The Critical Importance of Sustainability Risk Management - Marketing Management Assessment

Introduction:

This paper focuses on sustainability. Sustainability is a concept that highlights long term sustenance. In the context of business, it represents strategies, policies, etc. implemented and adapted by a business in order to ensure that environmental impact is minimal and that future generations are secure (Wells, 2013). The aim of the paper is to choose a company which has been in the news for sustainability in the last 2 years, and analyze its operations, actions, etc. with respect to different theories and models of sustainability. The company chosen for this paper is Australian Ethical Investment. The reason behind opting for this company is that Australia is the global leader in sustainability, and this company holds the topmost rank in a study that ranked businesses globally in terms of sustainability in 2015. Australian Ethical Investment has set new standards in sustainability and is an appropriate company for studying the ways in which theories and models of sustainability influence managerial decisions and practices in an organization.

Critical evaluation of ways in which Australian Ethical Investment has implemented theories and concepts of sustainability:

Australian Ethical Investment Limited is an organization based in Australia which started operations in the year 1986 (Lewis, 2012). It is focused upon investing in projects that are sustainable and do not have negative impacts on the society and the environment. It offers different types of financial services ranging superannuation funds to funds against specific interest rates. It also diversifies funds. It offers its services only to companies and individuals whose projects are sustainable. It has invested in different businesses in domains like health care, renewable energy, innovation, etc. as these businesses are sustainable. It refrains from providing funding to any business which has environmental or social impacts. It has a very strict monitoring and assessment process that enables it to find out the potential impacts and extents of sustainable development involved in businesses.

Australian Ethical Investment incorporates different theories and concepts of sustainability in its business processes, decisions, etc. One of the key models used in Triple bottom line. Triple bottom line, or, triple outcome is a business model that focuses closely on sustainability. This model assesses the performance of a company based on three aspects – social sustainability, environmental sustainability and economic sustainability. This model is used to create and present reports of sustainability and corporate social responsibility. Australian Ethical Investment focuses on the three domains of Triple bottom line in order to evaluate its performance and create annual sustainability reports. It also uses this model to maintain high standards of sustainability and for ensuring that it does not invest in any project that is not sustainable. Till 2009, the creating and presenting sustainability reports was voluntary. However, at present, due to strong focus on governments on minimizing environmental impacts, sustainability reports have become very important globally (Bragga, 2014).

In Australia, the Environment Protection and Biodiversity Conservation Act 1999 makes sure that businesses cannot have negative influences on the environment. There is a National waste policy that must be complied with by every business in the country. This policy acts as a framework which helps companies recycle and manage waste effectively. The Australian government’s newly set climate change target for 2030 has also pointed out different steps that businesses need to take, and things that companies should prevent or refrain from doing, in order to minimize environmental impacts. These legal frameworks are considered by Australian Ethical Investment while creating and publishing the sustainability reports. The overall business processes and the managerial decision making of the company are highly influenced by the Triple bottom line and the laws and policies of Australia (Bier, 2014).

With respect to the Triple bottom line, Australian Ethical considered every individual influenced by its business as one of its stakeholders. The company’s stakeholders are thus not restricted to just the shareholders, investors and employees (Cooney, 2009). It focuses on individuals who can be affected in the long run by an investment decision made by the company. Due to this reason, it publishes its sustainability report publicly. It considers itself answerable to anyone who can be directly or indirectly affected by its operations or actions. By being socially, economically and environmentally responsible, the company minimizes negative impacts and ensures that stakeholders’ interests are taken care of. In the social perspective, the company provides employment opportunities to local community members and provides support and funds to increase awareness about health care issues, improve education options, etc. In the economic perspective, the company provides funds or investments to businessmen who have sustainable projects with minimal environmental impact. It also takes conscious investment decisions to avoid funding businesses in sectors like mining, weapons, etc. as these businesses have negative impacts on the society as well the environment. In the environmental perspective, as mentioned above, the company refrains from funding any company which has potentially harmful impacts on the environment. It provides support and funds to different environmental causes and raises awareness about environmental issues in local communities (Denham, 2013).

Another significant theory implemented by Australian Ethical Investment is Socially Responsible Investing or SRI. Socially responsible investing, also known as sustainable investing or ethical investing, is a concept of sustainability in which the investment choice in funding scenarios is made ??not only by traditional financial criteria, but also on the basis of the criteria of social responsibility (Anderson, 2006). Investors favor a socially responsible company in their investment decisions as these companies practice or promote principles such as sustainable development, environmental protection, consumer protection, human rights, and diversity. Some (but not all) avoid cooperation with businesses involved in specific industries such as tobacco, alcohol, military, etc. Socially responsible investing is a global phenomenon, which is a consequence of the global alone business, in which international transactions are supported by investors who are 'socially responsible'. With the expansion of foreign investment increased by a range of products, their rank is increasing in both developed and developing countries. Behind this trend are different trade organizations, such as the Social Forum Investment in the United States, Eurosif in the European Union, Organization of Social Investment in Canada, the Association of Investment Responsibility in Asia and Australia. In 2006, the United Nations Environment Program announced the "Principles for Responsible Investment". They create a framework to help investors in integrating social and environmental factors into their investment activities (Mark, 2014).

As per Lemke (2013), socially responsible investing, both in Europe and the United States, began to gain more and more popularity, from the 90s of the twentieth century. According to research agency Eurosif and the Social Investment Forum, the socially responsible investment market in the world can be estimated at approx. 10 billion EUR. The largest share of the global market, SRI has a European market of 6.7 billion EUR. The second largest is the US market with approx. 2.9 billion EUR. The remaining part of these investments is located in Canada (417 billion), Japan (EUR 3 billion) and Australia (1.56 billion). According to a report conducted by a group, the number of "green, social and ethical" funds in Europe was more than 1500 in 2015 and the numbers have increased from 2010 by over 50%. Data from 2015 indicate a continuation of the positive trend in terms of the number of SRI funds in Europe as well as the rest of the world. The study shows that the global financial crisis reminded investors of the need to take into account environmental factors and social assessment of investment risks and the need for greater transparency of purchased product (Carther, 2009).

Australian Ethical uses the guidelines of the theory of socially responsible investing to choose projects to fund. It has the following criteria:

Avoid - Conveying - figures: For each of these action possibilities there are appropriate instruments for shaping ethical and sustainable investments.

Exclusion criteria: This is used to avoid investors to invest money in activities to which they object on ethical and sustainable grounds. Securities of specific companies, countries and organizations can be excluded. Typical exclusion criteria for companies to refer to are either their products - for example, (Outlaw) Weapons, Nuclear Power, etc. or the mode of production, e.g. production under inhumane working conditions, human rights violations, etc. A classic exclusion criterion for countries is avoiding countries that practice capital punishment (Galvao, 2008).

Positive criteria: This is used to be under similar investment opportunities for those identified and preferably which are better rated from ethical and sustainability aspects (Carther, 2009).

Best-in-class approach: The "Best-in-class" approach, is one in which all titles are compared within an industry to assess ethical and sustainability aspects those who are taking the best scores are selected. Depending on the values, the investor can thus, for example, invest in environmentally conscious companies or in countries that are particularly successful in the fight against corruption.

Theme and direct investments: These include, for example, microfinance investments and interests in companies or real estate investments. Popular themes are renewable energies: wind, solar, geothermal, as well as green buildings, forest, and water (Rennie, 2008).

Engagement and voting: Individuals who owns shares or cooperative shares of a company, are considered to be one of its owners and have the right to vote on corporate matters. These votes can be used to enforce ethical and sustainable practices. The impact on a business can be strengthened by that investors explain in a dialogue with the company their motives for their votes or without urging improvements towards more sustainability, or the elimination of certain grievances (Lemke, 2013).

Impact Investment: Investments are made in companies, organizations and funds with the goal besides financial returns. These exert an influence on social and environmental concerns.

Integration: Explicit inclusion of ethical criteria or risks into traditional financial analysis.

Norm-based screening: Review of investments by their conformity with certain international standards and norms, such as ILO core labor standards, UN Global Compact.

Memberships and initiatives: Ethically sustainable objectives are pursued through the active support of initiatives like-minded investors (Wine, 2009).

Types of Investments: There three basic forms ethical investments which Australian Ethical deals in:

• Conveying saving opportunities
• Direct investment in unlisted companies
• Ethical investment funds

In addition, as a fourth option the company makes direct investments in exchange-traded shares of sustainable companies.

Based on the concept of socially ethical investing, Australian Ethical has invested in various companies sectors like health care, renewable energy, etc. as these sectors have low environmental impact and can have long term positive effects on the society as well as the environment (Galvao, 2008). In the same way, it has stayed away from businesses in sectors like mining as these businesses have harmful impacts on the environment. The company also refrains from investing in businesses that involve exploitation of humans, animal cruelty, etc. The company has a detailed and thorough evaluation system called the ethical charter which is used to assess the level of ethicalness of an organization or individual who is trying access the funds or services of the company. This charter is one of the most strict and detailed evaluation systems for ethical funding globally and it is very difficult to pass through the evaluation and get approval of the company. The company is this strict as its reputation and image are linked closely to the results of the ethical charter evaluations. If the charter mistakenly ends up clearing a company or individual for getting funded, which is unethical or has negative environmental impacts, the company’s credibility will be compromised (Lobe, 2009).

Another sustainability related concept used by Australian Ethical is corporate social responsibility or CSR. CSR is the responsibility a company has towards the society and the environment (Logue, 2015). It involves a series of steps taken by a business to ensure sustainable development. Australian Ethical donates 10% of its yearly income to numerous charities, NGOs, etc. dedicated to social and environmental concerns. The company has a grading mechanism that gives different color grading to different projects. Deep green color represents a highly ethical business. Green stands for moderately ethical and sustainable, while light green means that a project is low on ethics and sustainability. The credit agency Standard & Poor's has declared that Australian Ethical is the sole company in Australia which is 100% sustainable. In order to be environmentally responsible, the company follows government’s guidelines on recycling and waste management to the hilt and has set positive examples for other companies to follow. Its work spaces and business operations are eco-friendly and in sync with the Environment Protection and Biodiversity Conservation Act of 1999. The company has close collaborations with many national and state domain policy creators so as to increase attention on sustainability. The company donates and funds government supported community systems which work on improving the lives of local community populations. The company has funded government bodies like the Australian Capital Territory, Australian Government Bond, etc. The company has implemented the sustainable business model effectively and works closely with the Australian government. Its CSR strategies strengthen its brand and reputation and have a lot of positive impacts on the environment as well as the society (Lins, 2015).

Conclusion:

It can be concluded that Australian Ethical Investment Limited is an organization based in Australia which started operations in the year 1986. It is focused upon investing in projects that are sustainable and do not have negative impacts on the society and the environment. Australian Ethical Investment incorporates different theories and concepts of sustainability in its business processes, decisions, etc. One of the key models used in Triple bottom line. With respect to the Triple bottom line, Australian Ethical considered every individual influenced by its business as one of its stakeholders. The company’s stakeholders are thus not restricted to just the shareholders, investors and employees. Another significant theory implemented by Australian Ethical Investment is Socially Responsible Investing or SRI. Socially responsible investing, also known as sustainable investing or ethical investing, is a concept of sustainability in which the investment choice in funding scenarios is made ??not only by traditional financial criteria, but also on the basis of the criteria of social responsibility. Based on the concept of socially ethical investing, Australian Ethical has invested in various companies sectors like health care, renewable energy, etc. as these sectors have low environmental impact and can have long term positive effects on the society as well as the environment. In the same way, it has stayed away from businesses in sectors like mining as these businesses have harmful impacts on the environment. Another sustainability related concept used by Australian Ethical is corporate social responsibility or CSR. CSR is the responsibility a company has towards the society and the environment. The company has implemented the sustainable business model effectively and works closely with the Australian government. Australian Ethical donates 10% of its yearly income to numerous charities, NGOs, etc. dedicated to social and environmental concerns. Its CSR strategies strengthen its brand and reputation and have a lot of positive impacts on the environment as well as the society.