22/01/2016

Sustainable Enterprise Economies: Theory PaperBEMM161

650024371MSC International Management, UNIVERSITY OF EXETER,

IS THE NOTION OF SUSTAINABLE ENTERPRISE ECONOMIES A LUXURY FOR THE DEVELOPED WORLD, OR IS IT A CONCEPT WITH GLOBAL REACH AND

RELEVANCE?

BEMM161 | 650024371| 22/01/16

SETTING THE STAGE

Concerns about the changing state of planet earth as we know it have been raised repeatedly for decades. Ward (1973) asks us to consider the possibility that there are limits to growth. That perhaps the mechanisms and workings that make life on earth possible cannot be sustained if the millions of humans dwelling on this planet aim to produce, consume and pollute at the present rate. Fast-forward to 2010 and this sentiment is echoed by Petry et al (2010) who postulate that the way in which contemporary societies consume and produce challenge the possibility of a sustainable rate of development. To delve deeper into this issue, one must first consider some key concepts that will recur throughout this essay. Firstly let us consider the meaning of sustainable development.

The World Commission on Sustainable Development (1987) defines sustainable development as, “Development meets the needs of the present without compromising the ability of future generations to meet their own needs” (pg.16). This again reiterates the proposition that Ward (1973) puts forward that in order for development to be sustained there have to be limits of some sort. These limits however are not inhibitory but in fact bring us to understand the need for better management of social and technological resources to bring about a change in the process of economic growth. (World Commission on Sustainable Development, 1987). In the world it of business it is imperative that modern day capitalism is adjusted to consider not only profit but also the other types of capital involved, for example, human and social (McIntosh, 2009).

THE TRIPLE BOTTOM LINE & FIVE CAPITALS MODEL

The Triple Bottom Line model (see appendix 2) originated in 1994 by John Elkington. This model takes into account three factors which Elkington believed are the real bottom lines of business: People, planet, profit (The Economist, 2009). These three factors measure the true costs of business, not just financial profit. The model puts forward the idea that a company can only be sustainable when they consider the impact on people and planet in addition to profit (Elkington, 1998). One issue with this model however is it is difficult to quantify the non-financial costs of business as there is no global standard for these measurements (Slaper, 2011). Nevertheless it serves as a reminder for businesses to consider their full impact of their processes.

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Another model which one can consider when looking at sustainable development is the Five Capitals Model (see appendix 2), which was developed by Forum for the Future, a UK based sustainable development organisation (Forumforthefuture.org, 2016). This framework focuses on five capitals from which humanity obtains the resources that businesses use to create goods and services. These being, natural capital, manufactured capital, human capital, social capital and financial capital. This provides decision makers with a simple lens through which to view the range of issues that affect sustainable development (Forumforthefuture.org, 2016).

WHAT IS A SUSTAINABLE ENTERPRISE ECONOMY?

Considering all of these factors introduces us to the concept of a sustainable enterprise economy (SEE). A SEE can be defined as an economy where there is duality of interest in self (profit) and obligation to the surrounding community, where enterprises set out to have minimal effect on the environment and society as a whole (McIntosh, 2009). For this concept to have any real relevance, it must be realized world over. Globalisation has played a huge part in spreading unsustainable practices to the developed world and the developing world alike (Waddock & McIntosh, 2011). It can therefore be argued that the SEE cannot and must not be a luxury for some but is in fact a necessity for all. The slogan “Think Globally, Act Locally”, though used in many contexts provides us with an exhortation by which we are able to understand how a global picture of sustainability could be seen (Powell, 2009). Simply put, local communities are the starting points for global SEEs (McIntosh, 2009).

LUXURY OR NOT?

A luxury is defined by the Oxford Dictionary as “An inessential, desirable item which is expensive or difficult to obtain” (Oxforddictionaries.com, 2016). As this essay aims to illustrate, the need for SEEs is anything but that.

To understand why one might think a SEE is a luxury that can only be realized in the developed world, it is important to consider what makes sustainable development perhaps easier to achieve for a more established economy. The primary factor is the apparent costs that are incurred when seeking to implement sustainable practices (Rangan, Chu & Petkoski, 2011). For example when considering tackling climate change, recent research has shown that in countries such as Denmark and Germany where the economy is developed, have higher amounts of renewable energy generated however, these energy prices are considerably higher than non-renewable sources (The Economist, 2014). One might argue that if these costs are so high, then for a developing economy where financial capacity is much lower, how could achieving this be remotely possible? Is it even advisable?

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Spain is an example of a developed economy who has faced issues due to the financial costs of sustainable practices. To encourage wider use of solar power, the Spanish government heavily subsidised the costs of installation however this backfired (Gonzalez & Johnson, 2009). Though renewable energy accounted for 54% of Spain’s electricity supply, the subsidies that enabled citizens to afford this solar power thrust Spain into an economic crisis, with an associated debt of around $34 billion (Pentland, 2013). To counteract this point however, Crespin (2012) postulates that if in fact becoming sustainable is more expensive then perhaps it is not being carried out properly, as the Spanish example illustrates. This therefore negates the argument that sustainability is unachievable for developing countries where financial capabilities may be lower.

Secondly, developed economies experience their fair share of issues that are stumbling blocks to sustainable development, which again points to the fact that SEEs are not achievable solely by financial buoyancy. For example, large developed cities are and will continue to be heavy consumers of resources and producers of waste simply because of the fact that there is a concentrated level of social and economic activity within them (Pacione, 2007). It is also important to note that behaviour change will have to be considered as most people will likely be resistant or unable to relinquish a lifestyle or habit that may not be sustainable, for example living in the countryside but working and commuting to city centres (Pacione, 2007). This means that governments and companies will have to invest heavily into green marketing (see appendix) to inspire behaviour change (The Guardian, 2013). However in a developed economy one must consider how efficacious these marketing ploys are in inspiring change when for many it is not deemed as a necessity but as an afterthought (McDonald & Oates, 2006).

A study carried out in New Zealand by Hjelmar (2005) illustrates the varied consumer attitudes towards changing behaviour for environmental reasons .The below diagram illustrates that 62% of consumers are not living a lifestyle that is actively considerate to the environment.

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Fig 1. Consumer attitudes towards sustainable lifestyles (Hjelmar, 2005)

As we can see there is still work to be done in developed economies. If we wish to see global realization of SEEs then perhaps we have no choice but to look further afield to the developing world.

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DEVELOPING WORLD REALITIES

The developing world presents exciting opportunities for modelling sustainable enterprise economies. However it is important to consider the issues that need to be tackled in order to do that.

The millennium development goals are targets that the United Nation has set to tackle the varying forms of poverty, inequality and environmental issues. These were developed in 2000 to be achieved by 2015. The first of these goals was achieved by 2010 which was to half the poverty rate of 1990 (Worldbank.org, 2015). Although progress has been made, poverty remains one of the key barriers to the realisation of SEEs in the developing world.

The eradication of poverty has the potential to solve a plethora of issues. Firstly it is important to understand that poverty does not solely mean income deprivation but also encompasses a lack of access to human capabilities such as access to education, healthcare and clean water (Tashman & Marano, 2009).

Lele (1991) argues that high levels of poverty give way to environmental dilapidation. Therefore the economic growth of developing country is crucial for sustainable development within the nation which in turn has an impact on the global picture. This is due to the fact that economic growth is followed by increases in employment, foreign direct investment and GNP (Tashman & Marano, 2009). Referring back to the Triple Bottom Line model, this process exemplifies how the three components of the model, people, profit and planet all contribute and benefit from successful management of one another (Elkington, 1998).

DEVELOPING WORLD ADVANTAGES AND PROGRESS

Whilst poverty presents a significant challenge to sustainable development, the developing world has innovated sustainable initiatives that are at times superior to those innovated by developed countries. The in depth, traditional knowledge of agricultural systems and industry have enabled them to put forward initiatives that are more advanced than those implemented by developed countries (Pretty, Morison & Hine, 2003)

An interesting fact to consider is that countries with high levels of poverty also have high levels of innovation. When we consider entrepreneurship it can be driven by pull factors (an attractive market) or push factors (necessity) (Kirkwood, 2009).

Numerous ideas have come from necessity for example, in Ghana, the Bamboo Bike Initiative is an indigenous social enterprise which creates high quality bicycles from bamboo. This initiative tackles issues such as reducing pollution by encouraging cycling as opposed to motorbikes or cars, maintaining environmental sustainability

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by replanting surplus bamboo as it is utilised, as well as tackling poverty by creating employment (Ghanabamboobikes.org, 2016). This initiative also contributes to the national economy as they exported and sold globally (Al Jazeera Plus, 2016).

Another example of sustainable innovation can be seen in Paraguay. The “Orquesta de Reciclados de Cateura” is an orchestra founded by Favio Chavez in 2006, where all instruments are made from recycled waste from a local landfill, encouraging waste management and educating young people, whilst also creating jobs for the adults that create the instruments. They also play local concerts and travel to perform in locations around the world (Orquesta Reciclados Cateura, 2016).

Ecuador provides a governmental example of a developing country leading the way to embedding sustainable practices into legislation (Rights of Nature.org, 2016). The country has embedded the “rights of nature” into the constitution which aims to recognize the rights of ecosystems and balancing the needs of humans with the needs of other species and the planet as a whole (Constitution of the Republic of Ecuador, 2008).

In Mexico, Compartamos Bank specialises in microfinance where 98% of loans go towards empowering women entrepreneurs. The bank has 1 million clients and its success lies in the fact that it endeavors to have a strong social impact. The bank is a working example of the Triple Bottom Line model where it provides social value in the community, economic value for its clients, and human value by providing clients with the opportunity to nurture their skills as well as bettering the nation as a whole and supporting the economy (Rangan & Chu, 2008).

Each of these examples cater to what is known as the Base of the Pyramid. This accounts for the 4.5 billion people who live on $5 per day or less (Tashman & Marano, 2009). The above examples provide us with an image of sustainable innovation that meets the needs of many whilst generating profit and growing infrastructure of the nation whilst working within the community. Prime examples of “Think Global, Act Local and a step in the right direction towards the creation of SEEs (Powell, 2009; McIntosh, 2009).

These enterprises show that seeking profit does not necessarily disqualify the ability of a business to provide social value (Rangan & Chu, 2008).

COLLABORATION AND ECONOMICS OF MUTUALITY

Both developed and developing countries both face varying issues when it comes to working towards sustainable development but it must be said that collaboration between them is the most likely way in which we can see a world where sustainable enterprise economies are achieved or achievable. It is important that we have local SEEs that collaborate together on a global scale (McIntosh, 2009). Developed countries can facilitate the innovation of developing economies providing a cycle of

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cooperation that enables sustainable development (Department of Economic and Social Affairs, 2013).

Multinational corporations can embed sustainable practices into their value chain by engaging with suppliers (Crespin, 2012). Economics of Mutuality is a theory that seeks to ensure there is a mutuality of service and benefits along all stages of the value chain (Roche, 2014). In a presentation by Mar’s Chief Financial Officer, Bruno Roche, he describes how Mars strives to ensure that the business benefits each stakeholder from the farmer in Africa from whom they obtain their cocoa supply, to the consumer on a high street in London. (Roche, 2014). This theory if adopted amongst Multinational corporations is a way in which the developed and developing world can work together to create mutually beneficial experiences for one another whilst striving towards SEEs.

CLOSING ARGUMENTS

In conclusion one cannot decide that the notion of a sustainable enterprise economy is restricted to those in the developed world, as has been illustrated, developing economies have proven that they can play a part, if not leading role in the global effort towards sustainable development (Pretty, Morison & Hine, 2003). Whilst focusing on the ensuring that business practices take into account the Five Capitals Model and The Triple Bottom line, it can be ensured that the key factors that contribute to sustainable development are considered: People, Profit and Planet (Elkington, 1998; Forumforthefuture.org, 2016).

It is only with focused and coordinated efforts from individuals and countries within both developed and developing economies alike that we will see global sustainable development and the growth of sustainable enterprise economies (Turner, 2011)

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REFERENCE LIST

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APPENDIX 1

APPENDIX 2

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Fig 1. Green Marketing Posters

(The Guardian, 2013)