The Sustainable Performance Of Abb Accounting Essay

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Lately sustainability is becoming almost a mantra for a lot of companies. Over the past decades government, society, firms and nongovernmental organizations have increased their interest and efforts in environmental friendly production. Sustainability as buzz word is being used in every context as soon as environmental issues are raised. However, sustainability does not imply only environmental issues, but also refers to social and economic aspects when used in organizations (Epstein, 2008). With the introduction of standards and policies, firms have to manage and measure corporate social, environmental and economic impact.

Aim and method

This report will elaborate on the sustainable performance of ABB. The overall aim is to examine the business strategy in relation to the sustainability management of the company and whether there is room for improvement regarding ABB's sustainability management.

Information on ABBs management performance will be collected by addressing the following issues:

The driving forces behind the sustainability performance ABB;

ABB's most significant environmental aspects;

ABB's sustainability policies;

ABB's sustainability tools, metrics and methods and the possibility for additional tools, metrics and methods;

ABB's pressure on suppliers.

Information on ABB's sustainability will mainly be gathered by using the information supplied in their sustainability report. In case necessary information of ABB's website will be used. In order to understand the information and support criticism scientific papers will be used as an information source.



Before reviewing and elaborating on ABB's environmental management performance, some definitions have to be introduced to increase comprehensibility.

Environmental Management System (EMS)

The part of the overall management system that includes organizational structure, planning activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy. (ISO 14001)

Environmental Performance

Measurable results of the environmental management system, related to an organization's control of its environmental aspects, based upon its environmental policy, objective and targets. (ISO 14001)

2. ABB

ABB is a leading company in respect to power and automation technologies. ABB products and services are designed to help its customers to improve their performance and decrease the related environmental impacts. These products and services are categorized in five sections as follows:

Power products: these products are key components to transit and distribute electricity including transformers, switchgear, etc. ABB alongside with these products offers all the required services to verify products' performance.

Power systems: ABB offers "turnkey systems and services for power transmission and distribution grids".

Discrete automation and motion: This section has been designed to provide products, services and solutions in order to raise energy efficiency industrial productivity.

Low voltage products: Includes production of low voltage breakers, switches, etc with the aim of protecting people and equipment from electrical overload.

Process automation: Provides customers with products and services for "instrumentation, automation and optimization of industrial process" (the ABB group, 2010).

2.1. ABBs most significant environmental aspects

ABB has divided their view on environmental issues into two categories: environmental performance and sustainability. The environmental performance mostly focuses on measuring different kinds of emissions from the ABB group. The suppliers and customers' impact on the environment are excluded from the figures. The sustainability topic includes more visions and goals, including ABB's "seven priorities" which covers different angles of ABB's work with sustainability. These seven priorities are (ABB, 2010):

Energy efficiency - ABB constantly tries to minimize the energy usage while keeping productivity and output intact. This is made by promoting manufacturing techniques, working methods and behavior that are less energy consuming. ABB's own operations today emit 1.7 million tons of CO2 and a project to reduce CO2-emissions with 5 % is currently being conducted within the company.

Climate change - Today ABB focuses on three aspects: Helping customers to be more energy-efficient, to cut ABB's own emissions from manufacturing and increase use of renewable and emission-free energy sources (like wind power).

Managing environmental impact - Much effort is put into the designing process of new products where design engineers are using tools like LCA to evaluate the environmental impact of the product designed. All manufacturing subdivisions within ABB are using ISO 14001 and OHSAS 18001. ABB also tries to have a close cooperation with sustainability organizations and universities.

Seeking improved safety for workers - Training and education for workers are crucial for keeping the working accidents ratio low. In 2007, 22 people were killed during working hours; in 2008 this figure had been cut to 10. Main efforts are being taken in India, were all deaths in 2008 happened.

Corporate effort to seek higher standards - ABB wants to be a good citizen corporation with high standards in environmental, social and ethical questions. This is conducted by involving both the company and its workers into different kind of projects. These projects can be voluntary work, implementing electricity grids into Tanzania or supporting different kind of climate councils with electricity-efficient products.

Sustainable product development - As told before, large efforts are put into the design phase of a new product. During all the steps of the product realization process sustainability goals and visions are included and followed. This can include following the LCA procedure, using the precautionary principle for chemicals and materials and having checklists that ensure no safety risks or hazardous substances are embedded into the product.

Sustainability in the supply chain: Promoting best practice - Alongside cost, quality and punctual delivery, ABB demands that all main suppliers make some kind of assessment of their sustainability performance and favors suppliers that use an established method for assessment (like the ISO 14001).

While Sweden's environmental goals are rather focused on the effect of different emissions and pollutants (Clean air objective, a non toxic environment, zero eutrophication, good quality groundwater) ABB tends to have their focus on energy saving, health issues and product development (Swedish Environmental Objectives Council, 2009).

Some objectives are rather similar though, especially reducing impact on the climate. It is of course very likely that all the efforts ABB are conducting will be needed to satisfy the environmental goals of Sweden. Still, almost everything that includes worker responsibility and social activities are left out in Sweden's environmental goals. ABB does measure all emissions and includes these figures into both sustainability reports and have these figures displayed at their website. The emissions are of course more important on a national level than on corporate level but it is still a little bit strange that ABB does not include reduced emissions of different pollutants into their sustainability targets. Even though ABB state that emissions are low compared to other industries it is still very important to strive against improvement! This is even more important when no impact of their suppliers and users are included in the result as main environmental impact of ABB's products probably emerges in the usage phase.

2.1.1. Demands on the supply chain

All suppliers that are hired by ABB have to carry out a questionnaire constituted by ABB themselves. This questionnaire focuses on environmental performance and health & safety issues. ABB states that suppliers that use ISO 14001 or any other kind of widely known managing system are preferred. If the supplier does not fulfill the environmental, safety and/or health criteria then ABB have training programs that ensures that suppliers can answer to the goals of ABB. When contracted the suppliers are continuously audited and revised to make sure that commitments are being executed properly (ABB, 2010).

2.1.2. Global warming

2.2. ABB's environmental management performance

For ABB, sustainability is about balancing economic success, environmental stewardship and social progress to benefit all their stakeholders (ABB group, 2008). Actually this is the first sentence of their sustainability report and might encapsulate already some driving forces behind the environmental performance of the company. For management, environmental performance is not the only indicator that matters. So, sustainable performance might be a more suitable term, since it encapsulates also the paradox of simultaneously improving, besides environmental performance, also social and financial performance (Epstein, 2008).

In literature several internal and external factors are mentioned which are the impetus for implementing a corporate strategy regarding sustainable performance. Epstein indicates the following driving factors:

Internal factors:

Management commitment to sustainability as a core value;

Management recognition that sustainability van create financial value.

External factors:

Government regulation;

Marketplace demands;

Competitors' actions;

Pressures from non-governmental organizations (NGOs).

These driving forces are more or less coherent with the factors indicated by Zhang et al. in their article "why do firms engage in environmental management?" They addressed that pressure form the supply chain, the customers, and the community drive the company to engage in environmental management (Zhang, 2008).

According to the above mentioned internal and external factors, ABB's driving forces will be indicated and reviewed.

As ABB is one of the leaders in power and automation technologies, it is inevitable that they will not ignore the environmental reports of last decennia. In their sustainability report ABB promotes itself as a company where sustainability is part of its business and is embedded in their daily operations. Moreover, ABB is involving in the public discussion about environmental management concerns as they give seminars. These factors indicate the commitment of ABB's management to sustainability.

Besides commitment, ABB's management recognizes the financial benefits of sustainability as well. Hence ABB is involved in energy and automation technologies, so promoting sustainability in times of global recognition of global warming and depletion of fossil fuels is ought to create financial value as well. This indicates also an external driving force, marketplace demands, which might be one of the most important driving forces of ABB's impetus for implementing a corporate strategy regarding sustainable performance.

The relation between the driving factors is interesting, since it is hard to determine whether ABB is taking action because of market place demands or for example competitors actions. For example Siemens, maybe one of the biggest competitors of ABB, cites in their environmental report "In fact our Environmental Portfolio - the largest of any company in the world - already generates a quarter of our revenue, and we have a global environmental management system in place to ensure that our products and solutions along the entire value chain meet high standards of environmental performance" (Siemens, 2008). It is evident that when a competitor promotes itself like this, with respect to the business they are involved in, it is for ABB not cogitable to neglect sustainability/environmental measurements.

Information and literature on pressures from non-governmental organizations is not largely available. ABB informs in their sustainability report the stakeholders about a collaboration with a NGO and state authorities on a solar power project for a desert community. Moreover ABB is sharing thoughts with NGOs which might an indicator of some pressures.

3. Environmental & Sustainability Management (ESM) at ABB

Sustainable development has been integrated to all the business aspects at ABB through company's environmental& sustainability management program. This program has been developed through 3 phases since 1991 forward. The main aspects of each phase have been described briefly as follows (Karlson, 2003):

Phase one:

Starting of ABBs environmental management program formally in 1991 after signing ICC Business Charter for Sustainable Development

Establishing an environmental strategy in 1994 following with environmental audits of company's manufacturing activities in 35 countries

Developing Life Cycle Assessment(LCA) as a management tool and its key role in product development

Developing a handbook including guidelines for design and material selection activities in order to satisfy the company's environmental goals(Karlson, 2003)

Phase two:

Starting in 1994 by introducing a LCA software tool and the handbook in ABBs product development departments globally alongside with the related trainings

Implementation the environmental management system at 98% of all ABB sites by 2001(Karlson, 2003)

Phase three:

Starting in 1998 by implementation of some communication tools like Environmental Product Declaration(EPD) in order to communicate the product information to its stakeholders especially customers

Starting a stronger focus on environmental performance of products through LCA(Karlson, 2003)

3.1. Current ESM tools & methods

In order to satisfy the environmental and sustainability development, ABB uses some management tools and methods. Below the most important ones have been described.

Life cycle Assessment (LCA)

LCA is a tool used to identify and analyze the possible environmental impacts of a product, system or service within its life cycle from cradle to grave. LCA has been used within ABB from 1990s as a useful environmental management tool. The limitation of this method is that LCA is too much science driven and complicated and is not made to be used easily. It also needs enough financial and human resources in order to be implemented effectively. So expertise and funding are two most important limitations of using this method especially in small scale companies with limited resources and experts (UNEP, 2005).

Design for Environment Information (DFE)

ABB started a DFE site on company's intranet within year 2000. This tool has enabled all ABB employees, at all decision making levels, to have access to the environmental knowledge developed in ABB. This information is included but not limited to ABBs list of restricted substances, LCA screening tools, practical guidelines to conduct environmental tools, ABB environmental experience and training material on product-related environmental issues. (Karlson& Wisén, 2002).

Environmental Product Declaration (EPD)

ABB uses EPDs in order to provide customers with information on products 'environmental impacts. The barriers of using this tool are the cost of EPDs development and the need for high level of environmental competence which most ABBs employees lack. The high cost of implementing this method has caused that ABB develops EPDs just for "core products" or high volume products which is a pitfall for this method which goal is providing equal information for all products. On the other hand EPDs are complicated and hard to understand for some of ABB customers (Karlson, 2003).

The Global Reporting Initiative Guidelines (GRI)

GRI is a network-based organization that aims to develop a sustainability reporting framework. Sustainability reports based on GRI framework are used to measure organization performance regarding laws, codes, standards, etc, present organization's sustainable development and show organizational performance over time. ABB follows GRI guidelines in order to report its economic, social and environmental performance. Each item in ABBs manufacturing system is labeled with the relevant GRI performance indicator number. ABB has continuously met GRI recommendations and added more indicators. Within GRI system, ABB has also included its non-manufacturing organizations by defining indicators to estimate the used electricity and water& heat consumption per person. The limitation of such a large organization as ABB to use GRI is that some GRI indicators are impossible to answer due to the wide range of ABB products in many divergent sites (ABB Group, 2003).

3.2. ISO standards and guidelines

ABB has adopted different guidelines and ISO standards for its ESM purposes. Table 1 below shows adopted standards with their application area at ABB (ABB Group, 2008).

Adopted Guidelines and ISO standards

Application Area at ABB

ICC Business Charter for Sustainable Development

ISO 14000 standards

Sustainability Management

ISO 14001

Environmental Management

ISO/TR 14025

Environmental Product Declarations(EPD)

ISO 14040-49

Life Cycle Assessments(LCA)

ISO 19011

ISO 14010-15

Environmental Auditing of Organizations

principles of OHSAS 18001

the International Labor Organization (ILO) guidelines on occupational health and safety management systems

the ILO Code of Practice on Recording and Notification of Occupational Accidents and Diseases

Health and Safety program

ISO 14020-25

environmental labeling

Table : Adopted guidelines and ISO standards at ABB

3.3. Other metrics

In order to provide a holistic view on other metrics suitable for ABB, qualitative and quantitative information on other metrics and tools is necessary. Moreover, the recommendations should indicate an improvement in sustainable performance, so metrics which effects are quite similar to existing metrics should be avoided. Recall that sustainable performance includes environmental, social and financial performance. ABB already achieved a lot of environmental performance by implementing tools and metrics on reductionistic level. Now, ABB has to combine its knowledge in order to improve on holistic level, which means combining tools and metrics for social, financial and environmental performance on corporate level, but also on supply chain level. In this paragraph the following metrics and tools will be elaborated on its sustainable performance increasing value regarding ABB; Balanced scorecards for sustainable performance; corporate sustainability model and the triple bottom line approach.

3.2.2. Balanced scorecard for sustainable performance

The balanced scorecard is a strategic management system that links performance measurement to strategy using a multidimensional set of financial and nonfinancial performance metrics (Epstein, 2008). As ABB already implemented a lot of environmental performance metrics ( LCA, EPD, ISO etc.), financial metrics and social metrics (GRA, ISO etc.) it is suitable to link these performance metrics in a balanced scorecard which will link the operational and non-financial corporate activities with its long term strategy. The most common balanced scorecard consist of four different perspectives, financial, customer, internal business processes and learning and growth perspective (Figge, F, et al., 2002). Figge et al. give three ways of integrating social and environmental aspects into the balanced score card:

Integration of environmental and social aspects in the four balanced scorecard perspectives;

Introduction of an additional non-market perspective in the balanced scorecard ;

Deduction of a derived environmental and social scorecard.

For ABB the balanced scorecard will provide a strong tool for integrated sustainability management. The social, financial and environmental metrics will thus be integrated into a metric which will link operational activities with its long term strategy.

3.2.3. Corporate sustainability model

Epstein elaborates in his book making sustainability work on the Corporate Sustainability Model. This model offers guidance to managers trying to make the business case for sustainability initiatives (Epstein, 2008). The Corporate Sustainability model is another way of linking all the low level individual metrics into a holistic model to promote sustainable performance and enduring value for stakeholders. Since the model identifies and communicates causal relationships throughout the organization it is possible to guide the integration of the different metrics (environmental, financial and social). ABB will in this way be able to make decisions by using for example a combination of its LCA, GRI and financial drivers. Moreover the system will assist sustainability and environmental managers as they evaluate the trade -offs and decide which sustainability projects provide the largest net benefit to both sustainability and financial performance (Epstein, 2008).

3.2.4 Triple bottom line approach

Another tool to link the three elements, economical, social and environmental performance, together is by using the so called triple bottom line approach. ABB should not use sustainability just as a buzz word for only operational means. By using the triple bottom line approach, ABB is able to develop corporate sustainability considering the three dimensions simultanioulsy (Dyllick and Hockerts, 2002).

4. Discussion

Is it really to take responsibility to demand / prefer suppliers that already use ISO 14001 and OHSAS? Would it not be better if a company like ABB, that tries to be a good corporate citizen, uses and contracts suppliers that not are using these systems? Would not that be to take more responsibility for health, safety and environmental issues?

ABB currently integrates sustainable development in all phases. Recall for example the use of EPDs for a great majority of their products. This indicates the great effort on aiming at a high sustainable performance. However, improvements regarding communication of guidelines and new tools and metrics are still possible.

As already stated, customers still have difficulties understanding the EPDs as it is a new way of documenting environmental concerns and communicating them. However, with the effort currently being put in, this method will certainly being very promising. According to Karlson, in order to successfully implement this tool ABB should:

Increase cost efficiency in developing EPDs ;

Supporting tools for interpretation and facilitate the use of EPDs should be developed;

A wider use of the EPD method should be adopted in order to get a global understanding of it.

Although Karlson's report stems from 2003, supporting tools and a wider of use of the EPD method still needs considerable attention. As published on their website, it seems that ABB has succeeded in cutting costs as a great amount of products have obtained a EPD. Besides ABB should know that it is not always possible to allocate environmental impacts directly to individual products (Allander, 2001).