Examining The Critical Environmental And Developmental Issues Business Essay

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Sustainability or "Sustainable Development" gained momentum in re-examining the critical environmental and developmental issues; intensify the levels of international co-operation and emphasizing the participation of individuals, business entities, governments and voluntary organizations with the publication of report titled "Our Common future "by World Commission on Environment & Development (WCED) in 1987. Issues of sustainable development revolve round the three facets of economy, environment & society and the challenge lies in meeting the needs of the present without compromising the needs of the future generations by optimizing resource consumption and equitable distribution to avoid collapse of environment and associated hazards. James Lovelock, the proponent of Gaia Theory, has righty opined that the resources of the planet are not only finite but they are also held in intricate balance, hence ,conservation, recycling and use of renewable technologies are essential for sustainability. Every business has an impact on society through what its produces, how it employs and develops people and how it relates to the environment and community in the broader perspective. Corporate Social Responsibility (CSR) and Strategic Philanthropy have been undertaken by various organizations to combine economic goals with the desire to add social value. However, Poverty has been agreed to be a stumbling block towards development and sustainability. The concept of the "Bottom of the Pyramid (BoP)", introduced by Prof. C K Prahlad drew attention to the vast 4-5 billion poor whom he identified as "engine of the next round of global trade and prosperity". (Prahlad, C.K & Hart, S.L, 2002).UN-Habitat estimates that about 1, 80,000 people are added to the population grid every day and this when added to the current level of 4-5 billion, sustainability becomes a major cause of concern. The reports of Indicus Analytics, a research firm, indicates that urban and rural BOPs in India are about 27.7 and 129.4 million households in 2008-2009, which clearly shows that we have a long way to go. Government spending in health, education, employment generation schemes, housing and infrastructure have increased over the years in India, however, not government alone but the corporate sector has a role to play in ensuring sustainability through qualitative economic development and not just quantitative economic growth, so the days of companies "privatizing the efforts" and government "socializing the losses" are gone forever. The paper looks at the opportunities of the corporate sector at BoP, actions, initiatives and challenges to develop ecologically and economically sustainable innovations in the future. Organizations have realized that creative entrepreneurship and innovation are prerequisites for sustainability. The initiatives undertaken by some companies and their role in providing sustainable development for the present and the future have also been analyzed in this paper.

Keywords: Sustainability, BoP, Corporate Social Responsibility, Innovations, Corporate Initiatives

Introduction

Every human being in this world expects a decent, healthy and safe life and thrives on the natural ecosystem for his survival. Given that, human beings have made unprecedented changes in ecosystems in last few decades to meet rising demands and improve lives of billions, the biophysical limit has been stretched to a great extent. Rapid economic growth has resulted in ecological exploitation and interfered with nature's balance. Population rise with its Siamese twin, consumption, has led to depletion of natural resources and has posed the challenge of sustainability before us. For example, availability of fresh water per capita in India came down to 2300 cubic metres per year in 1997 from 6000 cubic metres per year from 1947. It has been estimated that water shortage in India would be acute in 2017 as per capita fresh water availability would further go down to 1600 cubic metres . Also, according to a study by Tata Energy Research Institute (TERI) called "Green India 2047", India is losing around 6-11 percent of agricultural output on account of soil degradation. The notion of constant growth and perpetual progress in a finite system like our planet is not practical and hence the pliability of environment is tested against economic idolatry. The old adage "economy is a wholly owned subsidiary of environment" may sound stale, but true in the context of sustainability.

Sustainable development puts forward our shared concern in a global society of managing our economic growth and social system within the boundaries of environment. In 21st century, the issue of global sustainability has been widely recognized by world leaders and citizens all across the world. The World Summit on Sustainable Development (WSSD, 2002) reiterated the need for sustainability which was earlier brought to limelight through United Nations Conference on the Human Environment in Stockholm in 1972, World Conservation Strategy (1980), the Brundtland Report (1987), and the United Nations Conference on Environment and Development in Rio (1992). Government, business entities, and NGOs have realized the importance of sustainability to some extent and have taken up many initiatives to build a stable state economy operating within the peripheries of ecological balance.

Government of India has also addressed the issue of sustainable development by focusing upon many programmes on climate variability. The Economic Survey, 2010 released by Government of India states "Current Government expenditures on adaptation to climate variability exceeds 2.6% of GDP with agriculture, water resources, health and sanitation, forests, coastal zone infrastructure and extreme events being specific areas of concern". National Action Plan on Climate Change (NAPCC) has been formed by the Government where areas like solar energy, sustainable agriculture, sustainable habitat and water etc. have been identified as critical drivers to achieve sustainable development with co-benefit in terms of climate change. Moreover, in the union budget of 2010-2011, the government has also announced setting up of National Clean Energy Fund (NCEF) for funding research and innovations in clean technologies. The plan outlay for Ministry of New and Renewable Energy has also increased by 61 percent in 2010-2011 from that of the previous year to a level of US$220 million. The issue of sustainability or sustainable development is explicably linked with poverty. In 1972, at the first UN Conference on Environment, the then prime minister, Mrs. Indira Gandhi declared "poverty is the greatest danger to environment". Poverty, not only in India, but in the global context is a major hindrance to the path of sustainability. The World Bank Data pronounce that over 4.6 billion people comprising of lower income and lower middle income group manage with US $ 2.67 to US $ 10.5 a day. The global BoP market which represents this 4.6 billion people and growing, puts before us an unprecedented challenge of sustainability. National and State Governments are not fully equipped to face up to the task unless ably supported by the private sector. The crucial role of private sector in poverty alleviation and sustainable development was first discussed and stressed upon by the pioneering work of Blue Ribbon Commission on Ukraine under the aegis of United Nations Development Program in 2004. The private sector's role can been aptly summarized as "creating innovative and sustainable solutions with utilization of technical and financial resources, accountability, discipline and entrepreneurial drive". In addition to it, the concept of creative capitalism put forward by Microsoft Chairman, Bill Gates demonstrates the need of use of profit and recognition incentives by governments, multinationals to reduce world's inequalities and creating a system that draws innovators to find sustainable solutions. The need of combining business goals with societal development has been rightly enunciated by Patrick Cescau, the retired CEO of Unilever when he says "Agenda of Sustainability and Corporate Social Responsibility are not only central to business strategy but a critical driver to business growth." The private sector needs to focus on various areas of sustainability like conservation, recycling, use of renewable energy which impact environment and the society at large and explore the Bottom of the Pyramid as a major source of ecologically sustainable innovations in the near future. (Prahlad, C.K. 2009). The paper is configured along the following topics: Bottom of Pyramid (BoP): Global & Indian Context: Scope and Opportunities; Corporate Social Responsibility: Corporate Responsiveness and Sustainability Challenges; Corporate Initiatives at BoP and Sustainable Development

Bottom of the Pyramid (BoP): Global & Indian Context: Scope & Opportunities

The United Nations Conference on Environment and Development (UNCED), which took place in Rio de Janeiro in 1992 identified "Eradicating poverty and reducing disparities in living standards in different parts of the world are essential to achieve sustainable development and meet the needs of majority of people." A major threat to sustainable development is poverty. The World Bank estimate released in 2008 reveals that about 1.4 billion people in the developing world (one in four) were living on less than $1.25 a day in 2005, down from 1.9 billion (one in two) in 1981. While there has been substantial progress in poverty alleviation in the global context, wide disparities still exist between different nations. Poverty in East Asia has fallen significantly, mainly because of the efforts of China, however, in Sub-Saharan Africa there is no such any decline. In India as per the Planning Commission estimates poverty levels have been falling sharply since 1983 and around 21.8 per cent of the population (238 million out of a total population of 1,093 million) suffered from deprivation and were below the poverty line in 2005.A study done by Indicus Analytics in 2008-2009 on the available secondary data of household income, 157 million households with annual income up to Rs.1,50,000 are at the bottom of the economic pyramid. The research of Indicus Analytics also states that rural BoPs are predominant as they account for 129.4 million households out of the total lot.

Government reforms or anti- poverty programs (APP) over the years have been mainly targeted at the rural segment and hinged upon agriculture, health and education, rural development and self-employment. The TPDS (targeted PDS) scheme for providing subsidized food-grains to the poor, Integrated Rural Development Programme (IRDP) for building rural infrastructure and employment generation programs like Jawahar Rojgar Yojna (JRY), National Rural Employment Guarantee Scheme (NREGS) have been rolled out, however, the efficacy of such programmes in implementation has raised several questions as the benefits probably did not reach the intended beneficiaries. The issue of reducing poverty remained a government prerogative until the corporate found a rationale of entering the BoP market as viable for sustainable business ventures. The BoP philosophy originally enunciated by C K Prahlad, upholds that if organizations customize goods and services to meet the needs of the poor and hence innovate, a mutual benefit exists for the private sector and the BoPs. Global BoP of 4.6 billion people as stated in the World Bank Report, 2010 comprises of lower income of group with annual purchasing power below $975 and lower middle income group with purchasing power below $3825. Asia represents the biggest share of this population and more importantly India has 924 million BoP size with estimated $1.2 trillion purchasing power parity and 85% of national household market. The Mckinsey Global Institute along with Oxford Economics released a report in 2007 which projects India's real GDP to be growing at a 7.3% CAGR through 2025 leaving behind most of the Asian countries.

Source: MGI India consumer denand model,v1.0

In congruence to GDP growth, the study also predicts that Indian income levels will almost triple in 2025 from that of 2005 and India would become world's fifith largest consumer market leaving behind Germany, Italy and Mexico and most siginficantly discretionary spending of Indian consumers will account for 70% of all spending by 2025 as forecasted in the report. The rising household income would fuel higher consumer spending and the aggergate consumption would be 70 trillion by 2025. The consumer spending pattern will change significantly though Food, Beverages & Tobacco (FBT) would still remain the biggest category.

Source: http://www.mckinsey.com/mgi/publications/india_consumer_market

Category

2005 Consumption trillion INR, 2000

2025 Consumption trillion INR, 2000

CAGR %

Food, Beverages &Tobacco

7.1

17.3

4.5

Transportation

2.8

13.7

8.3

Housing &Utilities

2.0

6.6

6.1

Personal Products

1.3

7.4

9.2

Health Care

1.1

8.9

10.8

Apparel

0.9

3.3

6.5

Education &Recreation

0.7

6.1

11.0

Household Products

0.5

1.8

6.9

Communications

0.3

4.3

13.4

Source: MGI Consumer Report, 2007

Communications, education and recreation and health would become the fastest expanding categories while transportation, personal and household products would evolve into sizable markets. The Mckinsey research also affirms that Indian BoP's aggregate disposable income and consumption is expected to grow to $2.2 trillion and $1.8 trillion respectively by 2015 and Indian BoP would gradually migrate to middle class category by 2025. In an article released in The Economic Times in 2007, the estimate that BoP accounts for 88.1% of the total national household expenditure on food, 87.2% of energy expenditure, 85.3% of health spend, 78.8% of household goods expenditure and 52.6% of the country's spend on information and communication technology clearly brings about the scope and opportunities for business entities to explore. The economic potential justifies the corporate sector to enter such markets; however not profit alone, but society and environment are the other dimensions they need to integrate in their business policies to ensure sustainable development.

Corporate Social Responsibility: Corporate Responsiveness & Sustainable Innovations

The issue of combining business strategy with society at large is a critical one and mutual dependence of private sector and society implies that business decisions and social policies follow the principle of shared value.Any corporate activity affects society and also a corporate is influenced by the society as it evolves. Business, natural forces and human activity must act cohesively to ensure social, economic and ecological health, which are the pillars of sustainability. Economy and ecology are so intricately balanced that if quantitative economic growth is only allowed to ensure societal equity without caring for the environment, then it would lead to a situation of irreparable damage.

Ecological Health

CONTRIBUTION OF BUSINESS

Natural Forces

Business's Roles

Social Health

Innovation

Leadership

Social Responsibility

Eco-efficiency

Partnerships

Customer Choice

Economic Health

Human Activity

Source: www.wbscsd.org

The World Business Council on Sustainable Development defines corporate social responsibility (CSR) as 'commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life'. Companies undertake various activities to become socially responsible like corporate philanthropy, community investment, social and environmental reporting etc., but several business cases emphasize that companies reap benefits of reputation and public goodwill in the process to ensure customer loyalty and greater profits. Corporate social responsibility is gradually change from a "responsive" perspective of corporate citizenship and adherence to various codes of conduct as a part of value chain activities to beyond responsive or as "strategic" where the value chain activities have been transformed to benefit society. Corporate social responsibility is now being transformed to Corporate Social Innovation (CSI). Corporate social innovations happen when companies integrate innovative solutions in their core business to address needs of the society. Innovation is central to any business-either responding to changes in regulations or redesigning the system in view of a new opportunity. Creativity, innovation and entrepreneurship are at the root of finding sustainable solutions. Sustainability is based on a strategic relation between innovation and corporate social responsibility as 'CSR provides the ground for values and managerial capabilities on which relationships between companies and other socio-economic and environmental factors which support innovation are built.' Traditional approaches of doing business are eroding fast, giving rise to innovations as the business entities derive various benefits by aligning their innovations to sustainable objectives. The primary business benefits they get are in terms of increased revenues or earnings, new market creation, brand reputation and reduced risk. Besides, the environmental and social benefits which they accrue are energy use efficiency, natural resources protection and restoration, livelihood creation and community relation enhancement. India's GDP growth over the last five years though have been encouraging with a splurge in innovative activities, still innovation remains concentrated to a small section of the economy with a bias to urban mass and exports markets. The heterogeneity of Indian economy like India being world's fourth-largest economy in purchasing power parity (PPP) and leading innovator in biotechnology, pharmaceuticals, IT and ITeS, India's spending in R & D has traditionally hovered around 1% of GDP (World Bank, 2007). Innovative potential of India is underexplored as quarter of its population still live below the national poverty line and hence there is a need for explicit promotion of innovation to reduce poverty (inclusive innovation). Inclusive Innovations are necessary to fill the urban-rural divide, the rich-poor gap and needs to be aimed at economic, social and environmental sustainability at the Bottom of the Pyramid. Corporate social responsibility is thus beyond corporate citizenship or philanthropy and "if…corporations were to analyse their prospects for social responsibility using the same frameworks that guide their core choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed - it can be a source of opportunity, innovation, and competitive advantage."

Corporate Initiatives at BoP and Sustainability

India with its huge diversity poses great challenges to business entities to address sustainability challenges through innovative approaches. India, on one hand, is one of the fastest growing economies in the world, while on other; it is the country with highest incidences of diseases like diarrhoea, cholera, tuberculosis and diabetes. The 924 million BoP Indians provide opportunities for corporations to explore and come up with major innovative solutions. Corporations like Philips with "A Sustainable Design Vision - Design for Sense & Simplicity" has brought forward a Chulha Smokeless Stove in 2008 for 700 to 800 million people living in rural and semi-rural areas in India who cook using biomass fuels like wood and dung . With more than 1.6 million people dying annually due to smoke inhalation from indoor wood- burning stoves worldwide and India accounting 25% of the fatalities, it is a very significant achievement particularly for women aged from 23 to 45, who carry out cooking activities. The two versions of the Chulha smokeless stove: Sampoorna and Saral reduces smoke to the extent of 90% and the stoves being priced at €8 and €5 respectively are quite affordable to the BoP segment. Simona Rocchi, Director of Sustainable Design at Philips Design in Eindhoven explains "This project saw us supporting social innovation on one hand while contributing to business innovation on the other. Everyone benefits…….. This simple stove demonstrates that we can clearly improve the quality of many people's lives through design."

Like Philips, Nestle's Moga story is an example of innovation which changed lives of small dairy farmers of Punjab. The company, with its objective of building a dairy, started its operation in 1962 with collection of 511 kgs of milk from 180 farmers. The socio-economic condition at that time in Moga was grave- poverty-stricken and without basic amenities like electricity, transportation, telephones or medical service. Today, Nestle procures milk from over 85,000 farmers and the milk production has increased many- fold. The transformation took place over the years with Nestle building chilling centres and farm cooling tanks for collection points in each town, providing medicines and nutritional supplements to sick animals and holding training sessions for farmers. Nestle could give higher prices to farmers with higher production and improved quality. The standard of living in Moga improved with increased purchasing power of the farmers. As Kramer and Porter (2006) points out "Nestle's commitment to work with farmers is central to its strategy …… to establish value chain to transform the competitive context in ways that created tremendous shared value for both the company and the region." Nestle contribution to creation of prosperity on a continuous and sustainable basis has transformed Moga into an industrial hub today.

Cosmos Ignite Innovations Pvt. Ltd., an Indo-US Joint Venture in "Social Entrepreneurship' between a team of young entrepreneurs from India & Stanford University USA, with the vision of "Empowering lives through innovative products" came up with "Mighty Light", a solar LED to help "Removal of Darkness" for millions without light at the Bottom of the Pyramid. The BoP people who are otherwise forced to use expensive & dangerous kerosene oil lamps in India & developing countries around the world found Mighty Light solar LED as preferred alternative. Cosmos business model was built on market identification, product development, affordability and scale. The poor who spends around Rs. 100-200 per month on kerosene oil found Mighty Light an acceptable substitute with a price tag of Rs.2000 and also micro-financing options at their disposal. The highly inefficient kerosene lamps besides generating millions of tonnes of CO2 also gives rise to health problems and accidental risks. A Mighty Light has huge CO2 reduction capability and it also addresses social issues of health and accidents. So, sustainability benefits of solar-powered LED light are significant compared to social, economic and environmental problems created by dependency on kerosene lamps.

Indian conglomerate Godrej and Boyce launched "ChotuKool", a portable refrigerator targeted at the BoP segment with household earning of approximately $5 a day. The portable, top-opening unit weighs only 7.8kg, uses high-end insulation to stay cool for hours. The ChotuKool doesn't use a compressor, instead runs on a cooling chip and a fan similar to those used in computers, so like computers it can run on batteries. The ChotuKool was co-designed with village women to assure its acceptability, and is distributed by members of a micro-finance group. A survey by the young employees of Godrej followed, with findings showing that rural Indians expected a refrigerator to be used to cool 5 to 6 bottles of water and stock 3 to 4 kilograms of vegetables. They also wanted it to be portable so that it could be moved out to make room for family gatherings. The villagers act as marketers and earn a commission of approximately $3 per fridge sold. Products like the ChotuKool overcome technological and social barriers and address the one of the most pressing issues in India. India hosts the world's largest population deprived of electricity. This portable refrigerator runs without power for hours and consumes half-the energy consumed by the normal refrigerators.

ITC, a company that completed 100 years in 2010, is one of India's most admired and valuable companies which have strong commitments to sustainable agricultural growth. Its innovation "e-choupal", which started in 2002, extensively engaged farmers to promote sustainable agricultural practices through a dedicated initiative "Choupal Pradarshan Khet". e-Choupal uses ICT to empower small and marginal farmers - who constitute a majority of the 75% of the population below the poverty line by providing them with farming know-how and services, timely and relevant weather information, transparent price discovery and access to wider markets. There are presently 6,500 e-Choupals in operation, which ITC plans to scale up to 20,000 by 2012 covering 100,000 villages in 15 states, servicing 15 million farmers. Through a joint initiative with MonsterIndia.com, e-Choupal framework also supports employment to rural youth through a platform "rozgarduniya.com". ITC's e-choupal initiative, a business concept embedded with social values revolutionised Indian agricultural scenario with the power of technology and enabled higher productivity, higher quality and higher incomes for the farmers.

Conclusion

Companies like Philips, Nestle, Cosmos, Godrej, ITC and several others from diverse economic fields with varying degrees of economic, social and environmental concerns strike a common cord of sustainability and innovation which has taken the driver's seat to determine competitive business strategies. It is absolutely essential for corporations to unleash the innovation potential to broaden the corridor of sustainable development in future. Innovations with economic, social and environmental impacts are likely to change and improve of millions of people living at the Bottom of the Pyramid and substantially reduce the poverty level in the next decade. Corporations along with government and NGOs need to play a significant role in the process of development and need to integrate the socio-economic and environmental factors in their business strategy to take care of the triple bottom-line of "People, Planet & Profit."

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