Economic Sustainability

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Economic Sustainability
The business of staying in business

Deborah Doane & Alex MacGillivray
New Economics Foundation

March 2001

Executive Summary

Although sustainability is now generally understood to be a combination of environmental, social and economic performance, this report finds that economic sustainability is the most elusive component of the “triple bottom line” approach. There is not even universal consensus that businesses should be economically sustainable, though most concur that sustainability is desirable to prevent the devastating and inefficient impacts of corporate premature death.

Finding out how businesses actually stay in business is a different and altogether more difficult matter. It is the obvious case that most businesses most of the time manage their economic performance pretty effectively – so why ask how they do it. Despite the excrescence of management handbooks purporting to share the secrets of highly effective businesspeople, it is also the fact that few successful business strategists are willing to share their techniques – for obvious reasons.

There turn out to be surprisingly few tried, tested, accepted, available and affordable management tools and systems for use by the up-and-coming ‘economic sustainability manager’. And it turns out that this is in fact a job-share spread between finance teams, investor relations, strategy units, brand managers, corporate comms, risk assessors, the board, HR, IT and so on – in a way that can look just a bit haphazard from the outside at least.

Innovative concepts like intellectual capital and interesting techniques like brand valuation are beginning to make some inroads into this confusing terrain. Managing ‘sustainability’ – whether the starting point is economic, social or environmental – can help many organisations escape from what they themselves consider a short-termist, profit-and-sales oriented straightjacket they have been stuffed into, and into a more strategic environment that enables steady growth of economic value-added, a planned accumulation and distribution of increasingly intangible assets, and prudent management of risks and opportunities.

The key findings are:
1.Most existing ‘sustainability’ management tools and systems are mainly written by environmentalists and social scientists. Some do refer to economic sustainability but are so sketchy that they would be inadequate for actually managing a real business (“Look, this should be taken really seriously, okay, it’s got financial stuff in it, and everything”). 2.Fortunately, though, they are not really aimed at economic sustainability managers (ESMs), who instead have a relatively well-known (if limited and creaky) set of financial indicators to rely on. These are historical and focus mainly on turnover, profit, and for PLCs, market capitalisation and earnings per share (“It’s accurate, alright, but it’s pretty misleading”). 3.Unfortunately, in a harsh climate where corporate actions and investor expectations are at an all-time high, companies that manage financial performance using only these narrow indicators risk premature death (“or even worse, a copy-cat hostile takeover”). 4.No amount of excellent social and environmental performance will prolong the life of a company that is economically unsustainable, nor are green and community values necessarily good gauges for longevity (“The Sinclair C5 was a lean, green machine; it’s so unfair”); 5.A broader perspective on how to manage economic performance is emerging, based around brand, intangible assets, reputation, full cost accounting, ability to add value and manage knowledge (“It’s not just about giving ourselves a weird new name – though that might help too”). 6.It is still early days for the developers and promoters of workable management techniques, with technical, commercial confidentiality and political obstacles to overcome (“We could tell you how we do it, but then we’d...
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