Bottom line broadening to include ethics

New Zealand companies are being urged to consider their social and environmental responsibilities as an integral part of their profitability. DITA DE BONI reports.

Some businesses think they have enough trouble getting their heads around one bottom line, let alone three.

The free-market view that commercial operations have no responsibilities except to shareholders is pervasive - as demonstrated by the recent outcries against sharing costs for paid parental leave and accident compensation.

But the newly-coined triple bottom line - social responsibility, environmental concern and profitability - is coming at New Zealand businesses fast.

As with many business trends, international signs are blaring. If huge corporations such as Nike are "just doing it," local firms have little excuse not to adopt the holy trinity.

A conference in Auckland last month trumpeted its arrival. Although partly preaching to the converted, as one attendee pointed out, an impressive line-up of speakers included Nike's "director of corporate responsibility," Sarah Severn.

They painted a global picture of consumer wrath propelling companies to unprecedented levels of good behaviour.

Also speaking at the conference was John Elkington, the godfather of corporate sustainability and chairman of British group SustainAbility, which coined the phrase "triple bottom line."

Dr Elkington has helped corporate giants such as Shell and Ford to implement practices that he says enhance a company's value to shareholders, boost its revenue and access to capital, and bolster its risk profile, brand value and reputation.

But the work done by SustainAbility in Britain has moved beyond a simple tally of practices needed to ensure that a company is responsible to others and communicates well to its stakeholders.

As Dr Elkington says, it is all very well for companies to be concerned about eco-efficiency, but what about environmental economics and accounting, shadow pricing (valuing scarce resources) and ecological tax reform?

Providing literacy classes and other training for staff is commendable, but what about "environmental justice" and the age debate?

How far are stakeholders and fund managers really prepared to go to exert pressure on issues of business ethics, fair trade, human and minority rights, he asks.

Australia and particularly New Zealand are still running to catch up on the basics of sustainability, say commentators. Europe and the United States lead the way.

In Australia, some public sector enterprises and local governments, such as those in New South Wales, are already required to make environmental reports.

Businesses have recognised the need to lead the debate on environmental issues to avoid regulation, which they claim will curtail economic growth and competitiveness.

In a recent example, the Business Council of Australia did detailed studies on principles for dealing with greenhouse gas emissions, in a bid to ward off too much legislation.

And ethical investment across the Tasman is increasingly popular, even though it is still in its infancy compared with the United States.

The Social Investment Forum in the US has found that 9 per cent, or $US1.5 trillion ($3.5 trillion), of total funds of $16.3 trillion under management are "ethical."

In Australia, $A100 million ($124 million) of $A500 billion funds are screened to stop boosting the equity base of companies involved in areas such as uranium mining, gambling, tobacco and animal testing.

Many New Zealand businesses put triple bottom line reporting in the too-hard basket, says Gael Ogilvie, of engineering and environmental consultancy URS (formerly Woodward Clyde).

She says a URS report for the Ministry of the Environment shows that "green market signals" from overseas consumers, retailers, financial sectors and Governments are getting louder and while New Zealand exporters are trading on the country's clean image at present, they cannot afford to be complacent for long.

"Our overseas customers are increasingly scrutinising our products ... and if we don't stack up, 'brand New Zealand' is at risk of being discredited," she says.

While the number of local companies that focus on environmental and social performance, in addition to economic performance, is fairly low, Ms Ogilvie says companies are slowly coming round.

Top executives such as Kerry MacDonald of Comalco, Stephen Tindall of The Warehouse and Ed Johnson of Shell New Zealand openly embrace sustainability as "good business sense."

It is a good start, she says.

The New Zealand Business Council for Sustainable Development, chaired by Mr Tindall, is often cited as the bellwether organisation for advocating a triple bottom line business approach.

But membership of the council is restricted - companies join only by invitation - fees are substantial and those involved tend to be big firms already well-versed in sustainability issues.

However, small business involvement in sustainable business predates the council. The Auckland Environmental Business Network was revived in 1999 after lying dormant for some years and now has 130 members and 200 other businesses described as "friends."

Director Rachel Brown was working at the Waitakere City Council before reviving the network at the behest of local businesses "keen to have an active role in making change," she says.

"Anyone can join ... We believe that you should have an open membership to encourage change. Just having a group of people already practising good environmental management doesn't result in change."

The network has sister organisations in the Waikato, Bay of Plenty and is looking to establish in Wellington and link with other organisations such as Target Zero, Sustainable Cities and the Natural Step Foundation in Christchurch, all working to ensure that businesses take sustainability seriously.

But it is "not just a marketing stunt," says Ms Brown.

"A lot of these guys are committed personally to environmental and ethical issues."

It made sense for New Zealand to take a lead on sustainability.

"We need a clear national vision to help guide the country through this and networks like the AEBN providing the practical advice and case studies to make this move achievable."

Annette Lusk, executive director of the local Business for Social Responsibility (BSR), is even more enthusiastic about small firms adopting triple bottom line principles.

BSR, the brainchild of cereal magnate Dick Hubbard, now has 182 members, mainly small and medium businesses, and is working on triple bottom line guidelines for smaller businesses.

"What we are noticing in business is that more and more, people want to feel good about what they do at work," she says.

"People who work in any sized business want to get up in the morning and feel good, and companies want to keep their staff happy and feeling good, too."

But are warm fuzzies a good enough reason to pay a fee to BSR ($175 for small operators) to learn about do-gooding?

Ms Lusk says there are financial paybacks and marketing advantages in doing right.

She illustrates the worth of ethical practices in small business with an anecdote from her own working past.

Before joining BSR, she ran the Angel Cafe on Karangahape Rd, a community cafe founded on socially responsible principles. It had needle exchange facilities and served as a "haven" for community workers and other K'Rd regulars.

"The loyalty of our customer base was astounding. We got burgled once and our customers pledged money to recoup everything we had lost.

"It wasn't only us, but other cafes around us offering organics also had very strong customer bases and I think this proves the value of doing business responsibly.

"Previously, business responsibility was a bit of an academic pursuit but now there is a real 'buzziness' about the triple bottom line concept, because it is something that encapsulates everyone's concerns," says Ms Lusk. "It brings people together and is something that anyone in business can do."