1.2 Evolution of sustainable business practices

Sustainable business practices have come a long way. From early pollution control efforts to today's focus on balancing economic, social, and environmental impacts, companies are increasingly embracing sustainability as a core business strategy.

Key milestones like the Brundtland Report, Earth Summit, and Paris Agreement have shaped the evolution of sustainable business. Now, companies face growing pressure from consumers, investors, and employees to address global challenges and create positive impact.

Sustainable Business Practices: A Historical Journey

Evolution of Sustainable Business Practices

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• Sustainable business practices have evolved over time, with early efforts focused on pollution control and resource conservation in the 1970s and 1980s
• The concept of sustainable development, which balances economic, social, and environmental considerations, gained prominence in the 1987 Brundtland Report
  • Sustainable development defined as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs"
  • Emphasized the interconnectedness of economic growth, social equity, and environmental protection
• The triple bottom line approach, introduced by John Elkington in 1994, emphasizes the importance of measuring and reporting on economic, social, and environmental performance
  • Encourages companies to consider their impact on people, planet, and profit
  • Helps companies identify opportunities for creating shared value and mitigating risks

Key International Developments

• The 1992 Earth Summit in Rio de Janeiro marked a turning point, with the adoption of Agenda 21 and the Rio Declaration on Environment and Development
  • Agenda 21 provided a comprehensive plan of action for sustainable development
  • The Rio Declaration outlined 27 principles for sustainable development, including the precautionary principle and the polluter pays principle
• The United Nations Global Compact, launched in 2000, encourages businesses to adopt sustainable practices and report on their progress
  • Provides a framework for companies to align their strategies with ten universal principles in the areas of human rights, labor, environment, and anti-corruption
  • Encourages companies to take actions that advance societal goals, such as the Sustainable Development Goals (SDGs)
• Recent developments include the adoption of the United Nations Sustainable Development Goals (SDGs) in 2015 and the Paris Agreement on climate change in 2016
  • The SDGs provide a shared blueprint for achieving a sustainable future, with 17 goals and 169 targets covering social, economic, and environmental dimensions
  • The Paris Agreement aims to limit global warming to well below 2°C above pre-industrial levels and requires countries to submit nationally determined contributions (NDCs) outlining their emissions reduction targets

Corporate Sustainability Reporting

• The rise of corporate social responsibility (CSR) and sustainability reporting in the early 2000s has led to increased transparency and accountability
  • CSR refers to a company's commitment to managing its social, environmental, and economic impacts and contributing to sustainable development
  • Sustainability reporting involves measuring and disclosing a company's performance on ESG (environmental, social, and governance) factors
• The Global Reporting Initiative (GRI), founded in 1997, provides a framework for sustainability reporting and has become the most widely used standard
  • GRI Standards cover a wide range of ESG topics, including climate change, human rights, and anti-corruption
  • GRI reporting helps companies identify material issues, set goals and targets, and communicate their progress to stakeholders

Key Milestones in the Sustainability Movement

Environmental Awareness and Regulation

• The publication of Rachel Carson's "Silent Spring" in 1962 raised awareness about the environmental impact of pesticides and sparked the modern environmental movement
  • Highlighted the dangers of DDT and other synthetic pesticides on wildlife and human health
  • Led to the ban of DDT in the United States and the creation of the Environmental Protection Agency (EPA) in 1970
• The first Earth Day in 1970 marked a growing public concern for environmental issues and led to the establishment of the U.S. Environmental Protection Agency (EPA)
  • Earth Day events involved 20 million Americans and helped galvanize support for environmental legislation
  • The EPA was created to consolidate federal environmental responsibilities and enforce environmental laws and regulations
• The 1987 Montreal Protocol, an international treaty to phase out ozone-depleting substances, demonstrated the potential for global cooperation on environmental issues
  • The protocol has been ratified by 197 countries and has successfully reduced the production and consumption of ozone-depleting substances (chlorofluorocarbons)
  • Considered one of the most successful international environmental agreements, with the ozone layer expected to recover to pre-1980 levels by mid-century

Climate Change and Sustainability Initiatives

• The 1997 Kyoto Protocol, an international agreement to reduce greenhouse gas emissions, highlighted the role of business in addressing climate change
  • The protocol set legally binding emissions reduction targets for developed countries, with the aim of reducing overall emissions by 5% below 1990 levels by 2012
  • Introduced market-based mechanisms, such as emissions trading and the Clean Development Mechanism, to help countries meet their targets cost-effectively
• The 2015 Paris Agreement, signed by 195 countries, aims to limit global warming to well below 2°C above pre-industrial levels and requires businesses to play a significant role in reducing emissions
  • Countries submitted nationally determined contributions (NDCs) outlining their emissions reduction targets and adaptation plans
  • The agreement also aims to strengthen the ability of countries to deal with the impacts of climate change and mobilize finance for low-carbon and climate-resilient development
• The Task Force on Climate-related Financial Disclosures (TCFD), established in 2015, provides recommendations for companies to disclose climate-related risks and opportunities
  • The TCFD framework helps companies assess and disclose the financial impacts of climate change on their business, including physical risks (extreme weather events) and transition risks (policy and technology changes)
  • Supported by investors and regulators, the TCFD recommendations are becoming the global standard for climate-related financial disclosures

Global Initiatives and Sustainable Business

International Agreements and Frameworks

• International agreements, such as the Montreal Protocol and the Paris Agreement, have created a regulatory framework that encourages businesses to adopt sustainable practices
  • The Montreal Protocol has phased out the production and consumption of ozone-depleting substances, with companies required to find alternative chemicals and technologies
  • The Paris Agreement requires countries to submit nationally determined contributions (NDCs) outlining their emissions reduction targets, which can create incentives and regulations for businesses to reduce their carbon footprint
• The United Nations Sustainable Development Goals (SDGs) provide a common language and set of targets for businesses to align their strategies with global sustainability priorities
  • The SDGs cover 17 goals and 169 targets across social, economic, and environmental dimensions, such as ending poverty, promoting sustainable consumption and production, and taking action on climate change
  • Many companies are using the SDGs as a framework to set sustainability goals, measure their progress, and communicate their contributions to sustainable development

Sustainable Finance and Investing

• Sustainability reporting frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), have increased transparency and comparability of sustainability performance across companies and industries
  • The GRI Standards provide a comprehensive framework for reporting on a wide range of ESG topics, including climate change, human rights, and anti-corruption
  • The SASB Standards focus on industry-specific sustainability issues that are financially material to investors, helping companies identify and manage their most important sustainability risks and opportunities
• Sustainable finance initiatives, such as green bonds and sustainability-linked loans, have created new opportunities for businesses to access capital for sustainable projects and investments
  • Green bonds are fixed-income instruments that raise capital for projects with environmental benefits, such as renewable energy, energy efficiency, and sustainable transportation
  • Sustainability-linked loans tie the interest rate to the borrower's sustainability performance, creating incentives for companies to improve their ESG performance and achieve specific sustainability targets
• The rise of sustainable investing, including environmental, social, and governance (ESG) investing, has put pressure on companies to improve their sustainability performance and disclosure
  • ESG investing involves integrating ESG factors into investment analysis and decision-making, with the belief that companies with strong ESG performance will deliver better long-term financial returns
  • Assets under management in ESG funds have grown rapidly in recent years, with investors increasingly demanding more sustainable and responsible investment options

Collaborative Initiatives and Partnerships

• International collaborations, such as the We Mean Business coalition and the Science Based Targets initiative, have mobilized businesses to take ambitious action on climate change and other sustainability challenges
  • The We Mean Business coalition brings together seven international nonprofit organizations to catalyze business leadership on climate change, with over 1,200 companies committed to bold climate action
  • The Science Based Targets initiative helps companies set emissions reduction targets in line with the level of decarbonization required to meet the goals of the Paris Agreement, with over 1,000 companies committed to setting science-based targets
• Industry associations and multi-stakeholder partnerships are bringing together businesses, governments, and civil society to address systemic sustainability challenges and drive collective action
  • The World Business Council for Sustainable Development (WBCSD) is a global organization of over 200 leading businesses working together to accelerate the transition to a sustainable world
  • The Roundtable on Sustainable Palm Oil (RSPO) is a multi-stakeholder initiative that brings together palm oil producers, processors, traders, consumer goods manufacturers, retailers, investors, and NGOs to develop and implement global standards for sustainable palm oil production

Stakeholder Pressure and Sustainable Practices

Consumer Demand and Expectations

• Consumers are increasingly demanding sustainable products and services, and are willing to pay a premium for environmentally and socially responsible offerings
  • A 2019 Nielsen survey found that 73% of global consumers say they would definitely or probably change their consumption habits to reduce their environmental impact
  • A 2020 IBM study found that nearly 60% of consumers are willing to change their shopping habits to reduce environmental impact, with nearly 80% indicating sustainability is important for them
• Companies are responding to consumer demand by developing and marketing sustainable products and services, such as organic food, eco-friendly clothing, and green building materials
  • Unilever has committed to sourcing 100% of its agricultural raw materials sustainably by 2020 and has launched a range of sustainable living brands, such as Seventh Generation and Ben & Jerry's
  • Patagonia, a leading outdoor clothing company, has built its brand around environmental activism and sustainable materials, such as recycled polyester and organic cotton

Investor Pressure and ESG Integration

• Investors, particularly institutional investors, are integrating ESG factors into their investment decisions and engaging with companies on sustainability issues
  • The United Nations Principles for Responsible Investment (PRI) has over 3,000 signatories representing over $100 trillion in assets under management, committed to incorporating ESG factors into their investment analysis and decision-making
  • BlackRock, the world's largest asset manager, has made sustainability its new standard for investing and has committed to exiting investments that present a high sustainability-related risk, such as thermal coal producers
• Shareholder activism on ESG issues has increased in recent years, with investors filing shareholder resolutions and engaging with companies on topics such as climate change, diversity and inclusion, and human rights
  • In 2020, a record number of climate-related shareholder resolutions were filed, with many receiving majority support from investors
  • Investors have also used their voting power to push for changes in corporate governance, such as appointing directors with ESG expertise and linking executive compensation to sustainability performance

Employee Engagement and Talent Attraction

• Employees, especially younger generations, are seeking to work for companies that align with their values and are committed to sustainability
  • A 2019 HP survey found that 61% of office workers believe sustainability is mandatory for businesses, and 58% said they would be more likely to work for a company with strong environmental practices
  • A 2020 Deloitte survey found that millennials and Gen Z are more likely to work for companies that have a positive impact on society and the environment, with 49% saying they have made choices about the type of work they are willing to do based on their personal ethics
• Companies are recognizing the importance of employee engagement and talent attraction in driving sustainability performance and innovation
  • Unilever has set a goal of engaging all employees in its sustainability agenda and has launched a "Sustainable Living Plan" that includes targets for improving health and well-being, reducing environmental impact, and enhancing livelihoods
  • Microsoft has launched a "Carbon Fee" program that charges business units for their carbon emissions and invests the funds in renewable energy, energy efficiency, and carbon offset projects, engaging employees in the company's sustainability efforts

NGO Campaigns and Collaborative Initiatives

• Non-governmental organizations (NGOs) and activist groups are using campaigns, boycotts, and shareholder resolutions to pressure companies to adopt sustainable practices and address social and environmental impacts
  • Greenpeace has launched campaigns targeting companies such as Nestlé, Unilever, and Procter & Gamble over their use of palm oil linked to deforestation and human rights abuses
  • The Rainforest Action Network has used shareholder activism to pressure banks and investors to divest from fossil fuels and deforestation-risk commodities, such as palm oil and soy
• Collaborative initiatives, such as industry associations and multi-stakeholder partnerships, are bringing together businesses, governments, and civil society to address systemic sustainability challenges and drive collective action
  • The Consumer Goods Forum, a global industry network of over 400 retailers and manufacturers, has launched initiatives on deforestation, food waste, and forced labor, setting common goals and standards for its members
  • The Alliance for Water Stewardship, a multi-stakeholder organization, has developed a global standard for sustainable water management and works with companies, governments, and NGOs to promote water stewardship in river basins around the world