Download sustainability helpsheet: key definitions and related

SUSTAINABILITY HELPSHEET:
KEY DEFINITIONS AND RELATED TERMS
Key Definitions
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Corporate Citizenship
Corporate Responsibility
Sustainability
Sustainable Development
Related Terms
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Carbon emissions trading
Climate change, greenhouse gases and the greenhouse effect
Code of ethics
Community investment
Corporate governance
Corporate social responsibility or sustainability reporting
Ethical consumers
Ethical trade
Ethical procurement
Greenwashing
Licence to operate
Materiality
Philanthropy
Socially Responsible Investment (SRI)
Stakeholders
Sustainable business practices
Triple bottom line
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Key Definitions
Corporate Citizenship
= the term used by some organisations to encompass the role and responsibilities of business in wider
society, through the services they provide and how they interact with their people, clients and their local and
global communities.
Corporate Responsibility
= the actions, activities, and obligations of business achieving sustainability. In order for businesses to be
sustainable in the long-term, the resources they rely on must also be sustainable. These include not just the
necessary raw materials and energy, but also the less tangible resources that are increasingly important to
the successful enterprise today - our human and intellectual capital, our relationships with communities,
governments, consumers and other stakeholders. To ensure they deliver value to their shareholders,
businesses must respond to the needs and priorities of their stakeholders and not exhaust the world’s capital.
Corporate responsibility should be seen as a strategic business issue: an increasing number of businesses
are realising that addressing their social and environmental impacts has a positive effect on their economic
performance.
Sustainability
= the ability or capacity of something to be maintained or sustain itself, ie, a world in which our resources
are at least maintained and not depleted so that we can support ourselves and future generations. It reaches
beyond the environmental and includes such concepts as social and economic justice, wellbeing,
relationships and the creation of human capital.
Sustainability is often considered under three key headings: social, environmental and economic. To achieve
sustainable success, these three issues must be addressed and balanced, not just the concrete issues such
as raw materials or energy use, but also less tangible ones such as relationships with stakeholders and
employees that are increasingly important to the modern enterprise in today’s ‘age of information’.
Sustainable Development
= development which meets the needs of the present without compromising the ability of future generations
to meet their own needs (Bruntland Report, 1987). It is the process by which we achieve sustainability.
Related Terms
Carbon emissions trading
This is a market-based approach to reducing atmospheric GHG concentrations, revolving around the trading
of permits for emitting carbon dioxide (and other GHGs, calculated in tonnes of CO 2 equivalent, tCO2e).
The EU emissions trading system (EU ETS) is a principle part of the EU’s policy to combat climate change
and is a key cost-effective tool for reducing industrial GHG emissions. It covers more than 11,000 power
stations and industrial plants in 31 countries, as well as airlines.
The EU ETS works on the ‘cap and trade’ principal, where a limit is set on the total amount of GHGs that can
be emitted. This cap is then reduced over time so that total emissions fall.
Within the cap, companies receive or buy emission allowances which they can trade with one another as
needed. The limit on the total number of allowances ensures that they have a value. Each year a company
must surrender enough allowances to cover all its emissions, or be burdened with heavy fines. If a company
reduces its emissions to significantly less than their allocated emissions allowances, it can keep the space
allowances to cover its future needs or else sell them to another company that is short of allowances. The
flexibility that this type of trading brings ensures that emissions are cut where it costs least to do so.
Climate change, greenhouse gases and the greenhouse effect
Climate is the average weather experienced over a long period. This includes temperature, wind and
rainfall patterns. The Earth’s climate is not fixed, and in the past has fluctuated significantly in response to
a variety of natural causes. However, the warming of the Earth by 0.85°C between 1880 and 2012 was at
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an unprecedented rate compared to any other time over the last millennia according to the 2013 Fifth
Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC). This report states
that ‘it is extremely likely that human influence has been the dominant cause of the observed warming
since the mid-20th century’.
This climatic warming has principally been caused by the anthropogenic release of greenhouse gases
(GHGs). As GHGs build up in the atmosphere, they strengthen the “greenhouse effect”, which is the
natural phenomenon where GHGs trap the sun’s rays in the atmosphere therefore causing the temperature
to rise. At present, over 30 billion tonnes of CO2 are emitted globally each year by burning fossil fuels and
another 7 billion tonnes by changes in land use, mainly deforestation. The current concentrations of GHGs
in our atmosphere at higher levels than any other time in the past 650,000 years at least (UK Department
for Energy and Climate Change).
Each GHG has a different capacity to cause global warming, depending on its radiative properties, its
molecular weight and its lifetime in the atmosphere (DEFRA, 2006). Limiting climate change will require
substantial and sustained reductions of all greenhouse gas emissions (IPCC, 2013).
In 1997, the first international climate agreement, the Kyoto Protocol, was signed. It came into force in
2005, setting emission reduction targets for six GHGs and committing its Parties to setting internationally
binding emission reduction targets. The 2015 Paris Climate Conference achieved this, finally setting a
legally binding and universal agreement on climate signed by 196 countries, with the aim of keeping global
warming below 2°C.
Code of ethics
The main aim of a code of ethics is to provide employees with guidance on values, ethical behaviour,
corporate culture, risk management, reputation and sustainability. See the Institute of Business Ethics for
more details (www.ibe.org.uk). It is the core element of an organisations ethics policy which sets their
commitment to high ethical standards and the management of integrity risks. A code of ethics translate the
organisations values and its commitments to stakeholders into the way it will operate. For employees (and
other business partners) it will set out expected behaviours and provide guidance around the ethical
challenges and issues material to the organisations.
Community investment
Rather than one-off donations, companies are investing in long term community partnerships with charities
and community organisations, and linking community causes to commercial objectives. This is often called
community investment, or strategic philanthropy. By addressing social interests, the company protects
corporate interests and enhances its reputation.
Corporate governance
Corporate governance is the system by which companies are directed and controlled. Boards of directors
are responsible for the governance of their companies. The shareholders’ role in governance is to appoint
the directors and the auditors and to satisfy themselves that an appropriate governance structure is in
place. The responsibilities of the board include setting the company’s strategic aims, providing the
leadership to put them into effect, supervising the management of the business and reporting to
shareholders on their stewardship. The board’s actions are subject to laws, regulations and the
shareholders in general meeting.
Corporate social responsibility or sustainability reporting
Reports published by companies on an annual or biennial basis to show how a company’s social,
environmental, economic and governance impacts are being managed over time. It should also present the
organisation’s values and governance model, and demonstrate the link between its strategy and its
commitment to a sustainable global economy. Sustainability reporting enables organisations to consider their
impacts on a wide range of sustainability issues, enabling them to be more transparent about the risks and
opportunities they face.
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Ethical consumers
Consumers that factor social and environmental concerns into their purchasing decisions. Predominantly, it
means buying products which were ethically produced and/or which are not harmful to the environment and
society.
Ethical trade
This refers to the trade of goods produced under conditions that are socially, environmentally, and
economically responsible. This includes ensuring products are manufactured in a sustainable way,
prohibition of forced or child labour, fair wages for workers, fair trade and promotion of biodiversity and
environmental conservation.
Ethical procurement
Pressure from human rights and environmental campaigners along with rising expectations from consumers
has forced multi-national companies to examine their supply chain for issues such as health and safety,
labour rights and environmental standards. Codes setting out minimum requirements for suppliers are
becoming standard practice for responsible companies who must be increasingly aware and on the lookout
for signs of unacceptable practice.
Greenwashing
This is a practice where a company or organisation spends more time and money claiming to be ‘green’
through advertising and marketing than actually implementing business practices that minimise
environmental impact.
Licence to operate
This refers to the ‘permission’ societies give to companies to conduct their activities – it exists when a project
has the ongoing approval within the local community and other stakeholders. In order to achieve and maintain
this, companies must meet the expectations of society. Thus companies are constrained to meet the
expectations of society and to avoid activities that societies (or influential elements within them) deem
unacceptable.
Materiality
In accountancy, the Principle of Materiality states that an accounting standard can be ignored if the net impact
of doing so has such a small impact on the financial statements that a reader of the financial statements
would not be misled. In other words, it determines the relevance and significance of an issues to an
organisation and its stakeholders. A material issue is an issue that will influence the decisions, actions and
performance of an organisation or its stakeholders.
Philanthropy
This refers to the voluntary donations that a company makes to charities or community organisations. The
term was originally used to describe wealthy industrialists such as Andrew Carnegie, Robert Bosch and
Jesse Boot, who all donated part of their wealth to charitable causes. Today, it is common business practice
for companies to make voluntary donations to charities, often as part of a community investment programme.
Socially Responsible Investment (SRI)
A socially responsible approach to investment is one that looks to maximise the financial return whilst taking
social and ethical considerations into account.
There are different types and levels of SRI: some socially responsible investors may avoid investing in certain
sectors (e.g. arms or tobacco), or in companies with poor environmental or human rights records. Others
may invest in a company if it has put certain measures in place (e.g. an environmental management system).
Another kind is called best in class, where investors invest in the most socially responsible in a particular
sector.
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More generally, SRI can also be used to describe ‘mainstream’ investment that takes sustainability
considerations into account to some extent (rather than them being the key criteria for ruling investments in
or out). The ideas behind this principle can be said to date back to the 18th century when the Quakers
prohibited members from investing in the slave trade.
Stakeholders
Stakeholders are those people that affect or are affected by an organisation. Key stakeholders tend to include
investors, partners, suppliers, employees, customers, government, regulators, NGOs, local communities,
media and educational establishments.
Sustainable business practices
Sustainable business practices describe the incorporation of social and environmental concerns into
business operations and decision-making.
Triple bottom line
Triple bottom line is an accounting framework that incorporates three dimensions of performance: social,
environmental and economic. The phrase was coined by John Elkington to refer to expanding the traditional
“bottom line” of financial reporting to include economic, environmental and social performance. Interest in
triple bottom line accounting has been growing across for-profit, non-profit and government sectors.
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