[The following post is re-blogged from SAGE Business Cases. Click here to view the original article.]
Sustainable business practices are good for the environment, but can they also be good for a company’s bottom line? Instead of lowering the costs of its services, leading express courier DHL is setting itself apart from the competition by working to promote sustainability in Asian supply chains. Collaborating with the National University of Singapore (NUS) to establish the Sustainable Supply Chain Centre of Asia Pacific, DHL believes their green approach will benefit not only the planet but also their business, industry, and higher education.
Examining DHL’s decision, Deborah de Lange wrote a case study for SAGE Business Cases, enabling students to consider how sustainability is applied in a global marketplace and how multiple stakeholders, including civil society organizations, can influence business. We are pleased to share our interview with Deborah, an assistant professor of Global Management Studies at Ryerson University, as the latest installment of our Case In Point series, containing insights from thought leaders in business and management. Read her interview below and check out her full case study, “Corporate Responsibility and Sustainability: DHL, the National University of Singapore, and the Asia Pacific Sustainable Supply Chain Centre,” which is free-to-read for a limited time.
1. Your case focuses on DHL’s partnership with the NUS to create the Sustainable Supply Chain Centre of Asia Pacific. Can you tell us a bit more about DHL’s and NUS’s roles as stakeholders in this partnership?
The university is part of a government strategy to make Singapore an international logistics hub. Partnering with DHL is aligned with this mandate. DHL gains business in Singapore and develops a launch pad into the very large Asian market, it builds its brand with students who are the next generation customers, and has access to a capable student labor pool. NUS gains a partner in DHL with international reach who will hire its students and as mentioned reinforce a goal for Singapore.
2. Can you explain briefly the three pillars of sustainability (social, environmental, economic) and how they interact with each other?
Sustainability is about incorporating social justice and consideration for natural systems into positive economic outcomes with future generations and a long-term view in mind. Societal actors together with the natural environment are a firm’s stakeholders and thus, sustainability requires a stakeholder perspective. This has not been a past focus, thus having led to many of the negative consequences we are experiencing today. A firm normally requires profit to reinvest in its development for improved products, services, and operations. Unfortunately, corporate governance has been weak and as a result, profits have not always been reinvested for these purposes and, instead, have excessively lined the pockets of those who have been in control. This corruption of capitalism is a core issue. In many ways, the concept of sustainability represents the resuscitation of capitalism.
Profitability must include a calculation of all of a firm’s costs, not just the ones that the taxation agency, shareholders, or the auditors can quantify. If a firm is truly operating profitably, it does so on a triple bottom line basis meaning that it takes into account social and environmental costs. In fact, a sustainable firm can be more competitive because it produces socially and environmentally attuned offerings. A firm is embedded in the society and natural environmental in which it operates so, if it operates in harmony with these facets of life, it will serve them better and derive economic benefits as a result. Sustainability offers a positive feedback loop for a firm, once it figures out how to operate sustainably. This has been challenging because of past paradigms that dominate our economic landscape. However, we know that the ability to learn, adapt and change is primary for survival and this is what sustainability ultimately means.
3. Can you talk about the relationship between sustainability and a “race to the top”?
A “race to the top” essentially means that firms compete on producing better products and services under improved labor and environmental conditions. This concept is associated with a circular economy as stated in European Union strategy and in the United Nations Global Compact principles, underpinned by the United Nations Sustainable Development Goals (SDGs) and the Universal Declaration of Human Rights. Under this paradigm, firms compete on ever improving labor and environmental standards. The resulting sustainable products and services support a higher standard of living, for obvious reasons that consumers, communities and the environment benefit from them, and produce positive externalities for more sustainable development. It is like a positive upward spiral where one positive activity spurs many others. Firms that collectively compete on this basis reduce the phenomenon of the “Tragedy of the Commons” rather than aggravate it. They may even give back to and enhance the commons. Ultimately, the pie increases with a race to the top and sustainable development. Everyone gains from this, including firms and their stakeholders.
This contrasts with a “race to the bottom,” where firms narrowly obsess over lowering costs without considering a more holistic view inclusive of revenue and profit growth. They ignore social and environmental consequences, leaving society to pay for the firm’s costs. As an exemplar, we can think of the outsourcing that has occurred to enormous production facilities where thousands of people spend their days under soul-crushing circumstances, and the consequent negative externalities – consequences for workers’ health, families, communities, and beyond. Lowering costs to an extreme may conveniently increase profits in the short term, but this does not support growth in the short or long term because revenues are often stymied by a lack of investment. It makes sense to reduce costs associated with useless slack relating to over paid corporate executives and their perquisites, but it does not make sense to reduce costs that represent beneficial investments fostering growth. Firms must understand the balance that this entails. They must also understand that their activities have grave consequences for the societies that host them and that there are consequences, as a result of those costs that they did not recognize – the consequences return to haunt them. Think of an economy-wide death spiral where negativity creates more consequences that are negative. Ultimately, firms need strong corporate governance supported by boards of directors possessing sound judgement together with robust internal risk management and information systems.
In fact, many firms prefer a race to the top and are moving in this direction, but they would like local governments to support their initiatives on a broader politico-economic and consistent basis. This means that governments must develop and maintain long-term policies focused on sustainable development. For example, subsidies must go to strategic sustainable infant industries on a predictable basis but must stop when these industries are mature enough to stand on their own. Otherwise, they crowd out the next generation of technologies leaving firms that are “too big to fail” and competition too weak to fill the gaps. Governments must resist particularly powerful special interest groups and their corporate lobbies. Instead, by working towards a circular economy, governments support sustainable development and diversified leading edge economies. They align with the most sustainably competitive businesses that would contribute to improving their societies. Our future generations deserve a better world and our economies can work toward this principle with longer-term view.
4. As we continue to globalize, how important would you say it is for business students to learn to consider sustainability in their decision-making?
As suggested by the previous comments, sustainability means survival. Business students need to understand sustainability as not only core to strategy but, critical for the survival of their organizations, whether for- or non-profit. All of our organizations are embedded in societies and the natural environment. If you destroy your fish bowl, you no longer have one to live in. Unfortunately, we are facing an Anthropocene where humans are determining the fate of the planet. On a positive note, this means that our choices make a difference, but we have to collectively make the right ones every single day. Business students have to learn to make sustainable decisions in keeping with concepts such as the circular economy, the principles of the Global Compact, and the UN sustainable development goals.
Learn more by reading the full case study, Corporate Responsibility and Sustainability: DHL, the National University of Singapore, and the Asia Pacific Sustainable Supply Chain Centre from SAGE Business Cases, open to the public for a limited time. To learn more about SAGE Business Cases and to find out how to submit a case to the collection, please contact Rachel Taliaferro, Associate Editor (firstname.lastname@example.org). Read the last Case In Point post, titled Managing Inventory to Maximize Profit.