Soon you won’t be able to walk from the watercooler to the boardroom without hearing the word, but what exactly is sustainability – and how does it translate to the day-to-day running of an organisation?By Tanya Matheson

Paper E1Enterprise Operations

Sustainability is a relatively new concept to the account­ing profession, at least in the grand scheme of things. But it’s increasing in importance and it certainly won’t just go

away if it’s ignored. Global awareness of climate change, ozone depletion and the impact of carbon emissions, alongside chan ges to reporting requirements, all sug­gest that it is only a matter of time before sustainability is a subject that will be on the agenda of every board meeting.

Linking the topic to the Enterprise Oper­ations syllabus might be quite obvious to some. As we can see below, this delightful paper covers an enormous area. Each main syllabus segment makes up 20 per cent of the whole as follows:A The global business environment.B Information systems.C Operations management.D Marketing.E Managing human capital.

While one might assume that sustain­ability could sit nicely in the segment on the global business environment, learning outcome 1(d) of the operations manage­ment segment states that students should be able to “explain the importance of sus­tainability in oper ations management”. In fact, decisions made in relation to sustain­ability could actually touch on other seg­ments of the syllabus, making a question on this topic a perfect E1 exam question.

The meaning of sustainabilityWhen looking up the definition of the word, it is difficult to be concise. Accord­ing to the Oxford English Dictionary, it means “able to be maintained at a certain rate”. Another dictionary definition states that it’s “the capacity to endure”. More loosely, a sustainable business is perhaps one that can be deemed to have a minimal

negative impact on the global or local envi­ronment, the community, society or the economy. In other words, a sustainable business is one that “meets the needs of the present world without compromising the ability of future generations to meet their own needs”. In a commercial context, sustainability is about recognising that how we do business has far­reaching implications and that we must be held accountable for these.

CIMA is inclined towards the definition of sustainability as “a long­term pro­gramme involving a series of sustainable development practices, aimed at improv­ing organisational efficiency, stakeholder support and marketing edge”.

A recurring theme is the link between sustainability and the concept of the triple bottom line – namely: economic, environ­mental and social areas of concern. In essence this means that, while all busi­nesses are used to monitoring their profit figures, there are also environmental and social aspects to consider in the longer term. Sometimes the triple bottom line is referred to as the three Ps: profit, planet and people.

Sustainability is widely considered to be the responsibility of large, usually mul­tinational, companies. After all, how can a small firm with 15 employees, a pool car and a watercooler make any lasting impres­sion on the bigger picture? But this is where perception differs hugely from real­ity. While small and medium­sized enter­prises (SMEs) are relatively unimportant individually, collectively their impact is vast. According to the UK Federation of Small Businesses, it’s estimated that the nation contains 4.9 million businesses. SMEs account for:l 99.9 per cent of these businesses.l 59.3 per cent of private­sector jobs. l 48.1 per cent of private­sector turnover.

In real terms, that equates to a workforce of 14.4 million and a turnover of £1.6trn, according to figures from the Department for Business, Innovation and Skills. So it really is the SMEs that are king when it comes to making a difference. Perhaps the bigger question is: how exactly can they bring about that change?

How to be sustainableSustainability practices can be as simple as reducing waste and using resources more efficiently, but there is a lot more to being sustainable than that.

Making financial savings is often the aim of SMEs, particularly in times of reces­sion and cutbacks. While their focus is on running the business and generating profits in order to pay dividends to their shareholders, this can be translated into economic sustainability without making huge dents in the bottom line.l Reduced energy and water consump-tion. Switching to energy­efficient light bulbs and being conscious of water usage not only helps the environment but can also quickly create cost savings.l Reduced paper usage. Pushing the concept of the paperless office by sending correspondence via email and storing files digitally can produce vast instant savings. In addition, by accelerating the commu­nication process electronically, value can be added to customers and savings can be made on the cost of postage.l Reduced materials in production. By adopting leaner production practices and improved quality­control measures, cost savings can be achieved by producing less waste and making fewer defective goods.l Involvement in support networks. For a modest fee, trade associations such as the Federation of Small Businesses can offer advice and other forms of support on specific issues. This equates to cost sav­ings, as the membership fee is offset by potential future repeat business.l Grants. Specific subsidies may be avail­able to businesses for improving their sustainability practices.

Improved environmental practices are perhaps the most common examples of sustainability in business. There is cer­tainly no shortage of initiatives and changes that can be applied across the board. In practice, a business could:l Reduce or eliminate the environmen-tal damage caused by the production and consumption of goods. This could

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translate into a number of actions, such as reducing greenhouse­gas emissions from a cooling process, choosing suppliers that are more local in order to reduce emissions from delivery trucks, or reducing pack­aging on products that then needs to be discarded by the consumer.l Refurbish used products. Rather than producing scores of new products, more could be made of offering to recycle older models in exchange for a discount on a new, upgraded version. Apple provides a good example of this: older iPhone models can be part­exchanged; the refurbished model is then sold with a 12­month war­ranty at a discount.l Use bio-diesel in delivery trucks. This option has a lower impact on the environ­ment and reduces the product’s overall carbon footprint. l Adopt recycling programmes. Such an initiative could include separating plas­tics, papers, metals and glass for collection by local authorities.l Upgrade to energy-efficient equip-ment. Whether it’s something as small as light bulbs or bigger items of equipment used in the production process, all posi­tive changes contribute towards overall pollution control and eco­efficiency.

Perhaps harder to measure than the eco­nomic and environmental aspects, the social face of sustainability isn’t simply about giving away a company’s profits. While philanthropic activities will form a large element, examples don’t have to cost the business financially.l Giving back to the community. Employee volunteering for charitable causes is becoming more popular among businesses, with many companies, includ­ing Kaplan Financial and NatWest, allow­ing their staff a number of paid days off each year to work with local charities and community initiatives. l Training and internships. Offering such programmes improves employees’ knowledge and gives younger citizens opportunities to work towards a career for life, as well as sustaining the local com­munity and small businesses.l Boosting morale among employees. This doesn’t have to entail paying huge bonuses at the end of the financial year. Simply treating people as individuals and including people of all levels of seniority in the decision­making process can make them feel valued and more motivated.l Facilitating “green” commuting options. The promotion of a cycle­to­work

scheme, car­sharing and the use of public transport can contribute towards employ­ees’ health and well­being, which can in turn improve their productivity.

For longer­term recognition, employ­ers that are serious about their sustain­ability practices can work towards an ISO accreditation within the ISO14000 series. This was developed after the Rio summit on the environment in 1992 and specifies a framework of control for an environmen­tal management system against which an organisation can be certified.

Sustainability and E1Although sustainability issues are highly practical in nature, the specific objective for us is passing a CIMA exam. Referring to the learning outcome “explain the importance of sustainability in operations management”, the key areas to focus on are as follows:l Process design. This includes avoiding or mini mising elements of direct waste, energy wastage and reducing emissions.l Product design. This includes champi­oning recycled and sustainable inputs.l Supply-chain management. This means sourcing sustainable products from suppliers that have the same ethical poli­cies as your organisation’s, while ensur­ing that these suppliers are local in order to minimise products’ carbon footprints.l Quality management. Implementing quality­control measures earlier in the production process and incorporating these into the design process will imp rove overall efficiency and reduce waste.

When making a business case for adopt­ing sustainable practices, it is important to be able to counter any perceived draw­backs with the benefits that can be gained. For instance, there is always the argument that such practices may “cost more”. Implementing sustainable business prac­tices may have a negative effect on profits, at least initially. But this is usually followed by a substantial and ongoing cost saving.

Also, any change can be greeted with hostility and seen as a risk by staff and shareholders. Education and positive mar­keting can help to mitigate this factor.

Measuring the impact of adopting sus­tainability practices can be difficult, yet measurement is a must in order to influ­ence decision­makers. Often, a different approach is all it takes and measurements may need to be qualitative rather than quantitative to highlight the positives.

Lastly, there is always the potential to get sidetracked. It’s easy to get absorbed in sustainability practices, but remember that your firm is in business to service air conditioners, for example – not to solve the world’s climate­change problems.

Being accountants, we are trained to be prudent and look for possible pitfalls, but looking on the positive side highlights what can be gained by adopting sustain­able business practices, even if it is only a little progress at a time:l Improved efficiency can increase profits by reducing waste and therefore increas­ing competitive advantage.l Increased financial returns reduce the risk for shareholders and can also attract new investment.l Sustainable practices create new oppor­tunities to collaborate, develop products and keep stakeholders happy and confi­dent in the company’s activities.l They are good PR and add value to prod­ucts and services, as well as the brand.l They can help to attract and retain high­quality employees who are aware of the business initiatives and believe in the com­pany’s ethos.l They improve sales and customer loyalty with repeat business.l They strengthen community relations.l They offer access to investment capital.l They increase stakeholder engagement. If stakeholders understand the company’s goals and practices, the ability to meet company and stakeholder needs increases as expectations are met. Tanya Matheson is a freelance tutor.

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