CORPORATES AND SUSTAINABLE DEVELOPMENT

8/7/2019 CORPORATES AND SUSTAINABLE DEVELOPMENT

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CORPORATES AND SUSTAINABLE

DEVELOPMENTManureet Riar*

Nidhi Grover**

The world is now confronted with the challenge of optimizing the use of the

currently available resources in a way to meet the needs of the present generation without

compromising on the requirements of the future generation. In more technical terms,

sustainable development is the need of the hour. The needs for efficient use of resources

and environment friendly corporate policies and behaviors have now been recognized all

over. Corporations have the ethical responsibilities to become a more active partner in

dealing with social concerns. Businesses must creatively find ways to become a part of

the solutions rather than being part of the problems. Corporations must develop an

environmental conscience to protect the global environment.

This paper discusses various concepts that the businesses must adopt in order to

achieve Sustainable Development. The 16 principles given by the International Chamber

of Commerce, World Business Council for Sustainable Development and Business

Charter for Sustainable Development have also been discussed. Benefits of these

principles to corporate are also mentioned. Relevant literature has been reviewed.

*Research Scholar at GNDU, Amritsar

**Junior Research Fellow at GNDU, Amritsar


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INTRODUCTION

This is the century of the economic boom. There is a hurry to reap as many

benefits in as little time as possible. All the demands of developing and developed

nations require the manipulation of natural resources. No economy can survive without

coal, petroleum, electricity, wood and steel. Industries cannot run until they are fed these

precious and stealthily depleting resources. It is in demanding times like the present that

the world has become aware of how these resources are fast depleting. If these resources

are not utilized efficiently, soon a day will come when our future generations will not

even have drinking water, let alone all the other facilities we take for granted.

Nowadays, several well established environmental trends are shaping our future

of civilization including population growth, rising temperature, shrinking cropland per

person, shrinking forests, and the loss of plants and animal species. First, world

population grew by 3.7 billion in the past 50 years with 2% of the world average annual

birth rate (Potts, 2007). At this birth rate the world population is expected to reach

approximately 9 billion in the next 50 years (Gilland, 2006). The second trend affecting

the entire world is a temperature rise caused by the increasing atmospheric concentrations

of carbon dioxide. As a result, the modest temperature rise phenomenon is melting ice

caps and glaciers. Third, the world wide shrinkage in cropland per person is making it

more difficult to feed the growing population adequately over the next few decades and

to satisfy the demand for food over the next half century. Fourth, human demands

devastate the forests resulting in deforestation. Over the past half century, the worlds

forested area has shrunk substantially, with much of the loss occurring in developing


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countries. Finally, the irreversible trend that will affect the human prospect most is the

accelerating extinction of plant and animal species. The leading cause of species loss is

habitat destruction, followed by the habitat alterations due to rise in temperatures and

environmental pollution. As more and more species disappear, local ecosystems begin to

collapse. In the near future, humanity will face wholesale ecosystem collapse (Brown,

2000).

The effects of environmental destruction are getting worse increasingly. Our

rivers and lakes are dirty and our air is unclean. The planet is warming and its protective

ozone is depleting gradually. Lush forests are disappearing along with countless species

of plants and animals. As the world population has multiplied, most of the worlds

wetlands have disappeared. The dry land is in danger of turning into deserts, and

groundwater is facing serious depletion. As a result, the Earth is losing its capacity to

provide the continuous supply of food necessary for our survival, threatening our

economic well being and ultimately our survival.

Over the past 25 years the ecologically destructive consequences of non

sustainable social and economic forms of behaviour in the industrial and developing

countries have come increasingly to the forefront of scientific interest and of public

perception. Today environmental problems occupy the investigative committees of

various legislative bodies, are the subject of important publications, and in the minds of

many people present the most urgent challenge facing human kind.

The world is now confronted with the challenge of optimizing the use of the

currently available resources in a way to meet the needs of the present generation without


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compromising on the requirements of the future generation. To add to this, now it is also

imperative that our fragile environment suffers the least damage possible. In more

technical terms, sustainable development is the need of the hour.

Sustainable development is a difficult concept to define; it is also continually

evolving, which makes it doubly difficult to define. One of the original descriptions of

sustainable development is credited to the Brundtland Commission: "Sustainable

development is development that meets the needs of the present without compromising

the ability of future generations to meet their own needs" (World Commission on

Environment and Development, 1987, p 43). Sustainable development is generally

thought to have three components: environment, society, and economy. The well being of

these three areas is intertwined, not separate. For example, a healthy, prosperous society

relies on a healthy environment to provide food and resources, safe drinking water, and

clean air for its citizens. The sustainability paradigm rejects the contention that casualties

in the environmental and social realms are inevitable and acceptable consequences of

economic development. Thus, the authors consider sustainability to be a paradigm for

thinking about a future in which environmental, societal, and economic considerations

are balanced in the pursuit of development and improved quality of life.

It has become quite clear that environmental problems are substantial, and the

economic growth contributes to them. A common response is stricter environmental

regulation, which often inhibits growth. The result can be a trade-off between a healthy

environment on the one hand and healthy growth on the other. As a consequence,

opportunities for business may be constrained. However, there are some forms of


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development that are both environmentally and socially sustainable. They lead not to a

trade-off but to an improved environment, together with development that does not draw

down our environmental capital. This is what sustainable development is all about- a

revolutionary change in the way we approach these issues.

The business that has maximized the profit, i.e., it has an excellent economic

performance, and has resulted in environmental damage cannot be sustainable. Paul

Hawken published a book, The Ecology of Commerce in 1993 in which he analysed

that business has three issues to face: what it takes, what it makes, what it wastes.

What it takes is natural materials and resources from Earths ecosystem through mining,

extracting, growing, hunting and other such like things. What it makes is products

derived from above resources through industrial processes. What it wastes is not only in

the form of garbage or pollution but also eco-costs (damage to ecosystem).

The needs for efficient use of resources and environment friendly corporate

policies and behaviors have now been recognized all over. The performance of an

enterprise can no longer be evaluated on the basis of economic parameter alone and it

needs to be integrated with environmental performance also. (Saxena et al., 2003). Thus,

protection of environment must become part of business and an issue worthy of

commitment and action on the part of companies. This calls for the businesses for new

thinking and strategies regarding environment, Correlated with the impact of businesses

on ecosystem is the issue of consumption.

Growing income has allowed people to expand their consumption. The greater

consumption of food, housing, clean water, and transportation is essential to relieving

poverty in many nations. However, the high consumption of the worlds affluent


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consumers can have a negative impact on ecosystems disproportionate to their numbers.

Todays model of intensive use of raw materials and resources undermines ecosystem

functions and runs the risk of overwhelming the planets capacity to absorb wastes.

Meeting the needs and desires of all people while preserving resources require innovation

of new technology and business models. Business can lower the resource intensity of the

production of consumer goods, while improving their top and bottom lines and meeting

consumer demand with sustainable products and services. Consumers themselves can

drive change by favoring companies that produce goods and services to protect, conserve,

and renew the environment.

Sustainable development creates opportunities for suppliers of green consumers,

developers of environmentally safer materials and processes, firms that invest in eco-

efficiency, and those that engage themselves in social well-being. These enterprises will

generally have a competitive advantage. They will earn their local communitys goodwill

and see their efforts reflected in the bottom line. Corporations have the ethical

responsibilities to become a more active partner in dealing with social concerns.

Businesses must creatively find ways to become a part of the solutions rather than being

part of the problems. Corporations must develop an environmental conscience to protect

the global environment. (Goodpaster, 1990)

The concept of sustainable development needs to be incorporated into the policies

and processes of a business. Following are the few concepts that should be considered by

businesses in order to achieve sustainable development:


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ECO-COSTS:

In a market transaction, the profit of product or service is price minus the cost. When a

person buys the price he pays reflects perceived value or benefit he receives in relation to

price and from sellers point of view when the perceived value is higher than the cost,

profit is produced. But this simple equation does not include eco-costs. If eco-costs are

included then the signals from market will respond accordingly and we would have

moved towards our goal of maintaining integrity and sustainability of environment. For

sustainable marketing eco-costs have to become standard operating procedure spread

over the product life cycle. Life-cycle costing attaches a monetary figure to every

ecological impact of a product disposal costs, legal fees, liability for product harm, loss

of environmental quality, and so on. Product development decisions are then based not

only upon projected cash flows but also projected future costs associated with each

product design. (Shrivastava, 1995). The companies wanting to adopt sustainable

marketing have to use full cost accounting practice so that eco-costs are internalized in

the prices of the product. This would mean that costs would increase and it would

adversely affect the profit maximization goal of the corporations, which in turn will affect

the shareholders interest. Then the company will have to minimize the costs incurred on

labour, raw materials and other inputs. The cost reduction is possible if investment in new

and clean technologies is made. This would result in efficient product solutions and at the

same time take care of ecological considerations.

Calculation of eco-cost can be depicted by the following diagram:


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Source:http://en.wikipedia.org/wiki/File:Fig_1.PNG

MARKET BASED INSTRUMENTS:

Market Based Instruments are defined as instruments or regulations that encourage

behavior through market signals rather than through explicit directives. (Stavins, 2000).

In Market Based Instruments, the market price is charged for a product or service for

which otherwise no market price exists as for example, for gaseous emissions, or if the

price exists, it is changed to reflect its impact on environment. MBIs mentioned in the

literature are:

i. Subsidies for the companies or industrial sectors that shift to clean technologies,

recycling programmes or for energy conservation/ use of non-conventional energy

resources.

ii. Incentive for those (companies and entrepreneurs) who incur additional costs in

their operations for the protection of ecosystem.


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iii. Incentives for those in the developed countries when they engage in clean

technology transfer to developing countries.

iv. Taxes to be levied for activities/programmes that lead to environmental damage

or resource depletion.

The other aspect of market environment relationship is command and control method.

In this method a policy framework exists that mandates compliance to certain standards

laid down by the regulatory authorities. These controls mechanism go to the extent of

putting a ban on the manufacture of a product or lay limits to the process of

mining/extracting.

GREEN MARKETING:

Green marketing is a response to demand for ecologically sound products like recycled

products, biodegradable products, energy efficient systems or products. Green marketing

must satisfy two objectives: improved environmental quality and customer satisfaction.

(Ottman et al., 1996). The essential requirements, of green marketing are:

(i) the production process is compatible with ecosystem (ii) it is compatible with

the goals of the company (iii) it satisfies the customers. Some of the

companies advertise their products as being environment friendly in which the

production processes (packaging, recycling) have minimum impact on

environment. In USA, a procedure for verification of these claims developed

in 19990s to clear doubts about eco-friendly advertisements. This led to award

of certificate, known as Green Cross Certificate. This certificate may bring in

gain of market share.


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Few examples of Green marketing can be:

New Delhi, capital of India, was being polluted at a very fast pace until

Supreme Court of India forced a change to alternative fuels. In 2002, a directive was

issued to completely adopt CNG in all public transport systems to curb pollution

The Hewlett-Packard Company announced plans to deliver energy-

efficient products and services and institute energy-efficient operating practices in its

facilities worldwide.

ECO LABELLING:

Eco-label is an environmental claim that appears on the packaging of a product. It is

awarded to a manufacturer by an appropriate authority. ISO 14020 is a guide to the award

of eco-labels. Eco-labelling aims to identify and promote products that have a reduced

environmental impact when compared to other similar products. (Gertz, 2005). The

common person is now becoming aware of the deterioration of environment especially

when it relates to human health. There is a growing demand for goods and services that

cause less damage both to the health of human and environment. The consumer in

developing countries too is showing great interest and concern on the environmental

effects of products and services. This in turn affects the purchasing behavior. In

developed countries there is increasing concern about what is called as green

purchasing which in final analysis leads to conservation of natural resources and

sustainable development. This concern has led the governments especially in the

countries of North to formulate guidelines that regulate sales and trades. In fact, green

shopping is now becoming popular in these countries. Eco-labelling can lead to:

i. Improvement of image and sales of products.


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ii. Manufacturers being more accountable to environmental impacts.

iii. Consumers awareness that their choice of products do affect the environment, as

some products are less damaging to environment than others.

The Government of India launched an Eco-Mark scheme in 1991 to increase consumer

awareness in respect of environment friendly products. The aims of the scheme are to

encourage the consumer to purchase those products which have less harmful environment

impact.

REVIEW OF LITERATURE

Andersen (1994)pointed out that the traditional way of controlling pollution in Western

Europe has been regulation by the use of standards (the command-and control approach).

It tends to force all businesses to adopt the same measures and practices of pollution

control and thus accept identical shares of the pollution control burden regardless of their

relative impacts. Among environmental researchers and policy makers, there is a growing

skepticism towards this type of pollution control. It is argued that environmental

improvement is progressing too slowly and, in some situations, is leading to even further

deterioration of the environment. This has motivated policy makers to search for other

solutions. In particular, there is a growing interest in market-based environmental policy

instruments such as green taxation. Throughout Europe, academics and policy makers are

vigorously discussing this option.

Tilt (1994) studied the Corporate Environmental Policies (CEPs) and examined the level

of environmental disclosure media on a sample of companies listed on Australian Stock


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Exchange. Analysis of Corporate Environmental Policies showed that the companies

were developing objectives and policies for environmental accounting and reporting.

They are not however, referred to very often in the annual report or any other media. In

the study of annual reports, it was found that most commonly included disclosure

category was rehabilitation with 43 percent of companys, including it approximately 34

% of companies mentioned their Corporate Environmental Policies and other

environmental related policies, 21 percent mentioned their environmental objectives and

37 percent discussed their environmental management plan. Environmental law was also

included in 30 percent of cases.


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Paul (1995) examined the implications of ecologically sustainable development for

corporations. The article articulated corporate ecologically sustainable development

for corporations. The article articulated corporate ecological sustainability through

the concepts of total quality environmental management, ecologically sustainable

competitive strategies, technology transfer through technology for nature swaps

and by reducing the impact of populations on ecosystem. TQEM encourages

energy and natural resource conservation and renewal by reducing use of energy

and virgin materials through product redesign, making greater use of renewable

resources. Competitive strategies like least-cost strategy, differentiation strategy;

niche strategy can be made ecologically sustainable adhering to the principles

suggested by the Business Charter for Sustainable Development. Another hurdle

recognized is lopsided distribution of resources between developing and developed

countries. Corporations can play an important role in educating people about the

disastrous impacts of population size on environment.

Okafor et. Al., (2008), focused on environmental degradation and the need for corporate

organizations to fulfill their social responsibilities. Using the systems theory, the

interdependence among the environment, organizations and sustainable development was

examined. The organizations are open systems, which receive inputs or energy from their

environment, convert these resources into outputs into their environment. It is also argued

that organizations must not merely produce products and services to satisfy their

numerous clients, they must also produce actions that will ensure the protection of the

environment. This paper focuses on the environmental protection as a corporate social

responsibility and environmental auditing to safeguard the environment and minimize


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risks to human health. Further, the paper also discussed sixteen key principles for

Environmental Management listed by business charter for sustainable development.

ROLE OF CORPORATES IN ACHIEVING

SUSTAINABLE DEVLOPMENT

Business firms play a key role in the issues of environmental protection since they

are part of our society and cannot be isolated from the environment. Based on their

abundant expertise and capital resources, corporations could improve our environment

and create a better quality of life. Instead, they could try to solve at least some

environmental problems and to engage in the activities of environmental protection.

Corporations could adopt the applications of innovative technology and the strategic

environmental management to improve the environment.

An ecologically responsible course of corporate action is an extremely complex,

and as such cost-intensive matter, these factors all play a role in it:

Environmental acceptability of finished and semi finished products;

Precautions and preventive measures to ensure safety during the transport and

storage of problematic substances;

Environmental acceptability of manufacturing processes again with reference to

the atmosphere, water and soil;

Preventive measures for dealing effectively with accidents during production and

transport;

Intensity of the companys raw materials and energy consumption;


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Volume and make up of wastes;

Continuous efforts to recycle raw/starting materials;

Furtherance of eco-efficient technology;

Continuous review of the status quo through environment and safety audits.

PRINCIPLES FOR ENVIRONMENTAL MANAGEMENT:

The International Chamber of Commerce, World Business Council for Sustainable

Development and Business Charter for Sustainable Development identified sixteen key

principles for Environmental Management. They are as follows:

1. Corporate Priority: To recognize environmental management as among the highest

corporate priorities and as a key determinant to sustainable development; to establish

policies, programs, and practices for conducting operations in an environmentally

sustainable manner.

2. Integrated Management: To integrate these policies, programs, and practices fully

into each business as an essential element of management in all its functions.

3. Process of Improvement: To continue to improve corporate policies, programs,

environmental performance, taking into account technological developments,

scientific understanding, consumer needs, and community expectations, with legal

regulations as a starting point; and to apply the same environmental criteria

internationally.

4. Employee Education: To educate, train, and motivate employee to conduct their

activities in an environmentally responsible manner.

5. Prior Assessment: To assess environmental impacts before starting a new activity or

project and before decommissioning a facility or leaving a site.


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6. Products and Services: To develop and provide products and services that has no

undue environmental impacts and are safe in their intended use, that are efficient in

their consumption of energy and natural resources, and can be recycled, reused, or

disposed safely.

7. Customer Advice: To advise, and where relevant, to educate customers, distributors,

and the public in the safe use, transportation, storage, and disposal of products

provided; and to apply similar considerations to the provision of services.

8. Facilities and Operations: To develop, design, and operate facilities and conduct

activities, taking into consideration the efficient use of energy and materials, the

sustainable use of renewable resources, the minimization of adverse environmental

impact and waste generation, and the safe and responsible disposal of residual waste.

9. Research: To conduct or support research on the environmental impacts of raw

materials, products, processes, emissions, and wastes associated with the enterprise

and on the means of minimizing such adverse impacts.

10. Precautionary Measures: To modify the manufacture, marketing, or use of products

or services or the conduct of activities, consistent with scientific and technical

understanding, to prevent serious and irreversible environmental degradation.

11. Contractors and Suppliers: To promote the adoption of these principles by

contractors acting on behalf of the enterprise, encouraging and, where appropriate,

requiring improvements in their practices to make them consistent with those of the

enterprise; and to encourage wider adoption of these principles by suppliers.

12. Emergency Preparedness: To develop and maintain, where significant hazards

exist, emergency preparedness plans in conjunction with the emergency services,


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relevant authorities, and the local community, recognizing potential boundary

impacts.

13. Transfer of Technology: To contribute to the transfer of environmentally sound

technology and management methods throughout the industrial and public sectors.

14. Contributing to the Common Effort: To contribute to the development of public

policy and to business, government, and intergovernmental programs and educational

initiatives that will enhance environmental awareness and protection.

15. Openness to Concerns: To foster openness and dialogue with employees and the

public, anticipating and responding to their concerns about the potential hazards and

impacts of operations, products, wastes, or services, including those of transboundary

or global significance.

16. Compliance and Reporting: To measure environmental performance; to conduct

regular environmental audits and assessments of compliance with company

requirements, legal requirements, and these principles; and periodically to provide

appropriate information to the board of directors, the shareholders, the employees, the

authorities, and the public.

The compliance of the corporations with these principles will help the world achieve

ecological sustainable development.

BENEFITS TO CORPORATIONS:

1. There is the opportunity to drive down operating costs by exploiting ecological

efficiencies. By reducing waste, conserving energy, reusing materials and

addressing life cycle costs, companies can save costs.


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2. Ecological sustainability provides a basis for creating competitive advantage.

There is a large and growing segment of consumers who wants ecologically

friendly products, packaging, and management practices. These green

consumers are drawn to companies that genuinely use sustainable practices.

3. At this early stage of corporate environmentalism, companies have the potential to

create unique and inimitable environmental strategy, thus both distinguishing

themselves and becoming environmental leaders within their industries.

4. Ecological sustainability is also good for a companys public relations and

corporate image. It can help companies both to establish a social presence in

markets and to gain social legitimacy.

5. Ecological sustainability offers the potential for reducing long term risks

associated with resource depletion, fluctuations in energy costs, product liabilities

and pollution and waste management. By systematically addressing these long

term issues early, companies can become aware of and manage these risks.

6. Improved ecological performance of companies benefits the ecosystem and the

environment of communities in which companies operate. It can help to reduce

health expenses in a community that are the result of industrial pollution.

7. Ecologically sustainable practices allow companies to get ahead of the regulatory

curve. These strategies give companies a firmer legal footing and may allow

industries to preempt some regulations.


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BIBLIOGRAPHY

BOOKS AND JOURNALS:

Anderson, F., From Voluntary to Regulatory Pollution Prevention in TheGreening of Industrial Ecosystems, National Academy Press, Washington,

D.C., 1994

Atkinson, Scott and Tom Tietenberg. 1991. Market Failure in Incentive-

Based Regulation: The Case of Emissions Trading. Journal of

Environmental Economics and Management. 21: 17-32.

Bowen, H.R., Social Responsibilities of the Businessman, Harper, New York

(1953)

Brown, L.R., Challenges of the new century, New York, W.W. Norton &

Company, 2000

Denton, D.K., Enviro-Management: How Smart Companies Turn

Environmental Costs Into Profits, Prentice Hall, Engelwood Cliffs, N.J.,

1994

Gertz Renate, Eco-labelling- a case for deregulation?, Law, Probability and

risk, vol 4, Issue 3, pp 127-141, 2005

Gilland, B., Population, Nutrition and Agriculture, Population and

Environment, Vol. 28, No. 1, pp 1-16, 2006

Hahn, Robert. 2000. The Impact of Economics on Environmental Policy.

Journal of Environmental Economics and Management. 39(2): 375-399.

Hoffman w., Fredrick R., and Petry E., The Corporation, Ethics and the

Environment, Quorum Books, New York, 1990

Okafor E., Hassan A.R. and Hassan A.D., Environmental issues and

Corporate Social responsibility: The Nigeria Experience, Journal of Human

ecology, Vol. 23, no. 2, pp 101-107 (2008)

Ottman J., Stafford E., and Hartman C., Avoiding Green Marketing myopia,

Environment, Vol. 48, No. 5, pp 22-36, 2006


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Potts, M., Population and Environment in the twenty-first century,

Population and Environment, Vol. 28, No. 4, pp 204-212, 2007

Shrivastava Paul, The Role of Corporations in Achieving Ecological

Sustainability, The Academy of Management Review, Vol. 20, No. 4, pp 936-

960, 1995

Stavins R.N., Market Based Environmental Policies, in P.R. Portney and

R.N. Stavins (eds.), Public Policies for Environmental Protection Resources

for the Future, Washington, D.C., (2000)

Tilt, C.A., The influence of External Pressure Groups on Corporate Social

Disclosure,Accounting, Auditing and Accountability Journal, Vol. 7, No. 4,

pp 47-72, 1994

Uberoi N.K., Environmental Management, Excel Books, New Delhi, 2006

Welford, R., and Stranchan, P.a., Environmental Issues and Corporate

Environmental Management, in Management: Concepts and Practices, T.

Hannagan (eds.), Prentice Hall, London, pp 551-604 (2005)

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CORPORATES AND SUSTAINABLE DEVELOPMENT