QUESTION FIVE [25]

Read the following article and answer the questions that follow:

The Comprehensive Business Case for Sustainability

by Tensie Whelan and Carly Fink

Todays executives are dealing with a complex and unprecedented brew of social, environmental, market, and technological trends. These require sophisticated, sustainability-based management. Yet executives are often reluctant to place sustainability core to their companys business strategy in the mistaken belief that the costs outweigh the benefits. On the contrary, academic research and business experience point to quite the opposite. Embedded sustainability efforts clearly result in a positive impact on business performance. Sustainable practices can be defined as those that: 1) at minimum do not harm people or the planet and at best create value for stakeholders, and 2) focus on improving environmental, social, and governance (ESG) performance in the areas in which the company or brand has a material environmental or social impact (such as in their operations, value chain, or customers). Driving competitive advantage through stakeholder engagement Traditional business models aim to create value for shareholders, often at the expense of other stakeholders. Sustainable businesses are redefining the corporate ecosystem by designing models that create value for all stakeholders, including employees, shareholders,supply chains, civil society, and the planet. Michel Porter and Mark Kramer pioneered the idea of creating shared value, arguing that businesses can generate economic value by identifying and addressing social problems that intersect with their business. Much of the strategic value of sustainability comes from the need to continually talk with and learn from key stakeholders. Through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental, and regulatory changes as they arise. When firms fail to establish good relationships with their stakeholders, it can lead to increased conflict and reduced stakeholder cooperation. This can disrupt a firms ability to operate on schedule and budget. A study of the gold mining industry, for example, found that stakeholder relations can heavily influence land permitting, taxation, and the regulatory environment, thus playing a substantial role in determining whether a firm has the right to transform gold into shareholder capital therefore, as the study authors wrote, stakeholder engagement is not just corporate social responsibility but enlightened self-interest. Improving risk management Supply chains today extend around the world and are vulnerable to natural disasters and civil conflict. Climate change, water scarcity, and poor labour conditions in much of the world increase the risk. McKinsey reports that the value at stake from sustainability concerns can be as a high as 70% of earnings before interest, taxes, depreciation, and amortisation. Unlike traditional forms of business risk, social and environmental risks manifest themselves over a longer term, often affect the business on many dimensions, and are largely outside the organisations control. Managing risks therefore requires making investment decisions today for longer-term capacity building and developing adaptive strategies. In the agriculture, food, and beverage sector, the impacts of climate change have the potential to alter growing conditions and seasons, increase pests and disease, and decrease crop yields. Disruptions in the supply chain may affect production processes that depend on unpriced natural capital assets such as biodiversity, groundwater, clean air, and climate. These unpriced natural capital costs are generally internalized until events like floods or droughts cause disruption to production processes or commodity price fluctuation. To address these threats along their supply chain, companies like Mars, Unilever, and Nespresso have invested in Rainforest Alliance certification to help farmers deal with climate

Questions: 5.1 Provide a reasoned argument as to why business enterprises should embrace nonfinancial goals and place sustainability goals at the core of their strategy. (20)