Integrated Sustainability and its Impact on Accounting and Finance

Like in Chess - A sustainable corporate strategy is the key to winning

Seminar Paper, 2011

29 Pages, Grade: 1,3


Table of Contents

List of tables / Figures

List of Abbreviations


Defining Sustainability

Sustainability Rating 2009 - Top 2 Companies

Balanced scorecard and its implications on Sustainability

The Financial Perspective

The Customer Perspective

The Learning and Growth Perspective


Value Chain and its implications on Sustainability

Sustainability Accounts in the Value Chain

Environmental Financial Statement

Looking Ahead

Summary and Recommendations

Reference List


List of tables / Figures

Table 1 Financial Perspective at SBU-Level

Table 2 Learning & Growth Perspective at SBU-Level

Table 3 Internal-Business-Process-Perspective at SBU-Level

Table 4 Value Chain: Ideas for Sustainability Accounts

Table 5 Baxter 2009 Environmental Financial Statement

Figure 1 Applied Example of a Customer Perspective at SBU-Level

Figure 2 The McKinsey 7-S Framework

Figure 3 Internal-Business-Process Value-Chain Perspective

Figure 4 Evolution of the Green Value Chain

Figure 5 The Value Chain and Sustainability

Figure 6 The GRI Framework

Figure 7 Metro Group Sustainability Report 2009, KPIs Data Range 2007-2009

Figure 8 Kotter‘s Model for Leading Change

Figure 9 Value Chain: Sustainability Accounts at Henkel

Figure 10 Alcoa Business Sustainability Model

List of Abbreviations

illustration not visible in this excerpt


“For most companies these days, the environment—which is synonymous with climate change for many executives—has become an important topic. Companies know that consumers and employees care about the environment, and their interest often presents real business opportunities and risks.” (McKinsey & Company, 2010)

In a time, where globalization and global prosperity foster a continuous chasing after outstanding business success, environmental and social aspects are more and more taking a back seat in the decision-making processes of organizations. With a world population of nearly seven billion people and an expected growth to more than nine billion people by the year 2050 (UN, 2008), the urgency to preserve the resources of the world is now greater than ever. Due to this global situation, the importance of corporate sustainability as an integral part of organizations’ strategic directions is increasing gradually. Additionally, customers’ growing awareness for environmentally friendly products and actions is further boosting the pressure on companies to act in a sustainable manner.

Although first steps towards an eco-friendly future have been done in the fields of mobility and efficient consumption of energy and materials, continuous improvements in environmental and social aspects are crucial. Responding to external pressure, corporations have started to implement sustainability in their businesses. However, some firms are being accused of pursuing a sustainability strategy only, to satisfy expectations of the public society. Although the real intentions for a company’s business actions are difficult to determine, at least the number of organizations that have integrated sustainability into their business has increased, according to a study of PwC (2010). Referring to this research, which took only German firms into account, about 75% of the participants have connected sustainability at least to some of their core business areas. Furthermore, every fourth of the surveyed companies has increased its sustainability engagement. The main driver for that is seen in the pressure of society, media and NGOs, which reflects the high public awareness for topics related to environmental, social and economic aspects.

Despite many companies are showing the will to work on their sustainability performance, many of those fail because they are not communicating their strategic direction internally and are lacking adequate measures to report the impacts of respective actions. According to the study of PwC, only half of the surveyed companies analyze the impacts of their sustainability initiatives from an efficiency and productivity point of view. This indicates the overall need to establish consistent report systems for sustainability and outline meaningful measures, which help organizations to gain competitive advantage out of their efforts.

Defining Sustainability

The term sustainability holds a variety of definitions across the literature. For the matter of this paper, a combination of two sources resolves in a sophisticated explanation.

The United Nations refer to sustainability in their Report of the World Commission on Environment and Development ‘Our Common Future’ (1987) as, “sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This first definition can act as a base for every individual and group, whether it is of business or private matter. On the other hand, the second source creates a closer link to sustainability on corporate level.

The Dow Jones Sustainability Indexes (2010) state corporate sustainability as, “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments [...] while at the same time successfully reducing and avoiding sustainability costs and risks.”. Regardless of how close these definitions are, both highlight three basic components of sustainability, being economic growth, social fairness and environmental protection for meeting the needs of today’s and future generation’s needs (Behrends, Lindholm, & Woxenius, 2008).

Sustainability Rating 2009 - Top 2 Companies

In 2009, the Sustainalytics GmbH conducted a comparative analysis among the DAX-30 companies with regard to a sustainability ranking. Within this study, the BMW Group and Henkel reached the first and second place, respectively. For a practical insight into the definition of sustainability, we can contrast the visions of the top two performing companies.

The BMW Group (2011) refers to sustainability as:

“We have set ourselves the goal of integrating sustainability throughout the entire value chain [...] creating an added value for the company, the environment and society. Key elements [...] include an “environmental radar” that is regularly extended to cover additional ecological and social aspects; ongoing dialogue with stakeholders; [...] and a holistic approach to the entire value chain.”

A key element in this example is the integration of sustainability along the whole value chain. We also find the dialogue with the stakeholders to be the core of the BMW vision.

On the other hand, Henkel focuses more on integrating sustainability into the corporate culture, while also mentioning the importance of the value chain adjustment. Interestingly, there are overlapping statements between the UN definition and Henkel (2011):

“Sustainability is a firm component of our corporate culture, and our commitment is reflected in our corporate values. [...] we work to meet the needs of people today without compromising the development opportunities of future generations. This ambition applies to all of our company’s activities – throughout the entire value chain.”

Overall, both visions follow the same direction, namely focusing on corporate sustainability in connection with the value chain and stakeholders.

Balanced scorecard and its implications on Sustainability

“Sustainability management with the 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.” (Figge, Hahn, Schaltegger & Wagner, 2002)

To successfully implement a sustainability strategy within a company, the plain execution of respective initiatives or actions is not enough. Strategic direction and objectives also have to be communicated throughout the company. To do this most effectively, the BSC possesses characteristics, which makes it a suitable tool for various reasons. Also Michael Porter, the inventor of the famous 5 forces model, once said that “If firms would like to align and integrate their sustainability or CSR strategy with an overall business strategy, while measuring and communicating the strategy well, then a strategy-based BSC system is the first thing to do first.“ A main reason for that lies in one of the core attributes of the BSC model, which ensures that the four perspectives; financial, customer, learning and growth and internal business process, include the key activities for value creation and, due to the hierarchical structure, causes are linked to effects (Figge et al., 2002).

Hereby, the major role is the creation and preservation of competitive advantage, which is vital for an organization’s success. Furthermore, the top-down structure of the model guarantees the involvement of even single individuals in the transformation of an organization’s strategy. Consequently, it enables companies to pursue a value-based approach to the management of sustainability aspects. According to Figge et al. (2002), this is crucial to the implementation of a sustainability strategy, since companies will do non-value-oriented sustainability management only as long as they can afford it from a financial point of view. Moreover, the authors state that the achievement of effective sustainability is subject to the simultaneous fulfillment of environmental, social and economical objectives. Since the BSC is not only measuring and reporting financial data, but also takes so called soft factors into account, the model represents the right medium to integrate the three predominant dimensions of sustainability, which are in their nature rather non-financial. Additionally, the concept is open for implementing different kinds of strategies. Like Kaplan and Norton (1996), who applied the BSC to both profit and non-profit organizations, this idea can also be adapted to sustainability approaches. On the one hand that could be a radical sustainability strategy, where companies align every single business step towards achieving sustainability, or on the other hand a strategy, which is gradually approaching this goal within an organization. Although there are at least three distinct concepts of how to meaningfully connect sustainability aspects with the BSC model, the customized integration into the four standard perspectives represents the most simple and straightforward approach. Furthermore, the respective formulation of objectives has to be done on a business unit level, since specific environmental or social goals might not be generally applicable to the whole corporation. To illustrate an example of a sustainability BSC, the respective perspectives are outlined in the following sections.

The Financial Perspective

In general, the financial perspective is of great importance for the BSC, as it reflects if the application of a certain strategy leads to improved economic success. Moreover, it takes up a double role within the model. On the one hand, it defines the top-level financial objectives of a company, and on the other hand it serves as the endpoint to goals and outcomes of the three remaining perspectives (Kaplan & Norton, 1996); such as the overall objective to increase a company’s sales is internally supported by the achievement of different targets, like higher customer satisfaction or employee productivity. Consequently, the financial perspective rather consists of measures, which indicate whether or not a company has achieved its desired economic goals, whereas the ways to meet the objectives are given by the other perspectives (Figge et al., 2002). According to Kaplan & Norton (1996), measures like costs, sales or asset utilization are usually seen as the most predominant categories of the financial perspective. Hence, a consequent adaption of these items into an environmental and social context is a crucial prerequisite for the implementation of a sustainability financial perspective. Moreover, respective key performance indicators enable a company to measure the success or failure of their sustainability strategy from a bottom line perspective. This feature is highly relevant to the effectual realization of the whole model, since sustainability management is ideally supposed to generate value for the company at all time. In one of his recent publications, which amongst others tackled the topic of a sustainability BSC, Epstein (2008) outlined a number of financial performance measures, which are shown in Table 1. Considering also the corresponding objectives, this figure is an adequate indicator, how financial factors can be streamlined towards sustainability. Moreover, it also provides evidence for the interrelationship of the four BSC dimensions, since required initiatives to achieve the desired goals are directly assigned to other areas of responsibility. Thus, the successful transformation of the financial perspective is subject to a clear definition of sustainability-related objectives and measures, which serve the overall financial performance management of a company, and the establishment of definite relationships to the three remaining perspectives of the model.

The Customer Perspective

The customer perspective is in its nature designed to measure and report attributes related to customers or, in some cases where a broader view is required, also company stakeholders. In this context, it outlines the preferred market segments, in which a company wants to compete, and provides ways and actions to achieve and maintain competitive advantage in the aforementioned target segments. These approaches are usually closely connected to so-called value propositions, meaning characteristics or features of their products or reputation, which companies want to improve to be successful in the market. According to Kaplan & Norton (1996), the most meaningful categories of this type are product attributes, customer relations and image & reputation.

Below, Figure 1 represents an applied example of a customer perspective, which reveals the connection between top-level objectives and value propositions in a clear and understandable way. While the overall objective of this perspective, to increase the market share in a certain market by five percent points is given in the upper left hand corner, the key to achieve this is deemed to be a higher customer satisfaction rate. By generating objectives within the predetermined categories of value proposition, which are closely connected to sustainability issues, the company is able to provoke a higher customer satisfaction rate with the achievement of those goals. For example they could work on the durability of their products or on their overall environmentally friendly image. By categorizing those outcomes into environmental and social aspects, the customer perspective enables a company to establish a clear picture of its sustainability performance from a third-party view. Although objectives and measures of this BSC part are rather non-financial, their achievement can however be seen as direct contribution to the economic success of a company, due to the inevitable causal link to goals of the financial perspective, as mentioned beforehand (Figge et al., 2002).

Figure 1: Applied example of a Customer Perspective at SBU-Level

illustration not visible in this excerpt

Source: Figge et al. (2002)

The Learning and Growth Perspective

The learning and growth perspective is mainly focused on measures related to a company’s infrastructure, meaning organizational and human capital, and how to use them to be competitive in the future. Opposed to the financial perspective, which shows if a certain objective was achieved, the learning and growth perspective rather reports everything that is required or beneficial to achieve desired goals. To illustrate some types of assets that a company has to focus on in this context, the McKinsey 7-S Framework provides a valuable basis (Figure 2). In terms of human capital for example, long-term retention of staff, or the continuous improvements of employee skills are essential factors. Related to organizational capital, the development and enhancement of information or reward systems is essential. Table 2 contains a comprehensive overview of measures and goals, which indicate how the learning and growth perspective can be adapted to improve the sustainability performance of a company. In this case, it is important to remember that sustainability is not all about environmental aspects, but also social and economic factors. Based on this, the objectives to increase employee retention, productivity or satisfaction are clearly supporting sustainable behavior. The most challenging issue for this perspective might again be of non-financial character that makes value based sustainability management difficult to administer. Nevertheless, also the learning and growth perspective has to be seen as integral part of the whole model, where the financial perspective is the key indicator for the economic success of a company’s strategy.

Figure 2: The McKinsey 7-S Framework

illustration not visible in this excerpt

Source: Peters & Waterman (2004)


“Most companies are not actively managing sustainability, even though executives think it’s important to a variety of corporate activities.” (McKinsey & Company, 2010)

In the Internal-Business-Process-Perspective, managers examine the essential processes that are most crucial for the organization. The generic VC (Figure 3) according to Kaplan and Norton (1996), hence, starts with customer need identification and leads to customer need satisfaction. While the traditional approach towards any VC focuses on existing processes, the internal-business-process-perspective of the BSC emphasizes rather the innovation, operations, and post-sale-service processes. Since sustainability can be considered as a value driver for innovation, firms should develop reasonable measures regarding more long-term oriented value creation than focusing on the short-term operating cycle (Kaplan & Norton, 1996).


Excerpt out of 29 pages


Integrated Sustainability and its Impact on Accounting and Finance
Like in Chess - A sustainable corporate strategy is the key to winning
International University of Applied Sciences Bad Honnef - Bonn
Current Issues in Accounting and Finance
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
2152 KB
“For most companies these days, the environment—which is synonymous with climate change for many executives—has become an important topic. Companies know that consumers and employees care about the environment, and their interest often presents real business opportunities and risks.” (McKinsey &amp, Company, 2010)
Sustainability, Balanced Scorecard, Sustainability Accounting
Quote paper
Alexander Michalski (Author)Jonas Gloßner (Author)Cornelius Kirsche (Author), 2011, Integrated Sustainability and its Impact on Accounting and Finance, Munich, GRIN Verlag,


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