Ecological Footprint as a management tool for corporations

Table of Content

Introduction

The Macro Context of Corporations in the Globalized Economy

The Ecological Footprint, Corporate Environmental Responsibility and Sustainable Development

Calculating Environmental Impacts: The Ecological Footprint in Application

Applying the Ecological Footprint in Socially Responsible Investment- Case Study: Bank Sarasin
Applying the Ecological Footprint in Water Services-Case Study: Anglian Water
Services

Discussion and Conclusion

Introduction

People say, you can’t manage what you can’t measure, and you can’t measure what you don’t understand. In times of increasing government restrictions on Carbon Emissions and other environmentally damaging by-products as well as rising costs of energy, water and waste disposal, corporations are now more interested in effective ways to monitor and manage their ecological assets than ever.

The environmental revolution, which has been almost three decades in making, has been changing the way of how companies do business significantly. Explosive population growth and rapid economic development in emerging economies constitute the roots of today's major environmental problems, and even though many of the political and social issues resulting out of these developments might exceed the mandate and capabilities of corporations, a significant number of scholars agree that corporations are the only organisations with the resources, the technology, the global reach and (possibly) the motivation to achieve sustainability.

In order to work towards environmentally responsible behaviour and sustainable development (SD), an increasing number of corporations and government entities choose the Ecological Footprint as a management tool to monitor and manage ecological assets. Since the human economy depends on the planet's natural capital and sustainability requires living within the regenerative capacity of the biosphere, it is of great importance to measure the extent to which humanity satisfies this requirement.

The Ecological Footprint, along with other accounting frameworks, uses existing data to translate human demand on the environment into the area required for the production of food and other goods, together with the absorption of wastes[Wackernagel, Schulz, Deumling, Linares 2002].

In this paper, the value of the Ecological Footprint as a management tool for corporations that wish to operate in an environmentally responsible manner will be discussed. The paper will be outlined as followed: First, the macro context of today's corporations operating in a globalized economy will be outlined briefly in order to disclose the environmental challenges economic entities are currently facing. Second, I will analyse the key features of the Ecological Footprint in relation to a discussion of the key characteristics that constitute corporate environmentally responsible behaviour and how environmental responsibility relates to the concept of Sustainable Development (SD). Subsequently, the third and main part of the paper will discuss the application of the Ecological Footprint using case studies to demonstrate possible business outcomes. In the conclusion, the results of the analysis will be revised in order to achieve a wellrounded understanding of the potentials and limits of the Ecological Footprint as a management tool to monitor and manage ecological assets.

The Macro Context of Corporations in the Globalized Economy

Within this century, the human population will double and the resources available per person will drop by one-half to three-fourths. Since the mid-eighteenth century, more of nature has been destroyed than in all prior history due to the developments coming out of the industrial revolution. Even though industrial systems are now more successful than ever, the Natural Capital humanity depends on is rapidly declining. The rate of loss of Natural Capital (which includes living systems such as savannas, wetlands, oceans, rainforests etc. as well as all natural resources humankind uses) is increasing proportionate to the relative gains in material well-being [Hawken, A.Lovins, L.H. Lovins 1999].

As the population is growing, more and more people place greater strain on living systems and it is important to note that the limits to global prosperity are determined by natural capital and climate change rather than industrial abilities.

Due to the globalization of trade, powerful extractive technologies, decreasing transport costs and imbalances in market and trading, the prices for most resources and materials are still comparatively low. However, several external effects such as stripped rainforests, toxic exhausts and impoverished villages are not yet fully factored into the cost of production of these seemingly cheap materials and resources we use for everyday production[Hawken, A.Lovins, L.H. Lovins 1999].

This bias constitutes the root of the environmental problems we are facing today and might be the biggest challenge on the way to achieving sustainability. Destroying the living system and exploiting the 3.8 billion-year store of natural capital humanity inherited doesn't only mean erasing the natural source of all supplies such as clean water and air, fertile soil and oceans, but also restricting less well-known functions of the environment such as waste processing, regeneration of the atmosphere and protection against the extreme peaks of changing weather and climate.

In 1987, the World Commission on Environment and Development introduced the term Sustainable Development (SD). Ever since, it has been used to describe the holistic concept of integrating ecological, biological, pollution and planning considerations to enable development that “meets the needs of the present without compromising the ability of future generations to meet their own needs”[United Nations 1987]. Within the context of environmental protection and conservation, societies came up with several means of control that can be distinguished in two main categories: (I) legislative, behaviour-inhibiting means such as forms of directly controlling the polluting firm's emissions by regulating it's production processes and/or material use, and (II) economic, incentive-creating means, such as subsidies, deposit schemes, tradable pollution or other kinds of economic incentives to reduce or eliminate the production of waste, pollution through greenhouse-gas-emissions or other forms of environmentally damaging external effects of production[Ulhoi, Madsen, Hildebrandt 1994].

Furthermore, a variety of mostly voluntary standardization norms and certification standards have been established in order to “green the industry” and monitor and judge the environmental performance of production, products and services. One of the most widely used environmental certification norms is the ISO 14001, an international environment document developed by the International Organization for Standardization (ISO) for the prevention of industrial pollution that provides the most well known environmental management system frameworks. Together with the ISO 14004:2004, it belongs to the ISO 14000 standard family which addresses various aspects of environmental management. Both ISO 14001 and 14001:2004 deal with environmental management systems (EMS), providing both requirements and guidelines for EMS. The other standards and guidelines in the family address specific environmental aspects, including: labelling, performance evaluation, life cycle analysis, communication and auditing [ISO 2012]. In Europe, the EMAS (European Ecomanagement and Audit Scheme) certifies environmental management systems on a voluntary basis. It's goal is to enable organisations to monitor and continuously improve their environment performance using a scheme that is open to all types of private and public organisations meeting the requirements of the EMAS-Regulation. Currently, several thousand organisations are registered with EMAS[European Commission 2012]. Moreover, other preventive strategies such as Eco-Efficiency, Green Productivity and Pollution Prevention such as promoted by the UNEP International Declaration on Cleaner Production (1999) are becoming more popular.

Considering these developments, it becomes obvious that Sustainable Development is increasingly being understood as a collective responsibility of societies, industries and the governments. Even so, corporate environmentally responsible behaviour remains a voluntary cause that is not regulated internationally. Corporations depend on their shareholders and are expected to maximise profits, hence the CEO's options are often limited, especially in Industries whose core business relies on production that is in its essence stressful for the environment (for example Hydraulic Fracturing, Mining or the Chemical Industry).

Summing up the analysis of this chapter, we are to say that today's corporations are working in the international macro context of (I) an environment that awards short term gains, (II) a growing population facing limited resources, including challenges as to how the actual price of a resource is to be determined in regards to external effects, (III) increasing awareness of sustainable development, environmentally damaging practices and evolving knowledge on greener production in both the private and the public sector, (IV) increasing regulations on environmentally damaging procedures and products, (V) climate change and (VI) an increasing number of voluntary standards and norms monitoring and certifying industrial processes.

Considering this context, I will now look into the key characteristics that constitute environmentally responsible behaviour and how environmental responsibility relates to the concept of Sustainable Development (SD) to form a basis for the analysis of the Ecological Footprint as an environmental management tool.

The Ecological Footprint, Corporate Environmental Responsibility and Sustainable Development

In an attempt to measure the extent to which humanity satisfies the requirement of living within the regenerative capacity of the biosphere, the Ecological Footprint uses existing data to translate human demand on the environment into the area required for the production of food and other goods, together with the absorption of waste. The account indicates that, in 1961, the human demand on the environment corresponded to 70% of the capacity of the global biosphere and grew to 120% in 1999[Wackernagel, Schulz, Deumling, Linares 2002]. According to a report by the Global Footprint Network and the WorldWide Fund for Nature, Europe today is home to 7 percent of the world's population but uses 20 percent of the world's food, fibers, energy, and waste absorption capabilities[Global Footprint Network, WWF 2005]. Furthermore, the Global Footprint Network states that “today, resource demand is so high that biocapacity — the services and resources that nature makes available — is being overexploited, not just locally but at the planetary scale. If these trends continue, resource constraints will become a leading factor determining economic success — or crisis — in the 21st century” [Global Footprint Network 2012].

Addressing corporations, the Global Footprint Network declares that, through managing ecological risks and opportunities, businesses can “gain a strong competitive advantage” in the international market and underlines that the use of the Ecological Footprint helps to “improve market foresight, set strategic direction, manage performance and communicate the strength of the business”. The analysis provided by the Ecological Footprint claims to reveal potential future limits in resources according to a specific region and/or industrial sector and can herefore evaluate alternatives for future activities as well as identify strategies that will succeed in a resource-constrained world[Global Footprint Network 2012]. It is, however, not completely clear whether the main goal of the Ecological Footprint as a management tool should be used to improve environmental performance or if it should merely serve as a tool to gain competitive advantage and hence enable new, profitable business strategies.

As far as corporate responsibility towards nature is concerned, numerous business journals have dedicated several articles to the question of the complex relationship between responsibility and nature indicating that it has become a classical dilemma amongst managers (Examples for such journals are Business Ethics Quarterly, Journal of Business Ethics, Ethical Enterprise etc.). The most common reasoning today leads and refers to the theory of stakeholders, which can be interpreted in an anthropocentric or a biocentric way. The first approach represents a very interesting analytical perspective, yet most commonly treats nature as a secondary stakeholder and therefore fails to “seriously consider the natural environment as a specific domain which should merit a company's attention”[Bazin 2008]. Classifying this as the anthropocentric approach , Bazin furthermore distinguishes this mode of reasoning (which solely takes human beings into consideration) from the biocentric approach to environmental responsibility, a theory broadened to include non-human participants that perceives planet earth as “a gigantic living organism capable of autoregulation and auto adjustment in regard to exogenous shocks, without human action”[Lovelock 1988]. This idea is closely related to the notion of Land Ethic and Biotic Communities, a philosophical note that thinks of humans and other living-beings as diachronically linked to each other: “Human beings, plants, animals, earth and water are all linked to a community which presents great activity composed of cooperation and competition, a biotope”[Bazin 2008][Lovelock 1988]. Biocentric approaches tend to include nature as a stakeholder based on the assumption that the environment can undergo suffering and, even though we can not be completely certain whether or not nature has “interests of its own”, assumes that, out of moral reasons, the “respect of nature requires its preservation”[Bazin 2008]. Anthropocentric approaches on the other hand argue that the natural environment is to be integrated into the theory of stakeholders because of human interest for nature, whereas nature could be taken into account through human stakeholders who are concerned with nature[Philips and Reichart 2000]. Assuming that natural assets are monitorable and manageable by humans, the Ecological Footprint tends to conform to the anthropocentric perspective and, consequently, presumes that aggregation and accounting of biophysical indicators are useful complements to an economic perspective.

Most scholars agree that environmental responsibility is to be defined by the following characteristics:

- responsible use of resources
- reduction or elimination of waste
- minimization of the Carbon Footprint
- effort to substitute everyday products with organic, eco-friendly products that are produced in an eco-efficient, sustainable way.

Considering this, environmental responsibility should be understood as a foundation for the sustainable development of this planet which will host nine billion people in 2050.

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