Content area
Full Text
PRACTICES THAT ARE GOOD FOR THE ENVIRONMENT AND SOCIETY MAY APPEAR TO HAVE A NEGATIVE IMPACT ON CORPORATE PROFITABILITY, BUT USE OF THE BALANCED SCORECARD CAN RESULT IN A CLEARER PICTURE OF THE RELATIONSHIP AMONG SUSTAINABLE PRACTICES, CORPORATE STRATEGIES, AND PROFITABILITY. THIS ARTICLE EXPLORES THREE WAYS THAT SUSTAINABLE PRACTICES CAN BE INCORPORATED INTO THE BSC AND DISCUSSES ISSUES THAT SHOULD BE CONSIDERED WHEN SELECTING SUSTAINABILITYRELATED MEASURES, TARGETS, AND GOALS. IT ALSO EXAMINES WAYS TO ENHANCE BOTH INTERNAL AND EXTERNAL REPORTING OF SUSTAINABILITY-RELATED PERFORMANCE.
Adopting green operating practices is certainly good for the environment, yet the implications of such practices 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), green practices may increase a company's profitability. On the other hand, green practices may actually reduce profitability because of extra costs that result from implementation and continuation of sustainable 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, sustainability 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 sustainability 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 sustainability objectives and outcomes with corporate strategy and profitability.1 By integrating sustainability measures into business practices and by clearly linking an organization's competitive strategy to its green outcomes, the BSC clarifies the relationship between sustainability outcomes and profitability/shareholder interests.
DEFINING SUSTAINABILITY
The sustainability concept now runs rampant in business literature, but, unfortunately, there is no agreedupon definition of sustainability or its underlying tenets.2 As Richard Holledge observed in the Financial Times, Googling the phrase...