“For I’ll also explore various theories including Carroll’s four-part

“For long term economic growth of the firm,
large publically listed companies should follow a strategy of sustainable
development and publish sustainability accounting reports”.

 

Sustainable development is ‘development that meets the needs of the
present without compromising the ability of future generations to meet their own
needs’ (United Nations/WCED, 1987). Fundamentally, sustainable development is
used by many large publically listed companies through programmes, goals and
reports, in an attempt to manage and reduce the use of socio-economic and
natural resources such as lack of sanitation, social injustice and environmental
pollution. Adding onto this, sustainable development goes hand-in-hand with
corporate social responsibility (CSR), and is noted as being predominantly, a
company’s ethical responsibility but may also be a philanthropic responsibility.
Sustainable development goals aim to satisfy all stakeholders of the company,
including employees, the local community, suppliers, trade unions and
shareholders. In this essay, I’ll explore the importance of large publically
listed companies following and publishing sustainable development strategies,
and the effect on mainly employees, the local community and shareholders, as
well as on the companies’ long-term growth. I’ll also explore various theories
including Carroll’s four-part model of CSR (Carroll’s CSR Pyramid), the
Stakeholder Theory, the Traditional Management Model and the Triple Bottom line
to strengthen my arguments about the effects of sustainable development. This essay
structure is divided into 2 sections, with the first section examining
arguments that support the essay question and the second section examines
arguments that oppose the question.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

 

Firstly, many large companies believe that due to their vast output
and impact on society, they have a responsibility to their stakeholders to act
in a socially conscientious fashion. As a result, companies set sustainable
development goals, which are regarded as ethical responsibilities according to
the Carroll (1991) CSR Pyramid. Adding onto this, these ethical obligations can
ultimately continue the success of a company and lead to high margins
(Baumgartner and Ebner, 2006). These obligations are generally the same for all
stakeholders (Carroll, 1991); as all groups of interest want to be treated with
respect and for their rights to be protected. In line with Baumgartner and
Ebner’s argument, (Azmi, 2006) proposes that a strong ethical stance is
essential to economic growth of a company. Daimler AG, the German parent
company of Mercedes-Benz, lists promoting diversity, which can be deemed an
ethical responsibility, as one of their sustainable development goals. Daimler
boasts an incredible 282,488 employees from 156 different countries. What’s
more, the number of diverse employees from an incredible array of countries
with varied specialisations, can result in higher morale, stability and
relations within the workforce. This can ultimately lead to greater
productivity and manufacturing of Mercedes-Benz automobiles, and subsequently
promote Mercedes Benz’s growth. Therefore, the arguments made that suggest ethical
responsibilities benefit stakeholders, with reference to Carroll’s CSR Pyramid,
leading to a company’s growth, are valid.

 

According to Freeman (1984), who developed the Stakeholder Theory,
it is of great importance for companies to fulfil obligations that are
economic, legal, ethical and philanthropic, in the interest of all stakeholders.
Based on the Stakeholder Theory, (Stiftung, 2013) believes that following
sustainable development and CSR strategies, offers companies intangible assets
i.e. an enhanced brand image and greater acceptability of the company.
Moreover, The UK Small Business Consortium (2006) states that 88% of consumers
would associate with companies that partook in sustainable development and
ethical strategies. The consumer support and enhanced brand image of such
companies, can have a desired increase in sales. In line with what Stiftung
argues, Avlonas and Nassos (2013, p20) believe that there’s been a worldwide
growth in ‘consumer education’ and ‘social consciousness’, This thereby
influencing companies to publicise their brand image as green-orientated, in an
attempt to potentially generate positive growth of the company. Additionally, Level
4 of the Carroll CSR Pyramid, differs from the other levels of the CSR Pyramid.
 Level 4, the philanthropic obligations
of a company, aims to ‘address societal needs and prioritize them over
short-term profit maximization’ (Szekely, Dossa and Hollender, 2017, p 52). To
further illustrate these arguments, I’ll refer to some of Daimler’s sustainable
development goals.  Daimler (2016) has
water conservation strategies enforced in some Mercedes Benz production regions
i.e. Brazil and Mozambique. Furthermore, Daimler aims to manage sustainable
water developments in these countries, by offering training programmes to local
farmers and installing steady water supplies. These strategies by Daimler, with
reference to Carroll’s CSR Pyramid, can be regarded as both ethical and philanthropic
responsibilities, as Daimler means to go above and beyond their call of duty,
to benefit the local community of the countries in which they operate.
Subsequently, such kind acts by Daimler, show their effective sustainable
development and moral compass. Even though this Daimler water conservation project
lasts 2 years, till 2018, the influence on impressed consumers and ultimately
the improved Mercedes-Benz brand image would be long-lasting. This results in a
positive correlation with the growth and success of Mercedes-Benz.
Mercedes-Benz realise that following sustainable development goals which
satisfy all stakeholders can potentially maximise profits, and takes precedence
over simply pleasing shareholders.

 

 

 

Elkington (1998) coins that the key to sustainable development is
through social, environmental and economic measures. Through this idea,
Elkington proposed the Triple Bottom Line which is another way of measuring
sustainable development. The Triple Bottom line differs from the conventional bottom
line which solely focuses on a company’s net income to evaluate performance. Applying
this theory, (The Sigma Guidelines, 2013) emphasises the importance of
sustainable development in providing a company’s competitive advantage and
added value, as well as other benefits such as improved innovation prospects and
maintaining shareholder value.  According
to (Schulz and Flanagan, 2016) many Fortune 100 companies significantly utilise
parts of the Triple Bottom Line to measure their performance. To exemplify these
arguments, I’ll refer to Samsung, that presents the 3 components of the Triple
Bottom Line in their sustainability accounting report. Samsung provides users
with information regarding human rights protection such as their Child Labour
Prohibition Policy. This information can be deemed the social obligation of the
Triple Bottom Line, yet can also be deemed as a legal obligation according to
Carroll’s CSR Pyramid. Furthermore, one of Samsung’s environmental obligations
is explored through their entertaining 3-day Environment & Safety Innovation
event, which educates their employees on sustainability measures. Educating their
employees, creates awareness of sustainable development strategies and can improve
operating efficiencies within the company and relations between employees and
top management. These sustainable development obligations that Samsung
undertake can ultimately help them to financially grow.

 

On the other hand, sustainable development strategies don’t always
lead to the success and long-term growth of a company. To illustrate this
statement, I’ll refer to the Friedman (1970) Traditional Management Model,
which asserts that a company’s main focus and drive should be to satisfy
shareholders, by chiefly maximising profits. This model is based on the
conventional Bottom Line theory. McWilliams and Siegel (2001) propose that
there’s no correlation found between ethical responsibilities and a company’s economic
standing. Therefore, this suggests that sustainable development plays no role in
a company’s long-term growth. Moreover, this proves Friedman’s theory valid,
that companies should focus on pleasing shareholders, not stakeholders. Not
only that, but Maddox (1995, p 305) also states that with relation to
sustainable development, it’s not ‘possible with any certainty to know what
future needs will be’. This implies that there’s a certain risk to following
sustainable development goals, and means some companies may be unable to reap
the rewards of higher profits. An example of a company that failed with
sustainable development and CSR strategies was Unilever. According to Borelli (2017),
Unilever once a renowned sustainable company, tackling global warming and
social injustice, found itself in disarray. Although Unilever followed some
sustainable development goals through social and environmental measures, the
company was found to have been involved in collusions with rivals, sexual
harassments claims and environmental disputes. This Unilever example proves that
sustainable development strategies were actually worthless in the key to the
company’s success and economic growth. Also, Unilever’s downfall suggests a
company can have sustainable development strategies and reports, which are
their ethical obligations, yet still be engrossed in unethical practises.

 

According to Pearce and Atkinson (1993), measuring sustainable
development strategies comes with many struggles due to the form of indicators
used such as the FTSE4Good Index and the Index of Sustainable Economic Welfare
(ISEW). This argument suggests that measuring a company’s success and growth
based on sustainability and CSR, can be problematic and imprecise as the indicators
are merely projections ans estimates. In line with the prior argument, Stiftung
(2013) states that practically there aren’t any arranged methods for CSR
measurement. This subsequently makes completing social responsibilities somewhat
difficult for companies that wish to account for their CSR performance. An
example of a CSR indicator is the Corporate Responsibility Index (CRI), which
is described as ‘a voluntary, self-assessment survey'(Hopkins, 2005, p218). The
fact that the CRI is self-assessed raised issues of biasness, unreliability and
verifiability of such indicators to measure CSR. To exemplify these arguments,
I’ll refer to the pharmaceutical company Johnson & Johnson and their
sustainable development strategies. Johnson & Johnson successfully completed
their 5-year pledge as part of the Millennium Development Goals. In the process, the company helped improve the lives
of 400 million women and children, by making childbearing safer and reducing
HIV contagions. These philanthropic obligations by the company, help the
company stand in good stead and unsurprisingly Johnson & Johnson is
ranked in the top 5 of the FTSE4Good US Index, as at November 2017 (FTSE,
2017). The FTSE4Good Index Series is used to generate tracker funds and measure
performance levels. However, Johnson & Johnson’s net earnings fell from
$3.83 billion in Q2 2017 to $3.76 billion in Q3 2017 (Johnson & Johnson,
2017). These findings suggest that although Johnson & Johnson is most
dutiful to philanthropic and ethical obligations, their economic obligations to
generate profits for shareholders, have been neglected. In addition, Johnson &
Johnson following sustainable development strategies, has seen a fall in their
net earnings, and therefore a fall in economic growth of the company.

 

The publication of sustainability accounting reports is part of the sustainable
development process, detailing the company’s sustainable development strategies,
and which follow social, environmental and economic obligations. These publications
are available to all interested parties of the company, including employees and
stakeholders and report the company’s fulfilment of strategies. Bent and Richardson
(2003) define sustainability accounting as ‘the
generation, analysis and use of monetarised environmental and socially related
information in order to improve corporate environmental, social and economic
performance’. Additionally, governments follow different reporting
frameworks of sustainable development, with respect to the United Nations (UN)
and European Union (EU) standards (ACCA, 2010).

 

I have explored the relationship between sustainability development with
its associated sustainability accounting reports and financial development of a
company. Sustainability development and sustainability accounting reports have
benefited these companies by offering a long-term solution to financial
development, as to merely economic obligations which offer a short-term
solution. A company that solely maximises profits runs the risk of satisfying
shareholders in the short-term, as shareholders are prone to sell and invest
their shares in other more laudable companies and ventures. Countless large
publically listed companies have utilised sustainability accounting reports based
on Carrol’s CSR Pyramid and the Elkington’s Triple Bottom Line, and have formed
strong relationships with stakeholders and seen improvement in customer loyalty,
which have enhanced the companies’ performances in the long-term.