Find out how businesses can be sustainable, even when they are coming from industries that are perceived to do the opposite.

Businesses now are jumping on the bandwagon of being sustainable, especially those who are in the industries that are perceived to be damaging the environment. Take the chemical industry for example. A study entitled ‘Sustainable Value Creation by Chemical Companies’ reveals if such companies were to increase their sustainability performance, global chemical companies could release at least €1 billion in cash flow.

Among the researchers involved in this study is Professor Frank Figge. He holds the Chair of Management and Sustainability at the Management School of Queen’s University Belfast.

Figge has been one of the early developers of the “Sustainable Value” approach and before joining academia full-time, he worked as a consultant in the field of corporate sustainability in general and sustainable finance. His main research interests are Corporate Social Responsibility, Sustainable Business, Sustainable Finance and Valuation, Social and Environmental Accounting, Stakeholder Management and the Economics and Management of Diversity.

Business Today had the chance to know more about the area of studies conducted by Figge and his team, as well as the overall outlook of sustainability in an exclusive email interview. The first part of this interview will discuss the concept of sustainability and how is it applied in businesses.

Business Today: There is a growing awareness of the concept of sustainability globally and with that comes various definitions. What is your definition of sustainability and how does it affect businesses?

Frank Figge: We need to distinguish between two levels. There is on the one hand the societal, and on the other hand, the corporate level. Sustainable Development is a societal concept that is of relevance to corporations. Essentially a sustainable business is a business that can go on forever in a society. This definition has an important shortcoming – it ignores equity concerns. Both business practitioners as well as researchers struggle to include equity concerns in their work and definitions.

BT: How did these companies respond to the increasing pressure of being sustainable?

Figge: Let me put this in a provocative way. Companies are often criticised for ignoring the demands of society. What is usually not acknowledged is that there is another problem. Society is not picking up the information that is published by companies. We are often stunned when we see that relevant stakeholders, take financial analysts for example, are completely unaware of the information published by companies, or do not know how to process the information.

What we are increasingly experiencing is that companies question the value of producing all of this quantitative environmental and social information in the light of the apathy of some of the stakeholders. It is quite troubling when reporting awards are given out to companies that do not only publish data that is misleading and sometimes even wrong, or that provide only anecdotal evidence of their contribution to sustainability.

BT: Your team published the ‘Sustainable Value Creation by Chemical Companies’ study in 2009. Why chemical companies?

Figge: The chemical industry is an important industry both in terms of the environment as well as the economic impact. There is probably no other sector that has been challenged as much on its sustainability performance.

Another important point is that the chemical industry is rather advanced in its sustainability reporting. We require good quantitative information on the environmental, social and economic performance of companies to calculate Sustainable Value. Interest of the industry and funding are of course also important. We found all of that in the chemical industry.

BT: What are the major findings in your research of chemical companies?

Figge: There is a significant spread between the efficiency of resource use of the chemical companies that we looked at. Dow is for example underperforming its peers by more than € 2 billion in 2007. What this number means is that if the resources such as CO2-emissions had been used by the Dow’s peers there could have been more than € 2 billion more cash flow. Expressed in relative terms Dow’s competitors use their resources on average 1.8 times more efficiently than Dow.

BT:Prior to the team’s research of chemical companies, you published the ‘Sustainable Value in Automotive Manufacturing’ and you released its second edition in 2009. Can you tell us more about the industry and the difference in findings between both editions?

Figge: We have actually done some studies before our automobile study. These studies were generously funded by the European Community and the German government. We have since done some sector studies. The automobile study is, as you mention, now in its second edition.

It’s actually not changes in the findings that surprised us most. It is the state of the sustainability reporting that stunned our research group. We had expected that sustainability reporting would continuously improve and that is not the case. One of the automobile producers had for example ceased to report most quantitative environmental data in one year. Other automobile manufacturers are still not providing data on a group level. Imagine the outcry if a company would not provide its profit figures on a group level.

A lot of the data is actually quite patchy. What is most striking is that all those critical stakeholders do not appear to pick up how poor data quality is to date. There is for example a major European car manufacturer who makes somewhere between 1 and 2 million tons of CO2 disappear from its sustainability reporting through an accounting trick. This is going unnoticed by the relevant stakeholders – much to our amazement.

BT: Are there any overlapping conclusions between the automotive manufacturing and chemical companies’ research?

Figge: We arrive at even more drastic figures for the automobile sector. General Motors’ (GM) underperformance in 2007 amounted to almost € 10 billion operating profit. The average automobile company would have created almost € 10 billion more operating profit had they been given the economic, environmental and social resources that GM employed.

When you look at the findings in more detail you can make some interesting observations. The emission of Volatile Organic Compounds (VOC) is such an example. VOCs are mainly related to painting processes. There are technological solutions to this problem and only some of the automobile manufacturers appear to have implemented them. Again – what amazes us is that this data is publicly available but it does not appear to be used at all.

BT: What are some of the challenges you face throughout the research?

Figge: The biggest single challenge that we always face is data availability. We need comparable corporate environmental, social and economic data. When you look at profit figures for a company you have come to expect that it covers the entire company and not just some selected parts of the company. The reporting on environmental and social data has not yet reached the same level.

When we work with this data we have to make sure that all the data has the same coverage. We frequently have to correct data and that can be quite a challenge. It is not that different from the work that financial analysts sometimes have to do but with one important difference – we need to cover not only economic but also environmental and social performance data. We spend a lot of time – probably close to 80% of the time spent on the studies altogether – working on data quality.

Expanding the time frame is therefore a significant additional burden. The more we go back the more time intensive data mining becomes – and the less data is actually available. We are always trying to have three or four years of data when we start and we can then add to the time frame when we revisit a sector.

Read more of Professor Frank Figge’s take on sustainability among businesses and how they can achieve positive Sustainable Value in next month’s edition of Going Green.