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The Role of Private Sector in Achieving Sustainable Society in Transitional Economies. Is the mission possible? A Case Study of

Belarus.

Alla Susko and Galina Williams

“Business needs to have a purpose as well as just a profit purpose”  

~Jon Alexander~

1. Introduction

While different aspects of sustainability of private sector have been researched in developed countries, little has been done on corporate sustainability in former Soviet states. This article aims to contribute to the topic, by examining the situation in Belarus, a country with a transitional economy, and a former republic of USSR. In section 2, the author defines Sustainable Development and Sustainable Society as well as providing explanations on Sustainable Society Index (SSI). In section 3, she discusses the role the private sector should play in achieving better sustainable societies. Section 4 focuses on the Belarus case study. The author starts by describing the historical, economic, political, social and environmental aspects that create specific conditions for private sector performance. Belarus SSI is discussed along with the state of corporate sustainability in that country. In the Discussion and Conclusion section, the author analyses opportunities for achieving a better state of corporate sustainability in Belarus and provides suggestions for improvements.

2. Sustainable Development and Sustainable Society

2.1. Sustainable Development

The emergence of the Sustainable Development (SD) concept was an indication of a demand for a paradigm shift in understanding of how to pursue further development in the modern society worldwide. According to the Brundtland report (UNWCED,1987) Sustainable Development is the “development that meets the needs of the present world without compromising the ability of future generations to meet their own needs”. This definition, while used extensively, has been criticised for being broad and vague (Adams, 2006) and has resulted in a variety of alternative interpretations (Banuri, 1999; Rees, 1989). In this essay however the Brundtland definition will be referred to since it’s the one most widely used.

The SD concept involves economic, social and environmental dimensions which altogether represent the so-called “triple bottom line” (Elkington. 1999). Several schematic representations have been proposed by different authors to illustrate relations between the aspect of SD, such as the three pillar model, overlapping circles, concentric circles (Adams, 2006), and a donut model (Raworth, 2017). The most popular one is a diagram consisting of three overlapping circles that represent dimensions of SD. However, it does not indicate interdependencies between three components of SD. Concentric circles (Figure.1), better represents those

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interrelations, showing that society relies on the natural resources while the economy in turn depends on both, society and environment.

Figure.1. Concentric circles model of Sustainable Development (Adams, 2006).

2.2. Sustainable Society Index

Climate change, resource overexploitation and depletion, biodiversity loss, population growth, gender inequality, poverty are just a few of the issues the world faces today. Those critical issues affect different regions and nations to different extents. The impacts vary depending on how resilient and sustainable a society is. What is a sustainable society? Based on Brundtland report (UNWCED,1987) SD definition, Sustainable Society (SS) is a “society that meets the needs of the present generation and that doesn’t compromise the ability of future generations to meet their own needs” (Seppälä et al, 2017). This is a society which is balanced in all three aspects of SD - economic, environmental, and, social - and its consumption rates are at least equal (or lower) to the environmental resource recovery rates. This raises a question of where the global human society is on the sustainability scale.

In order to evaluate sustainability levels of different countries and globally, a Sustainable Society Index (SSI) was developed by Sustainable Society Foundation in 2006 (SSF, 2016a). Twenty one indicators were combined into 7 categories which in turn were grouped into 3 wellbeing dimensions: human, environmental, and economic (Figure 2).  SSI represents an aggregation of all three dimensions and assesses sustainability levels in 154 countries (Seppälä et al, 2017; Gonzalez-Cabezas et al, 2019). A spider web chart is used to show an overall state of society sustainability (Figure 3).

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Figure 2. Sustainable Society Index structure. (Van de Kerk et al, 2014)

Figure 3. World average SSI showing to what extent each of 24 indicators is achieved on the score scale of 1 to 10, where 1 is the lowest and 10 is the highest (full sustainability) (SSI, 2016c).

Figure 4. Worldwide SSI scores (per person), showing changes in three SSI dimensions that happened during 10 year period from 2006-2016. (SSF. 2016b)

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According to Figure 2, the global society is far from being sustainable with no single indicator score of 10 and only two (Sufficient Food and Sufficient To Drink) scoring at 9 in 2016. Both of them belong to Basic Needs categories of Human Wellbeing dimension. In order to get a better picture of the world’s progress towards sustainability the dynamics should be taken into account. Thus, comparing the achievements during the ten year period, from 2006 to 2016 we could see improvements in Economic and Human dimensions. The Environmental dimension has declined (Figure 4).

3. Role of private sector in achieving sustainable societies

Almost 50 years ago Milton Friedman (1970) argued that the “social responsibility of business is to increase its profits“ and “corporate social responsibility is pure and unadulterated socialism”. This perception has changed over time though. At the present corporate sustainability is a concept addressed in academic and practitioner circles (Benn, et al, 2014). Now, when humankind faces global issues, the private sector is expected to be a responsible contributor to society and environmental protection. SD chart (Figure 1) shows that economy depends on both society and environment. While business creates wealth, in this function it’s dependent on human and natural capital. It’s essential for corporation strategists and CEOs to understand the interconnected nature of the relationship between the three. Thus, in order to sustain successful progress, the private sector should make sure that the resources it relies on are sustained or even improved.  

While the private sector generates employment for people, creates wealth, and supplies markets with products and services people use, it also uses the available social infrastructure to operate. Socially responsible actions improve the company’s reputation and image which in turn, directly or indirectly, will positively impact their economic performance. (Cannon, 1992). One of the efficient ways to contribute to society is stimulating a dialogue with the stakeholders. Stakeholders are people and organisations impacted by the company’s actions and those who affect them. Both companies and stakeholders benefit from mutual communications and collaboration. Considering public opinion and interests has become an essential characteristic of responsible business. Sustainability Reporting Guidelines developed in 2000 by Global Reporting Initiative (GRI), require the engagement of stakeholders for sustainable business operations (GRI, 2011). Stakeholder engagement and public participation are also a key component of Environmental Impact Assessment, Strategic Environmental Assessment, Social Impact Assessment, and other related processes which are now a part of developments and regulation change projects.

Realising to what extent companies, especially those in a non-service industries, depend on limited natural capital is critical for taking action towards preserving and restoring natural capital. Furthermore, linking environmental impacts and economic performance, allows companies to minimise risks and consequently reduce costs. Internalising environmental externalities would let the companies make the profits more sustainable. (Henriques and Richardson, 2004).

Having said this, we should admit that reality is far from the theory. Some companies don’t even consider employing sustainability strategies. Some of those that do, have varied motivations and goals, which sometimes might not be genuinely sustainable. (Schaltegger and Burritt, 2018). Those that make their first steps on the soil of sustainability and good governance risk making errors along the way (Kotter, 2007). Development of new strategies, involving

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stakeholders, improving transparency, supporting natural resource protection and restoration, are only a few ways to commit to sustainability. It is a voluntary action that requires a lot of resources.

4. Belarus case study

4.1. Country profile.

Political and economic aspects.

Belarus is a country in Eastern Europe with declared independency in 1991. According to the World Bank data, in 2017 Belarus population was 9.50 million people, GDP – US$ 54.46 billion, GNI per capita – US$5,290 (World Bank, 2017). Current unemployment rate is 0.8% (IMF, 2019). Being one of the former Soviet states, Belarus has maintained Soviet-model approaches, one of them being a command economy. The Country’s economy is characterised by an inertness of transition to a free market, and is heavily impacted by the political system (Cherp, 2001b; Rees and Miazhevich, 2009). Overall Index of Economic Freedom for Belarus in 2019 is 57.9 which puts Belarus in Mostly Unfree Category (score range 5-59.9). Out of 12 attributes, four remain in the Repressed Category and ranked in 2019 as follows: Government Integrity - 37.7; Government Spending - 41.3; Investment Freedom - 30.0; Financial Freedom - 10.0 (The Heritage Foundation. 2019)

President Lukashenko has been ruling the country since 1994 and is called the last dictator of Europe (Marples, 2009; Wilson, 2011). The president has power over all levels and sectors of the state system (Ioffe, G. 2004). The Freedom House ranks Belarus as Not Free with an Aggregate Freedom Score of 19/100 with 100 being most free. Other scores include Freedom Rating – 6.5/7, Political Rights – 7/7, Civil Liberties – 6/7 with 7 being least free (Freedom House, 2019). Government also controls finances and investments (Danilovich and Croucher, 2015). The government control over the economy in fact has been increasing and is currently considered to be more authoritarian than it was in the 1980s, before Belarus left the Soviet Union (Danilovich and Croucher, 2011). The Belarus economy is hugely dependent on Russia in terms of exports/imports and very low natural gas import prices. (Veebel, 2017; Ioffe, G, 2004)

Social aspects

The Soviet past combined with historical inertness has influenced the mentality of Belarus citizens, resulting in social passivity, resistance to change, low levels of individualism and ambitions for personal freedom and independence (Kirienko, 2003). Coming out of the command economy system all former Soviet bloc countries inherited a weak civil society and low public participation in environmental decision making (Cherp, A. 2001; Smith and Pickles, 1998). Those countries that joined the EU have been progressing towards more democratic governance and transparency at all levels, including environmental policy and management. This led to a somewhat better involvement of stakeholders in environmental decision-making, improvement of public participation, and increasing the number of environmental NGOs. However, civil society is still weak in the region and this is especially true for those countries that didn’t join the EU but chose to preserve an autocratic regime, like Belarus (Danilovich and Croucher, 2011; Baker, 2006, Smith and Pickles, 1998). Given the specifics of the Belarus

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national mentality, civic activity levels tend to be even lower than in the majority of former Soviet bloc countries (Miazhevich, 2007).

Environmental aspects

Belarus shares some environmental aspects with other former socialist bloc countries in transition, such as neglected environmental problems, and low rates of implementation of environmental regulations (Baker, 2006). Thus, the countries inherited a polluted environment, a low environmental awareness (Cherp, A. 2001; Sushko, 2008), and a general mentality that rejected taking environmental issues seriously. Furthermore, after the collapse of the Soviet Union, new issues - consumerism and plastic waste - arose that needed to be dealt with at legislative, administrative, financial, and mentality levels (Baker, 2006). Those ex Soviet bloc countries that joined the EU had to comply with EU standards and regulations, and hence improve their environmental governance and develop new more sustainable strategies both on the national and organisational scale (Baker, 2006). Belarus though turned towards allying with Russia which didn’t encourage significant environmental and sustainability initiatives (Wilson, 2011).  During the Soviet times Belarus was one of the most industrialised republics, with a lot of heavy and military industry that produced supplies and machinery for the country (Ioffe, 2004). The breakdown of the Soviet Union led to the collapse of industrial production and consequently to shutting down of large industrial companies. This is in turn resulted in a sharp decrease in industrial pollution and GHG emissions. In fact GHG emissions fell down way below 1990 levels and still haven’t reached that level (OECD, 1999). This allowed Belarus to claim to be climate change friendly without making additional efforts and commitments to GHG cuts. Thus, low GHG emissions along with cheap Russian natural gas (Veebel, 2017) resulted in little initiative to invest in energy efficiency improvements, energy saving programs, and renewable energy projects.  

4.2. Belarus Sustainable Society Index

When SSI was developed in 2006-2007, Belarus was ranked #74 in the list of 150 countries, with a 5.6 overall score on the scale of 1 to 10, where 1 - not sustainable, 10 - sustainable (Van de Kerk and Manuel, 2008). Ten years later, in 2016, the overall score worsened, decreasing to 5.2. While little progress has been achieved within the Human Wellbeing dimension: that score went up from 7.83 to 7.98, Environmental and Economic Dimension scores went down, from 3.60 to 3.55, and from 4.73 to 3.94 respectively. Figure 5 clearly illustrates the current sustainability state of Belarus. While most of the Human Wellbeing indicators are higher than the world average, such indicators as Good Governance, Energy Use, Consumption, Greenhouse Gasses, Renewable Energy and Organic Farming, and Public Debt are below the world average.

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Figure. 5. SSI Spider web chart for Belarus, 2016. Red line shows world average scores (SSI, 2018)

4.3. Business environment and corporate sustainability situation

The economic and political state in Belarus resulted in a specific environment for business, which deviates away from the Western business environment even more, when further economic development occurs (Miazhevich, 2007). A huge proportion of large and medium enterprises are owned by the state. The Industrial sector is mostly monopolised by the state and backed up by state subsidies. Government controls finances and investments (Danilovich and Croucher, 2015; Pastore and Verashchagina, 2006). The private sector makes up a relatively small portion of the market with small-sized businesses being involved mainly in trade and services rather than a production. Entrepreneurship in the country is developed at a relatively low scale. For example, in 2002 only ⅛ of the working population was employed by small and medium enterprises (Miazhevich, 2007; Shehova, 2001). Some of the reasons that cause the above situation could be over-regulation and state control over the firms. Furthermore, private property rights are not guaranteed and companies constantly operate in a state of uncertainty. Businessmen are viewed as “individualists”, hence associated with Western values, and pictured as dangerous (Miazhevich, 2007). According to National Entrepreneurship Confederation, while some improvements have been made since 2006, there are still a lot of issues that hinder business development in Belarus. Amongst them such problems as regulatory burden, macroeconomic instability, government control over prices, administrative barriers, absence of dialogue with government authorities, as well as unequal conditions for state-owned and private entities with preferences and privileges given the former. (Coordinating Council on Developing and Advancing, 2015) The conditions described above create a “hostile” environment for business, both economic and social, which in turn leads to dubious moral behaviour, tax evasion, grey accounting, bribery, overall low transparency, and focuses on financial benefits and sometimes simple survival as a company (Miazhevich, 2007; Rees and Miazhevich, 2009). Ethical principles of conduct and corporate responsibility are low priorities for the companies. As a consequence, stakeholders and the environment often stay neglected and are not taken into account (Rees and Miazhevich, 2009).  

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Participation of Belarus companies with GRI could be an indicator of corporate sustainability awareness. GRI is an international non-profit organisation that provides standards and a framework for developing sustainability reports. Only two companies - IBA Group and BMZ (Byelorussian Steel Works) - presented their GRI reports. IBA is a large multinational Eastern European IT company headquartered in Prague, Czech Republic (IBA Group. no date). IBA submitted one GRI report in 2017.  BMZ, Byelorussian Steel Works, is a national metal processing industrial giant owned by the state. The corporation submitted 8 GRI annual reports between 2009 and 2016. There was no evidence found in the academic literature regarding GRI activities of other national and international corporations in Belarus.

UN Global Compact (UNGC) initiative was launched in Belarus in 2006 by UNDP office in Belarus (UNDP, 2009). The information regarding a number of Belarus UNGC participants is contradictory. According to the UNDP 2009 Annual report on Belarus, 46 Belarusian companies had joint Global Compact by early 2009 (UNDP. 2009). However, as of April 2019, a list of participants on the UNGC website shows only 11 participants, that joined between 2006 and 2009, including 3 that were delisted later (UN Global Compact, a; UN Global Compact, b). Currently, 23 active participants from Belarus listed on the UNGC website which joint UNGC between 2006 and April 2019. This includes 5 non-governmental organizations, 9 SMEs, and none of public sector organizations. (UN Global Compact, a). SInce the project was launched in 2006, companies were joining UNGC initiative at a rate of 1-4 companies a year.

“Dobra” Foundation that was established in 2017 took over role of coordinating the efforts to improve corporate commitment to social responsibility. The Foundation serves as an Office of Local Network UNGC local network in Belarus and promotes corporate social responsibility within the country (Dobra Foundation). An author interviewed Foundation director Alexander Skrabovsky, according to whom “most enterprises don’t understand the concept of CSR and confuse their strategic social responsibility with philanthropic activities or donations that organisations make from time to time.”  Additionally, “even those organizations that joined the local network have little understanding of environmental commitments they signed for”. Currently 45 companies listed on Dobra Foundation website as participants of  Local Network UNGC.

5. Discussion and Conclusions

The responsible use of the planet’s resources, and living within nature’s limits, is the mission that humans should adopt, as individuals and collectively. It involves everyone putting efforts in to make a transition to a sustainable society. This requires a global environmental consciousness and a paradigm shift. The latter is especially critical for Belarus, a country where environmental protection and public concerns were neglected for decades during the Soviet times.

The Belarus economic model generates unfriendly conditions for both, existing national enterprises and for foreign business investments. The general economic climate is unstable and uncertain, which decreases the chances of business sustainability initiatives (Danilovich and Croucher, 2015). Foreign multinational corporations became the major agents of change in those Soviet bloc countries which created a foreign investment-friendly environment or joined the EU. (Visser and Tolhurst, 2010.) However, the presence of big foreign multinational companies in Belarus is limited, which can potentially be one of the factors influencing slow development of sustainable thinking in the business sector. Still, those that can be found don’t

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seem to be sustainably proactive. Only one international corporation, IBA, provided its GRI report.   

The case study shows that there is a huge gap in awareness and knowledge in the area of corporate sustainability within the private sector in Belarus. Thus, training opportunities in corporate sustainability, social responsibility, environmental stewardship, and other reputable business practices should become available. Related courses and training should be developed and provided by experts. However, simple availability of the training programs isn’t enough. Motivation of the companies to learn and be proactive is required in order to succeed. Government should step up and develop a friendly environment for business development and foreign investments. This might improve business conduct, increase tax paying rates, and reduce double accounting. This in turn would increase the money flow into the state budget and if properly used, could potentially contribute to decreasing public debt, which is one of the lowest scored Belarus Sustainable Society Indicators.

While improvements in legislation could affect the sustainability performance to some extent, the impacts might be less than would be expected given the general practice of ignoring laws and unethical conduct which are widespread and considered a “normal practice”. (Rees and Miazhevich, 2009). Thus, with the current Soviet mindset it might be challenging to improve the state of corporate sustainability soon (Harris, 2014).

If Belarus companies were to address sustainability issues, then focusing on the previously neglected issues would be the most beneficial.  In order to contribute towards a sustainable society, the private sector could focus on achieving good outcomes for those Sustainable Society Indicators that Belarus has low scores for (Figure 5). Those are: Good Governance (including Stakeholder Engagement), Consumption, Energy Use, Greenhouse Gases, Renewable Energy, and Organic Farming.

Current Belarus’ political and economic situation, as well as current authoritative regime, would make it challenging to simply adopt Western concepts and models (Baker, S. 2006; Bryant and Mokrzycki, eds. 1994; Wilson, 2011). While some improvements have occurred the progress have been slow. It might require to come a new generation who didn’t live within soviet times, who thinks progressively and genuinely cares for the People and the Planet.

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