sciences Journal, vol. 57, pp. 561-71: 139 Q. Zhu, E. Lowe, Y. Wei & D. Barnes (2008), 'Industrial symbiosis in China: a case study of the Guitang Group, Journal of Industrial Ecology, vol. 11, no. I, Wiley Publishing .• Edward Elgar Publishers: 117, 130 P. Lawn & M. Clarke, 'Sustainable welfare in the Asia-Pacific: studies using the genuine progress indicator~ • UNEP: 137 Source: Environmental Management of Industrial Estates - Information and Training Resources, United

Nations Environment Programme, "{\vw.unep.org .• Elsevier: 149 Reprinted from G. Lamberton

(2000), 'Accounting for sustainable development - a case study of City Farm', Critical Perspectives on Accounting, vol. 11, issue 5, pp. 583-605, Copyright (2000), with permission from Elsevier. • KPMG: 234 © KPMG, Beyond numbers: how leading organizations link values with -value to gain competitive advantage, p. 16 .• Dr jacquelyn Humphrey: 263 j. Humphrey & D. Lee (2011), 'Lifecraft Australian socially responsible funds: performance, screens and structure', Ethical Investor, issue 97,

pp. 36-7 .• Professor Gianna Moscardo: 303 Source: Professor Gianna Moscardo, 1998; 305 Source:

Professor Gianna Moscardo, taken from Benckendorff, Moscardo and Murphy (2006) .• Australian.. Conservation Foundation: 317 © Australian Conservation Foundation, Consuming Australia:~

Main Findings, 2007, www.acfonline.org.au .• Standards Australia: 322 © AS/NZS ISO 14001:2004, Environmental Management Systems - Requirements with Guidance for use. Reproduced with per­mission from SAl Global under copyright licence 1201-c005 .• UNEP Working Group for Cleaner Production: 327,328 From R. Pagan, P. Prasad, N. Price & E. Kemp (2004), 'Eco efficiency toolkit for the Queensland food processing industry: Australian Industry Group .• Dr Retha Wiesner: 347, 348, 355 Source: Dr Retha Wiesner .• WWF International: 374, 387 © WWF International.. FSC Australia:

405 FSC Trademark® Forest Stewardship Council, A.C. All rights reserved .• Greenleaf Publishing: 408 Reproduced from Hamann, Acutt & Kapelus, 'Responsibility vs. accountability?: The Journal of Corporate Citizenship, WaddocklMclntosh/Birch (eds), p. 42, Copyright 2003, with permission from' Greenleaf Publishing .• Fairtrade Australia: 443 Reproduced with permission of Fairtrade Australia

& New Zealand.

Text • MBA Oath: 18 © mbaoath.org .• PRME: 18 © Principles for Responsible Management (PRME). • MIT Press: 73 J. Ruggie (2008), 'Protect, respect and remedy: a framework for business and human

Acknowledgements'CJt"

• ~, Acknowledgements ...

rights', Innovations, vol. 3, MIT Press Journal. • USEPA: 224 Source: USEPA (1995) .• lAG: 235 Supplied courtesy of IAG - Insurance Australia Group .• Westpac: 253 Reproduced with permission from the Westpac Group .• Global Footprint Network: 274 Source: Global Footprint Network, 2010 National Footprint Accounts .• Chris McGrath: 319 C. McGrath (2011), Synopsis of the Queensland environmental legal system, 5th edition .• UNEP Working Group for Cleaner Production 329, 330 From R. Pagan, P. Prasad, N. Price & E. Kemp (2004), 'Eco efficiency toolkit for the Queensland food processing industry: Australian Industry Group .• Kate O'Brien: 334 Source: K. O'Brien, R. Olive, YC. Hsu, L. Morris, R. Bell. N. Kendall (2009). Life cycle assessment: reusable and disposable nappies in Australia . • Don Parry: 353 Reproduced with permission of Don Parry .• 100 People Foundation:

398 Reproduced with permission of 100 People Foundation www.100people.org .• Yunus Centre: 436 © Muhammed Yunus, used with permission of the Yunus Center.

Every effort has been made to trace the ownership of copyright material. Information that will enable the publisher to rectify any error or omission in subsequent editions will be welcome. In such cases,

please contact the Permissions Section of John Wiley & Sons Australia, Ltd .