Sustainability Balanced Scorecard

Sustainability Balanced Scorecard

Professor Doug Cerf Donald Bren Graduate School of Environmental Science and Management Environmental Accounting &Financial Management (ESM 284) Spring 2007

Internal Management tool to operationalize sustainability goals from the company’s strategic plan

Sustainability Balanced Scorecard • Introduction to Balanced Scorecard – See Introduction to Balanced Scorecard.ppt

• Presentation based on – The Sustainability Balanced Scorecard – Linking Sustainability Management to Business Strategy” Figge, Hahn, Schaltegger and Wagner, Center for Sustainability Management University of Lüneburg, Germany Printed on recycled paper-actually better, not printed at all

Overview • Overall goal is to implement sustainability issues in the company’s strategic plan through the balanced scorecard system • Balanced Scorecard is a promising starting-point to incorporate environmental and social aspects into the main management system of a firm. • Sustainability management with Balanced Scorecard helps to overcome the shortcomings of conventional approaches to environmental and social management systems by integrating the three pillars of sustainability into a single and overarching strategic management tool. Printed on recycled paper-actually better, not printed at all

Link environmental and social management systems to economic management systems • Many companies have implemented specific environmental or social management systems during the last decade. • These systems have, however, rarely been integrated with the general management system of a firm. • As a consequence environmental and social management is often not linked to the economic success of the firm • Consequently, the economic contribution of environment and social management therefore remains unclear. • This lack of integration is a major obstacle. Printed on recycled paper-actually better, not printed at all

The correlation between environmental, social success and economic success • the literature is mainly based on empirical studies that refer to the correlation but not to the causality between environmental and social measures and the economic success of firms • To date there is a small amount of literature on the relation between environmental and social measures and the achievement of long-term economic goals Printed on recycled paper-actually better, not printed at all

Suitability of balanced scorecard as a tool for sustainability management • Management should first identify and realize opportunities for simultaneous improvements in all three dimensions of sustainability (social, ecological and economic goals) in order to achieve strong corporate contributions to sustainability • SBSC offers the possibility to integrate the management of environmental and social aspects into mainstream business activities Printed on recycled paper-actually better, not printed at all

Integrating Sustainability into BSC • Integrating the three pillars of sustainability into general business management (ie:BSC) offers three major advantages – Sustainability management that is economically sound will be practiced in successful and unsuccessful economic periods – Sustainability management that also contributes to economic objectives helps to disseminate the idea of sustainable development in business, as it serves as an appropriate role model for other businesses. – a business improves performance with regard to all the three dimensions of sustainability simultaneously Printed on recycled paper-actually better, not printed at all

Methods of integration • Three possibilities to integrate environmental and social aspects in the BSC – Environmental and social aspects integrated in the existing four standard perspectives. – An additional perspective added to take environmental and social aspects into account – A specific environmental and/or social scorecard is formulated

• Preferred in the listed order • A combination of these approaches is appropriate Printed on recycled paper-actually better, not printed at all

Integration into the four balanced scorecard perspectives • Similar to adding any other strategic aspect that is relevant to a particular perspective • Through a top down approach – Environmental and social aspects are integrated through respective strategic core elements or performance drivers – lagging and leading indicators as well as targets and measures are formulated

• particularly appropriate for environmental and social aspects that are already integrated in the market system. Printed on recycled paper-actually better, not printed at all

Example • a firm that aims at an environmental customer segment – the core measure ‘market share’ in the customer perspective would have an environmentally oriented dimension – the leading indicator ‘product features’ would have an environmental dimension • Environmentally friendly packaging Printed on recycled paper-actually better, not printed at all

Addition of non market perspective • Environmental and social aspects are not fully integrated in the market exchange processes – Example: externalities—non market portion of C02 pollution

• Consequently a non market perspective needs to be added to incorporate these strategic aspects • In order to justify introduction of an additional non-market perspective, environmental and social aspects from outside the market system must explicitly represent strategic core aspects of the firm • Should only be used if the aspects can not be represented within the standard four perspectives Printed on recycled paper-actually better, not printed at all

A specific environmental and/or social scorecard is formulated • Predominantly used to coordinate, organize and further differentiate the environmental and social aspects • Should not be developed parallel to the conventional scorecard • In order to integrate sustainability management into mainstream business management – Must be added in conjunction with one of the other two integration alternatives – This is not an independent alternative for integration, it is an extensionPrinted on recycled paper-actually better, not printed at all

The process of formulating an SBSC has to meet the following……

• must lead to integration of environmental and social management into business management • the SBSC is business unit specific • environmental and social aspects of a business unit must be integrated according to their strategic relevance Printed on recycled paper-actually better, not printed at all

The process of formulating an SBSC

Printed on recycled paper-actually better, not printed at all

Printed on recycled paper-actually better, not printed at all