Sustainability and the Balanced Scorecard: Integrating Green Measures into Business Reporting

Abstract

Adopting operating is certainly good for the environment, yet the implications of such for a business's profitability may be viewed as both positive and negative. On one hand, by contributing to product differentiation in the marketplace and enhancing organizational image to investors and customers (both current and potential), may increase a company's profitability. on the other hand, may actually reduce profitability because of extra costs that result from implementation and continuation of practices. For example, installing solar panels on a building may lower monthly electricity bills, but, concomitantly, the reduced electricity bills may be more than offset by the high purchase and installation costs associated with the panels. In the current economic downturn, higher costs are particularly difficult to justify unless a company can demonstrate that they help increase revenues or promote corporate strategies. To further complicate matters, measures often are quantitative (such as tons of greenhouse gas generated) but not monetary, making them difficult to integrate into traditional financial analyses in a meaningful fashion. One way to address these conflicting issues is to align measures with corporate strategies through the balanced scorecard (BSC), which provides a framework for integrating nonfinancial measures into corporate operations and assessments. Through the BSC, companies can delineate the relationship between objectives and outcomes with corporate strategy and profitability. (1) By integrating measures into business and by clearly linking an organization's competitive strategy to its outcomes, the BSC clarifies the relationship between outcomes and profitability/shareholder interests. DEFINING SUSTAINABILITY The concept now runs rampant in business literature, but, unfortunately, there is no agreedupon definition of or its underlying tenets. (2) As Richard Holledge observed in the Financial Times, Googling the phrase development (SD) showed 26 definitions littered with buzz words such as 'preservation,' 'eco-system,' 'biological system,' 'resource base,' and 'social equity'. (3) Still, many business managers would agree that, at a minimum, business operations should encompass a variety of broad-based and processes that are environmentally responsible from cradle to grave. In other words, or green will be found throughout the operations of a business. These can be included in the design features of an organization's buildings, vendor selection in the supply chain, production of goods and provision of services, and packaging features and distribution elements of those products and services, and the will be a significant consideration in a product's ultimate disposal. Sustainable business are holistic, life-cycle that must be assessed over the long run, not the more traditional short run (see Figure 1). Even when the general cradle-to-grave approach is agreed upon, an organization should choose its approach to before starting to prepare a BSC. Some companies may opt to focus only inward, seeing sustainable practices as focusing exclusively on environmental issues such as water use and tons of materials recycled. Other firms will elect to view both internally and externally: These firms see sustainability as a three-legged stool encompassing that are economically, environmentally, and socially responsible. (4) Such a pre-implementation process means that will be organizationally unique and highly individualized. Inclusion of social responsibility in the definition, for example, requires that a multitude of new factors be assessed and measured ranging from employee issues (such as diversity, health, and safety) to customer issues (such as product labeling and consumer privacy) to societal issues (such as philanthropy and community well-being). …

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