This page gives advice to managers, teachers, and students on sustainable marketing strategy. There is a lot of material to read on the website, see here, as well as cases for use in teaching, see here.
Definitions of Sustainability
First, let me note that there are several definitions of sustainability that might come to mind.
- Green. E.g., does the firm use recycled materials or have net zero targets?
- Business for the long-term. E.g., are you planning for the survival of your business? Many of the ways that business performance is accounted for encourage short-term thinking. How to improve that?
- Making the world a better place/promoting sustainable development. E.g., does the firm in any way support the UN Sustainable Development Goals? If we can achieve these goals, see here, it would represent a massive positive change in the world. What can business do to help?
A key point is that sustainability is about much more than just being green. While environmental sustainability is critically important it isn’t enough. If the world doesn’t give everyone opportunities for a decent life people won’t protect the planet. To put it at its simplest, you can blame someone if they chop down the rainforest to feed their kids. We need to create a world where this doesn’t need to happen.
Sustainability is about much more than just being green.
While we ultimately mean sustainability as making the world a better place, the different definitions have considerable overlap. Trashing the planet makes it hard to improve the lives of the people on the planet and it will be bad for business at least in the long-term.
The Triple Bottom Line And The Three Ps
One the most popular ways of thinking of sustainable business is John Elkington’s idea of the triple bottom line. Business performance is assessed on its impact on the environmental, social, and economic spheres. An even more popular variant is the catchier three Ps, considering People, Planet, and Profit. (Economic considerations should really go beyond profit — as profit isn’t a perfect way of looking at firm performance — but the three Ps is snappy so I won’t quibble).
Sustainable business can involve assessing performance in the environmental, social, and economic areas.
The Dead End Of Shareholder Primacy
One of the big topics in sustainable business is the purpose of business. The point is that those running a firm should have a clear idea what the company is there to do, see here for more.
Indeed, what you think a firm is there to do is critical to understanding corporate objectives. Rather simplistic notions exist, e.g., a firm is there purely to make money for the owners. This is known as shareholder primacy as corporate decisions focus on the owners. I see this as not fully intellectually engaging with the problem. Shareholder primacy ignores externalities — these are when a decision-maker’s choices impact others whose interests are not considered. Thus, consistent with Friedman’s view, a company can make the world a worse place generating profits for the company but imposing greater ‘costs’ on others than the benefits they gain for themselves. (This shrinks the pie). Milton Friedman’s view gives himself a get-out-of-jail-card, a manager can not purse the highest profit option if this violates norms and ethics. Friedman says they are important but he doesn’t define whose ethics or norms to use. Given this, his argument basically collapses to “focus on making money for the owners except when you shouldn’t”. It isn’t especially helpful.
Shareholder primacy is thinking shareholders are all (or nearly all) that matters to the firm.
Of course, running a firm is hard so it isn’t surprising that Friedman’s advice is vague. Still, the main argument in favor of his position, compared to the more nuanced stakeholder-based ideas, is Friedman’s supposed clarity. For this reason, the lack of clarity in his idea around norms and ethics really is unacceptable. Vagueness undermines the unique selling point of his idea. Without a clear definition of guardrails Friedman’s idea simply becomes business people should make as much money as they want to, consequences be damned. Hardly a rallying cry for the general public to support business. For more see here.
Stakeholders Are Key To Sustainable Marketing Strategy
A stakeholder is any entity impacted by, or that can impact, an organization. This is obviously a much longer list than that of shareholders. Much thought has been given to what organizations owe stakeholders and this area is known as stakeholder management. In a stakeholder-based view of management owners are stakeholders. The success or otherwise of the firm impacts the owners. The difference from the shareholder primacy view is that other stakeholders, e.g., employees, local communities, also matter. Engaging the stakeholders is something that managers should take very seriously, see here.
Stakeholder management involves considering all those impacted by, or who can impact, a firm.
BTW the existence of stakeholders relates to all organizations not just for-profit organizations, here is an article on governmental stakeholders.
B Corps And Benefit Corporations
One way that stakeholders can be explicitly considered is by pursuing B Corp certification. This involves undergoing an assessment of the firm’s impact on a range of stakeholders. See here for the website of B Lab, which is the idependent organization administering this certification. For more on B Corps see here and here.
A B Corp is a for-profit company certified by a third party as operating a business focused on stakeholders.
Related but different, benefit corporations are a legal form of company registration that explicitly declares its managers will consider a range of stakeholders in their decisions. One purpose is that this should help avoid shareholder lawsuits demanding managers make more money for shareholders even to the detriment of others. Benefit corporation status clarifies the law, in a benefit corporation managers are obliged to consider the needs of stakeholders beyond shareholders. This need for consideration is stated in the corporate charter. The shareholders, therefore, can’t really complain if managers do, for example, consider the needs of workers and treat them well. In the UK there is a campaign to amend the Companies Act to get companies to consider a wider range of stakeholders, see here.
A benefit corporation is a company legally registered as having objectives to consider a wider range of stakeholders.
B Corp can be seen as a form of more responsible companies. These see the obligations of business as much wider than just funneling money to the owners, see here.
For more on the idea that business can grow the pie (bring wide benefits as it is not a zero-sum game) see here and here.
Being Decent Wasn’t Invented Yesterday
While it might seem trendy now to think of business in terms of benefiting a range of stakeholders it is important to understand that this isn’t at all new. People have long seen business as a potentially positive force in the world. It is a mistake to accept the idea that shareholder primacy is the natural state of affairs and by extension stakeholder views are novel. On the contrary, for as long as the idea of business has been around I am sure there have been people trying to make the world a better place through business. I can’t prove it but I’m sure some Greek merchant saw a higher purpose in sending amphora filled with high-quality wines around the Mediterranean world. (Even though at the Greek merchant’s heart there was probably a potentially offensive notion of helping the unenlightened barbarians who didn’t have the joys of Classical Greek culture).
We can certainly point to business people, like many Victorian Quakers, who took a relatively enlightened view of business as being a force for sustainable development, see here. To be clear societies allow firms to exist. If firms don’t bring social value why would we allow them to register as entities?
Contrary to what many now think, shareholder primacy is a strange novel idea. Why would a democracy register an organization focused on making owners rich regardless of the consequences for others in society.
Sustaining Business
One thing to be very clear on is that sustainable business is business. It is for-profit. This is not to diminish the role of the work of not-for-profits. There are problems in the world that business cannot solve and these need alternative approaches but here we are focused on the role of business. In a sustainable business there is a focus on the stakeholders and one of these stakeholders are the owners. Getting a return to the owners is a practical necessity, i.e., if they pull their funding there won’t be a business to help other stakeholders. Furthermore, owners, e.g., those with pension funds, need a decent return to have a good life. Making money for owners, as long as it is not at the expense of other stakeholders, is a good thing.
Sustainable business shouldn’t be seen as charity. It is there to make money but is aims to do this by working in ways that have wider benefits. This often involves adopting innovative approaches to problems. There are many situations in business, and in life, where working together can create benefits for all.
It is helpful to be explicit that, to be a sustainable business, a business must be sustained. It must be sufficiently well-run as to generate positive returns. Sustaining the business, so it can continue to operate positively, is an essential part of sustainable business. Just carelessly giving away money to all in need who ask is not sustainable business. Creating new ways to satisfy customers needs profitably for the owners and beneficial to other stakeholders is sustainable business.
Sustainable business is for-profit; owners require positive returns and delivering these is vital to sustaining the business.
Measuring Impact Matters
It is critical that we have results, not just good intentions. A sustainable business must be sustainable, not just have good intentions. To this end, we need some way to measure whether we are doing a good job, see here.
I am a big believer in numbers allowing us to judge progress. It is not that numbers are perfect. They aren’t. Still, they are a lot better than relying on those with power to “know” what is the best thing to do. (If you want to a read a book from a pompous old man who hates numbers this recommendation is for you, see here. The book illustrates exactly why we need data to prevent us relying on the judgment of people like him).
Greenwashing is a problem. Data helps with showing the impact and getting beyond the slogans. We also want companies that are genuinely making progress to be rewarded for that. (Rewarding positive actions is the best way to get more of them). Thus, we can’t just say that all business is great, or all business is terrible. We need the data to know when a business it helping make the world a better place and when it really isn’t.
Accountability is a key part of sustainability. If you aren’t genuinely making the world a better place it isn’t sustainable business.
The Acronyms
There are many acronyms associated with sustainable business. Several of them have become politicized, especially in the US. It is helpful to understand what sustainable business is to be able to understand how sustainable business is associated with the acronyms. In general, it is worth remembering that the outcome is what is important, not any specific terminology.
ESG (Environmental, Social, and Governance)
ESG is a set of reports that attempt to assess a firm’s impact on the world. These reports have been driven by the needs of external investors. The informational needs of external markets are different to what a manager needs to run a firm well. (This is why we have a distnction between financial accounting and managerial accounting). ESG reports have potential to help investors make better informed choices but there are challenges. All external reporting is far from perfect, and ESG reports are newer and probably less perfect than most. As such, the aim of sustainable business isn’t to maximize their ESG rating. The aim is to act in a sustainable manner. Hopefully, the ESG ratings will correlate with effective actions towards sustainability but the aim is not to focus on ESG ratings. If people criticize ESG ratings, they may have a point. In an ideal world, ESG ratings would map to sustainability but they are a work in progress. The trick is to get input on how to improve them so that they better reflect how business can improve the world.
There is a connected issue. When considering external non-financial reports there are two things that get conflated.
- Material issues are reported. These are issues that impact shareholder value. No sane commentator can be against reporting these in theory. After all, those who ascribe to shareholder primacy think investors should be informed about things that could impact them. Imagine a ban on single-use plastic has been passed by a government. Even if you think such a ban is a mistake, if the company produces single-use plastic this is likely to impact the shareholders so you need to tell them. Such reports on material risks and opportunities supplement traditional accounting reports. Sometimes the reports are badly done but that is an argument for improving reporting, not getting rid of it.
- Double material issues are reported. These are things that impact stakeholders, including the planet, beyond the shareholders. This involves a stakeholder management perspective, so those strongly committed to shareholder primacy may be less supportive. Even here though, if the reports are done well, most members of the public would support them. By done well I mean they are relatively accurate and not too costly to produce. This isn’t easy and such reporting is currently far from perfect but why not work together to improve the reports? In theory most agree they are a good idea. If a firm helps local communities we want to know that, if a firm is poisoning local rivers that is interesting too. This is useful information which an investor can always ignore if they don’t care.
DEI (Diversity, Equity, and Inclusion)
Sustainable business is about creating a better world and this involves helping those with fewer opportunities. Various ways to aim to deliver opportunities have been adopted by firms. The key thing is that a sustainable business is committed to doing things to help make the world fairer. The theory is easy.
Making the theory work in practice is harder. DEI aims to do this. Unfortunately, it can mean different things to different people and, like any set of policies, any actions being taken by firms may not be optimally effective. A sustainable business will focus on what will achieve the best outcome, i.e., help make the world fairer. It is not the terminology, or any specific set of actions, that defines sustainable business it is the impact that it makes. So if a commentator doesn’t want to make the world fairer they do not support sustainable business but disagreements about the best policy and what works are to be expected. Again, data helps in these discussions to move us towards the best possible outcomes.
Being Green
Marketers have a role in helping people be more green. Research in this area is often in the decision-making literature. How can we help people make sustainable decisions? There is simply a lot of potential for us to choose better. Will better consumer choices alone solve all the problems of the world? That seems unlikely to me, we need other actions too. Still, I live in the US and the good news is that there are an awful lot of very easy things that consumers can do better.
A lot of the focus of data-driven sustainable business research is on green issues, especially climate change. Many green issues are easier to get data on which aids research. Greenhouse gases can be more easily measured than whether a society is creating opportunity for all. The relatively limited amount of research on, for instance, social issues shouldn’t be seen as saying green is all that matters.
While green is important, sustainable business is about much more than environmental issues.
For more on aiding sustainable choices using decision-making research and organizational structure see here, here, and here.
Progress Exists: Sustainable Marketing Strategy Can Help
The UN Sustainable Development Goals are explicitly based on the idea of progress. To drive progress, my guess is that, it helps to believe in progress. Sustainable business does not assume that all will simply be well if we cross our fingers and carry on. Instead, we really need to put the work in to achieve progress. Still, with effort, it seems like there is an awful lot people can achieve. Such progress can be good for long-term business, the planet, and the people on it. For a few ideas about progress see here, here, here, here, and here.
What people see as progress varies between us. That said, there are things like lower maternal mortality that should be widely seen as a good thing. There are business models that can help with that.
Sadly some of the people who seem to believe least in progress are progressives. I think we need to get past the idea of Malthus they often use — that starvation is an inevitable fact of life. It isn’t, and progressive people have got to stop paying homage to Malthus, who seems (I’m being polite) a cranky, dated, snob. See here for more on how awful Malthus is. Don’t worry he is very dead so you won’t bump into him at a party, (hopefully at least).
Business can help improve the lives of people. Indeed, that is pretty much all it is for.
