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Freeman Cebu Business

Sustainable Development: Put purpose before profit

INTEGRITY BEAT - Henry Schumacker - The Freeman

In recent years, a growing number of companies around the world have voluntarily adopted and implemented a broad range of sustainability practices.

On the one hand, there are those who argue that sustainability is spreading as a ‘common practice’ and, as such, it may be a necessary condition for survival. I am aware of a large number of family-owned companies in Europe that support this view, having both the survival of the company and the long-term security of the employees in mind.

On the other hand, there are those who argue that sustainability can be strategy that generates a competitive advantage and, therefore, results in above-average performance (i.e. doing well by doing good).

In the Philippines, the Security and Exchange Commission (SEC) has just issued the sustainability reporting guidelines for publicly-listed companies (PLCs). The guidelines are intended to help PLCs access and manage non-financial performance across economic, environmental and social aspects of their organizations and enable PLCs to measure and monitor their contributions toward achieving universal targets of sustainability such as the United Nations Sustainable Development Goals as well as national policies and programs.

The SEC move is a great step forward to force large organizations to go beyond the ‘normal’ Corporate Social Responsibility (CSR) reporting and help to achieve the ‘inclusive growth’ that Philippine government administrations have promised for decades but never achieved.

If the SEC achieves the change in approach by business, enforces the monitoring and reporting on the effectiveness of sustainable development, you can be sure that the imposition of the guidelines will eventually go beyond the PLCs.

Allow me to highlight some areas of ‘sustainable development’ the SEC is looking at:

Direct Economic Value Generated and Distributed

Measuring the direct economic value generated, measured as revenue and distributed (costs) shows that an organization does not just create economic value for itself but also ensures that this value flows back to its various stakeholders such as stockholders, suppliers, employees, government, and the community. This also discloses the remaining value that is retained in the company for liquidity and for future investments.

Resource Management

Disclosures on resource management such as energy consumption, water consumption, and materials use show how efficiently an organization uses scarce natural resources, which has implications on reduction of environmental impacts from extraction and processing of these resources. The efficiency of managing resources relates to profitability of the organization

Environmental Impact Management

Reporting on an organization’s impact on air, soil, and water through emissions, wastes, and effluents provides basis for companies to manage these impacts. Responsible companies take an effort to minimize such impacts through cleaner production and pollution prevention measures. Companies should disclose on their performance on these topics including how well the organization mitigates, reduces, and/or prevents these impacts to the environment in compliance to Philippine Environmental Laws or on efforts beyond compliance.

Supply Chain Management

Disclosures on supply chain management are most relevant for companies with a significant portion of value creation carried out by suppliers. Organizations can report on how the reporting company ensures that supplier upholds with sustainability standards and practices including compliance to Philippine laws. The reporting company may also disclose how it influences its suppliers to be sustainable through supplier accreditation processes, among other approaches. Let me add here that Supply Chain Management is enormously important for the survival of Philippine agriculture; without addressing supply chain management, the farming community will not be able to become competitive and consequently address poverty in the rural areas.

Relationship with Community

These disclosures show how an organization meaningfully engages the community around their sites and how it aims to create a net positive impact to its host or neighbors. These also includes how the company contributes in addressing issues of indigenous people and those coming from vulnerable groups [youth, elderly, persons with disabilities, vulnerable women, refugees, migrants, internally displaced persons, people living with HIV and other diseases, solo parents, and the poor or the base of the pyramid (BOP; Class D and E)] in its business operations.

In closing, let me go back to a strategy that makes sustainable development a competitive advantage. Research data suggest that some companies are creating real strategic advantage by adopting sustainability measures that their competitors can’t easily match.  I hope that many Philippine PLCs accept that challenge!

Feedback is invited; email me at Schumacher@eitsc.com

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