Sustainable Business Management
0327
2023
978-3-7398-8201-7
978-3-7398-3201-2
UVK Verlag
Dietmar Ernst
Ulrich Sailer
Robert Gabriel
10.24053/9783739882017
This comprehensive textbook gives an insight into all relevant aspects of business administration, as they are all subject to fundamental changes due to the transformation to a more sustainable economy. It starts with the background on sustainability and the scientific classification of sustainable business administration. Next, it sheds light on the boundary conditions regarding environmental economics and social responsibility. The next section deals with management functions, from strategy and international management to change management, legal implications and HR management. The last part focuses on value creation. Here, the authors shed light on the influence of sustainability in all areas of the corporate value chain, from procurement on to production and ending with marketing and sales. Also addressed are expert functions such as environmental management or sustainable product design, which are essential in driving sustainable innovation in a dynamically changing environment.
<?page no="0"?> Sustainable Business Management 2 nd edition Dietmar Ernst / Robert Gabriel / Ulrich Sailer (eds.) <?page no="1"?> Sustainable Business Management <?page no="3"?> Dietmar Ernst / Robert Gabriel / Ulrich Sailer Sustainable Business Management 2nd edition UVK Verlag · München <?page no="4"?> 2nd edition 2023 1st edition 2013 DOI: https: / / doi.org/ 10.24053/ 9783739882017 © UVK Verlag 2023 ‒ ein Unternehmen der Narr Francke Attempto Verlag GmbH + Co. KG Dischingerweg 5 · D-72070 Tübingen Das Werk einschließlich aller seiner Teile ist urheberrechtlich geschützt. Jede Verwertung außerhalb der engen Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulässig und strafbar. Das gilt insbesondere für Vervielfältigungen, Übersetzungen, Mikroverfilmungen und die Einspeicherung und Verarbeitung in elektronischen Systemen. Alle Informationen in diesem Buch wurden mit großer Sorgfalt erstellt. Fehler können dennoch nicht völlig ausgeschlossen werden. Weder Verlag noch Autor: innen oder Herausgeber: innen übernehmen deshalb eine Gewährleistung für die Korrektheit des Inhaltes und haften nicht für fehlerhafte Angaben und deren Folgen. Diese Publikation enthält gegebenenfalls Links zu externen Inhalten Dritter, auf die weder Verlag noch Autor: innen oder Herausgeber: innen Einfluss haben. Für die Inhalte der verlinkten Seiten sind stets die jeweiligen Anbieter oder Betreibenden der Seiten verantwortlich. Internet: www.narr.de eMail: info@narr.de Einbandgestaltung: siegel konzeption | gestaltung CPI books GmbH, Leck ISBN 978-3-7398-3201-2 (Print) ISBN 978-3-7398-8201-7 (ePDF) ISBN 978-3-7398-0591-7 (ePub) Umschlagmotiv: © iStockphoto shark_749 Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http: / / dnb.dnb.de abrufbar. www.fsc.org MIX Papier aus verantwortungsvollen Quellen FSC ® C083411 ® <?page no="5"?> 13 15 1 17 1.1 17 1.2 19 1.3 20 1.4 23 1.5 26 2 31 2.1 31 2.2 35 3 41 3.1 41 3.2 42 3.2.1 42 3.2.2 43 3.3 44 3.3.1 44 3.3.2 45 3.3.3 46 3.4 49 3.4.1 49 3.4.2 49 3.5 50 3.5.1 50 3.5.2 52 3.6 56 3.6.1 56 3.6.2 56 3.7 58 Contents Accompanying Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Business Management (Robert Gabriel and Dietmar Ernst) . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . History of Sustainable Business Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Business Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Corporate Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "Nuertingen Model" of sustainable business management . . . . . . . . . . . . . . . . . . . Sustainability - An Introduction (Robert Gabriel and Ulrich Sailer) . . . . . . . . . . . . . . . . . Development of the concept of sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Importance for companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Perspective and Environmental Economics (Christian Arndt and Marc Ringel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Need for Action and Adaptation for Companies from an Economic Point of View Economics as a Discipline for Steering Scarcities . . . . . . . . . . . . . . . . . . . . . . . . . . Economics and Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Economic Mechanisms for Steering Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conflicting SDGs, Strategies and Options for Action . . . . . . . . . . . . . . . . . . . . . . . Conflicting Goals as a Challenge for the Management of Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resource Consumption and Climate Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Approaches to Solving the Climate Crisis and Their Pitfalls Economic Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovations and social entrepreneurship: start-ups for sustainable development . Enterpreneurship for Sustainable Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . Opportunities through and for sustainable start-ups . . . . . . . . . . . . . . . . . . . . . . . . Environmental Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Considerations and Principles of a State Market Correction . . . . . . . . . . . . The Environmental Economic Toolbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State Support for Environmental Industries: "Green growth . . . . . . . . . . . . . . . . . The State as an "Enabler" for Environmental Innovations . . . . . . . . . . . . . . . . . . . Green Future Markets in Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <?page no="6"?> 4 63 4.1 63 4.2 64 4.3 66 4.3.1 66 4.3.2 67 4.3.3 67 4.4 68 4.5 69 4.5.1 69 4.5.2 70 4.5.3 70 4.5.4 71 4.6 72 5 77 5.1 77 5.2 79 5.3 81 5.3.1 81 5.3.2 83 5.3.3 84 5.3.4 86 5.4 87 6 91 6.1 91 6.2 92 6.3 93 6.4 94 6.5 96 6.5.1 96 6.5.2 97 6.5.3 101 6.6 101 6.6.1 101 6.6.2 102 6.6.3 103 6.7 104 6.7.1 104 6.7.2 105 6.7.3 106 6.7.4 106 Social Responsibility: From Profit to the Common Good and Back Again (Klaus Gourgé) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Social Meaning and Purpose of Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . Systemic Relevance, Sustainability, and Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . Three Ethical-Normative Signposts for Companies . . . . . . . . . . . . . . . . . . . . . . . . . License to Operate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shared Value, Public Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Orientation Toward the Common Good as a (New? ) Business Ethic . . . . . . . . . . Sustainable Corporate Governance: The "4 R" Factors for Success . . . . . . . . . . . . Relevance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resilience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resonance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reputation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Understanding Transformation (Thomas Ginter and Alexander Romppel) . . . . . . . . . . Transformation: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transformation and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mastering the Transformation Towards More Sustainability . . . . . . . . . . . . . . . . . Dealing With Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Phase Model of Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resistance in Transformation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Getting the Ball Rolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Sustainability Management (Erskin Blunck) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Classification Strategic Sustainability Management . . . . . . . . . . . . . . . . . . . . . . . . Dimensions Strategic Sustainability Management . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Purpose and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy Formation and Strategic Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy Implementation / Strategic Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategy Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Level Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Level Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Network Level Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Industry Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ecological Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Contents <?page no="7"?> 7 113 7.1 113 7.2 114 7.3 118 7.3.1 118 7.3.2 119 7.3.3 120 7.3.4 124 7.4 126 7.5 127 8 129 8.1 129 8.2 130 8.2.1 130 8.2.2 131 8.2.3 131 8.3 134 8.3.1 134 8.3.2 135 8.3.3 135 8.3.4 136 8.3.5 137 8.3.6 137 8.3.7 140 9 145 9.1 145 9.1.1 145 9.1.2 145 9.1.3 146 9.1.4 147 9.2 148 9.3 149 9.3.1 149 9.3.2 150 9.3.3 151 9.3.4 152 9.4 154 9.5 155 10 159 10.1 159 10.1.1 159 Agile Leadership (Horst Blumenstock and Steffen Scheurer) . . . . . . . . . . . . . . . . . . . . . . Leadership: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agile Leadership and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conception of Agile Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Framework Conditions of Agile Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prerequisites of Agile Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Characteristics of Agile Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Continuum of Human Resource Management . . . . . . . . . . . . . . . . . . . . . . . . . Advantages of Agile Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Foundations of Responsible Corporate Governance (Katja Gabius) . . . . . . . . . . . . Basics of Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Historical Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Implications of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Historical Roots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Agent Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Objectives and Corporate Governance: Stakeholder Versus Shareholder Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The German Corporate Governance Code (GCGC) . . . . . . . . . . . . . . . . . . . . . . . . . Regulation of Corporate Governance at EU Level . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Compliance (Peter Förschler) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dimensions of Corporate Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance With Government Regulation and Business Self-Regulation . . . . . . Integrity as the Basis for Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social and Environmental Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance Management as Legal Risk Management . . . . . . . . . . . . . . . . . . . . . . . Compliance Management: Obligation or Freestyle? . . . . . . . . . . . . . . . . . . . . . . . . Compliance Management System Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Compliance Management Loop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Compliance in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Management and Sustainability (Carsten Herbes) . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Corporate Activities - An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . Contents 7 <?page no="8"?> 10.1.2 160 10.1.3 160 10.2 162 10.2.1 162 10.2.2 163 10.2.3 165 10.3 166 11 173 11.1 173 11.2 174 11.2.1 176 11.2.2 177 11.2.3 178 11.2.4 178 11.2.5 179 11.2.6 180 11.3 182 12 191 12.1 191 12.2 192 12.3 192 12.3.1 192 12.3.2 194 12.3.3 197 12.3.4 199 12.3.5 201 12.4 203 12.5 204 13 209 13.1 209 13.1.1 209 13.1.2 210 13.1.3 210 13.2 212 13.2.1 212 13.2.2 213 13.2.3 215 13.3 216 13.3.1 216 13.3.2 219 13.3.3 221 International Character of the Sustainability Issue . . . . . . . . . . . . . . . . . . . . . . . . . Impact of international Business on Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . International Specifics of Sustainability Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . Greater Room for Maneuver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supranational Regulations on Sustainability Aspects . . . . . . . . . . . . . . . . . . . . . . . Other Supranational Sustainability Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approaches and Understanding of Sustainability in Different Countries . . . . . . . Integral Management - New Perspectives for Sustainable Development (Thomas Ginter) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Problem: Complexity and its Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Integral Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Holons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development Stages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Typologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Four Quadrant Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The field of Tension of Integral Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing and Sustainability (Iris Ramme) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketing and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Marketing Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of the Marketing Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Product Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pricing Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communication Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Marketing in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Procurement and Logistics Management (Monika Reintjes) . . . . . . . . . . . . Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pressure to Adapt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ecological Sustainability in Procurement and Logistics . . . . . . . . . . . . . . . . . . . . . Procurement and Procurement Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategies and Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distribution and Distribution Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategies and Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Contents <?page no="9"?> 14 227 14.1 227 14.2 229 14.2.1 229 14.2.2 229 14.2.3 231 14.3 232 14.3.1 232 14.3.2 234 14.3.3 234 14.3.4 235 14.3.5 236 14.4 240 14.5 241 15 245 15.1 245 15.2 246 15.3 249 15.4 251 15.5 255 15.6 259 15.7 260 15.8 264 15.9 265 16 275 16.1 275 16.2 276 16.3 278 16.3.1 278 16.3.2 279 16.3.3 280 16.4 284 16.5 285 17 289 17.1 289 17.2 290 17.3 292 17.4 294 17.5 296 17.6 296 Sustainable Production (Andreas Friedel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concept of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Concept of Sustainable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vision of 100% Sustainable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sustainable Use of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Sustainable Energy Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . On the Way to Sustainable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance with Environmental Regulations (Level 1) . . . . . . . . . . . . . . . . . . . . . Application of Environmental Standards and Guidelines (Level 2) . . . . . . . . . . . . Fixing of Sustainable Production in the Company (Level 3) . . . . . . . . . . . . . . . . . . Introduction of Sustainable Production in the Company (Level 4) . . . . . . . . . . . . Implementation of Sustainable Production in the Company (Level 5) . . . . . . . . . Measuring Sustainability of a Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Product Management (Brigitte Biermann and Rainer Erne) . . . . . . . . . . . . . Why Sustainable Product Management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is Product Management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is Product Success from a Business Perspective? . . . . . . . . . . . . . . . . . . . . . . How are Products Made Successful from a Business Perspective? . . . . . . . . . . . . What is sustainable product management? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What motivates companies to implement sustainable product management? . . How can products be improved sustainably? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What is the Difference Between the Business Perspective and the Sustainability Perspective? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . At What Points Do Decisions Have to be Made? . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Innovation Management (Frank Andreas Schittenhelm) . . . . . . . . . . . . . . . Innovation Management: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovation Management and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conception of a Sustainable Innovation Management . . . . . . . . . . . . . . . . . . . . . . Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Culture of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Innovation Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Innovation Management in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainability Controlling (Ulrich Sailer) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controlling: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Controlling and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management of Operational Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Organizational Integration of Sustainability Management . . . . . . . . . . . . . . . . . . . Guiding Strategies for Sustainability Management . . . . . . . . . . . . . . . . . . . . . . . . . Measuring Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents 9 <?page no="10"?> 17.7 299 17.8 302 18 305 18.1 306 18.2 307 18.3 309 18.3.1 309 18.3.2 310 18.3.3 311 18.3.4 312 18.3.5 314 18.3.6 315 18.4 316 19 323 19.1 323 19.2 325 19.3 325 19.3.1 326 19.3.2 329 19.3.3 331 19.3.4 331 19.4 332 19.5 333 20 337 20.1 337 20.2 338 20.2.1 338 20.2.2 341 20.2.3 342 20.2.4 342 20.2.5 343 20.3 343 21 351 21.1 351 21.2 352 21.3 354 21.4 356 21.4.1 356 21.4.2 360 21.4.3 361 Sustainability Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainability - Disclosure and Audit (Thomas Barth and Stefan Marx) . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CSR Directive 2014/ 95/ EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit of the non-Financial Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Review by the Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Development of the Audit of Sustainability Reports . . . . . . . . . . . . . . . . . . . . . . . . Sustainability Reporting Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statutory Auditors' Mandatory Approach to the non-Financial Statement . . . . . Effects on the Audit Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Financial Management (Frank Andreas Schittenhelm) . . . . . . . . . . . . . . . . . Financial Management: Briefly Explained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Management and Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conception of a Sustainable Financial Management . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Investment Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Company Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Financial Management in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Investing (Dietmar Ernst) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sustainable Investing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specific Opportunities for Sustainable Investments . . . . . . . . . . . . . . . . . . . . . . . . Definition According to GICS Sub Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Definition According to the Thomson Reuters ESG Score . . . . . . . . . . . . . . . . . . . Definition According to an Exclusion List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in Sustainability Themed Investments . . . . . . . . . . . . . . . . . . . . . . . . Best-in-Class Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effects of a Sustainable Investment Concept on Risk and Performance . . . . . . . . Operational Environmental Management (Hans-Jürgen Gnam and Lisa Schwalbe) . . . Development of Environmental Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Management According to DIN EN ISO 14001 . . . . . . . . . . . . . . . Environmental Management According to EMAS . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure and Implementation for the Introduction of an EMS . . . . . . . . . . . . . . Steps 1 and 2: Environmental Assessment and Establishment of the EMS . . . . . . Step 3: Internal Audit and Environmental Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . Step 4: Management Review and Environmental Statement . . . . . . . . . . . . . . . . . 10 Contents <?page no="11"?> 21.4.4 362 21.4.5 362 21.5 363 21.5.1 363 21.6 364 21.6.1 365 21.6.2 366 22 371 22.1 371 22.2 372 22.3 373 22.4 375 22.5 375 22.6 377 379 387 395 Step 5: Verification by External Auditors or Environmental Verifiers . . . . . . . . . . Step 6: Award of ISO 14001 Certificate or Registration and Publication of the Environmental Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Simplified System Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Existing EMS Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further Development of Environmental Management . . . . . . . . . . . . . . . . . . . . . . Energy Management Systems According to DIN ISO 50001 . . . . . . . . . . . . . . . . . . European Foundation for Quality Management (EFQM) . . . . . . . . . . . . . . . . . . . . Enterprise Future: A Utopian Retrospective Back from the Year 2050 (Klaus Gourgé) . It Will Once Have Been … the Fulfilled Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The "Great Transformation": Off to New Territory! . . . . . . . . . . . . . . . . . . . . . . . . A Tour Through the Year 2050: The city of the Future . . . . . . . . . . . . . . . . . . . . . . Better Different: How we Live and Work in 2050 . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative Futures: "By Design or by Disaster"? . . . . . . . . . . . . . . . . . . . . . . . . . . . Restart: Because Tomorrow Today is Already Yesterday . . . . . . . . . . . . . . . . . . . . List of Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents 11 <?page no="13"?> Accompanying Words Sustainability management is not a special discipline of business administration. Rather, sus‐ tainability management is a fundamental and comprehensive, future-proof organizational and environmental development. Since no company can become sustainable without all operational functions, the core business, the strategy, the products and services, the supply chains and all stakeholder relationships being designed sustainably, sustainability management is modern business administration. Prof. Dr. Dr. h.c. Stefan Schaltegger Professorship for Sustainability Management Head of the Centre for Sustainability Management Head of the MBA Sustainability Management Leuphana University Lüneburg Sustainability is also a very current topic in business administration. The book has already become a standard with the first edition! Prof. Dr. Dr. h.c. Ernst Ulrich von Weizsäcker Honorary President of the Club of Rome Former President of the Wuppertal Institute for Climate, Environment and Energy Former Member of the German Bundestag Currently, there is often a tension between social responsibility and sustainability on the one hand and profitability on the other. But in the service of the next generations, they must become team players. It is clear that our world must become more sustainable if it is to remain livable in the future. In the transition, however, economic efficiency must not be lost. Efficient entrepreneurial activity protects jobs and safeguards the ability to invest. We are convinced that companies can only be successful in the future if they combine sustainability and profitability. In this respect, it is to be welcomed if sustainable business management is taught at universities. This book provides a very good basis for this. Sandra Coy, Spokesperson Corporate Responsibility & Quality, Tchibo GmbH The aim of the book is to show how sustainable management can be implemented in all functions and business areas of companies and thus in all fields of business administration. With this integrated perspective, the book represents an innovative and interesting enrichment of the approaches pursued in existing business administration textbooks. Prof. Dr. Dr. h.c. F. J. Radermacher Research Institute for Applied Knowledge Processing <?page no="14"?> Zalando's sustainability strategy "do.More" is an important part of our future business success. Our vision at Zalando is to be a sustainable fashion platform with a net positive impact on people and the planet. This means we run our business in such a way that we give more back to society and the environment than we take. Our ambitious sustainability goals can be implemented all the better the more consciously and openly our stakeholders engage with the topic of sustainability. In this respect, we welcome the fact that sustainable business studies are taught in universities such as Hf WU. This textbook is an excellent example of how economic success and sustainable action can be combined. Patrick Kofler, Head of Investor Relations, Zalando SE For more and more market participants, environmental, social and governance (ESG) issues are of great importance in their investment decisions. Institutional and private investors alike want to support the development of a more sustainable economy. This also leads to banks increasingly embracing sustainability issues and offering corresponding products for customers and investors. This book makes a valuable contribution by presenting the sustainable management of companies in a structured and innovative way in a textbook. It shows how sustainable management in companies not only becomes possible but also develops into a competitive advantage. Rainer Neske, Chairman of the Board of Managing Directors, Landesbank Baden-Württemberg 14 Accompanying Words <?page no="15"?> Foreword Sustainable business management encompasses the economical, ecological and social responsible actions of companies. All over the world, there are convincing examples of such responsibly acting companies that are also extremely successful economically with their sustainability concept. These companies are not "in spite of" but successful "because of" their sustainable actions. More and more companies are setting out to follow this example. However, they are often still at the beginning of the journey and ask themselves how sustainable management can be implemented in their company. The aim of this book is to provide companies, managers, and students with comprehensive work to guide them on their way towards sustainability. This book, "Sustainable Business Management," is a joint effort by 23 professors from three faculties at the Nuertingen-Geislingen University of Applied Sciences (NGU; in German: Hf WU). This Nuertingen approach to sustainable business management was developed over many years at NGU and represents a common understanding of sustainability in business management. With this basic book, we want to show both students of business administration courses and managers with responsibility how companies can be managed successfully in a sustainable manner. This includes the examination of the environment, society, the design of value creation, and management functions. The first edition dates back to 2013. Since then, sustainability has evolved enormously in companies, society as well as in universities. Consequently, this second edition has not only been consistently revised, but also expanded to include numerous important aspects of business administration. As a pleasing trend, it can be observed that students from different disciplines are now very interested in dealing with sustainability. We would like to thank UVK Verlag, in particular Dr. Jürgen Schechler, for their excellent cooperation. Furthermore, we thank Philipp Seidel for the professional revision of the illustrations and to Daniela Horna for her comprehensive support in the preparation of the English edition. The editors welcome feedback from the readership, of any kind. Prof. Dr. Dr. Dietmar Ernst (dietmar.ernst@hfwu.de) Prof. Dr. Ulrich Sailer (ulrich.sailer@hfwu.de) Prof. Dr. Robert Gabriel (robert.gabriel@hfwu.de) <?page no="16"?> Planetary boundaries Management Economy Society Introduction 1. Sustainable Business Management 2. Sustainability - An Introduction Planetary Boundaries and Society Management and Value Creation Outlook <?page no="17"?> 1 In this book, this explanation takes place in Chapter 2: "Sustainability an introduction." 1 Sustainable Business Management Robert Gabriel and Dietmar Ernst Learning Objectives: The readers ■ understand the transformational pressure that the need for sustainable development is creating in our economic system. ■ can classify the approach of "Sustainable Business Management" in the history of business administration with its evolving research focus. ■ recognize that there are constant developments within sustainable business management in order to find the best possible answers to social, technological and ecological challenges. ■ understand how sustainability poses diverse, global and complex challenges for companies. ■ understand that sustainability projects can have an impact on economic success in both positive and negative ways ■ learn about the concept of "Creating Shared Value" as a mindset for linking sustainability with economic success ■ know a business value framework with which the business case of sustainability projects can be systematically determined ■ understand the "Nuertingen Model" of sustainable business management, which serves as the conceptual basis for this book. Keyword List: Decision-Oriented Business Administration, Factor-Theory Approach, Environment-Oriented Approach, Ethical-Normative Ecological Business Management, Ecology-Oriented Approach, Corporate Social Responsibility, Creating Shared Value, Sustainable Business Management, Sustainability Business Case, Business Value Framework, "Nuertingen Model", Conflict of Goals 1.1 Introduction Only a few years ago it was absolutely necessary to explain to the reader at the beginning of an article related to sustainability why the topic under consideration was seriously affected by sustainability. 1 In the meantime, this usually means carrying owls to Athens, since especially in times of "Fridays for Future" most people have understood the ecological and social challenges. <?page no="18"?> 2 For a more detailed consideration of the role and possibilities of state environmental policy, please refer to Chapter 3: "Economic Perspective and Environmental Economics". 3 Ardern, J. (2019), Prime Minister of New Zealand. 4 On the subject of "transformation", see also Chapter 5: "Understanding Transformation". 5 United Nations (2015). 6 Kords, M. (2020). 7 European Parliament (2019). 8 Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (2020), p. 2. Many countries are also increasingly committed to making their economies more sustainable. 2 A growing number of decision-makers are calling for a new, sustainable definition of economic success and new ways of thinking and acting. Jacinda Ardern, former Prime Minister of New Zealand "Economic growth accompanied by worsening social outcomes is not success, it is failure. Turning things around requires changing both the way we think, and the way we act, and the way we measure success". 3 The pressure to act has arrived in the economy. Some sectors, such as automotive and energy, are in the midst of a transformation 4 toward sustainable systems and technologies. However, opportunities and risks arising from sustainable development can be perceived in all sectors. In addition, there is a growing sense of responsibility for the environmental and social consequences of global value chains. The pressure from stakeholders is accelerating this change. Example: Transformation of the Automotive Industry The automotive industry is facing the biggest transformation of recent decades. In addition to technology-related triggers such as connectivity, digitalization or autonomous driving, sustainability is a key driver of change. The agreement under international law to limit global warming to 2 degrees, or 1.5 degrees, (see the so-called Paris Agreement 5 ) results in an urgent, disruptive need for change for the automotive industry. Globally, 18% of CO 2 emissions are caused by road transport. 6 In Europe, more than 60% of CO 2 emissions from road traffic are caused by passenger cars. 7 As a result, automobile manufacturers are getting focused attention and are facing strong regulatory requirements. In 2021, new passenger cars could only emit 95 g CO 2 / km on average in the fleet, and in 2030 this target value is to be reduced by a further 37.5%. 8 This cannot be achieved by further optimizing combustion engines but requires the widespread use of new drive technologies such as electromobility or hydrogen propulsion. This will radically change the global value chains in the automotive industry. Managing these risks and opportunities properly is a huge task for the entire industry. Integrating the requirements of sustainable development into business management is a major challenge. This chapter shows how this integration can be mastered. To this end, it first looks at the historical development of business management. Then, the requirements for sustainable business management are elaborated. Important principles, that are of central importance for successful implementation, are highlighted. And finally as a common basis for this book an 18 1 Sustainable Business Management <?page no="19"?> 9 Heinen, E. (1976), p. 395 (own translation). 10 Freimann, J. (1988), p. 16. 11 Freimann, J. (1988), p. 10. understanding of "Sustainable Business Management" is explained and visualized. This shows how the individual contributions fit into the conception of the book. 1.2 History of Sustainable Business Management Business administration is a scientific discipline that has been continuously developing since its inception. It takes up current social and political developments and is in exchange with other scientific disciplines. The treatment of ecological and social issues within business administration was already a topic long before the orientation of sustainable business administration emerged. After the Second World War, business administration was decisively influenced by the factor theory approach. Reconstruction and the associated industrial production were the focus of business administration. The aim was to produce as efficiently as possible. Methodologically, the neoclassical models of microeconomics were used, which dealt with production functions. Social issues were not explicitly dealt with. Labor was regarded as a factor of production and the image of man was reduced in the models to the rational being of "Homo oeconomicus". The environment served to provide the necessary raw materials for production. There was little awareness of ecological issues. In the course of time, business administration increasingly developed into a scientific discipline independent of economics. A milestone was certainly the decision-oriented business admin‐ istration, which is closely associated with the name Edmund Heinen. The decision-oriented approach introduced two innovations into business administration: ■ the realistic consideration of concrete decision-making situations and thus the further development of business administration to management theory and ■ the opening of business administration to social science issues. "Decision-oriented business administration dismisses the homo economicus of classical micro‐ economics into the realm of fable". 9 This sentence is formative for the development of business administration into a sustainable business administration. A further step towards the inclusion of social aspects is the behavioral science-oriented business administration. Its goal is to explain the actual behavior of individuals and companies with the help of the findings of the behavioral sciences. This means that business administration opens itself to disciplines such as psychology, social psychology, and sociology, and their findings. The ecological side of sustainability was only incorporated into business administration very late in the 1980s. The environment-oriented approach was a reaction to the increasing environmental problems of industrial society, which led to a rethinking in politics, business, and science. Two basic currents can be identified in business management research today: ■ ethical-normative ecological business management 10 and ■ the ecology-oriented approach. 11 Ethical-normative ecological business management is a critical approach to economic systems and calls for a fundamental reorientation of economic thinking and action by focusing 1.2 History of Sustainable Business Management 19 <?page no="20"?> 12 Freimann, J. (1987), p. 381. 13 Göpel, M. (2020). 14 See also Chapter 2: "Sustainability - An introduction." 15 GRI (2021). on the compatibility of ecological and economic perspectives. It is less about what is immediately feasible in individual areas, but rather about a fundamental examination of the relationship between economy and ecology. 12 Global warming is an example of this fundamental debate, the results of which flow into the economy via political measures. A prominent representative of ethical-normative business economics is Maja Göpel. 13 She doubts that the capitalist-market economic system is capable of averting the climate catastrophe and calls for an alternative economic system. What this might look like in concrete terms, however, remains to be seen. The ecology-oriented approach does not involve a reorientation of business management thinking, but rather the inclusion of ecological issues in traditional business management. Environmental protection is understood as a new element in the business target system. It does not compete with the pursuit of profit, but is a secondary condition in the pursuit of economic goals. The sustainable business management concept presented here is strongly anchored in classical business administration and in the ecology-oriented approach, yet it encompasses all three dimensions of sustainability. It can also be described as functional-sustainable business management, as it deals with the integration of sustainability in the various functional areas of the company. This approach often dominates in practice. With the help of innovative environ‐ mental technologies, new, environmentally friendly processes and products are to be developed that contribute to achieving corporate and societal environmental goals. Nevertheless, companies should also contribute to the discussion on the ethical-normative aspects of a sustainable economic system and assume responsibility so that future generations will find an intact economic, ecological, and social system. The question of what contribution sustainable business management can make to sustainable development can be seen in the area of conflict between the ethical-normative and the ecologyoriented approach. The ethical-normative approach demands that the political and legal frame‐ work be set in such a way that ecological goals are quickly achieved without endangering prosperity. In a globalized economy, for example, it is important to ensure that sustainable companies remain competitive with international competitors. If this is the case, companies are expected to make an active contribution to sustainability within the framework of the ecologyoriented approach. Corporate action geared towards sustainability can thus lead to competitive advantages. 1.3 Sustainable Business Management The challenges that arise for companies from the maxim of sustainable development 14 are diverse, global, and complex. This diversity is primarily due to the fact that the three dimensions of sustainability - economic, ecological, and social - comprise numerous individual issues. This can be seen, for example, in the indicator catalog of the sustainability reporting standard provided by the Global Reporting Initiative (GRI). 15 In addition, the value chains of most industries are globalized and have a strong division of labor. An almost uncontrollable number of actors interact in the value chain, and changes are 20 1 Sustainable Business Management <?page no="21"?> 16 OECD (2016). 17 European Commission (2018). very difficult to implement. The following example on conflict minerals illustrates this situation. The value chain should be considered not only "upstream", which includes the activities before materials or goods reach the company, but also "downstream". This includes further processing as well as the use and final exploitation of the products and services. Example: Conflict Minerals The extraction of minerals can have serious social consequences in certain politically unstable regions. For example, corruption or human rights violations such as forced labor or the use of violence can be observed. The so-called conflict minerals tin, tungsten, tantalum and gold are particularly in focus here. These minerals are used, for example, in information technology, cars and jewelry. One country that is particularly affected by this problem is the Democratic Republic of Congo. To address this issue, the EU has put in place requirements via a new regulation that came into force on 1 January 2021. All companies importing these minerals or metals into the EU (around 1,000 importing companies are affected) must establish management systems, assess risks, carry out audits and report on them annually, using a five-stage framework developed by the OECD. 16 The requirements of sustainable development thus have a strong influence on value chains. 17 The activity in many different countries, with differing legal frameworks, value systems, and cultural influences, further increases the requirements for sustainability management. At this point at the latest, the system changes from a complicated to a complex, hardly predictable system that is difficult to manage and control. A central question the actors are facing is the conflict of goals between economic success and sustainable economic activity. In the capitalist economic system of the Western world, economic success is the inevitable target. Without economic success, no company can survive in the long term. And now these additional requirements for sustainable management emerge. Doesn't this make it even more difficult for companies to achieve the economic success they need to survive? In the minds of more than a few decision-makers, the idea prevails that sustainable action is ethically desirable, but at the expense of economic success. A much more differentiated view is necessary here. This one-sided "traditional" view has been refuted many times. There are numerous examples in which companies have been able to increase their economic success through sustainability measures. These measures can be, for example, reduction in energy costs and mitigation of CO 2 emissions through increased energy efficiency. At the same time, however, there are also examples where decisions for sustainability lead to rising costs or decreasing sales, at least in the short term. This can be, for example, the voluntary installation of an exhaust filter on a chimney, when there is no legal requirement for this filter. The company may nevertheless succeed in deriving long-term economic benefits from this through credible communication or increased acceptance among stakeholders. Nevertheless, this will not always be possible, so there are cases in which sustainability and economic success are very much in direct conflict with each other. Functional-sustainable business management is critical of such 1.3 Sustainable Business Management 21 <?page no="22"?> 18 Section 2.2 of this chapter. See also Chapter 4: "Social Responsibility: From Profit to the Common Good and Back Again". 19 Wagner, M. / Schaltegger, S. (2003), p. 9. 20 Anderson, R. (2009). projects. In this case, it is rather the ethical-normative ecological business management theory, which questions the absolute importance of economic success and the system requirements, which is supportive. 18 As a result, the relationship between economic success and sustainability performance must be viewed in a differentiated manner. Figure 1.1 illustrates this graphically. Sustainability Performance Economic success Traditional View Revised View The "best possible" relationship between sustainability performance and economic success changes over time Fig. 1.1: Correlation between economic success and sustainability performance according to Wagner and Schalteg‐ ger. 19 (own translation) Sustainability measures, therefore, do not always reduce economic success, but can also increase it. These financially beneficial measures should be identified and implemented. The increasing sensitivity of stakeholders and regulatory intervention by the state will cause the curve in the above figure to shift upward toward the dashed line, and the number of measures that are economically, environmentally, and socially beneficial will increase over time. Even without government intervention, many sustainability measures with which companies assume responsibility already lead to an improvement in economic performance. Consequently, there is no conflict of goals for these measures. Consistently identifying, developing, and imple‐ menting these projects, products, or business models is an important part of the competitiveness of companies today, and thus also at the core of modern, sustainable business management. Ray Anderson, CEO and Founder of Interface Floor "Business and industry is the major culprit, causing the decline of the biosphere, but it is also the only institution that is large enough, and powerful enough, to really lead human kind out of this mess". 20 22 1 Sustainable Business Management <?page no="23"?> 21 Porter, M.E. / Kramer, M.R. (2011). 1.4 Sustainable Corporate Success If we look at the implementation of sustainability and Corporate Social Responsibility (CSR) in companies, we see that many companies try very hard to "look good" and protect themselves from criticism. Adaptation and change at the core of the business model are rarely observed in these companies, or at least do not take place in a sufficiently consistent form. This is also reflected in the fact that social and environmental problems have not been adequately addressed to date. Companies are therefore often busy trying to safeguard the business models that are successful today. This happens through lobbying, or by reporting success stories. The responsibility is not accepted, but shifted to the consumers or the state. There is more reaction than action, and the core of the business model is not touched as far as possible in order not to endanger today's success. In this context, sustainability activities are mainly there to protect against external pressure and to boost short-term success through an improved reputation. Such an approach could be described as "playing not to lose", as an attempt to protect today's model of success which will be yesterday's model tomorrow. In recent years, however, the number of companies taking sustainability seriously has been on the rise. These companies are taking an entrepreneurial approach to the challenge. They recognize the inevitable development and take action, asking themselves what opportunities and risks the sustainability megatrend entails. Options are examined and evaluated, and strategy and core processes are adapted. This requires entrepreneurial courage, as there is great uncertainty about future developments. This approach could be described as "playing to win! " A strategy that takes up a major challenge at an early stage is obviously more successful in the long run. How can companies best tackle these new challenges? Here it depends strongly on the mindset. One positive approach is the one outlined by Porter and Kramer: The concept of "Creating Shared Value" (CSV). It builds on the idea of products and business models that generate value for society and companies at the same time. The two authors show (in an over-simplified manner) the differences between CSR and CSV (Table 1.1.). The bottom line is that CSV is about developing new solutions. In these solutions, the contribution to sustainable development shall be generated through the core activities and the business model. At the same time, of course, the new approaches should be as profitable as the existing activities. These new, profitable activities, which are at the same time welcomed by society, are superior to the previous solutions: they provide the company with long-term, secure, and socially accepted business success and a stronger competitive position. For society, these new business models and products offer ecological, social, and/ or economic advantages. 21 1.4 Sustainable Corporate Success 23 <?page no="24"?> 22 Ibid. 23 Stewart van Horn, Director of Global Sustainability, Kimberly Clark: Presentation at the symposium "think 15", 11 March 2015, Stuttgart. 24 Kimberly Clark (2020). 25 Bonini, S. / Görner, S. (2011), p. 13. Corporate Social Responsibility (CSR) Creation of "Shared Value Target: Doing good as a respected element of society Target: Creating value for companies AND society CSR activity is decoupled from core business and profit maximization; philanthropy Social added value is an integral part of core activ‐ ities and profit maximization Attention to reporting and self-selected focal points Focus on concrete entrepreneurial opportunities and competitiveness Firmly defined and limited CSR budget Opportunities and risks determine the investment Tab. 1.1: Comparison of CSR and "Shared Value" according to Porter and Kramer (2011) 22 With such a mindset of "Shared Value Creation", the role of sustainability management changes. A staff unit that is responsible for the sustainability report becomes a nucleus for innovation and new solutions. Sustainability managers thus need a high level of understanding of the core business and good networking within the company in order to develop new, sustainable solutions with the departments. Sustainability experts act as a catalyst, helping to achieve business goals and sustainability goals at the same time. The example of Kimberly Clark shows how greenhouse gases can be reduced and energy costs cut at the same time. Example: Energy Efficiency at Kimberly Clark The Kimberly Clark (KC) company, known for example through the Kleenex brand, made approximately $18 billion in sales of hygiene products in 2019 with 42,000 employees. The pulp and paper industry is very energy intensive, and KC had energy costs of over $1 billion. By using a sophisticated technology benchmarking approach, the company was able to achieve energy cost savings of more than $150 million within two years. By transferring an Excel-based system with more than 10,000 linked Excel files into a dedicated sustainability software (SoFi Software), KC has transparency about the effects of their decision options. The system currently contains planned or outlined measures with a volume of 300 million US dollars. By selecting the right projects, KC has the potential to save an additional $200 million in annual energy costs by 2022. This represents approximately 7% of the 2019 operating income. 23, 24 For sustainable business management, it is crucial to develop new business models, products, services, and processes that are sustainable and profitable. For this, it is important to understand the business case of the respective projects. Frameworks exist for implementation, such as those from McKinsey 25 or the "Business Value Framework" from thinkstep (Figure 1.2). 24 1 Sustainable Business Management <?page no="25"?> 26 Slight revision and translation of the framework by thinkstep (2016). The initial concept with the four categories can be found in Esty and Winston (2006), p. 295. • Increase in turnover and revenue protection • Innovations & new business models Sales • Operational efficiency • Employee productivity • Efficiency in the value chain Costs • Operational risks • Risks in the value chain • Social risks • Regulatory risks Risks • Reputation enhancement • Employee recruitment and retention Brand strengthen decrease Long-term Growth Burden on earnings Fig. 1.2: "Business Value Framework" according to thinkstep (own revision) 26 Based on the application experience of many hundreds of projects, the authors of the framework conclude that all business benefits from sustainability projects can be found in the four main categories: more revenue, lower costs, lower risks, and improved reputation. Thus, the framework can be used as a checklist, and each project is examined for its benefits across these categories. In addition to identifying the value drivers, the second challenge is to quantify the magnitude of the value contribution. For example, it is necessary to answer the question of how much additional revenue a green product portfolio could deliver. This quantification is demanding, but at the same time, it is part of every business case and therefore not a dedicated challenge for sustainability projects. In conclusion, the sustainability megatrend will force a transformation of our economy. This will give rise to major risks and opportunities, which companies will best manage if they move forward actively and courageously and align their strategies and core processes accordingly. If they succeed in developing new business models, products, services and processes that are both profitable and sustainable, they will be future-proof and competitive. The task of sustainable business administration is to provide the necessary methodological foundation for this. 1.4 Sustainable Corporate Success 25 <?page no="26"?> 27 For scientific sources on the topic of "Planetary Boundaries", please refer to Chapter 2: "Sustainability - An Introduction". 1.5 "Nuertingen Model" of sustainable business management As part of the implementation of this book project, the authors jointly developed a visualization for the concept of a new, sustainable business administration (Figure 1.3). This visualization, referred to as the "Nuertingen Model" of sustainable business management, is the underlying foundation of this publication. Fig. 1.3: „Nürtingen Model“ of Sustainable Business Management Planetary boundaries Management Economy Society Fig. 1.3: "Nuertingen Model" of sustainable business management The visualization is based on the understanding that business administration has made an important contribution to prosperity and peace in the past. Despite all justified criticism of the prevailing economic system, these positive achievements must be acknowledged. A new, more modern model of business administration should therefore not discard existing concepts, but rather develop and adapt them, making them sustainable and future-proof. This means that social, ecological and also economic sustainability aspects must be integrated. Against this background, the visualization, viewed from the outside in, presents the following basic relationships: 1. Planetary boundaries for value creation and society Society, including economic activity and value creation, must operate within planetary boundaries for obvious physical reasons 27 . A linear system of "take, make and waste" is only possible for a certain period of time with finite resource supplies and a limited possibility to absorb pollutants and emissions. In the medium and long term, there is no way around a circular economy and a consideration of the unchangeable planetary boundaries in the future design of our society, and thus also in our economic system and companies. 26 1 Sustainable Business Management <?page no="27"?> 28 GRI (2018), p. 19. 29 Raworth, K. (2012), p. 4. 2. Value creation is only possible within society Any economic activity has innumerable points of contact with society. Obviously, the develop‐ ment and operation of value creation systems requires the production factors labor and capital, i.e. employees and investors as partners. In addition, there are many other stakeholders who try to exert influence on value chains and strategies of companies. There are two reasons for this: either stakeholder groups are affected by companies' actions, or companies depend on certain stakeholder groups for their success. 28 Examples of typical stakeholder groups are customers, business partners, the government/ authorities or even the residents of a large industrial plant. All these groups represent parts of society, and the dependencies shown underline that value creation can only take place in exchange and balance with society, i.e. "within" society. 3. Management as a compass, taking into account all dimensions In business administration, there has traditionally been a great deal of focus on how management designs value chains for the greatest possible economic success. Today, this is no longer sufficient for long-term success. In addition, management must also consider interactions with society and planetary boundaries in strategy and decision making. As explained above, this is important for the success of the company for functional reasons, but it also serves to meet the ethical and normative expectations of stakeholders and society, The content of the visualization is based on the nested circles of sustainability shown in Figure 2.1 (Chapter 2). Further development lies in the role of management, which must act as a guiding element (compass), keeping all three systems economy, society, and the planet in view and taking them into account. Visually, there is also a certain similarity to Kate Raworth's donut model 29 resulting from the identical motif of planetary boundaries. This "Nuertingen Model" of sustainable business management forms the conceptual basis of this book. In the introduction, after an introduction to sustainable business management in chapter 2, there is a detailed presentation of the concept of sustainability. This is followed in Chapters 3 and 4 by a consideration of planetary boundaries and the role of society. For this purpose, aspects of environmental economics are presented and in the chapter on social responsibility the field of tension between profit and public welfare is discussed. Chapters 5 to 21 then deal with the subject area of management and value creation. Here, all activities and functional areas of companies are taken up individually and the concrete significance and effects of sustainable business management for these areas are explained. The approach behind this is that value-adding does not mean that sustainability is imposed by a separate staff unit. Rather, the individual departments must develop new solutions and take responsibility for their area, knowing their environment, their tasks, and their challenges. This is the only approach that allows for a holistic and effective implementation of sustainable business management. The book concludes with a utopia, a view of our economic life in the year 2050. This utopia stands for something we all wish for, and which has essentially motivated the writing of this book: a LIVABLE FUTURE! 1.5 "Nuertingen Model" of sustainable business management 27 <?page no="28"?> At a Glance Our economic system is under great pressure to change due to the sustainability megatrend. Business administration has taken this on board, and an ethical-normative as well as a functional approach have been developed for sustainable business management. Companies should adapt their strategies and core processes early and courageously, to best manage the risks and opportunities of the upcoming transformation to a sustainable economic system. By developing new business models, products, and processes that are not only sustainable but also profitable, companies improve their competitiveness. The "Nuertingen Model" presented in this book which is mainly based on the approach of functional-sustainable business administration - provides a new and in-depth methodological basis. Suggestions for Further Reading Wagner, M. and Schaltegger, S. (2003): How Does Sustainability Performance Relate to Business Competi‐ tiveness. In: Greener Management International, No. 44, Winter 2003, p. 9 Porter, M.E. and Kramer, M.R. (2011). Creating shared value: How to re-invent capitalism and unleash a wave of innovation and growth, in: Harvard Business Review, Vol. 89 (1/ 2), pp. 62-77. Literature Anderson, R. (TED Talk, February 2009). Ray Anderson: The Business Logic of Sustainability. https: / / www .youtube.com/ watch? v=iP9QF_lBOyA&ab_channel=TED. Ardern, J. (dated September 25, 2019). Jacinda Ardern, Prime Minister of New Zealand, speaking at the #goalkeeper19 Event, https: / / twitter.com/ gatesfoundation/ status/ 1176872758548074496. Bonini, S. / Görner, S. (2011): The Business of Sustainability. https: / / www.mckinsey.com/ capabilities/ susta inability/ our-insights/ the-business-of-sustainability-mckinsey-global-survey-results, accessed 4 March 2021. Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (2020): Das System der CO 2 -Flotten‐ grenzwerte für Pkw und leichte Nutzfahrzeuge, 4. Mai 2020. https: / / www.bmuv.de/ fileadmin/ Daten_BM U/ Download_PDF/ Luft/ zusammenfassung_co2_flottengrenzwerte.pdf, accessed 4 March 2021. Esty D.C. and Winston, A.S. (2006): Green to Gold, How smart companies use environmental strategy to innovate, create value, and build competitive advantage. Hoboken, New Jersey, John Wiley & Sons. European Commission (2018): What you need to know about the Regulation (on conflict minerals), update of January 5, 2018. https: / / ec.europa.eu/ trade/ policy/ in-focus/ conflict-minerals-regulation/ regulation-e xplained/ index_en.htm, accessed 4 March 2021. European Parliament (2019): CO2 emissions from cars: facts and figures, updated 18/ 04/ 2019. https: / / www. europarl.europa.eu/ news/ en/ headlines/ society/ 20190313STO31218/ co2-emissions-from-cars-facts-and-f igures-infographics, accessed 4 March 2021. Freimann, J. (1987): Ökologie und Betriebswirtschaft, in: Schmalenbachs Zeitschrift für betriebswirtschaft‐ liche Forschung, Vol. 39, pp. 380-390. Freimann, J. (1988): Zum Stand der Ausarbeitung einer sozial-ökologischen Betriebswirtschaftslehre, in: Freimann, J., Priem, Or. (1988): Ökologische Betriebswirtschaftslehre und -praxis, in: Schriftenreihe IOW, Band 12. Göpel, M. (2020): Unsere Welt neu denken: eine Einladung. Ullstein Buchverlage. GRI (2018): GRI Standards Glossary 2018. Global Reporting Initiative, Amsterdam. 28 1 Sustainable Business Management <?page no="29"?> GRI (2021): GRI Standards download area. https: / / www.globalreporting.org/ standards/ , accessed 4 March 2021. Heinen, E. (1976): Grundfragen der entscheidungsorientierten Betriebswirtschaftslehre, Munich. Kimberly Clark (2020): Kimberly-Clark Announces Year-End 2019 Results And 2020 Outlook [Press release]. https: / / kimberlyclark.gcs-web.com/ news-releases/ news-release-details/ kimberly-clark-announces-year -end-2019-results-and-2020-outlook, accessed 4 March 2021. Kords, M. (2020) Transport modes' share of global CO2 emissions from fossil fuel combustion in 2016. Quoted from https: / / de.statista.com/ , https: / / de.statista.com/ statistik/ daten/ studie/ 317683/ umfrage/ verkehrsttra eger-anteil-co2-emissionen-fossile-brennstoffe/ , accessed 4 March 2021. OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. Porter, M.E. / Kramer, M.R. (2011). Creating shared value: How to re-invent capitalism and unleash a wave of innovation and growth, in: Harvard Business Review, Vol. 89 (1/ 2), pp. 62-77. Raworth, K. (2012): A safe and just space for humanity, Can we live within the donut? Oxfam Discussion Papers, available at https: / / www-cdn.oxfam.org/ s3fs-public/ file_attachments/ dp-a-safe-and-just-space-f or-humanity-130212-en_5.pdf, accessed 02/ 26/ 2021. thinkstep (2016): Business Value of Sustainability Framework. https: / / slideplayer.com/ slide/ 7804141/ , ac‐ cessed 4 March 2021. United Nations (2015): Paris Agreement to the United Nations Framework Convention on Climate Change, 12 December 2015, T.I.A.S. No. 16-1104. Wagner, M. / Schaltegger, S. (2003): How Does Sustainability Performance Relate to Business Competitive‐ ness. In: Greener Management International, No. 44, Winter 2003, p. 9. 1.5 "Nuertingen Model" of sustainable business management 29 <?page no="30"?> Planetary boundaries Management Economy Society Introduction 1. Sustainable Business Management 2. Sustainability - An Introduction Planetary Boundaries and Society Management and Value Creation Outlook <?page no="31"?> 1 Grober, U. (2010), p. 19f. 2 Carlowitz, C. (1713), p. 105. 2 Sustainability - An Introduction Robert Gabriel and Ulrich Sailer Learning Objectives: The readers ■ understand the concept of sustainability and its origins, ■ know how sustainability has developed from the Brundtland Report to the Three-Pillar Model and the Sustainable Development Goals, and ■ recognize how concrete requirements for companies can be derived from sustainability challenges at the societal level, ■ understand that these new requirements must be integrated into the traditional target systems of business management in a balanced manner. Keyword list: Brundtland Report, Three-Pillar Model, Sustainable Development Goals (SDG), Corporate Social Responsibility, Sustainable Business Management 2.1 Development of the concept of sustainability The concept of sustainability central to this book is difficult to grasp for many people. This section 2.1, therefore, outlines the historical development of the concept of sustainability as a basis for the following contributions. The following section 2.2 then considers the general significance of sustainable development for companies. Sustainability is a very old term whose meaning has changed over time. Sustain is borrowed from the Latin sustinere, which can be translated as maintain, carry, preserve, or hold back. Sustainability thus expresses structures that are sustainable and have sufficient reserves for the future. 1 It is regularly claimed that the origin of sustainability lies in forestry, where the limits of short-term overexploitation were denounced centuries ago. In the early 18th century, Hans Carl von Carlowitz (1645-1714) advocated a sustainable use of the forest. Due to the long regeneration period and the low growth rates of the forest stand, the necessity of a careful handling of wood as a raw material was obvious to secure long-term supply. People should cut only as much wood as could regrow in terms of species and quantity. 2 Another milestone in the development of sustainability was the publication of the study "The Limits to Growth" in 1972 by a group of young scientists at the Massachusetts Institute of <?page no="32"?> 3 Meadows, D. et al. (1987), p. 17. 4 World Commission on Environment and Development (1987), p. 41. 5 Spangenberg, J. (2005), p. 48. 6 Morelli, J. (2011), p. 5. Technology (MIT) in the USA, commissioned by the Club of Rome. By means of a computerbased system analysis, the development of the world economy and of mankind, in general, was simulated in a world model. This led to alarming results and attracted great attention worldwide. "If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years." 3 The publication ignited the discussion about sustainability, about people's economic and living conditions, even though it did not go uncriticized and numerous forecasts had to be corrected later. It was also significant that the environmental problem must be viewed systemically, due to the complex interconnections and interactions. In the same year, the first United Nations Conference on the Environment was held in Stockholm. This was the first of a series of conferences that led to a global awareness of environmental problems. At this first conference, fundamental principles for the environment and the development were adopted. The event was the starting point for the international cooperation on sustainability. In 1987, another milestone in the development of sustainability emerged: the Brundtland Report was published. This was the final report of the "World Commission on Environment and Development" set up by the United Nations. This report is entitled "Our Common Future" and is usually referred to as the Brundtland Report after the Commission's Chairwoman Gro- Harlem Brundtland (former Prime Minister of Norway). This report identifies the cause of global environmental problems as poverty in the South and unsustainable production and consumption patterns in the North. The report is also known for creating the guiding principle of sustainable development and coining the term sustainability. It states: Sustainable development is development that "meets the needs of the present without compromising the ability of future generations to meet their own needs." 4 Beyond this clarification of the term "sustainable development" (synonym: sustainability), the report expresses the need for a significant process of change involving resource use, financial flows, the direction of technological innovation, and institutional structures. The definition quoted above emphasizes that the present generation should not live beyond its means so that future generations have comparably good living conditions. This is referred to as intergenerational justice. Furthermore, the report addresses the fact that also a fair distribution should take place within a generation (intragenerational justice). Finally, the three dimensions of sustainability are already reflected in this report: economic, ecological, and social living conditions are explicitly addressed. Most literature sources see economic sustainability as defined by the fact that humanity has a need for a permanently secure income. This presupposes that the sum of available capital e.g., natural capital or human capital is not reduced. 5 Ecological sustainability is understood to mean that humanity may only satisfy its needs in such a way that the capacity of the ecosystems surrounding us is not exceeded and biological diversity does not suffer. 6 And behind the concept of social sustainability is the understanding that all people, in present as well as in future generations, 32 2 Sustainability - An Introduction <?page no="33"?> 7 Rasouli, A.H./ Kumarasuriyar, A. (2016), p. 31. 8 Purvis, B./ Mao, Y./ Robinson, D. (2018), pp. 681f. 9 Purvis, B./ Mao, Y./ Robinson, D. (2018), p. 682. can satisfy their basic human needs, and at the same time elementary principles such as equality, social justice or social security are applied. 7 The three dimensions of sustainability must be brought into balance with each other, into a target balance. In the same year, the three dimensions are presented for the first time in the familiar form of the three overlapping circles in a publication. In this form of representation, sustainability is found in the middle between the circles. In later publications, the familiar "Three-Pillar Model" of sustainability is increasingly used. A third form of representation of the interdependencies between the three dimensions of sustainability are nested ellipses. 8 They express that economy can only take place within society, and that it is dependent on interaction with it. Society, in turn, can only act within the planetary boundaries of its environment. These three most familiar representations of the three dimensions of sustainability are found in Figure 2.1. Social Environmental Economic Sustainability Environment Society Economy Environmental Economic Social Sustainable Fig. 2.1: Forms of representation of the dimensions of sustainability 9 A few years after the publication of the Brundtland Report, in June 1992, the UN Conference on Environment and Development, also known as the World Summit, took place in Rio de Janeiro. At this conference, the largest of its kind, with 10,000 participants from 178 countries, the future of the earth was discussed and guidelines for action for sustainable global development were drawn up. In the process, sustainability was declared to be guiding principle of politics. The Rio Declaration states that economic progress is only possible in the long term if environmental protection is considered. This is based related to the realization that global protection of the environment is in turn only possible if social and economic aspects are also taken into account. Other important results of the Rio Conference are the Framework Convention on Climate Change (as the legal basis of the global political climate process), Agenda 21 (as an action program for a new 2.1 Development of the concept of sustainability 33 <?page no="34"?> 10 United Nations (2015a), p. 4ff. 11 United Nations (2019). 12 United Nations (2015b), p. 1. 13 Daimler AG (2020): Sustainability Strategy and Sustainable Development Goals, https: / / group.mercedes-benz.co m/ sustainability/ strategie.html, accessed 23.09.2022. development and environmental partnership between industrialized and developing countries), and the Biodiversity Convention (for the protection of the diversity of life on earth). Following these environmental conferences, the German Federal Government appointed the "Rat für Nachhaltige Entwicklung" (Council for Sustainable Development) in 2001, which advises the Government on sustainability and initiates exchanges with the various interest groups. Since then, Germany has had a sustainability strategy that not only identifies important fields of action but has also gained influence on practical policy. At the Millennium Summit in New York in 2000, the 189 member states of the United Nations agreed on goals in the areas of poverty reduction, peace, human rights, and environmental protection to be achieved by 2015. For this purpose, measures were defined, and measurement criteria established to determine whether the goals had been achieved. In the final report from 2015, the United Nations reported great successes in the fight against poverty, in education, child mortality and the supply of drinking water. There is criticism of continuing poverty and inequality and, in particular, increases in environmental degradation and climate change. 10 Even during the lifetime of these Millennium Development Goals, their implementation was sometimes described as slow and criticized in terms of content. This criticism referred, for example, to the fact that the goals of the industrialized countries were transferred to the developing countries and that most of the measures were to be borne by the developing countries. An international panel of experts then developed the next stage of development goals, the Sustainable Development Goals (SDGs), which were adopted by all member states of the United Nations in 2015. 11 A key sentence in the preamble to the SDGs is: "As we embark on this great collective journey, we pledge that no one will be left behind." 12 Compared to the Millennium Development Goals, the SDGs also include a stronger commitment by developed countries to achieve economic, environmental, and social goals by 2030. The goals are also more diverse and international cooperation is required to implement them. Although the SDGs are geared towards countries, it can be observed that large companies, such as Allianz, SAP, BASF, or Daimler, refer to selected SDG goals, which are relevant to them, in their sustainability strategy. Example: Daimler AG 13 "Our Sustainability Strategy 2030 supports the implementation of the Sustainable Develop‐ ment Goals (SDGs) that were approved by the United Nations in September 2015. Although the SDGs are directed primarily at governments and countries, the achievement of these goals will depend greatly on businesses because of their innovative spirit and extensive ability to make investments. As a result, we also took the SDGs into account during the realignment of Daimler's Sustainability Strategy. We focused our sustainability-related activities on those SDGs that are greatly influenced by our business model and value chain and where we can actually bring about change." In recent years, sustainability has seen growing awareness and has gained increasing importance at very different levels. This is also due to the fact that science has worked out more and 34 2 Sustainability - An Introduction <?page no="35"?> 14 Rockström, J. et al. (2009); Steffen, W. et al. (2015). 15 See www.climateinteractive.org/ tools/ en-roads/ . 16 Thomas, R. (2018), p. 8, Siemens AG Board of Management. 17 European Commission (2001), p. 6. 18 European Commission (2011), p. 6. 19 European Commission (2011), p. 6. 20 See chapter on Sustainability Controlling. more clearly that humanity has already reached planetary boundaries in various areas. 14 A very interesting initiative is En-ROADS, coming (again) from MIT, together with Climate Interactive. Both organizations have developed a scientificallyand systems-based simulator available on the Internet. In this application, anyone can see how political and technological decisions affect key problem areas of environmental protection, such as global warming. 15 The last major movement whose mediumand long-term effects remain to be seen is Fridays for Future. It emerged in 2018 as a global youth movement with a very high media profile and a demand on politics and society to take elementary measures to prevent climate change and protect the environment in the short term. 2.2 Importance for companies The concept of sustainability is defined from a societal perspective and is thus a formative task of politics. As a key player, politics can, for example, enact bans and rules, levy taxes and grant subsidies. However, governmental and supranational activities cannot be seen in isolation from the economy and from companies. Companies make a very significant contribution to the prosperity of a society, but at the same time they also cause social disruption and global environmental damage. Businesses have a key role to play, as a driver for achieving sustainable development goals. With their products and solutions, they have a particular impact on societies and how we live today and in the future. 16 The European Commission plays an important role in defining this responsibility of companies, also known as "Corporate Social Responsibility" (CSR). In 2001, the European Commission published a Green Paper on CSR. Here, CSR was defined as a " a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." 17 Over the next ten years, it became apparent that this soft, non-binding, and voluntary approach was not sufficiently effective. Thus, in 2011, a much more binding definition was established: according to this definition, CSR is "the responsibility of enterprises for their impacts on society." 18 In addition, it is noted that enterprises should seek to optimize value creation for the benefit of the enterprise AND society and to prevent or at least mitigate negative societal impacts in a binding manner. 19 The EU's activities are flanked by various directives and guidelines. Since 2017, for example, the non-financial reporting directive applies to all companies with 500 or more employees, across Europe. Since then, these companies, and in many cases their suppliers and business partners, have been obliged to report on their sustainability. 20 This leads to the central question for business management: how can sustainability be implemented in companies? Sustainability management in companies can be defined as follows, following the definition of the Brundtland Report: Sustainability management comprises all activities of a company to develop, design and manage a sustainable economic development in accordance with the requirements of the 2.2 Importance for companies 35 <?page no="36"?> 21 Wördenweber, M. (2017), p. 13, own translation. 22 See https: / / sciencebasedtargets.org/ companies-taking-action/ . 23 Sailer, U. (2020), p. 43f. ecological and social dimensions, in such a way that they take into account the needs of the present generation without depriving future generations of the opportunity to fulfil their own wishes. 21 The Three-Pillar Model therefore applies not only at the societal level, but also at the business level. The following table shows examples of which aspects play an important role for the respective sustainability dimension in companies. Dimension Business aspects (examples) Economic sustainability Long-term capital preservation Reasonable rate of return Cost optimization over the life cycle of products Ecological sustainability Low pollutant emissions Low use of resources Circular economy & recycling Durability Social sustainability Employee satisfaction Secure jobs Tax payments Social commitment E thical responsibility Occupational health and safety Tab. 2.1: Examples of the business level of sustainability In the economic sciences, it is often important to take clear decisions based on unambiguous target systems. This is often difficult for aspects of sustainability, as in many cases there is still no clear scientific reference for a permissible "dose" that could be operationalized for a company. One example of a positive exception is climate change, and the Science Based Targets initiative. By 2020, this approach is already being used by more than 1,000 leading companies worldwide. It allows very specific emission and reduction targets for one's own company to be calculated from the scientifically calculated budget of permissible climate gas emissions for the coming years, in order to make one's own appropriate contribution to meeting the 2-degree target. 22 Students learn to examine such target relationships in the introductory courses on business administration. The next step is then to clarify conflicting targets and to establish clear rankings of goals. Admittedly, this is based on a rather mechanistic idea of a company. Based on unambiguous target systems, precisely defined constraints and complete information, modeltheoretically clean solutions can be worked out, but in most cases, this does not have much to do with the reality in companies. In everyday life, however, we are used to dealing with inaccuracies, missing information, and contradictions. And many companies also manage to strike a good balance between economic, ecological, and social concerns, even though there may be contradictions between them. Instead of setting the targets off against each other, it is much more a question of balance and of achieving a sustainable balance of targets. Thus, if the Three- Pillar Model is applied to businesses, the success of the company cannot be aligned with the maximization of a single top metric. 23 36 2 Sustainability - An Introduction <?page no="37"?> 24 Eferest GmbH, https: / / www.eferest.de/ unternehmen/ nachhaltigkeit/ , accessed 23.09.2022. 25 Siemens AG, Nachhaltigkeitsinformation 2019, https: / / assets.new.siemens.com/ siemens/ assets/ api/ uuid: 653997b 6-8d38-49bf-9454-5f469c27250a/ siemens-sustainability-informations-2019.pdf, accessed 23.09.2022. Example: Eferest GmbH 24 Decisions are not always free of conflicting targets our aim is to make these transparent and to find the best possible solution. Responsible use of natural resources, targeted investments in future-proof technologies that enable profitable growth and offer our customers a competitive advantage, and a corporate ethic that goes beyond compliance with the law and places integrity at the heart of everything we do: This is how we operate sustainably while laying the foundation for a successful future for our company. This brings us to an important insight for sustainable business management. Environmental and social goals are not just additional guidelines for the company, like guard rails that further restrict the scope for action in management. In other words, it is not that companies now work within an even narrower scope, we should not think of sustainable business management in this traditional way. Rather, the balanced consideration of sustainability changes the company's targets and thus also the decisions and measures. In practice, it can be observed that many companies still resist such a change in corporate strategy and try to defend their old business models. This is due to the fact that the focus of change is often strongly on the risks. However, there is no doubt that this upcoming transformation of economic activity also offers companies plenty of opportunities. For example, changing the business model by introducing significantly more eco-friendly products can have a very positive effect on sales development and economic success. Example: Siemens AG 25 In 2019, Siemens AG generated 44% of its revenue with products, systems, solutions, and services from its environmental portfolio. To be included in the environmental portfolio, the portfolio elements must be demonstrably 20% more energy efficient than a comparative solution, or, in total, save customers at least 100,000t of CO 2 annually. In 2019, the use of these offerings saved customers 637 million tons of CO 2 . By comparison, this corresponds to more than one percent of total global emissions in the same period. Two main motives for a commitment to sustainability are evident in companies. One is sustain‐ ability in the ethical sense, in which the management steers a company sustainably from an inner, value-oriented decision. There is a strong moral conviction in the company that only socially and ecologically responsible action is acceptable. The other motive is sustainability in a functional sense, the focus is on the rational calculation that sustainability will pay off economically. Possible negative reactions of stakeholders and financial burdens due to inflicted environmental damage are considered in entrepreneurial decisions. In this functional sense, one is sustainable because it is economically advisable. Both forms can be found in companies, often even within the same company. In conclusion, both motives are relevant in sustainable business management. In many companies, sustainability is a firmly established factor. Sustainability goals are formu‐ lated, measures are derived, and the results are presented in sustainability reports. Established 2.2 Importance for companies 37 <?page no="38"?> terms include the above-mentioned "corporate social responsibility," "compliance" (adherence to legal, social, and self-imposed ethical standards) and "corporate citizenship" (local social commitment). In the meantime, no major company can afford not to take an active stance on sustainability. This can be based on the inner conviction of the decision-makers, or on pressure from customers, employees, business partners, investors, the public, the Internet community, or regional and national politics. Finally, certificates attesting to the fulfilment of social or ethical requirements (e.g., ISO 14001, EFQM, SA8000) are often a prerequisite for tenders or the initiation of strategic partnerships. Sustainability has thus arrived in companies. In consequence, business administration has the mandatory task to integrate these critical sustainability aspects. At a glance The concept of sustainability has evolved historically, particularly through international confer‐ ences and agreements. The Brundtland Report and the Three-Pillar Model are well known. More recently, the perception of sustainability has continued to grow there is an increasing recognition that planetary boundaries are being reached, see e.g. the Fridays for Future movement. However, there are still deficits in the implementation of the requirements that result from this realization for companies. For the business economist, sustainability is not simply another boundary condition but rather leads to the evolution of a new target system. This means that economic, ecological, and social concerns must be integrated into business management and brought into a target balance. A mechanistic conception of companies does not do justice to the now more complex requirements. Sustainable business management must pave a new way to deal with this complexity. Suggestions for further reading Grober, U. (2010): Die Entdeckung der Nachhaltigkeit: Kulturgeschichte eines Begriffs, 3rd edition, Munich. Pufe, I. (2017): Nachhaltigkeit, 3rd edition, Munich and Konstanz. Sailer, U. (2022): Nachhaltigkeitscontrolling. So werden Unternehmen nachhaltig gesteuert, 4th edition, Munich Literature von Carlowitz, H. (1713): Sylvicultura Oeconomica, Johann Friedrich Braun, Leipzig, https: / / de.wikisource .org/ wiki/ Sylvicultura_oeconomica, accessed 23.09.22. Daimler AG (2020): Sustainability Strategy and Sustainable Development Goals, https: / / group.mercedes-be nz.com/ sustainability/ strategie.html, accessed 23.09.2022. Eferest GmbH, https: / / www.eferest.de/ unternehmen/ nachhaltigkeit/ , accessed 30.07.2020. European Commission (2001): Green paper : promoting a European framework for corporate social responsibility, https: / / ec.europa.eu/ commission/ presscorner/ detail/ en/ DOC_01_9, accessed 23.09.2022. European Commission (2011): Communication - A renewed EU strategy 2011-14 for Corporate Social Responsibility, https: / / ec.europa.eu/ transparency/ documents-register/ detail? ref=COM(2011)681&lang= en, accessed 23.09.2022. Meadows, D.H. et al. (1972): Die Grenzen des Wachstums, translation by Hans-Dieter Heck, 14th ed. Morelli, J. (2005): Environmental Sustainability: A Definition for Environmental Professionals, in: Journal of Environmental Sustainabilty, Vol. 1, Issue 1. 38 2 Sustainability - An Introduction <?page no="39"?> Purvis, B./ Mao, Y./ Robinson, D. (2018): Three pillars of sustainability: in search of conceptual origins, in Sustainability Science, 14, 681-695. Rasouli, A.H./ Kumarasuriyar, A. (2016): The Social Dimension of Sustainability: Towards Some Definitions and Analysis, in: Journal of Social Science for Policy Implications, Vol. 4, No. 2. Rockström, J./ Steffen, W./ Noone, K./ Persson, A./ Sutart Chapin III, F. (2009): Planetary Boundaries: Exploring the Safe Operating Space for Humanity, in: Ecology & Science, Vol. 14, No. 2. Siemens AG, Nachhaltigkeitsinformation 2019, https: / / assets.new.siemens.com/ siemens/ assets/ api/ uuid: 653 997b6-8d38-49bf-9454-5f469c27250a/ siemens-sustainability-informations-2019.pdf, accessed 23.09.2022. Spangenberg, J. (2005): Economic sustainability of the economy: concepts and indicators, in: Int. J. Sustainable Development, Vol. 8, Nos. 1/ 2. Steffen, W./ Richardson, K./ Rockström, J./ Cornell, S.E./ Fetzer, I./ Bennett, E.M./ Biggs, R./ Carpenter, S.R./ de Vries, W./ de Wit, C.A./ Folke, C./ Gerten, D./ Heinke, J./ Mace, G.M./ Persson, L.M./ Ramanathan, V./ Reyers, B./ Sörlin, S. (2015): Planetary boundaries: Guiding human development on a changing planet, in: Science, Vol. 347, Issue 6223. Thomas, R. (2018): Business to Society. Wie Unternehmen zum Erreichen der SDGs beitragen können, in: International Chamber of Commerce Germany-Magazin, 11/ 18-4/ 19, pp. 6-9. United Nations (2015a): Millennium Development Goals, Report 2015, https: / / www.un.org/ millenniumgoa ls/ 2015_MDG_Report/ pdf/ MDG%202015%20rev%20( July%201).pdf, accessed 23.09.2022. United Nations (2015b): Transforming our world: the 2030 Agenda for Sustainable Development, https: / / sd gs.un.org/ 2030agenda, accessed 23.09.2022. United Nations (2019): The Sustainable Goals Report 2019, https: / / unstats.un.org/ sdgs/ report/ 2019/ The-Su stainable-Development-Goals-Report-2019.pdf, accessed 23.09.2022. World Commission on Environment and Development (1987): Our Common Future, Oxford. Wördenweber, M. (2017): Nachhaltigkeitsmanagement. Grundlagen und Praxis unternehmerischen Han‐ delns, Stuttgart. 2.2 Importance for companies 39 <?page no="40"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society 3. Economic Perspective and Environmental Economics 4. Social Responsibility: From Profit to the Common Good and Back Again Management and Value Creation Outlook <?page no="41"?> 3 Economic Perspective and Environmental Economics Christian Arndt and Marc Ringel Learning Objectives: The readers ■ recognize the necessity of economic approaches and instruments for sustainable business management; ■ recognize the urgency with which developments in the field of sustainable development unfold in the economic context and have an impact on companies; ■ recognize possible contributions of entrepreneurial start-up initiatives; ■ know the distinction between operational and governmental environmental economics; ■ know the reasons for governmental frameworks as well as the functioning of the central governmental environmental instruments: Requirements, taxes, certificates; ■ have an overview of the promotion of environmental industries: "Green growth". Keyword List: Sustainability strategies, rebound effect, environmental economics, externalities, regulations, taxes, certificates, green economy, green growth 3.1 Need for Action and Adaptation for Companies from an Economic Point of View The global developments in the field of sustainability discussed in this book (see, for example, Chapter 2) confront decision-makers in companies with a double challenge: on the one hand, entrepreneurs and managers face the social responsibility of helping to shape sustainable development. On the other hand, they will need to adapt existing business models to expected serious changes in their business environment. These changes arise in the operating environment, from the emergence of new global scarcities, from the transformation of markets, from political decisions, from regulatory measures, and especially from changes in the behavior and demands of market participants. The economic costs of inaction will be high. Therefore, entrepreneurs are facing a double challenge of responsibility for shaping the future and the need to adapt. In order to take the best entrepreneurial decisions, it is necessary to have a look at all the key players consumers, producers, and the state and thus take an economics perspective over the entire system. In this chapter, we want to show which contributions economic thinking offers for the success of sustainable operational planning and action. In order to motivate for responsible economic activity, we underline the pressure and vehemence with which developments in the field of sus‐ <?page no="42"?> tainable development unfold and affect companies. We want to explain how economic instruments work. We will show what effects these instruments can have on the business environment. Finally, we underline the business opportunities that arise from sustainable economic activities. In the next section, we will show the importance of "economic thinking" for achieving sustainable development. We begin the third section with a broad look at the diversity of challenges and show how trade-offs between sustainable development goals may complicate the governing and coordination of sustainable development. We will explain the most important principles of sustainability sufficiency, efficiency, and consistency. We will discuss the limits of efficiency strategies. Using a simple quantitative model, we will show how economic growth and demographic development increase the urgency for resource conservation and climate protection. In the fourth section, we will explain why sustainable business models will offer the business opportunities of the future. In section five we will show that goods (resources) or services (absorption of pollutants) that are provided by nature "free of charge" are not taken into account in private economic accounting. This results in external costs (e.g., environmental pollution) for the community. This justifies the necessity of using state instruments. At the same time, the state has the task of protecting domestic companies from "unfair" competition in their environmental protection activities by taking appropriate measures. This would be the case, for example, with so-called "eco-dumping". This shows that state policy also has an "enabler role". Concepts such as "green growth" increasingly emphasize the role of the state as a supporter of private-sector innovation (see Section 6). 3.2 Economics as a Discipline for Steering Scarcities 3.2.1 Economics and Sustainable Development The discipline of economics helps to make successful and sustainable decisions in companies. In order to identify profitable opportunities, entrepreneurs must perceive the interplay of consumers, producers and the state in a comprehensive way. In practice, changes in consumer behavior, changing production conditions and new government regulations are closely interwoven and, in their interaction, they determine the opportunities and risks of business management. Often, if people discuss how to get transformation towards a sustainable economic system done, the question arises "who has to start first". In the field of sustainable development, there are many such causality dilemmas or "hen-and-egg" problems. These can lead to entrenchment and failure to transform with costly consequences for society and businesses. Thus, "going ahead" as a "producer" and provider of products and services and taking the first step can not only provide impetus for sustainable development, but also leads the way to enormous profit opportunities. Example: Hen-and-Egg Problems: Who Must Start First Consumers typically complain about the lack of alternatives and information from produc‐ ers. Producers criticize a lack of demand and willingness to pay on the part of their customers. This can lead to considerable inertia, a failure to innovate and, in the end, an expensive and inefficient use of resources for everyone and slow down the "transformation" of a system towards sustainable development. 42 3 Economic Perspective and Environmental Economics <?page no="43"?> 1 Brundtland et al. (1987). 2 For a detailed analysis, see e.g. Pachauri et al. (2015, p. 75). In 1983, the Brundtland Commission, named after Norwegian Prime Minister Gro Harlem Brundt‐ land, defined sustainable development as development that enables the present generation to meet its needs without depriving future generations of the opportunity to meet their own needs 1 (see also Chapter 2). This understanding of sustainability places people at the center (anthropocentrism). It encompasses the question of how resources and opportunities are distributed equitably within the present generation (intragenerational equity), as well as the equitable distribution between present and future generations (intergenerational equity). Economics describes and analyzes human actions with regard to the production of goods and services and examines its causes and consequences. The goods and services that are produced in the economy and the income that is generated in this process, contribute to satisfying human needs. Economic activity is closely intertwined with the goal of sustainable development and the achievement of socio-economic goals. Economic tools are key for designing solutions, because economic activity is the main cause of resource consumption and greenhouse gas emissions. Sustainable development encompasses all aspects of human activity - Economic, Social, and Ecological issues (see also the presentation in Chapter 2). We argue that economic thinking is relevant in all dimensions and also for reaching the SDGs. 2 3.2.2 Economic Mechanisms for Steering Systems Even though economic thinking focusses on instruments, the question of purpose and the goal of economic activity has been raised in the past. The utilitarians (e.g., John Stuart Mill, 1806-73) demanded "The greatest possible happiness of the greatest possible number" and thus wanted to promote the well-being of people. This well-being of all is often called the "common good". In this context, economics emphasizes individual freedom of choice rather than arguing what is "good" and what is "bad" as the philosophical discipline of ethics would do. Microeconomics is about activities and decisions of people in households and companies. It analyses how people deal with scarce goods and services and how they try to derive as much benefit as possible for themselves from these scarce resources. It typically assumes that people act rationally and follow their respective goals. This does not exclude concern for others, altruism, or the pursuit of ethical values. Microeconomics helps to analyze why people act as they do. In development economics, for example, experiments that analyze real human behavior are used to consider how, for example, child labor in developing countries can be solved. The results are sometimes surprising, very simple, and cheap. From this topic area, the Alfred Nobel Memorial Prize in Economic Sciences was awarded to Abhijit Banerjee and Esther Duflo in 2019. Economic psychology investigates, for example, which "incentives" can particularly work well. The concept called nudging has developed tools with which people can be "nudged" into a certain good behavior. Macroeconomics examines aggregate variables such as economic growth, unemployment, or interest rates and analyses the functioning and "failure" of markets. "Market failure" is one of the most important reasons for the overexploitation of resources and greenhouse gas emissions (see section 3.2). The distribution of outcomes, i.e. who gets or has how much of what, belongs to the core themes. Typical topics are the distribution and inequality of income, wealth, or greenhouse gas emissions (see section 3.2). 3.2 Economics as a Discipline for Steering Scarcities 43 <?page no="44"?> 3 Stern (2006). 4 IPCC (2018). 5 Bevere et al. (2020). 6 CPI (2019). 7 Sachs et al. (2018). Benefits and costs must be compared in the same units. Therefore, certain non-financial phenomena need to be valued and the value is represented in monetary units. This is called pecuniarization, sometimes also monetarization. It is obvious that happiness cannot be measured in monetary units. Yet, valuation of the costs of climate change can help to gauge the costs of inaction. Climate Protection Pays off: The economist Nicolas Stern 3 examines the economic consequences of climate change in a comprehensive analysis commissioned by the British government. He estimates that the consequential costs of climate change could amount to at least 5% of global gross domestic product (GDP) and, in the case of unfavorable developments, could rise to up to 20%. The effort to prevent the worst consequences could be limited to 1-2% of GDP. This is consistent with UN 4 estimates of the investment required between 2020 and 2050 of between 1.6 and 1.8 trillion per year. With a world GDP of around USD 90 trillion, this estimation represents between one and two percent of global economic output. Costs from weather-related losses: Data from reinsurer Swiss Re show that losses from weather-related losses are steadily increasing globally. 5 Investments in climate-friendly technologies: Private and government investments in climate-friendly technologies have indeed increased globally. They are estimated by the Climate Policy Initiative to have reached a level of USD 546 billion in 2017. 6 Just over half is private investment. The bulk of investment is in renewable energy. Corporates' investments increased by 51% from 2015 to 2018. 3.3 Conflicting SDGs, Strategies and Options for Action 3.3.1 Conflicting Goals as a Challenge for the Management of Sustainable Development The Sustainable Development Goals (SDGs) (see also the first chapter of this book) define 17 goals and 169 sub-goals (so-called targets) that the global community agreed upon in 2015. They help to steer sustainable development by providing a framework for coordinating national initiatives. They help to locate, specify and communicate the contributions to sustainable development of individual countries, companies or start-ups. On the one hand, there are synergies between the goals: For example, successfully tackling poverty in all its forms (SDG 1) is a prerequisite for pursuing the other goals. In turn, poverty reduction may be achieved through inclusive and equitable economic growth (SDG 8). Once basic socio-economic needs are met, resources and ecosystems can be managed in a sustainable way. On the other hand, there are trade-offs between the socio-economic goals (SDGs 1-11) and the environmental goals (SDGs 13-15). For example, the countries with the highest scores in the SDG index 7 have the highest per capita CO 2 emissions. Hence, socio-economic goals are often achieved at the expense of environmental goals. 44 3 Economic Perspective and Environmental Economics <?page no="45"?> 8 See, e.g., Parrique et al. (2019). 9 Bieler and Sutter (2017). 10 Gössling et al. (2019). 11 Köder and Burger (2016). 12 Kartha et al. (2020). 13 Piketty and Chancel (2017). 3.3.2 Resource Consumption and Climate Crisis Economic thinking can help to explain reasons for overexploitation of resources and the climate crisis: Coupling refers to the close connection between economic growth, resource consumption, and greenhouse gas emissions. It can be shown empirically that economic performance is strongly correlated with resource consumption and emissions. The idea of breaking this link is called decoupling. However, there is currently no evidence that de-coupling occurs. 8 Time preference and discounting of consequential costs: The costs of the damage caused by climate change lie in the future and thus appear to most people to be less significant from today's perspective. Externalities: The social, economic, and environmental costs of greenhouse gas emissions are borne in the future by people who did not cause these emissions. If someone other than the polluter has to bear the damage of an economic decision or activity, this is called a negative externality. The costs that a car driver imposes on the general public are estimated at 11 cents per person-kilometer, 9 whereas someone who travels this distance by bicycle generates a benefit of 18 cents. 10 Lack of bargaining power of those affected: Future generations, who have to bear the majority of the consequential costs, cannot raise their voices and do not sit at the "negotiating table". Future generations are disadvantaged in current decisions. Information problem: Ideally, prices carry essential information about the costs of a product or service. Ideally, the provider who can offer something more efficiently and in the most resourceefficient way is successful on the market. In terms of resource efficiency, however, these prices are distorted. Distorted prices carry no information about whether one product or service is more sustainable than another. Environmentally harmful products are overproduced. Inadequate internalization, climate-hostile subsidies: According to World Bank esti‐ mates, about one-fifth of global greenhouse gas emissions are currently covered by CO 2 pricing. In Germany, the consumption of resources is not only not sufficiently taxed, but often subsidized, such as aviation fuel. Instead of internalizing, the state currently finances climate-damaging subsidies in large sums. 11 Free-riding: Since a reduction in emissions benefits everyone, but the costs of adaptation must be borne by the individual, free-riding can occur: Countries, companies, and individuals can benefit from the savings made by other countries. Emissions inequality: We speak of carbon inequality when resource consumption is concen‐ trated on few, very intensive emitters. This is the case at the level of countries, companies, industries, and also consumers. For example, between 1990 and 2015, the richest one percent emitted more than twice as much CO 2 as the poorer half of the world's population combined. 12 Inequalities in corporate emissions are also huge. 13 Cross-border linkages: Global supply chains allow countries and regions to specialize and exploit comparative cost advantages. Beyond direct emissions, such as those from aviation and shipping, negative effects arise from the spatial disparity between the production and consumption of goods and services. Global emissions are increased when production is shifted 3.3 Conflicting SDGs, Strategies and Options for Action 45 <?page no="46"?> 14 IPCC (2018). 15 Parrique et al. (2019). to lower-cost regions with CO 2 -intensive production. Control and measurement problems arise from the fact that successes in reducing CO 2 emissions in countries with a negative CO 2 foreign trade balance are glossed over by only an apparent reduction in the footprint. 3.3.3 Strategic Approaches to Solving the Climate Crisis and Their Pitfalls Economic Perspective - 3.3.3.1 Paths to the Climate Target In order to limit global warming compared to pre-industrial times to the 2°C limit, as agreed in Paris in 2015, gross global greenhouse gas emissions must be reduced to net zero by 2050. 14 Carbon capture measures will be necessary. The individual footprint of a human being must be reduced to well below 2 t CO 2 equivalents from a global level of currently about 6 t per capita. In the industrialized countries, the necessary reductions are even higher, as the level in Germany is currently about 11 t, and in the USA about 20 t. China, for example, is close to the global average at around 7 t. Example: Your personal footprint. You can calculate your personal footprint, for exam‐ ple, on the website of the Federal Environment Agency: www.uba.co2-rechner.de This challenge is made enormously more difficult by at least three factors: by an exponen‐ tial course of CO 2 emissions, by a rapidly growing world population as well as by enormous expectations regarding the development of per capita income and the associated coupling, because about half of the world population lives with an income of less than 5.5$ per day. - 3.3.3.2 Principles of Sustainability: Sufficiency, Efficiency, Consistency A strategic approach to fighting climate change needs to build upon the following three principles of sustainability: The principle of sufficiency tries to achieve resource consumption by avoiding excess, by limiting consumption to the essentials, by changing consumption patterns, or by questioning needs (e.g., to reduce the temperature in the home, to refrain from car trips, to switch to car-sharing). The principle of efficiency tries to reduce resource consumption through more efficient or productive processes with unchanged behavior patterns (e.g., insulate the home or use a car with a more efficient combustion engine). The principle of consistency tries either to develop environmentally friendly and climate-neutral technologies, or, to close production cycles (recycling, cradle to cradle) (e.g., use renewable energies for heating, or use of electric or fuel cell enginges). In the next section we will explain why all three principles will be needed to reach climate neutrality in time. 15 - 3.3.3.3 Rebound: Beware of the Efficiency Argument Saving resources through efficiency gains sounds tempting but is limited by the so-called rebound effect: Gains in efficiency make the production and use of goods cheaper. Lower costs will increase 46 3 Economic Perspective and Environmental Economics <?page no="47"?> 16 Blanco et al. (2014). 17 See, for example, Kaya (1990) and Kaya and Yokobori (1997). 18 Desa UN (2019. 19 See e.g., PwC (2017). demand for these goods and eat up part of the resource-saving. In extreme cases, the increase in demand may even exceed the efficiency savings (so-called backfire). Efficiency measures must therefore be accompanied by behavioral change and sufficiency. Alternatively, lower costs that result from the increase in efficiency could be offset by taxation. - 3.3.3.4 A simple quantitative model The following simple quantitative model decomposes greenhouse gas emissions into four main economic determinants. It is also used by the UN Intergovernmental Panel of Climate Change (IPCC). 16 It helps to gauge the necessary efforts for tackling climate change once we take into account demographics and economic growth. 17 It starts with the simple identity CO 2 = CO 2 . We decompose the right-hand side into the emissions per economic value CO 2 GDP , per capita income GDP P OP and population (POP), by multiplying the equation "by one": CO 2 = CO 2 * GDP GDP * P OP P OP We rearrange terms as follows CO 2 = CO 2 GDP * GDP P OP * P OP Now, let's check the mechanics of the model with some numbers: According to the UN estimate, the world population will increase from currently about 7.8 billion by 2050 to about 9.7 billion by about 25%, 18 this means P OP [2050] = 54 P OP [2020] . We assume that per capita income may double in the next 30 years as it had already in the last 30 years 19 (i.e. GDP [2050] = 2 * GDP [2020] ). We know that humanity will need to reduce net carbon emissions by 80% until 2050, hence: CO 2[2050] = 15 CO 2[2020] . If we insert these numbers into our equation, we get: CO 2[2050] = 15 CO 2[2020] = 1 x CO 2[2020] GDP [2020] * 2 GDP [2020] P OP [2020] * 54 P OP 2020 Solving for x leads to x = 12.5. The CO 2 intensity of the economy CO 2 GDP must fall to about one-twelfth, i.e., by 92%, in order to reduce gross CO 2 emissions to one-fifth! If we add the factor fossil energy consumption (EN) to the equation, we obtain two other determinants, which allow us to apply the above-mentioned principles of sustainability: CO 2 = CO 2 EN * EN GDP * GDP P OP * P OP 3.3 Conflicting SDGs, Strategies and Options for Action 47 <?page no="48"?> 20 Blanco et al. (2014) p. 357. A reduction of CO 2 intensity CO 2 EN corresponds to the consistency principle, a reduction of energy intensity EN GDP corresponds to the efficiency principle, a reduction in per capita income GDP P OP the sufficiency principle. Fig. 3.1 sets these intermediate drivers of greenhouse gas emissions (population, GDP per capita, energy intensity and GHG intensity, see the inner circle) in relation to further driving forces. Humanity's success for limiting climate change will depend on behavior, trade, resource availability, governance, technology, urbanization, and policy. Policies and measures will have an impact the intermediate drivers. GHG Emissions Population GHG Intensity Energy Intensity GDP per Capita Behaviour Resource Availability Infrastructure Development Trade Governance Technology Industrialization Urbanization Awareness Creation Planning Direct Regulation Economic Incentive Non-Climate Policies Research and Development Information Provision Immediate Drivers Underlying Drivers Policies and Measures Fig. 3.1: Determinants of greenhouse gas emissions, source: Blanco et al., 2014, p. 357. 20 48 3 Economic Perspective and Environmental Economics <?page no="49"?> 21 See Amel et al. (2017). 22 See, for example, Inoue and Alfaro-Barrantes (2015). 23 Green Startup Monitor (2020). 24 For a review of the variety of definitions of social entrepreneurship, see Dacin et al. (2010). 25 German Startup Monitor (2020). 26 Leiserowitz et al. (2020). 3.4 Innovations and social entrepreneurship: start-ups for sustainable development 3.4.1 Enterpreneurship for Sustainable Development Individuals often feel too weak, and the political system seems unable to generate the necessary guidelines and social consensus for transformation at the necessary speed. The fascination of sustainable start-ups lies in their ability to identify pressing social problems and address them directly with innovative solutions. Through organizations and companies, individuals may become effective and may achieve changes in society. 21 Organizations can serve as vehicles to quickly mobilize collective action toward sustainability and align the actions of many toward a coherent goal. Organizational culture influences individual members 22 through norms, values, policies, and leadership. Organizations can "unburden" individuals: for example, they can ask for background knowledge, conduct research, and evaluate decisions, as well as empower their members to innovate together, take risks, and take a long-term perspective. From an economic point of view, it is obvious that successful entrepreneurs must at least implicitly strive to offer goods or services with high social value. If not, they will go bankrupt. Organizations in the sense of social entrepreneurship, explicitly pursue a dual objective: to contribute to the solution of social or ecological problems as well as to be economically successful. For example, a business model can contribute to de-coupling by providing new employment opportunities and economic growth through better use of resources and innovation. This is also called "smart growth". Fast growth, high profitability, and high market share are just as important for green start-ups as they are for classic start-ups. 23 The term start-up describes young companies that are particularly growth-oriented and innovative, i.e. that want to place themselves on the market with a new product, technology, or business model. Green start-ups are start-ups that address ecological problems in a narrower sense. 24 The number of start-ups that want to benefit from business opportunities in the area of resource savings and climate action is growing: 43% of the start-ups in Germany assign themselves to the Green Economy and/ or Social Entrepreneurship. 25 3.4.2 Opportunities through and for sustainable start-ups There is a business case for sustainable start-ups: sustainable business models can generate le‐ gitimacy and acceptance among customers to a particularly high degree through ecologically and socially optimized products and services. Unlike existing companies, start-ups can optimize their business models from the outset. They can make use of government regulation, changes in the cost structure, as well as process risks. Sustainable start-ups are in a position to benefit from changes in customer and consumer behavior: One analysis 26 showed that about 32% of American consumers "rewarded" a company that took climate action by buying their products, 3.4 Innovations and social entrepreneurship: start-ups for sustainable development 49 <?page no="50"?> 27 Olteanu and Fichter (2020). 28 Olteanu and Fichter (2020). 29 European Commission (2004). 30 See Kollmann et al. (2020), p. 53. 31 Wicke and Blenk (1993). and 27% of respondents "punished" a company that resisted steps to reduce global warming by not buying their products. Sustainable start-ups are ahead in the competition for qualified employees: meaningful jobs, self-fulfillment, and personality development are valued highly by the younger generation. Green start-ups are more innovative than conventional start-ups. 27 The founders of sustainable start-ups are more optimistic about future market developments than those of traditional startups. Numerous examples can be found. 28 In order to fulfill their dual objective, sustainable start-ups must create both social and economic value. This social value may be measured in different ways: as inputs, i.e., tangible and intangible resources used to produce the social value, as activities, i.e., goal-related performance, as outputs, i.e. immediate performance results, as outcomes, i.e. shortto long-term effects, or as impacts, i.e. long-term effects that address the fundamental problem. 29 In 2011, the concept of "social business" took hold with the European Commission's Social Business Initiative. In 2016, the Start-up and Scale-up Initiative followed with a focus on the expansion of incubators. These offer workspace, coaching, technical equipment, and strategic support. They aim to develop a market-ready product in the shortest possible time. Even though the German start-up ecosystem, as a whole, is being rated increasingly high, founders complain that one of the two biggest negative points is in particular the insufficient consideration of sustainability opportunities and requirements. 30 Social incubators support social start-ups by providing tangible and intangible resources, advice, networking contacts, and access to funding. 3.5 Environmental Economics 3.5.1 Basic Considerations and Principles of a State Market Correction The free use of environmental goods such as air, water, or soil as part of the corporate production process translates into individual cost advantages, as these environmental services are generally available free of charge. However, if the use of these environmental media causes environmental pollution, costs for society as a whole occur. This is the case if environmental damages have to be avoided, compensated, or reduced. If these costs are not borne by the company causing the pollution, they must be borne by the general public. In this case, we speak of additional "social costs" or "external costs" of production (=> see Section 3.2, Externalities). Since these costs are not included in private, entrepreneurial cost calculations, private and social costs diverge, leading to a distorted price and production structure: too much of the respective good is produced as its "external" environmental costs are not taken into account. 31 Government instruments of environmental economics attempt to reduce or eliminate this distortion by allocating the costs not taken into account to the polluter. This so-called "internal‐ ization" leads to inclusion of the external social costs into the private economic calculation. This results in a correction of the distorted price and production structure, which now takes 50 3 Economic Perspective and Environmental Economics <?page no="51"?> 32 Endres (2013). 33 Fees and Seeliger (2013). into account the "true" costs, including the costs of environmental use. This polluter-pays principle is the basic idea behind all environmental instruments such as taxes or regulations. In practice, however, their implementation often encounters problems, as it is not possible to allocate costs clearly for example, in the case of multiple polluters. If, for example, polluters cannot be prosecuted or cannot be held responsible due to insolvency or lack of imputation of damage the principle of the common burden comes into play as a fallback solution. In this case, the public sector must bear the costs of remedying the environmental damage as a stopgap measure. Furthermore, the question of the fairness of the polluter pays principle arises if implementation would require interference with existing rights. This would be the case, for example, if housing estates were deliberately built in the vicinity of existing production facilities in the course of urban densification. Here, the beneficiary principle may apply. According to this principle, residents affected by noise or air pollution pay compensation to the company for an environmental protection measure (e.g., installation of filters or limitation of production time) of which they are the beneficiaries. This clearly deviates from the "polluter-pays" principle, but offers a solution to address environmental concerns in a situation of existing pollution rights. 32 Finally, in practical environmental policy, the above principles are supplemented by the precautionary principle. In contrast to pure maintenance, i.e., the elimination of environmental damage that has occurred, environmental policy measures should be taken in such a way that environmental hazards are avoided from the outset. The aim of the precautionary principle is to preserve an intact environment for future generations, thus clearly serving as the basis for sustainable development. Example: Precautionary Principle in German Environmental Protection The precautionary principle has been the basis of state environmental action in the Federal Republic of Germany since 1971. In concrete terms, this means that every environmental regulation must be justified by the federal or state government to the public and the parliament. In this justification, the government explains to what extent the proposed reg‐ ulation is suitable for implementing the precautionary principle, or which of the previously mentioned criteria are used. This justification, the so-called "legislative preamble", can be found in each so-called "draft bill" (Referentenentwurf) of the ministry responsible for regulation. Once it has been established in a first step that state action is necessary to protect the environment, the next step is to ask which instrument the government should use to intervene in the market economy. In order to answer this question, decision criteria are required that allow a comparison of alternative instruments in our case environmental regulations, taxes, or certificates. In environmental policy practice, at least the following three core criteria are examined: 33 1. Ecological effectiveness: The environmental objective is being reached to a satisfactory extent. 2. Economic efficiency: Achieving objectives at the lowest possible cost. 3. Practical feasibility, such as political enforceability, but also the existence of monitoring, verification, and control mechanisms. 3.5 Environmental Economics 51 <?page no="52"?> 34 Rogall (2004, 49). 35 Rogall (2008), p. 239. Example: Use of the Decision Criteria In practice, the aforementioned decision-making criteria form the basis of government environmental policy. On the one hand, the federal or state government must use these criteria in its draft legislation to explain why the instrument is suitable for solving an environmental problem. The EU level is even more systematic in this respect. For each draft EU directive, the European Commission must present an "impact assessment" in which it clearly includes a problem definition, which different alternatives exist for solving the issue, and how these solutions are to be evaluated according to the decision criteria. 3.5.2 The Environmental Economic Toolbox In the following, essential environmental policy instruments are presented which, according to the widespread view of environmental economists, serve to implement the polluter-pays principle. At the same time, the attribution of damage to polluters should lead them to try to avoid the foreseeable additional costs and to behave in an "environmentally friendly" manner. In this sense, the instruments also address the precautionary principle. - 3.5.2.1 Overview In principle, public authorities have a range of instruments at their disposal for implementing environmental concerns. Following Rogall, 34, 35 these can be divided into: (i) direct instruments, (ii) indirect action instruments, (iii) economic instruments, and (iv) flanking, accompanying instruments. Table 1 provides an overview of the various instruments. If government instruments intervene directly in market activity, market correction can use the mechanism of being "price-induced" (correction of market prices through taxes and levies) or "quantity-induced" (quotas or tradable certificates to regulate environmental quality). Both options will be briefly presented below. Cate‐ gory Instrument Example Rating (i) Direct instru‐ ments Command and control regulation (prohibitions and restrictions), Flexi‐ ble regulation (compensatory regulations) ■ Limit values for pollu‐ tants ■ Quality standards for products ■ Due diligence ■ Ecologically very effective, since hardly any circumvention possibilities. ■ In principle workable within the frame‐ work of a social market economy. ■ Economically not necessarily efficient, since individual cost situations of the companies are not taken into account. (ii) Indi‐ rect in‐ stru‐ ments Consumer infor‐ mation, self-com‐ mitments, Nudging, environ‐ mental informa‐ tion systems ■ Labelling of the energy consumption of house‐ hold appliances ■ Voluntary commitments by the industry ■ Environmental report‐ ing by public authorities ■ Low intensity of intervention, therefore very practicable and hardly associated with any economic disadvantages. ■ Ecologically only conditionally effi‐ cient, since the effect is based on volun‐ tary application. 52 3 Economic Perspective and Environmental Economics <?page no="53"?> 36 Binder (1999). (iii) Eco‐ nomic instru‐ ments Price-related (taxes, levies, sub‐ sidies), quantityrelated (quotas, certificates) ■ Price: ecological tax re‐ form, CO2 pricing ■ Quantity: EU emissions trading ■ In the case of quantity-related instru‐ ments: ecologically very efficient, eco‐ nomically efficient and practicable overall. ■ Price-related instruments: More of a steering effect than a direct effect, therefore well suited for precautionary measures. (iv) Ac‐ compa‐ nying meas‐ ures Environmental lia‐ bility, environmen‐ tal planning ■ Liability rules for envi‐ ronmental damage (e.g., Environmental Liability Act in Germany) ■ Planning approval pro‐ cedure for the construc‐ tion of industrial plants Criteria can only be assessed on a case-bycase basis. Liability rules serve the purpose of maintenance; if liability is anticipated, the precautionary principle can thus also be implemented. Tab. 3.1: Environmental economic instruments - 3.5.2.2 Environmental Levies as a Pricing Instrument Charges or taxes can serve to internalize external environmental costs. In this case, the state creates incentives for producers and consumers to reduce or avoid environmental damage through targeted taxation. The resulting government revenues can be used to lower further environmental damage or can be redistributed to the economic entities ("revenue neutrality"). In this case, an environmentally damaging activity is not directly limited; rather, this activity is made more expensive. In the case of rational behavior, this leads to economic agents adapting their behavior and reducing the polluting activity accordingly. An example of this is the restriction of industrial production through emission taxes. 36 Example: levies, fees, contributions In administrative practice, levies are divided into charges (compulsory charges for individ‐ ually attributable services, such as waste disposal or water consumption) and contributions (compulsory charges for services that can only be attributed to a group, but not individually). In addition, there is the possibility of imposing special levies. These serve the state financing of special needs of individual groups in society. Taxes, such as emission taxes, function like a special consumption tax. This increases the price of the taxed product (output or input of a production), which encourages substitution efforts to find alternatives that are more environmentally friendly and accordingly not taxed. The choice of the appropriate tax rate is much more difficult than this basic mechanism. Even if the steering effect of a tax is the key reason for choosing this instrument, there are good reasons for choosing a tax rate that is as "problem-adequate" or as appropriate as possible. In economic terms, this can be justified by minimizing the additional burden on the economy. In practical environmental policy implementation, social acceptance of additional taxes and levies demands the least possible intervention in economic activity. 3.5 Environmental Economics 53 <?page no="54"?> 37 Additional (incremental) benefits that the producer obtains by expanding his production by one unit. 38 Martinez et al. (2019). 39 Endres (2013). 40 Endres (2013). The work of the economist Arthur Pigou (1920) has significantly influenced the determination of the "optimal tax rate". According to this, an optimal tax rate results from the intersection of the marginal utility curve 37 of the producer and the marginal damage function of the environmental use: The theoretical tax rate must be set in such a way that marginal utility and marginal damage balance each other out. Under rational behavior, the entrepreneur will compare her marginal utility (marginal profit) for each additional unit of output with the tax rate. If the marginal profit is below the tax rate, an expansion of production (at least under the given neoclassical model assumptions) no longer makes sense. Alternatively, she will implement measures to reduce emissions, provided that the marginal cost of this measure would be lower than the tax rate to be paid. As plausible as the Pigou solution is in theory, as difficult as it is to implement it in practice. What is needed is a clear, temporally stable, and clearly attributable monetarization of benefits and harms. In environmental policy practice, this is often not possible, or only possible to a limited extent. In practice, therefore, a "trial and error" approach has become second-best solution, based on the "standard price approach" developed by Baumol and Oates (1971). According to this approach, a tax rate should be chosen in such a way that it should approximately achieve an environmental standard. In the event that the tax rate is not chosen sufficiently high for this purpose, the tax rate is varied in subsequent periods until the desired environmental quality is achieved. 38 After this presentation of the functioning of the "price instrument" tax and levy, the question arises as to when this instrument should be used. The use of a public policy instrument should always be examined on a case-by-case basis, but some underlying considerations and conclusions can be drawn, based on the environmental economic assessment criteria presented above. According to the criterion of ecological effectiveness (criterion 1), taxes perform unsatisfacto‐ rily, depending on the specific case. Accordingly, they are clearly an instrument that has an indirect effect. This means, for example, that taxes cannot be used to avert hazards, so the polluterpays principle and precautionary measures come first. According to "economic efficiency" (criterion 2), the desired environmental objective must be achieved at the lowest possible cost. Due to the freedom of choice of the emitters affected by a tax or a levy, this criterion is fulfilled both in static and dynamic terms. Furthermore, the practical implementation (criterion 3) should be workable, given a functioning tax system. Clearly, transaction costs are incurred for the implementation of the tax solution. However, this argument also applies to all alternative instruments. This assessment explains the central, but not undisputed importance of taxes and levies in the context of state environmental policy. Due to the direct repercussions of taxation on the economic entities, taxes and levies are politically "more difficult" than comparable instruments. - 3.5.2.3 Certificates as Volume Solutions In a certain sense, quotas or tradable allowances are the mirror image of the price solutions described above: Under a price solution, the price for emissions is set or influenced by the state, so that there is an adjustment in the quantity of production and thereby pollutants. In contrast, under the certificate models, the total permissible quantity of pollutant emissions ("cap") is defined and allocated, while the price for this will be formed on the market ("trade"). This is also referred to as "quantity solutions" or "cap and trade". 39, 40 54 3 Economic Perspective and Environmental Economics <?page no="55"?> 41 Andor et al. (2016). All quantity solutions are initially based on a governmental regulation or pollution standard. The state fixes a permissible quantity of total emissions ("quantity rationing"), which provides the political opportunity to clearly define emission paths (=> see Section 3.1). This maximum quantity is allocated to individual emitters in a next step. The allocation key can be, for example, the company's historical share of total emissions, or alternatively its turnover, sales, or similar parameters. The result of this allocation is initially an "individualized" requirement that applies within a period of time, usually one to five years. Such a "rigid quota" would be economically inefficient, as it does not take into account the cost structures of the companies concerned. This shortcoming is addressed in the context of the certificate solutions by having the total permissible emissions issued by a government agency in the form of securitized emissions certificates. Accordingly, a certificate represents a partial right to the total quantity, for example with the value 1000 t CO 2 . Only those who have the corresponding quantity of certificates are entitled to emit. In order to emit a certain amount of CO 2 , a corresponding number of allowances must be held and canceled. Emissions that are not covered by certificates are fined accordingly. This gives the public good of the environment a private character by excluding non-owners of certificates from the use of the environment. 41 The allowances are freely tradable between the participants, which creates a market for emission allowances. Companies are faced with the decision as to the extent to which they demand allowances on the market. This creates supply and demand. Their meeting on the market creates a price for the allowances. Accordingly, the market mechanism takes over the task of converting the specified maximum level of emissions into price signals for the participating companies. The artificially created market functions analogously to the "classic" markets for goods: If there is a shortage of certificates, a high price is set. If there is an oversupply of certificates, the price will fall. By comparing the certificate price with its own marginal abatement costs, each company can choose the most favorable strategy between reducing emissions and buying certificates. This model also raises the question of environmental economic valuation. Ideally, certificate solutions combine the ecological accuracy (criterion 1) of requirements with the economic efficiency (2) of levies. Whether this effect is achieved, however, depends very much on the detailed regulations of the trading system, i.e. on its practical feasibility (3). In this context, the regulation of the allocation of allowances is of central importance. Example: Allocation of allowances in the European Emissions Trading Scheme The European Emissions Trading Scheme covers 11,000 installations in the EU27 states, Great Britain, Liechtenstein, Norway and Iceland. The certificates (EU Allowances) were initially issued free of charge within the framework of a test phase of trading (2005-2007) according to the extent of a company's historical emissions ("grandfathering"). This was intended to avoid a cost surge and to allow the companies concerned to get used to trading. However, the caps have so far been so generous and the inclusion of further credits from outside the EU (CDM credits under the international climate policies) has resulted in such a large surplus of certificates that the allowance price has hardly had any steering effect. In order to change this, new certificates will be issued within the framework of auctioning procedures in order to provide direct incentives to reduce emissions. Furthermore, the cap will be reduced annually, so that a clear incentive effect is created more quickly. 3.5 Environmental Economics 55 <?page no="56"?> 42 Meadows (2004). 43 Bartelmus (2014). 44 Costanza (2001). 45 Mundaca et al. (2015). 46 Capasso et al. (2019). 47 Read (2016). 48 OECD (2011); OECD (2012). 49 UNEP (2012). 50 World Bank (2012). 51 UBA - Federal Environment Agency (2016). 3.6 State Support for Environmental Industries: "Green growth 3.6.1 The State as an "Enabler" for Environmental Innovations From the critique of the growth societies of the 1970s and 80s 42 a politico-economic current developed, in particular with the "ecological economy", which instead of unrestrained growth on the basis of the economic system demanded "qualitative growth", which takes into account the absorption capacity of the natural environment. 43, 44 Part of this qualitative growth is a focus on the production of "green" environmental technologies. 45 This is intended not only to improve domestic environmental quality, but also to achieve positive environmental effects at the global level through exports. From this perspective, environmental regulations aim to stimulate and promote environmental innovations and make them marketable. The higher costs incurred for this would be (over)compensated in the next step by exporting the respective environmental goods and services. In this sense, state regulation is understood as part of a strategy to actively promote environmental industries and to provide them with global "first mover" advantages. 46 In particular, the financial and economic crisis of 2008 led to the establishment of the model of "green growth" or the "green economy" as a central growth strategy for industrialized and emerging countries. 47 The OECD defines green growth as follows: "Green growth means fostering economic growth and development, while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. To do this, it must catalyze investment and innovation which will underpin sustained growth and give rise to new economic opportunities." 48 Similar concepts of the EU, the International Energy Agency as well as the United Nations (UNEP) 49 and the World Bank 50 have developed on this basis. The OECD emphasizes that further operationalization in the form of targets and measurement indicators is necessary for the application of the concept. It is important for the selection of individual indicators or targets that these (a) correspond to the relevant framework conditions and fields of action of a country and (b) can be clearly assigned to actors (responsibility for achieving targets). 3.6.2 Green Future Markets in Germany Building on the work of the OECD, the Federal Ministry for the Environment in particular has developed an operationalization concept for Germany in cooperation with the Federal Environment Agency (UBA). 51 This concept defines six fields of action for a "Green Economy", each of which is supported by government funding (research funding for basic and applied research; establishment of model regions). These are the following thematic areas: 56 3 Economic Perspective and Environmental Economics <?page no="57"?> Production and resources: raw materials, water, and land The careful use of resources is one of the core topics of the Green Economy. Accordingly, processes to increase material and resource efficiency are being promoted. Beyond applications in the circular economy, the promotion of biomass, for example, is intended to achieve better use of agricultural residues through their use for energy. Sustainability and financial services The state framework should provide long-term, secure financing options for the "green" process and product innovations. At the same time, the development of public infrastructure (e.g. in the context of digitalization) should enable the implementation and application of these innovations. Sustainable consumption Setting incentives to consume sustainable products and services. Examples of this are the introduction of product and sustainability labels, but also the ban on single-use plastic. Sustainable energy supply and use The energy supply sector as a central area of the Green Economy in Germany, with the expansion of renewable energies and the increase of energy efficiency being at the forefront. For example, as part of the energy concept ("Energiewende"), the German government is aiming to reduce primary energy consumption by 50% by 2050. The Federal Ministry for Economic Affairs and Climate Action promotes the export of domestic technologies to third countries by means of the Renewable Energies Export Initiative and the Energy Efficiency Export Initiative. Sustainable mobility systems Due to the strong increase in traffic flows, but also due to climate protection goals, a concept of integrated and sustainable mobility is required. E-mobility is an important building block for improving the ecological footprint. Integrated mobility concepts and new logistics concepts can also reduce environmental pollution. Accordingly, the German Federal Government is offering subsidies for the purchase of e-vehicles in this area. The federal and state governments are testing innovative mobility concepts in "model regions". Intelligent supply systems for the city of the future Environmental degradation is an increasing problem, especially in cities and metropolitan areas. Intelligent supply systems in the field of "Smart City" projects have the potential to enable more energy and resource efficiency, as better matching of supply and demand is possible. The enumeration of the fields of activity of the Green Economy underlines the changing significance of the state environmental economy. Since all areas can only be implemented in cooperation between private and state actors, state environmental protection becomes the "partner" of the companies involved. 3.6 State Support for Environmental Industries: "Green growth 57 <?page no="58"?> 3.7 Conclusion The change in customer behavior, changing production conditions, and new government regula‐ tions are closely interwoven and determine the opportunities and risks of business activities in their interaction. Only those who take these into account will be able to generate business success in the long term. Economic thinking is important for all dimensions and also for all SDGs. Climate action is worthwhile from an economic point of view, as the consequential costs are significantly higher than the effort to prevent the worst consequences. The central causes of crossing the "planetary boundaries" include coupling, time preference and discounting of consequential costs, negative externalities, lack of bargaining power of those affected, information problems, anti-climate subsidies, free-riding, emissions inequalities, and cross-border linkages. From an economic perspective, the importance of entrepreneurial start-up initiatives for the creation of positive externalities for sustainable development is great. Organizations in the sense of social entrepreneurship pursue a dual objective with their contribution to solving societal problems and the goal of economic success: the fascination of sustainable start-ups lies in identifying urgent societal problems and directly addressing them with innovative solutions. The remit of government environmental policy is subject to constant change. In this context, it operates in the area of tension between the protective function of the natural foundations of life on the one hand (use of economic policy instruments to internalize external effects) and the creation of sustainable economic growth on the other. This tension is currently being resolved by the concept of the "green economy", which is intended to implement a concept of "qualitative growth" by means of state support and promotion of environmental technologies. This definition of the role of the state in the national economy has direct repercussions on the corporate environmental economy: by means of state regulation, companies are put in a position to meet the ecological demands of their suppliers and customers. At the same time, the state actively opens up export markets for companies. The state thus becomes an "enabler" for privatesector action. At a Glance Entrepreneurs are faced with a double challenge of design responsibility and the need to adapt. 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Social Responsibility: From Profit to the Common Good and Back Again Management and Value Creation Outlook <?page no="63"?> 4 Social Responsibility: From Profit to the Common Good and Back Again Klaus Gourgé Learning Objectives: The readers ■ recognize why, in the course of social transformation, the role and function of companies do not remain unchanged either ■ can classify the current debate about the purpose of companies in the context of sustainable management ■ know different approaches to the normative-ethical assessment of entrepreneurial activities ■ understand orientation towards the common good as a principle of business ethics ■ know the relevance, resonance, resilience, and reputation as success factors of sustainable corporate management ■ understand the goals of the UN Agenda 2030 as an almost infinite "market" potential for future-oriented companies Keyword List: Transformation, Ethics, Normative Management, "Sinnovation", Relevance, Resonance, Resil‐ ience, Reputation, Corporate Responsibility (CSR), Purpose, Impact, License to operate, Shared Value, Public Value, Systems Theory 4.1 The Social Meaning and Purpose of Companies Let's tackle our topic head-on. With an only seemingly simple question: Why do companies exist at all? What is actually the purpose of a company? There are a number of possible answers: To make a profit. To create jobs. To increase the value of the company. To produce and sell something. At least the last answer is certainly not wrong, while the ones before may seem plausible only from a specific business perspective. In this chapter, the question will be considered less from the internal perspective of the company and instead primarily at the macro-level of society. The starting point is the thesis that the role and function of companies as part of society (must) change to the same extent as their social environment changes. This can be justified with a little systems theory: in the long term, an overall system (society) will only maintain those subsystems (organizations, institutions) that prove to be functionally useful for the overall system. What proves to be permanently dysfunctional for the overall system, will sooner or later be transformed into other, better solutions or replaced. We are all familiar with the tales of market competition: competition stimulates business, the better is the enemy of the good, those who do not move <?page no="64"?> 1 This can be seen particularly well in the founding period of the first stock corporations in Germany (called Aktiengesellschaft or AG). Until 1870, the founding of an AG was strictly scrutinized and only approved if its purpose was deemed "useful and worthy of promotion from a general point of view" cf. Molitor, Andreas (2018): Der Sinn eines Unternehmens. Alle für einen Zweck, in: brand eins 01/ 2018, online https: / / www.brandeins.de / magazine/ brand-eins-wirtschaftsmagazin/ 2018/ reset/ der-sinn-eines-unternehmens-die-aktiengesellschaft-alle-f uer-einen-zweck. Today we would say: if it serves the common good. The best example of such a social task that was too big for a conventional business: the construction of a railway network. 2 Admittedly not a nice term, but it also describes rather unattractive aspects of economic activity; cf. for example Schaltegger S. et al., (1996): Schadschöpfung und Öko-Effizienz. In: Innovative Management of Public Environmental Policy. Themenhefte Schwerpunktprogramm Umwelt. Basel. with the times, move with the times. This is precisely where the strength of markets is seen: Every single company is under pressure to adapt and change if it doesn't want to be displaced. So far, so well known. Individual companies may come and go, but nothing changes in the general principle. But what would happen if the social environment were to change to such an extent that the basic functional logic of all companies was called into question? Even if multinational stock corporations seem so self-evident to us today: Until about 200 years ago, the entire history of mankind in all cultures got by without this special form of organization. It is a historically very recent phenomenon, created under very specific conditions to solve specific tasks. 1 All this can change, and these changes are already in full swing. Enterprises in their present form are thus anything but timeless, and above all, they are not everlasting. It is, therefore, no coincidence that more and more companies have recently been searching for their purpose, in other words, for the positive contribution they could and should make to society and the common good. More on this in a moment. 4.2 Systemic Relevance, Sustainability, and Purpose The subsystems do indeed follow their own logic, as the economic subsystem, in particular, has made abundantly clear in recent years (from the financial crisis to the diesel scandal). This is also necessary in view of the complexity of modern societies. The question is, however, what happens when the system logic of the economy becomes so independent that it is no longer productive for the system as a whole, but counterproductive and ultimately dysfunctional. But how can this be assessed? Various criteria are conceivable here, also in combination: 1. Systemic relevance: What becomes particularly clear in times of crisis (financial crisis, Corona crisis) also applies in principle in non-crisis times: Would society be missing something (if so, what? ) if company X or Y ceased to exist tomorrow? Which companies are systemically relevant, which are superfluous or even problematic from the population's point of view? More on this later. 2. Sustainability as the total balance of positive and negative effects: Since every company and every production consumes resources and almost always causes negative external effects, the overall balance of positive and negative effects can also be negative. In other words: Every creation of value is accompanied by a certain "creation of harm". 2 From this it follows purely logically: as soon as the total (ecological, psychological, social) costs are higher than the (social) benefits, it would be rational to cease operations. To take the climate crisis as an example: not cutting down the rainforest or not extracting coal and oil deposits may make more sense than continuing such entrepreneurial activities, taking into account the overall 64 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="65"?> 3 Instead of many for instance Erk, Daniel (2019): Wir wollen Sinn! in: ZEIT Campus, www.zeit.de/ campus/ 201 9/ 01/ weltverbesserung-unternehmen-umsatz-sinnhaftigkeit-umwelt-kapitalismus/ komplettansicht; o.V.. (2019): Die Frage nach dem Warum: Was unserer Arbeit Bedeutung verleiht, in: Handelsblatt online, https: / / www.hande lsblatt.com/ unternehmen/ management/ unternehmenskultur-die-frage-nach-dem-warum-was-unserer-arbeit-be deutung-verleiht/ 24225480.html; Meck, Georg (2019): Unternehmen auf Sinnsuche. Von Kapitalisten zu Weltver‐ besserern? in: FAZ online, https: / / www.faz.net/ aktuell/ wirtschaft/ unternehmen/ unternehmen-auf-sinnsuche-vo n-kapitalisten-zu-weltverbesserern-16080256.html; Kort, Katarina (2019: Apple und Amazon wollen sich vom Shareholder-Mantra verabschieden, in: Handelsblatt online, www.handelsblatt.com/ finance/ maerkte/ boerse-ins ide/ us-top-managers-apple-and-amazon-want-to-give-up-the-shareholder-mantra/ v_detail_tab_comments/ 2491 9706.html? ticket=ST-175480-cGXWp59fr7SIlYT26RBB-ap6. 4 World Economic Forum (ed.) (2019): Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution; https: / / www.weforum.org/ agenda/ 2019/ 12/ davos-manifesto-2020-the-universal-pu rpose-of-a-company-in-the-fourth-industrial-revolution/ . 5 See Business Roundtable (ed.) (2019): Business Roundtable redefines the Purpose of a Corporation, https: / / www .businessroundtable.org/ business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-t hat-serves-all-americans. 6 "It acts as a steward of the environmental and material universe for future generations. It consciously protects our biosphere and champions a circular, shared and regenerative economy." https: / / www.weforum.org/ agenda/ 2 019/ 12/ davos-manifesto-2020-the-universal-purpose-of-a-company-in-the-fourth-industrial-revolution/ . 7 "A company acts itself (.) as a stakeholder of our global future (.) to improve the state of the world. " https: / / w ww.weforum.org/ agenda/ 2019/ 12/ davos-manifesto-2020-the-universal-purpose-of-a-company-in-the-fourth-ind ustrial-revolution/ . balance. Instruments such as carbon footprints or public good footprints attempt to determine a kind of overall balance of a company's activities. 3. Purpose: 2019 was the year in which the search for purpose made headlines and thus emerged from the niche of business ethicists into the broader public. 3 The initial spark was probably provided by the World Economic Forum, with its "Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution". 4 In the same year, the Business Roundtable, in which around 200 of the largest US companies are organized, from Apple to Amazon, from General Motors to Goldman Sachs, declared that the purpose of companies had been "redefined". 5 The Davos Manifesto 2020: Businesses as Do-Gooders? A modern company "acts as a steward of the ecological and material universe for future generations. (It consciously protects our biosphere and promotes a circular, shared and regenerative economy". 6 And literally sees itself as a do-gooder: "A company acts itself as a stakeholder in our global future (.) to improve the state of the world". 7 What are we to make of such statements? In principle, there are two ways to react to this: One can dismiss it out of hand as cheap greenwashing PR. Then it follows basically nothing. Or else we take these declarations seriously and the companies at their word. That should open up an exciting discussion: You say you want to make the world a better place? Very well, so do we. Then let's take a look together at what that means and what that would look like in concrete terms. 4.2 Systemic Relevance, Sustainability, and Purpose 65 <?page no="66"?> 8 See The Ethics Centre (ed.) 2018: Social License to Operate; https: / / ethics.org.au/ ethics-explainer-social-license-t o-operate/ . 9 www.gemeinwohlatlas.de/ de/ atlas. 10 Alfred Herrhausen, former Spokesman of the Board of Deutsche Bank, quoted by Heß, Stefan (2010): "Companies need the acceptance of society", in: Handelsblatt, 18.02.2010. 4.3 Three Ethical-Normative Signposts for Companies In questions of economic ethics, the clarity of mathematically unambiguous solutions is naturally lacking: what is "right" or "wrong" can very well be argued about in normative issues. And because we are dealing with values, we have to venture out from the cover of a (supposedly) value-free science, take a position and then argue for it without being able to presuppose a general consensus. The same applies to the issue of sustainability, which by definition is directed towards the future, of which we naturally do not (cannot) have any objective knowledge. And that is a good thing: after all, it is precisely a matter of finding ways to a preferable (note, value judgment! ), sustainable future. In this sometimes somewhat confusing terrain, three signposts are recommended here that can serve as orientation for companies. 4.3.1 License to Operate First appearing about 20 years ago, 8 the term social license to operate (LTO) now leads to millions of Google hits. What is meant by this is the extent to which the activities of company X meet with acceptance in society. Is what this company does and how it does it judged to be socially necessary, useful, desirable, or rather useless, immoral or even harmful? In short, is it okay to do? If so, the company retains its LTO. If, on the other hand, the practices of a company are doubted by the majority, its LTO dwindles and sooner or later its "raison d'être" is also called into question. But how can you measure something like that? Who is supposed to judge it? Quite simply, you survey the population, as the "Gemeinwohl-Atlas" 9 does. The results give companies as a whole food for thought: of the well over 100 organizations put forward for election, not a single company came in the top 25 places, but only non-profit organizations such as the fire brigade and the Red Cross. The sense and social benefit of the fire brigade are obviously beyond question. Every company would probably wish for such a strong LTO. The LTO, mind you, is not about whether an activity is legal, but whether it is considered legitimate. It is not a license in the legal sense, but a question of ethics. And yet it is not only morally important, but also economically important: for without a strong LTO, a company is likely to find it harder to still do "good business". To this end, I would like to quote a manager who precisely summed up the core and spirit of the license to operate, even before the term existed: "The day managers forget that a venture cannot continue to exist if society no longer perceives its usefulness or considers its conduct immoral, the venture will begin to die". 10 A. Herrhausen 66 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="67"?> 11 Porter, Michael E., Kramer, Mark R. (2011). Creating Shared Value: How to reinvent capitalism and unleash a wave of innovation and growth, in: Harvard Business Review, 89 (1/ 2): pp. 62-77. 12 Meynhardt, Timo (n.d.): "Wirtschaftlicher Erfolg und Gemeinwohl bedingen einander", interview, online at: https: / / www.ey.com/ de_de/ purpose/ wirtschaftlicher-erfolg-und-gemeinwohl-bedingen-einander; also Meynhardt, T. (2008). Public Value oder: was heißt Wertschöpfung zum Gemeinwohl? . dms der moderne staat, 2, 457-468. 13 On the materiality matrix, for example https: / / www.deutscher-nachhaltigkeitskodex.de/ de-DE/ Home/ DNK/ Crit eria/ Wesentlichkeit. 14 SRI, Social Reporting Initiative e.V. (2014): Social Reporting Standard: Leitfaden zur wirkungsorientierten Berichterstattung Stand 2014, Mülheim an der Ruhr; cf. also Kurz B., Kubek D. (2018): Kursbuch Wirkung - Das Praxishandbuch für alle, die Gutes noch besser tun wollen PHINEO gAG, Berlin, 5th edition 2018, Berlin. 15 For example SoPact (2020): Best Practices In Social Return On Investments at: https: / / www.sopact.com/ social-re turn-on-investments-sroi. 4.3.2 Shared Value, Public Value Porter and Kramer's approach of "Creating Shared Value" points in a very similar direction, 11 even if it is intended as a concept for strategic management. At the same time, according to the subtitle of their essay, it is intended to "reinvent capitalism". Put simply, creating value for all stakeholders and society goes hand in hand with the pursuit of profit and economic performance. Correctly understood, the corporate strategy should therefore lead to success precisely because as a side effect or by-product, so to speak it is no longer primarily focused on profit and return, but on the interests of all stakeholders and, not least, the common good. This sounds tantalizingly simple "win-win" not every company is likely to succeed in its own reinvention quite so smoothly and without conflict. That's why the public value approach, championed in the German-speaking world above all by T. Meynhardt, places greater emphasis on the necessary negotiation processes with the various interest groups: "You have to listen to what's going on outside and consider that outsiders might be right". 12 4.3.3 Impact Companies, with their knowledge and innovation potential, capital strength, and other resources, are indispensable for a sustainable society. Without them, the transformation cannot possibly succeed. Now, every company has a range of strategic options; it can (and must) decide what it does and what it does not do. Depending on this, it has a greater or lesser, positive or negative impact on society. Impact refers to the influence or leverage that the individual company has on social development. For example, an electricity producer can contribute more to the energy transition than a DIY store, while a car manufacturer is naturally more likely to contribute to the mobility transition than a furniture store. In order for a company to set the right priorities, in its core business and beyond, a materiality matrix 13 serves as an instrument: in stakeholder dialogues, the company asks its interest groups which social tasks they consider particularly appropriate for this company because it has the greatest influence (impact) there. It is then a matter of applying strategic leverage to these issues. And with a long-term horizon: impact is only the last of 4 stages in the so-called iooi-model. 14 This goes beyond the usual input and output variables in business studies: the second "o" denotes the outcome, the second "i" the impact, the change actually brought about in the direction of the social goal. But how can these usually longterm effects be measured qualitatively or even quantitatively? Despite promising approaches, 15 there are still exciting tasks for contemporary sustainability controlling. 4.3 Three Ethical-Normative Signposts for Companies 67 <?page no="68"?> 16 Article 151(1), https: / / www.gesetze-bayern.de/ Content/ Document/ BayVerf-151. 17 https: / / www.gesetze-im-internet.de/ gg/ art_14.html. 18 Felber, Christian (2018): Die Gemeinwohlökonomie. Expanded and updated edition, Munich. 19 https: / / www.ecogood.org. 20 https: / / web.ecogood.org/ media/ filer_public/ 13/ 30/ 1330a866-2d0a-42c5-81a6-73df8bf27521/ stellungnahme_geme inwohl_oekonomie-ewsa_deutsch.pdf. Licence to operate Shared Value / Public Value Impact Common Good Orientation ? Fig. 4.1: Ethical "signposts" toward the common good 4.4 Orientation Toward the Common Good as a (New? ) Business Ethic "From profit to the common good and back again" is the title of this article. It is intended to express a reorientation in corporate management as well as at the societal level, which has been gaining importance in theory and practice for some years. One could speak of a new paradigm if it did not fall back actually on an old idea: namely that the "entire economic activity (.) serves the common good" 16 as it is formulated not only in the Bavarian constitution, but similarly also in Article 14 paragraph 2 of the German Basic Law 17 and many other democratic constitutions. This principle and goal of economic activity, anchored at the highest level, takes the concept of the "Gemeinwohlökonomie" (GWÖ), 18 in English Economy for the Common Good, 19 as its starting point. For about ten years, this model of an "ethical market economy" has been elaborated in increasing detail, with the active participation of (more than 2,000) companies, municipalities, educational institutions, etc., in many European countries as well as, in the meantime, in African and American countries. The EU, more precisely the European Economic and Social Committee (EESC), has recommended the model of the common good economy for the establishment of an ethical economic system in Europe. 20 From this point of view, the purpose of enterprises see the introductory question of this chapter cannot primarily be the realization of profit, even if this seemed to be a matter of course in the last decades. This confusion of means (money, profit) and ends (common good) is now to be turned upside down again, as it were, in the economic order of the GWÖ. The point here, as the chapter title is supposed to suggest: It is precisely through its orientation toward the common good that a company can also do good business and make profits. It is then almost automatically systemically relevant and sustainable, part of the solution instead of part of the problem, has a convincing purpose, directs its business model toward a socially desirable impact, and can thus count on a strong license to operate. (Incidentally, established companies could learn a lot from start-ups and social impact labs that develop their business idea from these core values right from the start). 68 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="69"?> 21 Gourgé, Klaus (2020): 4 "R-folgsfaktoren" für das Unternehmen der Zukunft, online at https: / / zukunft.mba/ 2020/ 09/ 14/ 4-r-folgsfaktoren-fur-das-unternehmen-zukunft/ . 22 https: / / www.amazon.de/ Close-Up-Nichts-Nothing-Geschenk/ dp/ B00N87ATOE/ ref=sr_1_4? mk_de_DE=AMA ZÖN&dchild=1&keywords=nothing&qid=1599127012&sr=8-4. A company with this ethically motivated basic attitude then also provides different and possibly more convincing answers to our initial question of what it is actually there for: to work on solutions to social problems. To make a positive contribution to the common good. To help shape a sustainable and livable future. Why should this not result in a successful business model? Let's now take a look at some more success factors for sustainable corporate management. 4.5 Sustainable Corporate Governance: The "4 R" Factors for Success What can companies do today to be successful in the future? Without claiming to be complete, four aspects are suggested here that may not have much to do with ethics, a focus on the common good and sustainability at first glance but do have a lot to do with them at second glance: Relevance, Resilience, Resonance, and Reputation. 21 R⁴ Resonance Resilience Relevance Reputation Fig. 4.2: The square of the "4 R" factors for success 4.5.1 Relevance Online retailers sell a product called "nothing" 22 an empty plastic package "for people who already have everything" priced between 10 and 15 euros, depending on the provider. Admittedly, this is an extreme example. But according to mainstream economic theory, this product, just like any other, is beyond any doubt as to its usefulness, as long as there are people who buy it consumer sovereignty is the technical term for this. No one but the King Customer should judge who buys what, how often and why. And more is better than less, even of "nothing". On the other hand, the Corona crisis has clearly shown that we as a society can and must talk about which companies, which products, and which services are to be considered relevant and which are not. Particularly with a view to the 4.5 Sustainable Corporate Governance: The "4 R" Factors for Success 69 <?page no="70"?> 23 Gourge, Klaus (2018): Sinnovation. Wie sich Organisationen neu erfinden, in: Journal Supervision, 1/ 2018, p. 16-18. Sinnovation is a word play in German hardly to translate, composed of Sinn = Meaning and Innovation. 24 https: / / de.wikiquote.org/ wiki/ Diskussion: Victor_Hugo. 25 Rosa, Hartmut (2019): Resonanz. Eine Soziologie der Weltbeziehung. Suhrkamp. 26 https: / / www.duden.de/ rechtschreibung/ Resonanz. future, responsible corporate management would be well advised to gear its business model towards relevance by offering socially desirable solutions, striving for a social impact, and pursuing a purpose (see above). It should be noted that this does not mean only the necessities of survival. Art, culture, leisure activities, etc. are of course also relevant to the quality of life in a society. Relevance is at the same time a prerequisite for resonance (see below): If a brand has little more to say than "20 percent off" or that it wants to become "a leading provider" of this or that, then it should hardly be surprised at the lack of response. The almost 70 million views of the campaign "#like a girl" by the brand always, for example, show how things can be different because the focus is not on the brand and certainly not on the product, but on a social issue that is quite obviously perceived as relevant and thus receives a strong response. 4.5.2 Resilience It is also no coincidence that the idea of resilience has gained enormous importance since the Corona crisis. It refers to the systemic ability to resist and adapt to changes and crises. Even more than traditional risk management, resilience management that is open to the future means: How can I design a system, for example, a city or a company, so variable and at the same time so robust that it can cope sufficiently well with disruptive developments, unexpected disruptions, and ongoing crises? Minimized inventory and global supply chains may be cost-optimal for the normal case. In the non-normal case, however, they can threaten the existence of the company. Professional resilience management is characterized by prevention (against negative external influences), adaptation (of the business model to changing conditions), and an innovation-friendly corporate culture. And in view of the dimension of societal transformation, innovation means more than just the smallest further developments of existing products but also rethinking one's own business model as a whole in terms of its future viability. Reinventing oneself in the search for meaning - "Sinnovation" 23 so to speak. 4.5.3 Resonance "Nothing is as powerful as an idea whose time has come". Even if Victor Hugo never formulated this well-known bon mot in this way 24 : currently the time seems to have come to (re)discover resonance as an existential principle of individual and social experience. 25 The power or effect of an idea results from its resonance: what is meant is (1.) the "resonance of one system" with another as well as (2.) the "totality of the discussions and reactions that are evoked by something". 26 What is remarkable here is that with corresponding resonance even a small initial impulse can lead to large movements of the (overall) system. Consider, for example, a Swedish teenager named Greta who at some point decides to stop going to school on Fridays. A few months later, more than a million people worldwide take part in the Fridays for Future demonstrations. Conversely, companies experience time and again that their communication goes down without a sound in times of information overload because their messages apparently do not hit a resonance point. How and under what conditions companies can succeed in generating resonance is 70 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="71"?> 27 Peter Kruse: "Wie trete ich mit einem System in Resonanz? " https: / / www.youtube.com/ watch? v=TVj8QpwJdMg. Compare also "Resonanzen erzeugen" https: / / www.youtube.com/ watch? v=Q3RIAO2KUHg&ab_channel=lutzland. 28 op. cit. 29 https: / / www.boerse.de/ warren-buffett/ wissen/ ethische-aktien. described by organizational psychologist Peter Kruse in his video "How do I resonate with a system? " 27 As a company, one must first of all actively perceive and understand what is going on in society. You have to establish as close as possible to the emerging value landscapes at an early stage and develop an empathetic understanding of the values not only of customers, but of all social actors (stakeholders). "If I (as a company) succeed in recognizing the changing value patterns in society at an early stage, I am in a position to make offers that resonate". 28 In other words, forward-looking companies see society's changing value patterns for example, in the direction of sustainability as an ideal opportunity to create value. 4.5.4 Reputation The fourth R factor for success is quickly explained. A company acquires its reputation by acting responsibly, in accordance with standards, and with a long-term focus. Warren Buffett is said to have said: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently". 29 If reputation is the "currency" in which the social acceptance of companies is valued today, then corporate management and corporate communication are the two sides of this coin: Whatever is presented to the outside world on the front sustainability, responsibility, purpose, etc. must be covered by the reverse side. Otherwise, the company will be convicted of greenwashing and its reputation will be ruined rather than enhanced as hoped. An evolutionary development can also be observed in the way companies present themselves to the outside world. In the post-war decades, the focus was on the product (functionality, quality), then the brand (image, emotion, design) gained importance, while for some years now the company's reputation (ethics, values, responsibility, sustainability) has played a special role in public perception. Rational Level Normative Level Emotional Level Product Brand Reputation Utility Value Quality Price Design Image Trust Values, Ethics, Attitude Corp. Responsibility Sustainability Impact Fig. 4.3: Evolution of the public perception of companies 4.5 Sustainable Corporate Governance: The "4 R" Factors for Success 71 <?page no="72"?> 30 See, for example, Boston Consulting Group (ed.) (2017): Total Societal Impact. A new lens for strategy. Online at: h ttps: / / www.bcg.com/ publications/ 2017/ total-societal-impact-new-lens-strategy - A meta-study of more than 100 individual studies also came to the same conclusion: 89 percent of these studies show that companies that perform well in terms of ESG factors (environmental, social, corporate governance) also outperform in market terms. DB Climate Change Advisors (ed.) (2012): Sustainable Investing: Establishing Long-term Value and Performance. Online at https: / / www.stern.nyu.edu/ sites/ default/ files/ assets/ documents/ Sustainable_Investing_2012.pdf. 31 Raworth, Kate (2018): Donut-Ökonomie. München. 32 As an overview, www.plurale-oekonomik.de/ netzwerk-plurale-oekonomik/ . 33 Keynes, John Maynard (1936): General Theory of Employment, Interest and Money, Preface to the English Edition, p. VII. This does not mean that product quality and price no longer play a role. It is just that other, sometimes even dominant criteria are now being added in the public perception. Reputation management is becoming the task of corporate management. This requires a robust ethical foundation. A good reputation also makes good business possible. Ethics is becoming a success factor. 4.6 Outlook Every company can start tomorrow to align its strategy with social responsibility, sustainability, purpose, and impact. There is much to gain: Because the transformation towards sustainable management makes companies fit for the future; because the endeavor to constantly improve one's own products, processes, and services along with these new values and thus become more sustainable as an organization has proven to be a strong innovation driver. You don't have to believe this, it can be proven. Numerous studies have shown 30 that companies with professional CSR and sustainability management are also economically more successful and show aboveaverage performance. After their extremely successful efforts against the old human problem of material scarcity, companies today are confronted with a completely new challenge: namely, the "scarcity of scarcity". In our developed economies there is more than enough of practically all (purchasable) things. However, saturated markets tend to be a problem for companies. The good news is that there is an almost inexhaustibly large market in which companies can continue to operate for many years to come: Just take a look at the UN Agenda 2030 with its 17 Sustainable Development Goals and 169 individual targets. There is, far beyond the year 2030, more than enough to do for all companies in this world. And the best thing about it: Purpose, Impact, Meaning, Resonance, Relevance, Reputation, etc. are automatically included. The massive growth in interest in corporate social responsibility (CSR) is unlikely to disappear any time soon. The ethical issues involved can serve as a signpost for the direction in which not only the practice but also the theory of sustainable business management will continue to develop. In view of the scope and dynamics of social transformation, it is already clear today that both planetary boundaries and the social environment must always be taken into account if sustainable solutions are to be found. The structure of our book, therefore, follows precisely this logic in that it is quite related to the idea of a "doughnut economy". 31 And: For a sustainable business administration, every new thought-provoking impulse from the various directions of "plural economics" 32 should be welcome. John Maynard Keynes already recognized: "The difficulty lies, not in the new ideas, but in escaping from the old ones". 33 72 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="73"?> At a Glance The guiding principle of profit maximization has got competition. More and more companies are realizing that their activities must contribute to the common good if they want to maintain their social acceptance. The discussion about the purpose and impact of companies has reached the mainstream by 2019 at the latest. This is no coincidence. In view of the climate crisis, the need for a rapid and far-reaching transformation towards a sustainable lifestyle and economic style can no longer be overlooked. Companies have a supporting role to play in this transformation that needs to be redefined. They can live up to their social responsibility by making an orientation towards the common good the ethical leitmotif of their actions. The point is that it is precisely the change in perspective from profit orientation to public interest orientation that makes good business possible. Ethics becomes a success factor. Suggestions for Further Reading Much discussed, systematically elaborated draft of a public welfare-oriented, ethical market economy: Felber, Christian (2018): Die Gemeinwohlökonomie. Expanded and updated edition, Munich. A new, sustainable economic model is developed here from an impressively simple basic idea: Raworth, Kate (2018): Donut-Ökonomie. München. Extensive collection of articles on business ethics and social responsibility: Ludger Heidbrink, Alfred Hirsch (Hg.) (2008): Verantwortung als marktwirtschaftliches Prinzip: Zum Verhältnis von Moral und Ökonomie. Literature Boston Consulting Group (ed.) (2017): Total Societal Impact. A new lens for strategy. Online at: www.bcg.c om/ Images/ BCG-Total-Societal-Impact-Oct-2017-R_tcm9-174019.pdf. Business Roundtable (ed.) (2019): Business Roundtable Redefines the Purpose of a Corporation, https: / / www .businessroundtable.org/ business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-ec onomy-that-serves-all-americans. DB Climate Change Advisors (ed.) (2012): Sustainable Investing: Establishing Long-term Value and Per‐ formance. Online at https: / / www.stern.nyu.edu/ sites/ default/ files/ assets/ documents/ Sustainable_Invest ing_2012.pdf. Erk, Daniel (2019): Wir wollen Sinn! in: ZEIT Campus, www.zeit.de/ campus/ 2019/ 01/ weltverbesserung-un ternehmen-umsatz-sinnhaftigkeit-umwelt-kapitalismus/ komplettansicht. Ethics Centre (ed.) 2018: Social License to Operate; https: / / ethics.org.au/ ethics-explainer-social-license-to -operate/ . Felber, Christian (2018): Die Gemeinwohlökonomie. Expanded and updated edition, Munich. Gemeinwohl Deutschland (ed.) (2019): Gemeinwohl-Atlas, online at https: / / www.gemeinwohlatlas.de/ de/ atlas. Gourge, Klaus (2018): Sinnovation. Wie sich Organisationen neu erfinden, in: Journal Supervision, 1/ 2018, S. 16-18. Gourge, Klaus (2020): 4 R-folgsfaktoren für das Unternehmen Zukunft, online unter https: / / zukunft.mba/ 2 020/ 09/ 14/ 4-r-folgsfaktoren-fur-das-unternehmen-zukunft/ . Heß, Stefan (2010): "Unternehmen brauchen die Akzeptanz der Gesellschaft", in: Handelsblatt vom 18.02.2010. 4.6 Outlook 73 <?page no="74"?> Kort, Katarina (2019): Apple und Amazon wollen sich vom Shareholder-Mantra verabschieden, in: Handelsblatt online, www.handelsblatt.com/ finance/ maerkte/ boerse-inside/ us-top-managers-apple-and-am azon-want-to-give-up-the-shareholder-mantra/ v_detail_tab_comments/ 24919706.html? ticket=ST-17548 0-cGXWp59fr7SIlYT26RBB-ap6. Kurz B., Kubek D. (2018): Kursbuch Wirkung - Das Praxishandbuch für alle, die Gutes noch besser tun wollen PHINEO gAG, Berlin, 5. Auflage 2018, Berlin. Meynhardt, T. (2008). Public Value oder: was heißt Wertschöpfung zum Gemeinwohl? in: dms der moderne staat, 2, 457-468. Molitor, Andreas (2018): Der Sinn eines Unternehmens. Alle für einen Zweck, in: brand eins 01 / 2018, online unter https: / / www.brandeins.de/ magazine/ brand-eins-wirtschaftsmagazin/ 2018/ reset/ der-sinn-e ines-unternehmens-die-aktiengesellschaft-alle-fuer-einen-zweck. Porter, Michael E., Kramer, Mark R. (2011). Creating Shared Value: How to re-invent capitalism and unleash a wave of innovation and growth, in: Harvard Business Review, Jg 89 (1/ 2): pp. 62-77. Raworth, Kate (2018): Donut-Ökonomie. München. Rosa, Hartmut (2019): Resonanz. Eine Soziologie der Weltbeziehung. Suhrkamp. Schaltegger S. et al., (1996): Schadschöpfung und Oko-Effizienz. In: Innovatives Management staatlicher Umweltpolitik. Themenhefte Schwerpunktprogramm Umwelt. Basel. Social Reporting Initiative e. V. (2014): Social Reporting Standard · Leitfaden zur wirkungsorientierten Berichterstattung Stand 2014, Mülheim an der Ruhr. SoPact (2020): Best Practices In Social Return On Investments at: https: / / www.sopact.com/ social-return-on -investments-sroi. World Economic Forum (ed.) (2019): Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution; https: / / www.weforum.org/ agenda/ 2019/ 12/ davos-manifesto-2020-the-uni versal-purpose-of-a-company-in-the-fourth-industrial-revolution/ . 74 4 Social Responsibility: From Profit to the Common Good and Back Again <?page no="76"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="77"?> 1 Türk, K. (1989), p. 52. 2 On this and the following Lewy, A. / Merry, U. (1986), pp. 3-9. 5 Understanding Transformation Thomas Ginter and Alexander Romppel Learning Objectives: The readers ■ understand that the transformation of a company towards more sustainable operation requires specific competencies in dealing with change ■ know the difference between transformation and change ■ learn how to deal with complexity ■ have an overview of the different phases of a transformation ■ know the system's inherent resistance to change ■ know how to get a transformation going Keyword List: Organizational Change, Change, Transformation, Complexity, Adaptive Cycle, Autopoiesis, Emergence, Narrative, Movement 5.1 Transformation: Briefly Explained One of the key challenges for companies is dealing with change. In organizational theory, this is referred to as "organizational change". The term is always used when the system characteristics of an organization change to an undetermined extent over a period of time. 1 A basic distinction is made between 1 st order change and 2 nd order change. 2 First-order change is an evolutionary change that is usually limited to a few dimensions, levels, sub-areas, or processes of the company. In this context, we usually speak of a so-called "change process", for example, the introduction of incremental adaptation of a CRM system for better management of customer relations. In contrast, 2 nd order change describes a radical, fundamental change in core organizational structures or processes. Accordingly, 2 nd order change always encompasses the entire organization or its core processes. In this context, we speak of transformation; the change is a paradigm shift and represents a hard rupture with the status quo. <?page no="78"?> 3 Own presentation, content: cf. Lewy, A. / Merry, U. (1986), p. 3-9. 4 See www.youtube.com/ watch? time_continue=3&v=GX9Fd29HwPE&feature=emb_logo, accessed 12 September 2020. 5 https: / / cda-dev-e005-eswcm.i.daimler.com/ careers/ about-us/ culture-benefits/ leadership-2020/ , accessed 02.10.2022. Organizational Change Change Change 1 st Order Evolutionary Change Long-term change and organizational development process Restricted to a few dimensions and layers or areas and processes Change of content (incremental) Continuous change curve with changes ocurring in small and steady steps Transformation Change 2 nd Order Radical Change Fundamental rethinking and redesign of organizations and processes Always affects the entire organization and / or its core processes Change of context (paradigm shift) Hard cut and consolidation Fig. 5.1: Characteristics of 1 st and 2 nd order change 3 The transformation of the automotive industry, which was initiated by fundamental changes such as digitalization, e-mobility, autonomous driving, and new mobility concepts, can be taken as an example of a transformation currently taking place. Daimler, for example, initiated a transformation process in 2016 with its "Leadership 2020" program, the goal of which is to drive a fundamental cultural change across all divisions of the Group, from research & development, to design and production, to the marketing of Daimler products & services. 4 The outcome of this endeavor is still open, which is why the program has since been renamed "Leadership 20X". Example: DAIMLER "Actively shaping cultural change with Leadership 20X: Since January 2016, several thousand colleagues from a wide range of divisions, regions and hierarchical levels have been active in Leadership 2020, now Leadership 20X. The culture of the future is being shaped by the people who know our company best: ourselves. In an initiative that is open and transparent from the very beginning. Involvement and support is coming from all levels including the Executive Board. Spread across eight teams around the globe and in decentralized fashion, we worked on solutions and measures that notably change our organization. 144 participants. Eight global workshops. Over 150 ideas a lot of material for a new chapter in Daimler's history. Or in other words: clear, transparent and direct clues of where we need to improve as an organization." 5 78 5 Understanding Transformation <?page no="79"?> 6 See Leggewie, C. / Welzer, H. (2009), p. 11. 7 https: / / orsted.de/ nachhaltigkeit/ rankings-und-reports/ nachhaltigstes-energieunternehmen, accessed 02.10.2022. 5.2 Transformation and Sustainability One of the central tasks of the people of the 21st century is to shape a sustainable world by connecting the most diverse trends from society, politics, economics, technology, and ecology creating synergies that shape a future worth living in. In their book "Das Ende der Welt, wie wir sie kennen. Climate, Future and the Chances of Democracy" Leggewie and Welzer formulate this as follows: "The world is not only experiencing a historic economic crisis, it is also facing the most dramatic warming in three million years. It may sound bombastic or alarmist: But the great transformation that lies ahead in its depth and breadth resembles historic pivotal periods such as the transitions to agrarian society and industrial society". 6 Every single company worldwide is called upon to contribute to a more sustainable world, i.e. by reorganizing or changing their own company in a way that conflicts between ecology, economy and social issues are brought into alignment with each other to create sustainable or long-term solutions. Our hypothesis is that the desire to operate more sustainably alone is by no means sufficient to cope with the highly complex tasks involved. What is needed, in addition to the relevant technical skills, is a profound understanding of how transformation works, what resistance we will have to face on our path towards a more sustainable economy, and how a fundamental change can be set in motion that as many employees as possible will enthusiastically and energetically embrace. Only if management can professionally design and steer the transformation of the company towards more sustainability, Corporate Social Responsibility can raise above being greenwashing and become vital management practice. The desire does not suffice, it must also be mastered and done! Example: Ørsted "From one of the most CO2-heavy energy companies in Europe to the most sustainable company in the world change is possible: This year, we were named the world's most sustainable company in Corporate Knights' "Global 100 Index 2020". Only ten years ago, we were still one of the most CO2-intensive energy companies in Europe. The award is recognizing our efforts in the green transformation of our businesses, away from the use of fossil fuels to the use of green energy sources over the last decade. As the world leader in offshore wind, we have grown our business while reducing our CO2 emissions by 86%, and by 2025 we will be CO2 neutral in our energy production and the operation of our assets. We also have the goal of achieving a carbon neutral footprint for the entire company by 2040. In doing so, we are reducing emissions at a much faster rate than science suggests necessary to limit global warming to 1.5°C." 7 A substantial discussion of the sustainability megatrend and sustainable business is only possible if we also consider another megatrend, digitalization. Both megatrends contribute towards an overarching transformation that will fundamentally change both companies and society. While in the past (and in traditional companies still today) the belief was that socio-ecological sustainability and digitalization were mutually exclusive or at least mutually obstructive, it is currently becoming increasingly clear to many market players that these two driving forces can 5.2 Transformation and Sustainability 79 <?page no="80"?> 8 www.bcg.com/ de-de/ publications/ 2020/ quest-sustainable-business-model-innovation, accessed 09.13.2020. 9 Own representation. sometimes be synthesized. With, for example, the combination of digital skills and sustainable practices sometimes leading to entirely new business models (=>Sustainable Business Model Innovations) that generate competitive advantages while at the same time reducing the company's environmental footprint. Successfully implemented sustainable business models, according to the experts of the Boston Consulting Group, ■ can be scaled effectively without diminishing returns or increasing the risk of failure, ■ increase differentiation and competitiveness, ■ reduce the risk of becoming arbitrary, ■ create ecological and societal value, ■ remain permanently resistant to emerging socio-ecological trends, ■ lead to network effects that create value and reshape value chains, ■ use or shape economic ecosystems for their own benefit as well as for the purpose of sustainability, ■ increase returns for shareholders and net environmental and social benefits for stakeholders; and ■ underline the meaningfulness of the company and thus increase the identification of employees, customers, investors and other stakeholders with the company. 8 Thus, the transformation towards more sustainability always includes the possibility to be combined with the digitalization of business processes or the company's own business model, a task that undoubtedly requires far-reaching competencies in both areas as well as profound knowledge about the design of fundamental transformation processes. Sustainability Digitalization Transformation Durable business model innovations Fig. 5.2: Competence areas of sustainable business model innovations 9 80 5 Understanding Transformation <?page no="81"?> 10 Own representation. Content: cf. also Bennis, W. / Nanaus, B. (1985). 11 See Brandte, H. (2007), p. 78. 5.3 Mastering the Transformation Towards More Sustainability The transformation of companies towards greater sustainability is taking place in an environment characterized by high dynamics, increasing complexity, and relentless global competition at all levels of value creation. In this context, the acronym VUCA or the term "VUCA world" has become established. VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity. V U C A VOLATILITY UNCERTAINTY COMPLEXITY AMBIGUITY Speed, dynamics and variability of changes are increasing Increasing uncertainty due to low predictability and forecastability of events High degree of interdependency with high variability in potentially occuring scenarios Large room for interpretation due to ambiguity and fuzzy interrelationships Fig. 5.3: VUCA world 10 The main contribution of this acronym is that something less "tangible" has now been manifested in the "reality tunnel" of management: increasing complexity as an perceived risk to economic success. Yet complexity, if looked at from a little distance, is neither good nor bad. It "only" requires new ways of seeing and approaching things and, above all, personalities who see diversity or uncertainty as an opportunity rather than as threat that needs to be overcome. And it is precisely in this context, in a world that is becoming increasingly crazy, that management is challenged to transform the company towards greater sustainability. This is an extremely challenging undertaking that foremost requires a deeper understanding of how to deal with complexity. 5.3.1 Dealing With Complexity In the search for a deeper understanding of the construct "complexity", it makes sense to first define the term. A definition we particularly was established by Hennig Brandte: "Complexity or complex (…) describes a non-decomposable system that is on the edge of chaos, which exhibits coherent, rule-governed and recursive behavior patterns in certain (system) areas, can assume a large number of different states in a period of time, and whose description is dependent on the observer". 11 5.3 Mastering the Transformation Towards More Sustainability 81 <?page no="82"?> 12 See Ashby, W. R. (1956), pp. 206. 13 Own representation. Thus, we find ourselves "on the edge of chaos" and struggling to find a "professional" way of dealing with unpredictable feedbacks of complex systems. Cybernetics, the art of control, gives us important hints on how to deal with complexity. Ac‐ cording to Ashby's Law of Requisite Variety, complexity can only be countered with complexity. 12 If the complexity in a company's environment is continuously increasing, we have no choice but to increase our own institutional complexity as well. And we do this by building up at least as many skills and abilities as are required to control possible phenomena, reactions, or states of the environment. Accordingly, problems with complexity always occur when the necessary competencies are not available in the company, or when they are not leveraged appropriately. Therefore, a central key to successfully coping with complexity is the empowerment of employees, whether through the development of new competencies (CAN), by providing capacities or resources in the sense of the common cause (MAY), and/ or through the fostering the employees' enthusiasm in dealing with complex tasks (WANT). CAN Build new competences MAY Making capacity and resources available WANT Leveraging enthusiasm to unleash potential Increasing individual institutional complexity (EMPOWERMENT) Fig. 5.4: Empowerment as the key to coping with complexity 13 While building up, providing, or developing competencies enables us to fundamentally deal with external complexity, the question also arises as to how we can control the complexity of our environment to make it manageable. Here we must first clarify what we mean by the term control in the context of managing complexity. In this context, control means first of all guided by hypotheses, i.e., setting targeted impulses on the basis of assumptions ("if-then-sentence"). Hypothesis-guided because we must avoid that the system is being "attacked" in an action-focused, mindless way without thinking. After all, we are already on the brink of chaos, so we don't need managers who drive the team crazy just because they feel obliged to do something. In accordance with the guiding principle "action needs direction", we therefore set targeted impulses and then check whether we have achieved the desired result. However, under no circumstances should this approach be confused with the classic command & control approach. Rather, failure is normal, and success is to be celebrated. Accordingly, new impulses are set until the desired target has 82 5 Understanding Transformation <?page no="83"?> 14 Lewin, K. (1947). 15 Kotter, J. P. (1996). 16 Holling, C. S., / Gunderson, L. / Ludwig, D (2002). 17 Own presentation, content: cf. also Holling, C. S., / Gunderson, L. / Ludwig, D (2002). been sufficiently met, or entirely new goals are being pursued. And this is where the third design principle of control comes into play: learning from mistakes. Before each new impulse is set, we must check what we have learned from our previous failure. Accordingly, the logic of action is: (1) set a hypothesis-driven impulse, (2) check whether you have achieved the intended result, (3) learn from possible mistakes, (4) set another impulse. This logic is followed until the desired result is achieved or something completely new is created. 5.3.2 Phase Model of Transformation Dealing with complexity and the transformation of a company towards more sustainability, considering the latest findings of digitalization, is unquestionably a complex endeavor and therefore requires an iterative approach. In this context, iteration means successively approaching the goal in small steps, repeatedly making sure that you are still on the right track and deploying the right people or the required competencies in different phases of the transformation. In recent years, many clever minds have dealt with the question of which phases are basically passed through in a change process. Starting with Kurt Lewin, in his 1947 essay "Frontiers in Group Dynamics" 14 to John P. Kotter in his 1996 book "Leading Change" 15 to the authors Crawford S. Holling, Lance H. Gunderson, and Donald Ludwig, who discussed transformation processes from the perspective of resilience research in their groundbreaking 2002 article "In Quest of a Theory of Adaptive Change". 16 In the following, we will refer to the latter phase model. Institutionalization + - - Resource Committment + Lean complicated Lean causal Agile complex Agile chaotic Reorganisation Realignment Exploitation Harnessing Release Creative Destruction Conservation Maintaining Fig. 5.5: The "Adaptive Cycle" 17 5.3 Mastering the Transformation Towards More Sustainability 83 <?page no="84"?> According to Holling et. al.'s "Adaptive Cycle", every transformation is initiated by an act of creative destruction (release). Existing certainties are questioned or lose their meaning. This usually happens through external events, such as the sudden appearance of disruptive technologies, existential crises, or even serious changes in the earth's ecosystem that make a fundamentally new sustainable economy inevitable. The situation is usually chaotic, which means the management unquestionably requires agile patterns to respond. The focus here is on developing a strong vision for the future to adapt to the new situation. The greatest danger in this phase lies above all in creating "great" images of the future, but then trying to quickly fall back into the tried and tested mode of "preservation". This regression is probably the most frequent reason for the failure of change projects. In the subsequent phase of reorganization, the main task of the managers is to create a context for their employees in which they can independently carry out their tasks to implement the previously developed vision of the future. This is done through the design of structural and procedural framework conditions, the teaching of suitable methods, but also through the development of a mindset, such as the development of leadership principles. When a problem arises, alternative solutions are discussed and implemented experimentally. Their effect is evaluated in situ and the next step is planned and executed. This procedure is repeated until the problem is solved or the complex situation has changed to a complicated one. This is the fundamental idea of agile working. The third phase of the transformation is primarily concerned with making the developed solution usable (exploitation). Previously complex situations or issues are transformed into concrete tasks, new structures and processes are established. This is without a doubt complicated but no longer complex. The now complicated tasks are analyzed, potential solutions are presented, and subsequently implemented according to a plan based on lean principles. The "Adaptive Cycle" is temporarily completed by maintaining these newly developed solutions (preservation). If, for example, a newly developed innovation process has become established, clear management guidelines apply that are not to be questioned. Efficiency and effectiveness are in focus, Lean Management is the adequate control approach, exactly until the circle begins to turn once again. 5.3.3 Resistance in Transformation Processes Resistance in transformation processes has many symptoms, which can be expressed actively or passively, verbally, or non-verbally (see Fig. 5.6). It is much easier to deal with active, verbal resistance than to leave people behind silently or unnoticed during a transformation process. It is important to understand that perceived resistance to change is not unusual, but rather the norm. For a long time, it was assumed that this was caused by consciously holding on to what is known or familiar. However, if you talk to people in companies, it seems that many of them are longing for change. The assumption is therefore obvious that we are not dealing with conscious resistance at all, but simply with a system-immanent blockade. Accordingly, it is of great importance for the success of a transformation to clearly differentiate between symptoms of resistance and their causes. 84 5 Understanding Transformation <?page no="85"?> 18 Own presentation, content: cf. Doppler, K. / Lauterburg, C. (2002), p. 326. 19 The seminal essay by Kirsch, W. / Knyphausen, D. (1991). VERBAL NON-VERBAL ACTIVE Contradiction Counter-argumentation Threats Formalism Agitation Unrest Rumours Seek allies PASSIVE Evasion Silence Sarcasm Fooling around Lethargy Inattention Inner resignation Ignoring Fig. 5.6: Typical symptoms of resistance 18 So, what is behind the supposed resistance in change initiatives? What are the real reasons change fails or "gets out of hand", even though the best intentions are to prevent this? Core concepts that lend themselves as explanations from the perspective of systems theory are "autopoiesis" and the "emergence". Without diving into the depths of systems theory, it seems appropriate to briefly discuss these two terms, as we believe they help to explain "inexplicable" failures and contribute to dealing with supposed resistance constructively and without losing our good sense of humor. Autopoiesis is commonly understood as the self-creation and -maintenance of a system. Transferred to companies, this means that constituents continuously observe their company, derive their individual narratives of the company from this and continuously adapt to it. If this process is not designed consciously, but only executed subconsciously, there is a tendency that the system with all its components (structures, processes, services, functions, identity) reproduces itself continuously. 19 In other words, the activities of the organization in such a case do not, as is generally desired, refer to set objectives or necessary adjustments to the corporate environment, but refer to themselves. In such a case, it is not the striving for development or innovation that determines action, but rather towards so-called "attractive" states that exhibit relatively stable patterns over time. For change processes, this means consciously helping to shape the selfobservation or self-description of the people making up an organization or giving them a jointly agreed upon sense of direction (more on this later). And now to the second term, which is of special importance in the context of transformation: emergence. In relation to an autopoietic system, we speak of emergence when entirely new structures or properties arise from the interaction of individual system elements, whereby the "new" cannot be derived directly from the individual system elements, but only from their interaction. Transferred to the context of companies, this means that this innovative "unpredictability" makes stringent planning considerably more difficult, or in some cases utterly impossible. Everything is linked to everything else, and feedbacks lead to surprises that bring something new to light pleasantly and/ or relentlessly destroy what already exists. Accordingly, it is not surprising that linearly planned change processes regularly "hit a wall". 5.3 Mastering the Transformation Towards More Sustainability 85 <?page no="86"?> The beauty is that if we know, and above all understand the phenomena of autopoiesis or emergence, we can take them into account in transformation processes, adapt them accordingly and make change happen constructively. 5.3.4 Getting the Ball Rolling Every successful transformation begins with a good story. In the social sciences, we have been talking about a narrative in this context since the 1990s, a meta-narrative that clarifies the WHY of the transformation to the people in organizations and thus provides orientation from the very beginning. Such a narrative is usually fed by the central challenges of our time (VUCA world, digitalization, sustainability…), but in order to be credible, it must take reference to the individual circumstances of the organization. A good narrative is formulated in a meaningful way, emotionally charged and, above all, well told. For example, a good narrative for the digitization of healthcare would be that doctors or nurses can finally use their time again to assist people competently and caringly with health problems, instead of "wasting" half of their working time on administrative tasks that could be reduced to a fraction of the current time expenditure through consistent digitization. Such a meta-narrative creates, on the one hand, awareness of the need for change and, on the other hand, the willingness or inner commitment to make a constructive contribution to the transformation of the organization. In the subsequent second step and for the successful planning and management of a transfor‐ mation process, it is crucial to get a clear picture of the current situation. In addition to the current business model, the central formal and informal structures, and processes as well as the key figures and metrics, it is also important to capture the prevailing culture or to make it explicit. In this context, we understand culture as the social identity of the company, which finds its expression in the thoughts, feelings, and actions of the members of the organization. To clear up a widespread misunderstanding at this point: Our intention cannot be to change this culture, as is currently being propagated in countless so-called "culture change" projects. Rather, the aim must be to understand the culture as it is being lived, to work out the positive aspects of this culture, and to strengthen them in a targeted manner. This way, we do not work on the culture, but use it as a yardstick for change. In accordance with the basic understanding of autopoiesis in social systems as described above and by elaborating central cultural elements (purpose, core values, mission, vision) we influence the people's narrative of our company continuously and thus direct the attention or focus on existing success factors, which are used as a reflective surface and lend all activities a common sense of direction. When identifying those central cultural elements of the organization, it is important that we involve as many employees as possible in the process, whether through company-wide surveys, jointly conducted workshops, and/ or the establishment of companywide digital or analog networks that enable cross-departmental discourse. In other words, we must make the transformation a "common cause" from the very beginning instead of preaching it from the rafters. This is how we create a company-wide "movement", which carries the process energetically even in difficult phases of a transformation. Once the current situation has been grasped in broad outline and the central cultural elements have been identified and made explicit, we ask the employees about positive and negative experiences, as well as about central accelerators and stumbling blocks that could have relevance for the desired transformation. The key challenges identified in this way build the foundation for initial ideas on how to shape the transformation in concrete terms. 86 5 Understanding Transformation <?page no="87"?> 20 Own representation. Both aspects, the description of the cultural identity of the organization, as well as the analysis of the fundamental challenges are then used as a reflection surface to derive central change topics, working principles, and change rituals, which are then, in a next step, iteratively implemented or brought to life. In doing so, it is of particular importance to continuously accompany the implementation of the identified change topics through communication and to continuously align them through flexible goal management systems, such as OKR (Objectives & Key Results). In accordance with the understanding of the control of complex systems or tasks described above, the implementation of the change topics is being executed according to the following logic: (1) set a hypothesis-guided impulse, (2) check whether you have achieved the desired result, (3) learn from possible mistakes, (4) set a further impulse. Consequently, transformation is always an experience-based learning process. Communication Do! Experience-based learning with OKR Awareness Narrative Readiness Purpose Values Vision Mission Positive & negative experience Accelerators + stumbling blocks of transformation Principles Change topics Rituals Value Concepts Key Challenges Behavioral Systems PARTICIPATORY CAMPAIGN DEVELOPING POTENTIAL THE „GOOD“ REASON Fig. 5.7: Getting the ball rolling 20 5.4 Outlook In the long run the sustainable restructuring of our industrial society is inevitable. The focus here needs to be on the synergetic linking of the topics of ecology, economy and social affairs, with the aim of primarily profit-oriented enterprises creating fair, adaptable and desirable living conditions. But all idealism and expertise will come to nothing if we do not understand or master the basic mechanisms of transformation processes, because the tasks ahead of us are unquestionably complex, radical, and always affect the entire company (second-order change). Accordingly, a new type of manager is required who can distinguish between change and transformation processes, to see change as an opportunity and to give the company a common, sustainable sense of direction. 5.4 Outlook 87 <?page no="88"?> At a Glance It is the power and will of the collective that brings about transformation! Suggestions for Further Reading Ginter, T. / Romppel, A. (2018): Adaptiv Führen - Lean oder agil in: manager Seminare No. 247, October 2018. Literature Ashby, W. R. (1956): An introduction to Cybernetics, London. Bennis, W. / Nanus, B. (1985): Führungskräfte: Die vier Schlüsselstrategien erfolgreichen Führens, Frankfurt a. Main. Brandte, H. (2007): Komplexität in Organisationen, Wiesbaden. Doppler, K. / Lauterburg, C. (2002): Change Management: Shaping Corporate Change, Frankfurt/ New York. Holling, C. S., / Gunderson, L. / Ludwig, D (2002) In Quest of a Theory of Adaptive Change. pp. 3-24 in: Panarchy: understanding transformations in human and natural systems. L.H. Gunderson and C.S. Holling, eds, Washington. Kirsch, W. / Knyphausen, D. (1991): Unternehmungen als "autopoietische" Systeme? in: Managementfor schung 1, ed. von Staehle W. H. / Sydow, J. / de Gruyter, W. Berlin/ New York, pp. 75-101. Kotter, J. P. (1996): Leading Change, Watertown. Leggewie, C. / Welzer, H. (2009): Das Ende der Welt, wie wir sie kennenten: Klima, Zukunft und die Chancen der Demokratie, Frankfurt a. Main. Levy, A. / Merry, U. (1986): Organizational Transformation, New York. Türk, K. (1989): Neue Entwicklungen in der Organisationsforschung, Stuttgart. 88 5 Understanding Transformation <?page no="90"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="91"?> 1 Bea, F., Haas, J. (2013), p. 22. 6 Strategic Sustainability Management Erskin Blunck Learning Objectives: The readers ■ understand that a differentiated treatment of the term sustainability is needed in the context of sustainable management ■ realize the importance of defining organizational purpose as a precondition for strategic sustainability management. ■ get to know the tasks of strategy within the framework of sustainable management ■ recognize the relevance of the perspectives strategy process, content, and context for strategic sustainability management ■ learn about the potential of innovative business models for sustainability strategies in the context of the strategy process, ■ deepen their knowledge of selected innovative approaches to substantiate sustainability at a strategic level. Keyword List: Strategic sustainability management, strategy process, resilience, Cradle-to-Cradle, Shared Value 6.1 Introduction This contribution presents the major aspects of the organization of strategic sustainability management. Taking the business purpose as a starting point, special emphasis will be placed on the topics of strategy development, strategic content, and strategic context, even though strategic management encompasses additional topics such as organization, corporate culture, information, and strategic performance potentials. 1 Our considerations are related to lines of thought that have already been discussed elsewhere in this volume, especially the definition of sustainability as presented by Sailer. In his definition of sustainability, Sailer draws on the broadly accepted terminology of the Brundtland Commission from 1987 and on the Triple Bottom Line approach of sustainability developed which was developed in 1992 at the Rio Conference. According to this definition, sustainable development is characterized by an economic, a social (in this context, the term socio-cultural dimension is also used in some cases) and an ecological dimension. According to <?page no="92"?> 2 KPMG (2020). 3 Bea, F./ Haas, J. (2019), p. 7. 4 Bea, F./ Haas, J. (2019), p. 14. the Triple Bottom Line approach, all three dimensions should be given equal weight when implementing sustainable development. The increased interest in sustainability management is documented in KPMG International's CEO Outlook survey of over 1,300 executives worldwide on the topic of sustainability, 2 conducted at the beginning of 2020 and again in mid-2020. The surveys are showing that sustainability has gained in importance over the years and remains a high priority at the strategic level even in times of crisis such as the COVID-19 pandemic and the associated economic crisis. The following sections deal with the relevance of "Sustainable Business Management" for the topic of strategic management. 6.2 Classification Strategic Sustainability Management The origins of the term "Strategic Management" go back to the year 1976 when Ansoff, Declerck, and Hayes published their book "From Strategic Planning to Strategic Management". 3 Thus, in recent decades, planning has been further developed through the phases of long-term planning, strategic planning to strategic management. From 1980 until today, the theory and practice of strategic management have increasingly been confronted with social challenges, which are aptly characterized by Bea and Haas 4 with the keywords "knowledge society", "virtual markets", "self-organization", "company as a learning organization", "flexible/ agile organization", but also "sustainability". The latter issue of sustainability, which is also frequently discussed under the heading of social responsibility, appears to receive special attention against the backdrop of climate change. At this point, the question arises, whether the focus should be on the analysis of "sustainable strategies" in the context of "strategic management" or whether the term "Strategic Sustaina‐ bility Management" is more suitable? In order to clarify what this terminology does mean and what not, a broader perspective should be taken. The point is not to establish a new (management) fad for the company, but instead to (further) extend the fundamental intellectual approach to company leadership by including the aspect of sustainability. The distinction between criteria normative, strategic, and operational is frequently made in management science. Normative management deals with the general goals of the company. The fundamental principles, norms, and values of the corporation need to be set. The values of a company are reflected in the corporate culture, principles, and standards are set in the corporate statutes. Strategic management deals with establishing, maintaining, and using the potential for success of the company. At issue is the systematic alignment of the company to promising combinations of products and markets and the provision of the required resources. The normative and strategic level of the company assure an effective positioning. Operational management derives the implementation of the ideas from normative and strategic management in form of real and financial business processes. More detailed explanations of the interaction of these three levels can be found in the chapter on instruments for implementing sustainability. While the following contributions also consider operational questions, this chapter deals with strategic management and the link with the normative level. 92 6 Strategic Sustainability Management <?page no="93"?> 5 De Wit, B. / Meyer, R. (2010), p. 12 and p. 14, including the ecological context. 6 Own representation based on De Wit, B. / Meyer, R. (2010), p. 12 and p. 14, including the ecological context. The following elaborations give concrete meaning to Strategic Sustainability Management, which can be characterized as strategic management with a special orientation toward the achievement of the three target dimensions of sustainability. 6.3 Dimensions Strategic Sustainability Management In order to do justice to the complexity of the topic of company strategy, the structuring proposed by de Wit and Meyer, is used here as an element of order. 5 It distinguishes the dimensions of the strategy process, strategy content, and strategy context, as well as corporate purpose. Even if not all dimensions can be discussed in detail and therefore no claim of completeness should be made, this structuring is used to show at which points sustainability considerations are of particular importance. For this purpose, the strategy context is expanded to include the dimension of ecological context. While the topics are described sequentially in the following, it should be taken into consider‐ ation that they are not separate parts of the strategy, but merely distinguishable dimensions. This means that every strategic challenge comprises all three strategy dimensions. Ecological context International context Industry context Organizational context Network level Company level Business unit level Change Management Strategic development Strategic thinking Strategy context Strategy content Strategy process Organizational purpose Fig. 6.1: Overview of the Strategic Dimensions 6 6.3 Dimensions Strategic Sustainability Management 93 <?page no="94"?> 7 See for example Bea, F./ Haas, J. (2013) p. 82 and p. 112. 8 Freeman, E. / Reed, D. (1982). 9 Belz, M./ Peattie, K. (2012), p. 129-132. 10 McDonough, W./ Braungart, M. (2013) www.McDonough.com/ speaking-writing/ design-for-the-triple-top-li ne/ . 11 McDonough, W./ Braungart, M. (2013) www.McDonough.com/ speaking-writing/ design-for-the-triple-top-li ne/ . 6.4 Organizational Purpose and Sustainability Before planning a journey, it is necessary to determine the destination. This is even more relevant if several people embark on the trip. The same is true for an organization. Before an organization is established, all parties involved should reach an understanding about the goals to be reached and the purpose of the organization. For existing companies, it should be checked from time to time whether the original purpose of the organization is still valid and supported by all important agents (employees, management, customers, owners, etc.). This is sometimes also referred to as the normative level of corporate management. Depending on the degree of formalization of the organization, a corporate vision and mission statement is developed or verbally communicated by management to stakeholders inside and outside the organization. After a few years, such a central statement needs to be reassessed and updated if necessary. Typical books on strategy contrast the shareholder value approach (value creation for the owner) and the stakeholder approach (alignment of the goals of different interest groups) as extreme positions. 7 For sustainability considerations, however, the balancing of the Triple Bottom Line, which was discussed by Sailer in the introduction, needs to be addressed. With regard to methodology, the stakeholder approach of Freeman and Reed 8 can be used for the determination of the environmental situation. A frequent criticism on this approach relates to the fact that it may lead to suboptimal compromise. However, truly sustainable corporate goal setting goes beyond compromise in the stakeholder process. An attempt is made to position the company in such a way that it acts successfully over the long term for its central interest groups such as employees, customers, shareholders and suppliers. At the same time, it has an impact on the ecological and social environment in such a way that makes the approach viable over the long term. In a sustainably oriented company, the three target dimensions of sustainability in the sense of the Triple Bottom Line take center stage. The reconciliation of economic, ecological and social (occasionally also called socio-cultural) goals is seen as a target system at the highest level. However, there is disagreement about the best way to reach these targets and the relation among them. For example, how important should the economic goals be and to what extent should the possible ecological impact be minimized. 9 William McDonough and Michael Braungart take these considerations one step further with their idea of the Triple Top Line. Instead of balancing the three dimensions, the design stage of the product and the process is already used to think about creating value and business opportunity with intelligent design. This is called Triple Top Line growth. Practically, this is done using a socalled "fractal triangle" with the dimensions of ecology, economy and social (called equity in this approach). 10 It is already contemplated during the design process how prosperity can be grown, the community celebrated and the health of all natural species enhanced. The triangles with all their interconnections are considered in an iterative fashion in order to identify appropriate goals and approaches. 11 94 6 Strategic Sustainability Management <?page no="95"?> 12 Own representation and translation according to Alter, K. www.4lenses.org/ setypology/ print. 13 https: / / bcorporation.eu/ about-b-lab/ country-partner/ germany. 14 B Lab Germany (2020) https: / / bcorporation.eu/ about-b-lab/ country-partner/ germany. 15 Yunus, M. (2011), p. 95. 16 UN (2020); https: / / unric.org/ de/ 17ziele/ ; and UN (2017) www.un.org/ Depts/ german/ gv-70/ band1/ ar70001.pdf. 17 Adidas (2020): https: / / report.adidas-group.com/ 2019/ de/ konzernlagebericht-unser-unternehmen/ nachhaltig keit/ unser-ansatz.html. 18 Global Compact (2017) www.globalcompact.de/ de/ newscenter/ meldungen/ SDG-Compass-in-Deutsch-veroeffen tlicht.php. The organizational purpose can differ widely depending on the type of organization. In a continuum from conventional company management with initial sustainable approaches (e.g. long-term oriented family business with sustainability in the areas of economy and social affairs in the sense of intensive employee retention), to a sustainably oriented company, to an organization founded with the primary purpose of solving a socio-cultural and/ or ecological problem in the area of sustainability. The traditional nonprofit organization can be seen as the opposite pole to the traditional for-profit enterprise. Hybrid spectrum Traditional Nonprofit Nonprofit with Income- Generating Activities Social Enterprise Socially responsible Business Corporation Practicing Social Responsibility Traditional For Profit Fig. 6.2: Spectrum of hybrid organizational objectives according to Kim Alter 12 Interesting examples of sustainable businesses can be found at the B Lab Germany organization. 13 B Lab is a "collaborative movement with the goal of establishing a responsible, ecologically sustainable and socially fair economy as the new status quo in Germany, Europe and the whole world". 14 Examples are the outdoor clothing company Patagonia or the search engine Ecosia. Examples of social enterprises can be found in Nobel Prize winner Muhammad Yunus, who founded several social businesses over decades. 15 Since the adoption of the 2030 Agenda and the Sustainable Development Goals (SDGs) by the United Nations in 2015, 17 Sustainable Development Goals (SDGs) with 169 targets form a global plan to promote sustainable peace and prosperity and to protect our planet. 16 Companies from many countries refer to the SDGs in order to classify their sustainability activities and to explain the relevance for their business activities, as for example the sporting goods manufacturer Adidas does. 17 The SDG Compass was developed and published in 2017 by GRI, the UN Global Compact and the World Business Council for Sustainable Development (WBCSD) for implementation in the corporate context. 18 Overall, the question arises as to how an organization is confronted with sustainability issues and in which dimension the focus lies here. Fig. 6.3. shows the two dimensions of ethicalmoral and economic-strategic motives. While the two groups simplified as "self-employed" and "opportunists" with low ethical-moral motives are of less importance for sustainability strategies, the upper two dimensions of the figure will be examined in more detail. The starting point for particularly proactive sustainable corporate management can be a manager with strong values. 6.4 Organizational Purpose and Sustainability 95 <?page no="96"?> 19 Belz, M./ Peattie, K. (2012), p. 128 as well as Hipp (2020), www.hipp.de/ ueber-hipp/ bio-qualitaet-nachhaltigkeit/ u nser-nachhaltiges-engagement/ . 20 Belz, M./ Peattie, K. (2012), p. 127. 21 De Wit, B. / Meyer, R. (2010a), p. 5. These are often male or female entrepreneurs who start a different type of business. For example, the company Bodyshop was founded by Annita Roddick, who is committed to environmental issues and can thus be assigned to the group of "do-gooders". Claus and Stefan Hipp, owners of the baby food manufacturer Hipp, can rather be classified as "ethical" strategists". They want to balance the triple bottom line in order to live up to their Christian ethical principles and ensure the long-term success of the family business. 19 Degree of ethical-moral motives high Degree of economicstrategic motives low high "Do-gooders " "Ethical Strategists" low "Self-employers" "Opportunists" Fig. 6.3: Four types of sustainability marketers. Own illustration after Belz and Peattie 20 Starting from the respective target of the organization, a particular type of strategic thinking emerges, as will be explained in more detail in the following chapter. 6.5 Strategy Process The way in which a strategy is created can be called strategy process. Typical questions in this context are "how", "who" and "when". 21 The strategy process can be broken down into the three areas of strategic thinking, strategy formation and strategic innovation and change management. 6.5.1 Strategic Thinking In strategic thinking, it is of particular importance that those entrusted with strategy formation are aware of their limitations and possible misperceptions. This also plays an important role for sustainability. Of particular interest here is the strategist's mental model, i.e., the assumptions about how the world works and what causalities exist. This actually useful characteristic, also known as the "mental model", which helps people to find their way in everyday life without questioning everything in every situation, harbors the danger that the strategist will be led astray. All the more so because such 96 6 Strategic Sustainability Management <?page no="97"?> 22 De Wit, B. / Meyer, R. (2010a), pp. 57-59. 23 For a comprehensive discussion of sustainability goals, see the ordonomic concept for strategic management developed by Pies, Beckmann and Hielscher, cf. Pies, I./ Beckmann, M./ Hielscher, S. (2012), pp. 325-341. 24 Pufe, I. (2017), p. 123-130. 25 See, for example, Bea, F./ Haas, J. (2013), p. 57. "Cognitive maps" are often based on experiential knowledge, which is largely applied uncon‐ sciously intuitively as a mental model. This situation assessment does not arise independently, but in interaction with others. People develop a common understanding of the world through interaction with a group over a longer period of time. Such an understanding of the world can emerge in smaller groups, but also at the level of an entire industry or nation. 22 Examples: Differences in understanding of how the world works become especially apparent when visiting a foreign country with a different culture and talking to the people. For example, the understanding of the world by citizens in the United States and Iran sometimes differs significantly. But even countries within a cultural area show strong differences, as shown by the example of attitudes towards the use of nuclear power, which vary significantly between Germany and France within the European Union. Similar differences can also be found between industries, e.g. between organic farming and conventional farming. Concerning the topic of sustainability, it is of importance how the connection between the three areas of economy, ecology and socio-culture is understood and which motivation and fundamental attitude shapes the company engagement with sustainability. Strategy starts with a definition of the goals at the various levels. In addition to the guiding and motivating function of a vision, the corporate mission defines the purpose of the organization within society. At this point it is assumed that a sustainability strategy pursues the target dimensions of the triple bottom line and refrains from a more fundamental consideration. 23 The improvement of the ecological dimension of sustainability can be further specified with the principles of efficiency (increasing productivity to reduce the use of resources), sufficiency (economical consumption styles) and consistency (adopting the principles of nature and processes of the biosphere, circular economy). 24 6.5.2 Strategy Formation and Strategic Innovation Typical steps in strategy formation are the initial determination of the target hierarchy followed by an environmental analysis (opportunities and risks) as well as the evaluation of the company positioning (strengths and weaknesses). Based on this analysis, strategy options can then be developed, evaluated and selected with regard to the desired objective. The subsequent implementation and evaluation of success (strategy controlling) is often already considered as a separate area under the subject area of change management or controlling. 25 The topic of strategic innovations and in particular business model innovations has become increasingly important for the long-term success of companies and thus also for strategic management. Company examples such as Google, Meta, AirBnB, Uber and Tesla have either created or disruptively changed entire industries with innovative business models. How strategic 6.5 Strategy Process 97 <?page no="98"?> 26 De Wit, (2017), p. 449. 27 Uber (2020) www.uber.com/ de/ de/ . 28 Lime (2020) www.li.me/ de/ startseite. 29 ShareNow, (2020). 30 De Wit, (2017), p. 457. 31 De Wit, (2017), p. 458. 32 Singularity University (2020) https: / / su.org/ about/ . 33 KPMG, De Boer, Y. et al. (2012). 34 McKinsey (2020). aspects of innovation management are to be integrated into the strategy process is discussed in theory and practice and are implemented differently with regard to processual order and organizational structure. For example, in de Wit's 2017 sixth edition of his strategy book, an additional chapter on Strategic Innovation was newly introduced, which is placed after the topic of Strategic Change. 26 We consider Strategic Innovation in the context of the strategy process, partly because a separate chapter below links sustainability and innovation. Nevertheless, innovations are of great importance for sustainability management at the strategic level, as it is here that apparent conflicting goals and insoluble challenges can be resolved or overcome. Ecological as well as social sustainability aspects can equally trigger business model innova‐ tions. For example, the concept of sufficiency is being realized through innovative business models of the sharing economy by mobility service providers such as Uber, 27 e-scooter rental companies such as Lime 28 and the car sharing company ShareNow, 29 which emerged from Daimler's car2go and BMW's DriveNow. Owning your own car is becoming less important, especially in metropolitan regions, as ownership is being replaced by access to a wide range of mobility services. Within strategic innovation management, a distinction is made between continuous, gradual renewal (sustained renewal) and disruptive renewal (disrupting renewal). While in the first case, existing products and services are permanently improved in order to increase competitiveness (exploitation), in the second case the current competitive position is challenged by new technol‐ ogies and business models (exploration). Gradual innovation builds on market research data and customer feedback, as well as ideas from within and outside the organization. 30 On the other hand, disruptive innovation, requires leaps of imagination to create something new. Disruptive innovations must be invented, so to speak, in the sense of generative creative thinking rather than analytical thinking. 31 An example of this kind of radical new thinking to solve major social problems is represented by Singularity University in Silicon Valley under the term exponential thinking. 32 Strategic sustainability management defines the company's goals in a special way, taking into account the sustainability dimensions. The company's environment is considered in the long term and holistically, reflecting the specific situation of the company. The basis for such a consideration can be found, for example, in the study of the ten "Global Sustainability Megaforces" published by KPMG. In a compact form, global developments were shown here that will affect companies and industries to varying degrees. 33 The risks of climate change are described even more specifically in the study "Climate Risk and Response" published by McKinsey and predicted in regionally varying scenarios. 34 In order to identify how the company will hold its own in the specific competitive environment, these environmental developments can then be contrasted with a company's strengths and weaknesses in a further step. Of major importance in determining the corporate environment is the question of awareness of sustainability among the various stakeholders. This is particularly true for the stakeholder 98 6 Strategic Sustainability Management <?page no="99"?> 35 Braungart, M. / McDonough, W. (2009), p. 102. 36 Weber, T./ Stuchtey, M. (2019). groups of customers, providers of capital, employees, and management. A thorough and compre‐ hensive assessment of the current situation as well as its development direction in the coming years form the basis for the evaluation of the success of the various strategy options. If, for example, the customers of the company's performance show only a low level of awareness of the aspects of sustainability, it must be examined whether this creates a competitive disadvantage and how this awareness is likely to develop in the future. An important aspect is also the expected behavior of the relevant competitors. The extent to which a company can orient itself to the rules of the respective industry or assume industry leadership here and go its own way is controversially discussed in management theory and in practical terms depends strongly on the specific situation of the company. Influencing factors to describe the situation here are e.g., the customer proximity of the company within the value creation process, company size and relative market share in the relevant market as well as consumer attention towards the product (low-interest vs. high-interest products). Within the respective industry, the question is whether the topic of sustainability is being led, whether this is being tackled jointly or whether the company is responding more to the competition. In the process of strategy development, sustainability management allows innovative ap‐ proaches which differ from the classical methods. Three approaches are shown below as examples. 1. Cradle to Cradle Redesign of the Product Offering According to the Cradle to Cradle approach published initially by William Mc Donough and Michael Braungart in the year 2002, product offerings are designed in such a way that they fulfil the requirement of eco-effectiveness as well as possible. The classic life cycle analysis of cradle to grave, is replaced by a strategic orientation on an offering that satisfies the principles of a circular economy. Based on an in-depth study of the materials used and their attributes, the authors come to the conclusion that materials can be divided into three categories and can be used in different ways accordingly: Biological metabolisms ("bio-sphere"), are suitable and intended to pass through the biological material cycle and to be decomposed back into a nutrient after use. The second category includes technical metabolisms ("techno-sphere"), which are finite and therefore too valuable to be destroyed. These materials should be used and recycled as natural raw materials after degradation in such a way that they are available for further, long-term industrial use. If these aspects are not taken into account or are insufficiently implemented, there are limits to the organization. A third category of materials, "toxic products" should be avoided as far as possible, as these only cause harm to organisms and mixing with the other two types of materials prevents further use in the materials cycle. The materials no longer have a market value and are unsuitable for most applications. 35 Recognition and attention has also been given to the broad-based approach of the Circular Economy, to which the cradle-to-cradle approach is often assigned. 36 2. Consideration of the Principle of Resilience The term resilience ("resilire" means "to bounce back" or "to rebound") originates from physics and means something like "to return to its original state". It describes the properties of materials 6.5 Strategy Process 99 <?page no="100"?> 37 Walker, B./ Salt, D. (2008). 38 Edwards, A. (2010), pp. 157-158. 39 Porter, M./ Kramer, M. (2011), pp. 7-12. 40 Porter, M./ Kramer, M. (2011), p. 4. 41 For critical reflection, see e.g. Beschorner, T., Hajduk, T. (2015). to react in an elastic and flexible manner to external influences while maintaining their original shape. In biology, this term is used in a similar way. It describes the ability of a system to survive when exposed to disturbances. 37 When transferring attributes of those biological systems to company strategy, it is interesting to note that these are based on the principles of diversity, modularity, direct feedback, tight social networks, redundancy, and flexibility. 38 Transferred to strategy, such characteristics are more likely to be found in organizations that are managed according to the portfolio theory than in organizations that subscribe to the principle of concentration on the core business. 3. Shared Value Approach The Shared Value approach ("value-added for both corporation and society") by Michael Porter and Mark Kramer is looking for a way to overcome trade-offs. The approach offers three different avenues to reach that goal and each one leads to new opportunities in the other two areas: 39 a. A fresh look at products and markets with the aim of achieving common added value and the discovery of new market opportunities. Examples include health, helping the elderly and reducing damage to the ecological environment. b. A reassessment of the productivity along the value chain. Topics such as energy use and logistics, resource utilization, procurement, distribution, employee productivity, as well as locational choice are reexamined here in terms of shared value. c. Establishment of local clusters to improve competitiveness, innovation and productivity. Even though the authors distance themselves from the concept of sustainability and coin their own terminology with Shared Value, 40 the concept can be used as an approach for the realization of sustainability strategies, since the main ideas of the concepts are closely related. The concept of Shared Value continues to be critically reflected in the scientific discussion and is still in a concretization phase on the way to a possible general validity in the future. Successful examples from various companies give the inspiration to assess the possible applicability in the companyspecific context. 41 Example: How consumers can be won over as active cradle-to-cradle partners for the company within the framework of a network strategy is described by Peter Lacy, sustainability managing director of the management consultancy Accenture: Starting from the insight that 80 percent of a shoe can be reused on average, it becomes clear that it should not end up in the trash, but instead be exchanged for a new pair with a producer. Similar to a subscription, customers should pay an annual service fee which is above the cost of one pair of shoes but lower than the price of two. Both sides benefit: The customer does not have unnecessary 100 6 Strategic Sustainability Management <?page no="101"?> 42 Peter Lacy (2013), p. 21. 43 De Wit, B. / Meyer, R. (2010a), p. 195. 44 Belz, M./ Peattie, K. (2012), p. 148-149. 45 De Wit, B. / Meyer, R. (2010a), p. 5. 46 Porter, M. (1985). 47 Kim, C./ Maubourgne, R. (2005): Blue Ocean Strategy. old shoes in the closet and the manufacturer achieves customer loyalty and saves on raw materials. "We should no longer look at shoes as a product, but as a service instead". 42 6.5.3 Strategy Implementation / Strategic Change In the context of strategy implementation, the question arises as to whether the change process is rather evolutionary and continuous or revolutionary and discontinuous. Especially when introducing a sustainability strategy, a radical reorientation may be necessary in order to meet the requirements of a Triple Bottom Line. All participants involved along the value chain are challenged to change their usual behavior patterns. Once these fundamental changes have been initiated, the sustainability principles are closer to the concept of evolutionary, continuous and permanent change than to the radical revolutionary approach. Efficiency gains, for example, can be achieved via continuous optimization of solutions in the sense of a kaizen 43 targeted at continuous improvement. Topics of sustainability go through an attention life cycle which consists of the pre-problem stage, discovery and enthusiasm stage, to the solution stage with highest attention, to the waning attention stage, to the stable post-problem stage where the issue enjoys medium attention. 44 This observation is of major importance for the timing of the implementation of a sustainability strategy. Any forward-looking company management will already deal with sustainability issues in the pre-problem stage, in order to be adequately prepared when the issue gains public and political attention and the company is asked to take a stand. 6.6 Strategy Content A further important strategy dimension is content, which can be described as the result or output of the strategy process. In this context, questions about the "what" are being asked: What is and what should be the strategy for the company and its business units. 45 The dimension of content can be structured along the three essential levels business, corporate and network. At each level specific questions need to be answered. 6.6.1 Business Level Strategy At the business level, the question of the appropriate competitive strategy for the long-term success of the company unfolds in connection with the (competitive) positioning. In addition to the classic strategic approaches by Michael Porter which have a strong focus on competitive forces, namely differentiation, cost leadership and niche, 46 newer theories pursue the goal of creating a new, unique benefit curve. 47 Are any of these three approaches particularly suitable or unsuitable for sustainability strategies? In particular, the approaches of differentiation as well as niche offer a very interesting 6.6 Strategy Content 101 <?page no="102"?> 48 Cohen, E. / Taylor, S./ Muller-Camen, M. (2012), p. 3. 49 Belz, M./ Peattie, K. (2012), p. 147. basis for a sustainability strategy that is successful in the long term. Many companies initially focus on the niche of consumers with a strong awareness for ecological and social issues (e.g. the LOHAS group, Lifestyle of Health and Sustainability). For a sustainability strategy to be successful, it is important to convince those responsible at business level of the sustainability approach. With their commitment, a sustainable business model for the value-creating core activities of their business unit can be developed. If this is not successful, the strategy runs the risk that the topic of sustainability is seen as just another framework condition imposed from above or from outside, whose rules and regulations ("compliance") must be ensured and only to a limited extent value is created for customers, the company and society. In this context, the literature often refers to the distinction between corporate social responsibility and sustainability and argues that the sustainability approach is more concerned with the changes to the core business. 48 At the business level, decisions are made about the direction of the company's core business, the core processes and the business model of the company. By giving these aspects a sustainable direction, it can be avoided that any sustainability reporting merely amounts to superficial "green washing". Instead, the value chain of the company becomes sustainable. In the following, a strategy is defined at this level for the various functional areas such as marketing, finance, human resources and procurement. Since customer orientation continues to play a major role for the success of companies with a sustainability focus, the course of action for a sustainability marketing strategy is demonstrated as an example. Following the methodology of Belz and Peattie, 49 such a strategy is developed in five major steps: 1. Screening of sustainability issues and actors 2. Segmentation of sustainability markets 3. Introduction of sustainability innovations 4. Positioning of sustainable products 5. Partnering with sustainability stakeholders Even if the focus is on questions that are relevant for marketing and other aspects need to be considered for a business unit strategy, the positioning of the entire company or the division plays a central role when implementing a sustainability strategy. 6.6.2 Corporate Level Strategy Initially the question arises whether a company can be sustainable in different ways in different areas or whether this leads to reputational conflicts. In order to avoid internal cultural conflicts, top management of the entire company should provide guidance with regard to ethical and cultural values. This challenge is managed more easily by a start-up with sustainable corporate objectives and a corporate strategy geared towards sustainability, than an organization that has been focused on pure profit maximization for many years and generates a large share of its sales in departments with a traditional orientation. As an example, consider a chocolate manufacturer that has a growing but still relatively small share of sales from the sustainability-oriented organic chocolate business. 102 6 Strategic Sustainability Management <?page no="103"?> 50 Bonini, S., Swartz, S. (2014). 51 See on core competencies Prahalad, C./ Hamel, G. (1990). 52 Edwards, A. (2010): p. 158. The search for synergies among various business units is also an important task at corporate level. In addition to cost savings, synergies can also lead to increases in effectiveness and efficiency that contribute to the achievement of sustainability goals in all three areas. However, the synergies gained can have a potentially critical impact on the social dimension of sustainability, as synergy can also mean achieving the same or higher performance with fewer employees. However, turning a blind eye to such efficiencies could jeopardize a company's existence in the medium term and thus contradicts its focus on economic sustainability. Resources that are freed up via synergies should be appropriately allocated to new tasks within or outside the organization in the sense of a responsible approach to accompanying such change processes. In the implementation of sustainability, certain support activities needed by many business units can be provided centrally. This leads to synergies via leverage and economies of scale. Coordination is required to meet diverse sustainability initiatives at different levels. 50 An important aspect of strategy at the corporate level is the question of risk management and risk balancing among the business units. The approaches familiar from portfolio theory take on a new meaning in the context of the concept of resilience. The approach of focusing on the core business 51 propagated by strategy researchers in recent decades can be critically questioned in the biological context of sustainability considerations as a mono-culture. As already described in strategy development, resilient systems have, among other things, characteristics such as diversity and redundancy, modular components and flexibility. 52 Future-proof business models, which are supported by the approach described in subchapter 6.5.2 can arise proactively and systematically, then successively replace outdated and un‐ sustainable business models and thus secure the economic existence of the company. These characteristics thus correspond more to a diversely structured organization managed according to portfolio theory than to an organization narrowly focused on core activities. 6.6.3 Network Level Strategy At the network level, the fundamental question arises whether and to what intensity a company is willing to cooperate with other organizations. If there is a willingness to cooperate, the parameters used to select potential partners as well as the resulting expectations for the future behavior of the partner need to be defined. A sustainably oriented network strategy pursues the goal of cooperation with organizations that pursue similar sustainability goals with a corresponding strategy. This is of particular importance regarding upstream and downstream stages of value creation, as it enables a sustainable product to be offered to end-users even in processes with a strong division of labor. If a company follows the cradle-to-cradle principle, the user should also be included in this network strategy regarding the use, care, maintenance, repair, and recycling of the product. 6.6 Strategy Content 103 <?page no="104"?> 53 Brownstein, C. / Armisen, F. (2011). 54 De Wit, B. / Meyer, R. (2010a), p. 5. 55 Federal Environment Agency (2020): www.umweltbundesamt.de/ themen/ verkehr-laerm/ emissionsstandards/ pk w-leichte-commercial-vehicles#the-european-exhaust-legislation. 56 De Wit, B. / Meyer, R. (2010a), pp. 946-953. case study on Nike and University of Oregon. 57 Bea, F. / Haas, J. (2013) p. 374. Example: In order to create a full awareness for the particularities of a sustainable offering, the interest and understanding on the part of the partners along the value chain is necessary. For example, a convinced and motivated employee of an organic supermarket or a restaurant working exclusively with organic products can communicate the advantages of a sustainably produced organic product particularly well. An entertaining exaggeration of this principle is presented by the American web comedy series "Portlandia" in the episode "In the Restaurant". The restaurant guests ask very detailed questions about the origin of the chicken served and in the end decide to visit the farmer. 53 6.7 Strategic Context The group of environmental conditions in which the strategy process and the strategy content are defined is referred to as the Strategic Context. Formulated as a question, it is to be determined here where, in which environment the strategy process and content is embedded. 54 Sustainability issues can come to the company either directly or indirectly. In the direct case, the public addresses companies directly, while in the indirect case, the route is via the political decision-making process. An example of the indirect case is the European regulation to reduce the average CO 2 emissions of car manufacturers. 55 Exemplary for direct influence on the part of the public are protests towards the American sporting goods supplier Nike in the context of the undignified working conditions of supplier production plants. 56 In addition to the classically considered context dimensions of organization, sector (industry), and international context, the framework can be expanded in sustainable business management to include the dimension of the Ecological Environment. 6.7.1 Organizational context Management and employees interact in a company-specific organizational context, which is determined by dimensions such as company size, length of existence and stability of the business model. For that reason, a number of strategy researchers are of the opinion that "strategy follows organization" and not the opposite "organization follows strategy". 57 This debate is relevant for the topic of sustainability at an organization. A small start-up company can be aligned with the principles of sustainability already during its foundation and pursue a pure sustainability strategy. This is a characteristic of Social Entrepreneurship or Social Innovation. If organizations are already founded with the purpose of solving social problems, the profit motive is of lesser importance. No dividends are paid out and profits are reinvested to support additional growth. 104 6 Strategic Sustainability Management <?page no="105"?> 58 BMW AG (2013). 59 ShareNow, (2020). 60 Ritter Sport (2013). 61 Ritter Sport (2018) www.ritter-sport.de/ export/ sites/ default/ .galleries/ downloads/ 180126_RitterSport_PM_W ir‐ really_good_chocolate.pdf. 62 See Adidas (2013): Adidas Sustainability Report 2012. 63 Adidas (2020) https: / / report.adidas-group.com/ 2019/ de/ konzernlagebericht-unser-unternehmen/ nachhaltigk eit/ our-approach.html. 64 See for example the article by Baden-Fuller, C. / Stopford, J. (1992). Reprinted in: De Wit, B. / Meyer, R. (2010), p. 403. This transition to sustainable corporate management becomes more difficult for companies that have reached a certain size by means of a traditional profit orientation. A quick and company-wide switchover is hindered by investment decisions that are amortized over longer time periods, obligations from supplier contracts and responsibility for long-term employees as well as technology decisions from previous periods. Examples of companies in a rather complex environment and potential obstacles to change are large automotive companies such as Mercedes- Benz, Volkswagen and BMW, which have invested billions of Euro in production facilities and drive systems and employ thousands of employees at home and abroad. Example: Accordingly, large companies often pursue a strategy of creating a new corporate division dedicated to new sustainability-oriented concepts. See the examples of the BMW i-series models BMW i3 and i8, which have already been on offer for years, as a special brand for vehicles with electric drives 58 and the car-sharing service ShareNow by BMW and Daimler. 59 The commitment of chocolate supplier Ritter Sport to fair trade organic chocolate while continuing its classic product line can be seen in a similar light. 60 However, cultural conflicts between the traditional and the sustainably oriented corporate divisions can potentially arise here, which are perceived negatively by the public. Since 2018, certified sustainable cocoa has been used for all Ritter Sport products 61 and a separate organic product line is currently not available on the website. Other large companies take the approach of involving the entire organization in this change process. They proactively deal with the statement that they are not perfect in all areas, but are in a development process towards more sustainability, which will take several years. It is important here to set clear milestones and to report regularly on what has already been achieved and what has not been achieved against these targets. An example of this is the sporting goods supplier Adidas, which documents its sustainability strategy as a five-year plan in its sustainability report 62 and has now integrated this into its annual report. 63 6.7.2 Industry Context The degree of sustainability orientation varies greatly between different industries. Regardless of the status, each company faces the strategic choice of either following the industry rules or pursuing a company-specific path. 64 Starting from the assumption that all industry participants are subject to similar framework conditions and rules within an industry, companies need to 6.7 Strategic Context 105 <?page no="106"?> 65 A good overview of the maturity of sustainability activities per industry is provided, for example, by a KPMG study: KPMG (2017). 66 Daniels, J. / Radebaugh, L. / Sullivan, D. (2015), p. 448. determine whether they have the perspective of Industry Leadership and whether they are open or secretive towards the competition. Industries can differ significantly in their awareness of sustainability. The development dynamic of the sustainability dimensions depends, among others, strongly on the position in the value chain. Industry-dependent barriers to market entry and market exit can mean that retail companies, for example, can switch more flexibly to sustainable product offerings than industrial companies with sometimes high investments in tangible and intangible resources (fixed assets and product developments with patents). The situation is similar for companies whose activities are in the field of raw materials extraction (mining companies, mine operators, oil and gas extraction companies, etc.). For example, the development of oil and gas fields is a long-term engagement. 65 Companies with a high sustainability orientation ("missionaries") rely on positive spillover effects of an "exemplary corporate strategy" on other market participants of the same value chain stage as well as upstream and downstream value chain stages (suppliers and customers). Thus, in some cases even smaller companies can trigger a process that also has an impact on larger companies. Such a proactive corporate strategy can lead to a technological and process-related advantage for the pioneer and put competitors under pressure. However, as with innovations in other areas, there is a risk that the market is not yet ready for the innovation and potential customers may show little interest in a pioneering effort. Competitors can then learn from the pioneer's mistakes and come up with an already optimized solution. Within the respective industry, the question thus arises as to whether the topic of sustainability is being spearheaded, whether this is being tackled jointly or whether the company is following the competition. 6.7.3 International Context Since Carsten Herbes devotes a chapter dealing with international challenges, reference can be made here to the remarks made there. In short, a sustainability strategy depends on whether a company procures, manufactures and sells in different countries. Awareness of sustainability depends, among other things, on the culture of the country and the level of material development and confronts companies with the question of unified corporate standards in different market environments. In business ethics, a distinction is made between relativism (region-specific adaptations) and normativism (globally unified standards). 66 6.7.4 Ecological Context Companies can either take the ecological context as invariant or start from the assumption that an individual company can have an influence on ecology. The extent to which the ecological environment interacts with corporate performance varies greatly from industry to industry. Some industries are more likely to be perceived by policymakers and the public as causing environmental damage ("polluters", mining companies, energy producers, vehicle manufacturers, airlines). Environmental change can also have a negative effect on the business plan and business model ("affected parties", e.g. agricultural, forestry or tourism businesses). How climate change 106 6 Strategic Sustainability Management <?page no="107"?> 67 See e.g. McKinsey (2020). and related environmental changes affect different regions is shown by forecasts and studies, such as the McKinsey study on climate change mentioned earlier. 67 Even if a detailed impact analysis comes to different results than the public perception and even if companies classified as affected have also contributed to the negative developments, the two groups face different challenges. The companies classified as polluters by the public are called upon to act proactively in order to avoid long-term reputational damage to the company on the market and in the general public. The companies affected by the changes are called upon in an existential way to deal with the ecological context. In addition to activities to avert negative environmental developments, these companies are also called upon to develop alternative strategies as a Plan B or C that ensures the survival of the organization also in a negative environment. Example: Tourism operators are preparing for scenarios of less natural snow in the Alps. The operators of alpine skiing resorts are taking different precautions to prepare for these changes. Maintaining the current activities can be achieved by covering the glaciers with protective tarp and by using snow-making installations. However, at least in the latter case, this is associated with high energy consumption, pollutant emissions and costs and is thus not very sustainable in terms of the ecological and economic dimensions. More sustainable would be the shifting of the tourism offering towards other activities such as mountain biking in summer and snowshoeing instead of alpine skiing in winter. At a Glance Sustainability issues affect strategic management in a variety of ways. It is at this level of consideration of the topic that it is decided whether an organization seriously, consistently and in the long term pursues sustainability. The industryand company-specific combination of the three target dimensions ecological, economic and social sets the course for the future success of the company. Insufficient consideration of one of these dimensions can develop into an existential threat to the company. While the goals are defined here in relation to the purpose of the organization, the measurement of success in the sense of integrated reporting, which is considered elsewhere, is an important source of information for the implementation of the strategy as well as for the further development of the sustainability strategy. To achieve these goals, it is necessary to combine analytical strategic thinking with creative lateral thinking in order to develop a strategy that is suitable for the company's situation and to transfer it into concrete implementation steps. In terms of content, strategy topics are to be defined at all levels of the company, from the functions at the level of the business units, the overall company level up to the level of the networks with regard to sustainability. In terms of content, the business unit level is of particular interest, as it shows whether and to what extent the company's product offerings are sustainably oriented and can secure a competitive advantage through innovative approaches. In summary, Figure 6.4 supplements the dimensions of the strategy presented at the beginning with key sustainability aspects at the various levels of the dimensions. 6.7 Strategic Context 107 <?page no="108"?> 68 Own presentation based on De Wit, B. / Meyer, R. (2010), p. 12 and p. 14, including the ecological context. The context considered at the strategic level is supplemented here by the ecological context in addition to the organizational, industry and international context otherwise used. This acknowledges the growing awareness of the importance of this dimension for the medium to longterm success of a company. A quite familiar discussion from the consideration of the industry context as to whether the rules of an industry are unchangeable or whether new framework conditions are to be created by proactive action on the part of a company should be regarded as fundamentally changeable in the interests of sustainability, even if it is not always possible to achieve all objectives in full. Ecological context International context Industry context Organizational context Network level Company level Business unit level Change Management Strategic development Strategic thinking Strategy cotext Strategy content Strategy process Organizational purpose Join values Sustainable value chain Standards, synergies Pioneering areas Sustainable core product competitie advantage Setting example Industry standard World standards relativism Organization size Common standards Revolutionary, evolutionary attention cycle Cradle to Cradle Design, Resilience, Shared Value Long-term holistic transdisziplinary Cause and effect Fig. 6.4: Overview of the strategic dimensions and key sustainability aspects 68 In the concretization of strategy work under sustainability objectives, a great deal of research work still needs to be done, which can only succeed in close interaction between practice and science as well as a great openness to other disciplines. 108 6 Strategic Sustainability Management <?page no="109"?> Literature Adidas (2013), Adidas Sustainability Report 2012, https: / / www.adidas-group.com/ media/ filer_public/ 53/ c3 / 53c302d6-ebcd-480d-b651-8b3f5e0c5763/ adidas_spr2012_full.pdf, accessed 02.10.2022. 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(2011): Building Social Business, New York. 110 6 Strategic Sustainability Management <?page no="112"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="113"?> 7 Agile Leadership Horst Blumenstock and Steffen Scheurer Learning Objectives: The readers ■ know the elements of leadership ■ understand what developments there are in the corporate world and how these affect human resource management ■ can distinguish between cultural, structural, and interactional agile leadership ■ understand the connection between sustainability and agile leadership ■ know the framework conditions and the prerequisites for agile leadership ■ know the characteristics of agile leadership ■ can assess which expectations employees have of modern leadership Keyword List: Agile leadership, agile mindset, holacracy, self-organization, employees 7.1 Leadership: Briefly Explained Leadership represents a subarea of corporate management. The conventional understanding distinguishes between three management levels: The top, middle, and lower management levels. While the focus at the top management level is the definition of corporate goals and strategies, the other management levels are primarily dedicated to transformation, the implementation of objectives, and strategy in operational work tasks for employees. The basis of this understanding is that each employee has relevant tasks to perform in order to achieve the company's goals. The traditional understanding of human resource management includes three elements: The interactive or direct, the structural or indirect, and the cultural components. In some cases, cultural management is subsumed under structural management. All three areas complement and influence each other. The interactional leadership comprises the goal-oriented, social influence of the manager in order to fulfill tasks together with the employee or to achieve the company's goals. Through the participative design, a mutual influence is possible, and the employee can contribute his ideas, wishes and skills on an equal footing with the supervisor. Work tasks are designed by consensus. Through this approach, social goals, such as employee satisfaction, are integrated into employee management. Within the leadership process, the manager uses various instruments and methods. Particularly worth mentioning are employee appraisals, such as target agreement meetings <?page no="114"?> 1 Schein, E.; Schein, P. (2018), p. 6 et seqq. 2 This is a very abbreviated excursion. For a detailed account, see Bea, F.X.; Göbel, E. (2019), pp. 49. or feedback meetings. The communication between manager and employee is of paramount importance for interactional leadership management. Structural leadership management implements interactional leadership in an organizational framework. This framework is company-specific, determines direct leadership on the one hand, but also supports it on the other. Interactional leadership is embedded in the company's organi‐ zation based on the division of labor, which determines work tasks and areas of responsibility. Furthermore, working time systems, incentive systems, and company agreements determine the rights, duties, and possibilities of managers and employees. If, for example, a remote work agreement exists in the company, this has far-reaching effects on the interaction between supervisor and employee, especially with regard to communication, presence, and control of work. The existing information and communication systems shape the behavioral expectations of employees. The use of wikis, podcasts or vodcasts replaces employee meetings to a certain extent. On the other hand, the company's fixed incentive system determines the monetary and non-monetary bonuses that the manager may use. The contents of cultural leadership results from the convictions, common values and the desired mutual behavior existing in the company. The target corporate culture describes the company's objectives in this regard, while the actual corporate culture represents the values and convictions actually lived. The cultural DNA of the company develops as the sum of the common learning of the group members. Thus, it represents a concept for the interaction of the group members with each other and determines the mutual behavioral influence in the context of interactional leadership. This concept is constantly changing due to social and market influences as well as the entry and exit of employees. The adaptation is mutual: New employees are socialized in the company, at the same time every new employee changes the corporate culture to a certain extent. Company-internal "cultural heroes" point out trends and changes, which are examined, accepted and further developed by the company members. If the speed of change is too slow, then market changes may force the "cultural change". Within his area of responsibility, the superior is able to build up a specific subculture together with the employees. The subculture complements the company-wide management culture and redefines the behavioral framework for interactional leadership. However, there must be a fundamental agreement between the cultural levels. 1 7.2 Agile Leadership and Sustainability In order to trace the development of leadership towards agile leadership and to establish the connection to sustainability, a short excursion through the development of organizational theory will be undertaken in the following. 2 In doing so, the different views on companies and employees are deliberately presented in a pointed manner in order to show concisely how great the development towards agile leadership is. In the traditional understanding of a company, leadership is seen as the goal-oriented social exertion of influence for the fulfillment of joint tasks by managers and employees in a structured organizational framework. Basically, various basic assumptions are implicit in this view: 114 7 Agile Leadership <?page no="115"?> 3 Weber, M. (1922); Roethlisperger, F. J./ Dickson, W. J. (1966). 4 We will go into this in more detail under the heading VUKA world in chapter 3.1. ■ There is a relationship of superiority and subordination between the manager and the employee. ■ The manager tries to influence the behavior of the employees either directly or indirectly by setting the appropriate cultural and structural framework. ■ It is a matter of implementing the goals of the company and, if possible, harmonizing these company goals with the goals of the employees by means of appropriate incentive systems. These basic assumptions testify to a rather traditional view of companies and the people working in them. Companies are seen as socio-technical systems that can be controlled more or less directly via linear causalities. In such a system view, employees are "social elements" who are assigned their place in the system through the appropriate design of coordination and delegation relationships so that the overall system of the company functions smoothly. The objective of the companies is developed and set by the management in consultation with important stakeholders, especially the owners. Employees tend to be seen as "work avoiders" and opportunistic utility maximizers, who must be committed to the pursuit of goals through clear directives. Such a view of business, based on the work of Max Weber, Frederick Taylor and Erich Kosiol was for a long time predominant in business studies. With the Hawthorne studies of Roethlisberger and Dickson 3 and the emergence of human relations approaches, the company was understood more as a social system, and the needs and motivation of the employees became more central. The question of incentives was raised, which should lead employees to make a goal-adequate contribution. However, it is still a matter of getting the employees to act in a goaladequate manner in the sense of the company management by using appropriate motivational factors. The view of companies and employees is changing with the emergence of new organizational theory approaches. In particular, the situational, evolutionary, self-organization, and interpretive approaches should be mentioned here. First of all, the situational approach is interesting here, which states that a company must align its goals and strategies with its environment; ideally, a fit between the company and the environment should be established. In addition, an internal fit is needed. The structure and other management subsystems, as well as leadership, should be aligned in such a way that they support the implementation of the strategies. However, it is precisely this environment that is developing in an increasingly dynamic and unmanageable way. 4 Companies are increasingly seen as evolutionary systems which can only be controlled to a limited extend directly. The development of companies results from a mixture of linear and non-linear causalities, in particular emergent self-organizing mechanisms. Companies are seen as systems that have to be adaptive above all. This requires constant organizational learning. The prerequisite for any organizational learning is always the individual knowledge of the employee. Thus, people are of central importance to the development of companies. In addition, in complex environments, the objectives of a company can no longer be formulated so clearly and unambiguously. The result is the overriding objective of the company's adaptability to the environment. This is most likely to be achieved if employees are given the necessary freedom to organize themselves and thus react appropriately to the situation. Of course, there must still be a common alignment of all activities in a company. However, this common orientation is achieved less through clearly defined goals, but rather through a common 7.2 Agile Leadership and Sustainability 115 <?page no="116"?> 5 At this point, too, only a very rough outline of some of the characteristics of postmodernism and its effects on generations Y and Z can be given. 6 On this concept of quantitative and qualitative freedom Dierksmeier, C. (2016), pp. 11f. and p. 358. corporate culture or a deeper underlying common corporate purpose. The interpretative approach of the organization according to Berger, Luckmann and Weick makes corresponding statements. These new ways of looking at a company and the resulting consequences for leadership are strongly linked to the postmodern development of society and to the attitude to life of younger generations such as Generation Y and Z. 5 Only a few characteristics of postmodernism can be addressed in this article, but they have a great influence on the understanding of leadership. Firstly, there is the deeply felt skepticism towards simple, singular and purely rationally derived "truths". The world is seen as complex, not completely comprehensible and, above all, as capable of being perceived and described in many different ways. Pluralism replaces one-dimensional guidelines. This means, however, that the opinion of each individual, and thus of course also of each employee, is given a high priority. This is reinforced by the fact that every employee today has almost unlimited access to knowledge. Bureaucratic power and dominance relationships or those legitimized by the withholding of knowledge are no longer accepted. Moreover, the idea of materialism, which is strongly rooted in modernity, is increasingly being replaced by the idea of personal freedom and the urge for self-development. This urge for freedom, especially among the younger generation, is less about a pure maximization of personal degrees of freedom (quantitative freedom) and more about striving for qualitative freedom. This means that in a liberal society the degrees of freedom of some should not be restricted by the degrees of freedom of others. 6 In connection with this, the idea is increasingly gaining ground in the field of economics that economic value creation is not primarily achievable through opportunistic economic benefit maximization, but rather through value-based and ethical action. The search for qualitative freedom on the one hand and for ethically justifiable economic value creation on the other thus leads to sustainable management. Customers, business partners and, of course, not least the employees of companies expect the company to be oriented towards social, ecological and economic value creation. And not only this: A wide variety of external and internal stakeholders are increasingly demanding a voice in the direction of companies. Employees are no exception. The younger generations in particular are striving for meaningful participation in the creation of social and ecological added value and thus for the implementation of sustainability principles in the culture of a company. In the recent past, this has become clear, among other things, in the worldwide strengthening of the Fridays for Future movement, which primarily advocates the ecological aspects of sustainability. In addition, the 17 Sustainable Development Goals (SDGs) formulated in the UN's 2030 Agenda also allow a whole series of goals to be derived that address social sustainability issues. 116 7 Agile Leadership <?page no="117"?> 7 https: / / www.bmz.de/ de/ agenda-2030. 8 https: / / 17ziele.de/ info/ was-sind-die-17-ziele.html. Fig. 7.1: The 17 global goals for sustainable development of the 2030 Agenda 7 In the following, only those goals that address social sustainability issues are highlighted: ■ Goal 3 Health and Well-Being: Ensure healthy lives for all people of all ages and promote their well-being. ■ Goal 4: Quality education: Ensure inclusive, equitable and quality education and promote lifelong learning opportunities for all. ■ Goal 5: Gender equality: Achieve gender equality and empower all women and girls. ■ Goal 8: Decent work and economic growth: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. ■ Goal 9: Industry, innovation and infrastructure: Build resilient infrastructure, promote widespread and sustainable industrialization and support innovation. 8 In accordance with the fit concept, companies must adapt to the changes in their environment and in their markets, and in particular they must orient themselves to the requirements of their stakeholders such as customers and employees. How do postmodern developments and the increased orientation towards sustainable manage‐ ment now change the view of leadership? This is examined in the following chapter from the perspective of interactional, structural and cultural management. 7.2 Agile Leadership and Sustainability 117 <?page no="118"?> 9 Own representation. 10 Janszky, S. (2018), p. 16 et seqq. 7.3 Conception of Agile Leadership The last chapter already referred to the fact that the entire business environment is changing. In this chapter, we will show in more detail how the corporate environment is changing as an important framework condition for agile leadership. In a second step, it will be shown which cultural and structural prerequisites must be created in a company so that agile interactional leadership can succeed. 7.3.1 Framework Conditions of Agile Leadership The development towards the agile form of leadership is the answer to the changes in the external and internal corporate environment. Companies find themselves in a VUCA world: Volatility The extent, scope and speed of change are growing Uncertainty Uncertainty increases, decision risks rise VUCA Complexity National and international dependencies increase Ambiguity Explanations become more complex, scope of information increases Fig. 7.2: The VUCA world 9 One example of the VUCA world is the increasing digitalization of work. In the "Internet of Things", all processes are networked, and interdependence is increasing. This has far-reaching effects on the content, structure and scope of work. The internationali‐ zation of the economy generates networks that on the one hand expand the potentials in the production of goods and services, but on the other hand increase the complexity and the scope of coordination of economic decisions. Information technology provides extensive information that must be evaluated and interpreted in order to assess risks. Big Data transports the potential marketing activities of companies into another dimension. 10 At the same time, there are up to five generations of employees working in companies, whose values and ideas are sometimes very different. Diversity in companies in terms of age, gender, nationality and skills is high and still increasing. The baby boomer generation tends to appreciate work structures that are oriented towards stable organizational processes and structures. Functionally organized teams with clear hierarchies are among the tried and tested forms of work. Generation Y, on the other hand, is primarily familiar with the working world 118 7 Agile Leadership <?page no="119"?> 11 Aghina, W. et al. (2018), p. 7. 12 Suchy, O. (2018), p. 286. 13 Scheller, T. (2017), Introduction. 4.0. The digital natives prefer a high degree of individualization and freedom of decision. Flat structures, clear distribution of roles, quick decisions as well as the intensive use of current information and communication technology are just a few examples of the working world that they primarily know and have experienced. 11 Changes in the "internal labor market" result from the increasing number of works offers via crowd-working platforms. External, independent, and only temporarily employed specialists offer highly specialized work. For companies, opportunities are opening up to deploy "external employees" largely independently of corporate structures and framework conditions. 12 The manifold changes in the working world today and tomorrow require an adapted form of leadership. Leadership cannot remain in outdated hierarchical structures but must face up to the breadth of diversity in companies and the VUCA requirements. 7.3.2 Prerequisites of Agile Leadership How interactional leadership can be implemented in concrete terms depends very much on the structural and cultural preconditions of leadership. To get a better view of what conditions need to be in place to enable agile people management, it's worth taking a look at the key characteristics of agility. As already indicated, agility must be understood as a response to the VUCA world. In a VUCA world, a company with hierarchical structures and relatively inflexible external coordination mechanisms such as direct instructions or planning can neither keep up with the diversity nor with the dynamics of the environment. In order to be able to deal with complex environments, the complexity and, at the same time, the variety of one's own system must be increased accordingly. What does this mean in concrete terms? What conditions must be created through cultural and structural management in order to achieve the necessary agility? In a first step, the cultural requirements are considered. Agile leadership can only succeed if an agile mindset prevails throughout the entire company. In a VUCA world, the principle of learning through experimentation must replace overall planning. Learning must take place step by step, building on the findings of the last experiments. The development of the company then proceeds iteratively and incrementally in small steps, always interrupted by constant feedback loops. Large designs can no longer fail due to the rapidly changing environment, as these do not arise in the first place due to the permanent iterative learning process at many levels of the company. 13 However, such experimental learning processes are only possible if employees are given the necessary freedom to do so which requires a positive view of people. This sees people as fundamentally curious, socially responsible and striving for participation and decision-making power. Based on such an image of humanity, it is part of an agile mindset to take a leap of faith in self-organizing cross-functional teams and to trust that they will also handle decision-making power responsibly in terms of the best solutions for the company. It must also be part of the agile mindset to support the personal development and devel‐ opment of the employees and to do so equally and regardless of ethnic background or gender. Plural perspectives should be welcome, discussions and joint reflections in the team 7.3 Conception of Agile Leadership 119 <?page no="120"?> 14 Scheller, T. (2017), p. 45. 15 Strauch, B./ Reijmer, A. (2018). 16 Robertson, B. J. (2016). 17 Robertson, B. J. (2016). to find creative and situation-adapted solutions should replace directives or scheduled and standardized procedures. Cultural management has another important role to play. The culture of the company must ensure that the many decentralized learning and iteration steps take place within a common framework of meaning with which all employees can identify. Against the background of social development, cultural management must ensure that employees have the opportunity to participate in the implementation of sustainable corporate goals and to provide added value to society. This added value is seen, especially among younger generations, in making a contribution to ecological and social sustainability goals. On the one hand, the shared sense of purpose leaves room for innovative solutions and independent decisions by employees, but at the same time creates a common framework for action to which all employees of the company are committed. In addition, the consideration of private concerns of employees as well as the maintenance or promotion of physical and mental health should be a matter of course. In a second step, the structural requirements of agile leadership are now considered. Basically, it is a matter of setting up suitable structures in the company that allow employees to obtain decision-relevant information as quickly and reliably as possible and then to process this information independently in the sense of the company's overall objectives. Or formulated in other words: It is about creating the structural conditions for a learning organization. 14 From the point of view of structural management, hierarchies must therefore be significantly flattened and transformed into decentralized team-oriented structures. In addition, framework conditions must be created in which autonomous self-organization processes can take place. The strict separation between the company and the environment must also be made more permeable, and customers should be included in team structures. In addition, communication platforms or communities of practice, which offer uncomplicated opportunities for the ex‐ change of knowledge. This should ensure continuous and rapid learning processes with the direct involvement of the customer. In this way, the prerequisites for organizational learning and thus a high development capability of employees and companies should be promoted. In the meantime, various agile or‐ ganizational models such as sociocracy, 15 holacracy 16 or evolutionary organization 17 are discussed in the literature, all of which attempt to create the agile mindset and agile structural conditions. Thus, such agile organizational models also represent the basis for the implementation of an interactional agile human resource management. 7.3.3 Characteristics of Agile Leadership As briefly explained in Chapter 1, interactional leadership in organizations based on the division of labor is the essential process for turning rather abstract corporate goals into operational work goals for employees. In this way, leadership makes a central contribution to the achievement of corporate goals and to the adaptability of the company to the VUCA world. In chapter 2 it was explained that in the sense of sustainable corporate management economic, ecological and social goals have to be achieved. This includes the goals and interests of the employees. It has also already 120 7 Agile Leadership <?page no="121"?> 18 Lippmann, Steiger (2019), p. 77. been shown that interactional leadership is embedded in structural and cultural management. Structural and cultural management are indispensable prerequisites for the development toward agile leadership. All three areas must be coordinated in this sense. In the following, the differences between the classical, but still current understanding of leadership in comparison with the agile, future-oriented leadership are elaborated on the basis of four central characteristics of leadership. ■ Goal, result, and task orientation ■ Understanding of roles ■ Information and communication processes ■ and decision-making and enforcement. - 7.3.3.1 Classical understanding of leadership The classic instrumental orientation of leadership focuses on goals, results, and tasks. Work objectives are set for employees, tasks are assigned, and results are monitored. The contemporary understanding is dominated by the cooperative view of leadership, which strives for a high degree of participation of the employees based on the human image of Theory Y. Manager and employee have different roles to fulfill. A position holder in a social system is confronted with different expectations that are not always clear or explicitly formulated. Moreover, expectations change depending on the internal and external business environment. 18 In the current understanding of leadership, the manager is specifically the supreme coordinator of group activities, the planner who decides on ways and means by which employees strive to achieve their work goals, the expert who possesses outstanding expertise and problem-solving skills, and the manager who is the leader. The manager is the person with the most effective leadership skills, the representative who represents the employees or the group externally and internally, and the arbitrator and mediator who intervenes in the event of conflict. Managers ultimately make the decisions, and they have the formal power for rewards and sanctions. In information and communication processes, they are the central conduit for information relevant to the company and its mission. They filter the information and initiate the communication processes, for example in the form of employee discussions or team meetings. The way in which decisions are made and enforced characterizes the leadership behavior practiced. The above-mentioned cooperative form of leadership is based on trust and participation, but it is still based on a hierarchical relationship between manager and employee. 7.3 Conception of Agile Leadership 121 <?page no="122"?> 19 Own representation. Adapt and decide Set goals Information provide Tasks delegate Organize Fig. 7.3: Instrumental orientation of leadership 19 - 7.3.3.2 Understanding of agile leadership As described in 3.2, significant changes are to be made in the cultural and structural areas of leadership. However, revolutionary shifts will occur within the framework of interactional leadership. The classic form of hierarchical leadership is abolished in the final stage of agile leadership. The dominance of the manager in the orientation of goals, tasks and results in the company is significantly reduced in favor of the degree of freedom of the employees and collaboration. In the final stage, self-organizing teams and employees dominate, combined with largely eliminated hierarchies. Employees choose goals and tasks independently and have a high degree of decisionmaking freedom. The working time, the organization of work as well as the place of work can also be determined by the employees. The rigid presence in the company is replaced by a very flexible, largely free organization of working time, which meets both the interests of the company and the needs of the employees. Trust replaces control, or through integration into a team, mutual responsibility is perceived. Role expectations are changing comprehensively. The manager becomes the "enabler". His most important tasks are to ensure the framework conditions, prerequisites, and resources for the successful work of the team. At the same time, he claims dysfunctions in the agile mindset of the group. He confronts the employees and the team with these discrepancies and thus contributes to the constructive resolution of conflicts. In the final stage of agile leadership, the previous manager and the employees meet on an absolutely equal footing the team concept is predominant. The 122 7 Agile Leadership <?page no="123"?> 20 Robertson, B. J. (2016). 21 Robertson, B. J. (2016), p. 36. potential of the employees is to be exploited in the best sense. This means that the "enabler" sees the promotion, further development, and qualification of the respective employee as the central creative task. The individual possibilities and needs of the employee are the main focus. On the other hand, the role expectations of the employees also change. On the one hand, they are allowed to choose their "ideal" working environment, on the other hand, they have a high degree of responsibility for achieving their work goals. The central position of the superior no longer applies. Information and communication processes can be initiated by all team members. Direct communication is preferred. Employees as experts exchange information openly with other experts. Decisions about who is informed about what and when are made exclusively in a solutionand goal-oriented manner. The non-open form of communication is frowned upon in the agile mindset. The omniscient superior has had its day. On the other hand, the "superior" has a broader overview of the company's goals and strategic contexts and contributes these accordingly. Decision-making and enforcement shift entirely to the team. The qualifications and experience of the employees are used in a targeted manner to make more efficient and effective decisions. Cross-functional teams with diverse competencies strengthen the creativity and innovation power of the company. At the same time, this supports professional cooperation. Through this process, collective learning is enabled and further developed. As mentioned above, collective learning in a VUCA world is an indispensable prerequisite for the company to be able to adapt quickly and flexibly to environmental changes. Holacracy can be seen as an example of a concrete implementation of such an agile under‐ standing of leadership. 20 Here we can only briefly outline some of the features that are important for leadership. Holacracy is a new organizational model that uses evolutionary principles and mechanisms of self-organization. Management hands over decision-making power to employees by signing a constitution. In the constitution, the rules and principles are written down, which all employees orientate themselves. All decisions are always and only oriented towards the common purpose of the organization. Circles with double links between the circles are established in order to make and implement decisions. The model for these circles are holons. Holons are described as cells. Each cell is both an autonomous self-organizing unit and part of a larger whole. 21 Positions or hierarchy are replaced by roles, whereby each person in the organization can hold one or more roles. Each role in a circle is absolutely equal and on an equal footing. Each role holder can set priorities and make decisions completely autonomously, as long as other roles are not damaged by the decisions. Thus, there are only fully autonomous "leaders" in the organization. The following figure shows the roles and their arrangement in circles. 7.3 Conception of Agile Leadership 123 <?page no="124"?> 22 Own illustration. • The work is organized in roles that are embedded in a circle structure. • The lead link represents the interests of the parent circle (super circle). • The rep link represents the interests of the subordinate circle (sub circle). • One facilitator/ facilitator per circle is responsible for following the processes in the meetings. • A Secretary organizes and documents the meetings and is the highest authority regarding the regulations of the constitution. Elements of Holocracy Circle Sub-Circle Roles Rep-Link Lead-Link Fig. 7.4: Elements of holacracy 22 When decisions are made in the holacracy in the team, this is done with a modified consensus procedure. Anyone in the team can raise a reasoned serious objection to the decision. This is checked for validity according to certain rules. If the objection is valid, the decision cannot be made by the team against this objection. These exemplary outlined characteristics of holacracy show how a consequently implemented agile leadership can look like. 7.3.4 The Continuum of Human Resource Management If the situational approach to management is really taken seriously, then there can only exist a situationally appropriate leadership. Leadership must therefore be oriented to the respective company and environmental situation. The goal is to create an external, but also an internal fit. This means that the concrete design of a company's human resources management must both take into account the environmental influences that are essential for this company and also show a fit with the company's history and with the company's other management subsystems. From this point of view, we propose to start from a continuum of human resource management which, depending on the environmental and corporate situation, makes different manifestations of the characteristics of human resource management reasonable. In doing so, we assume that the continuum of leadership will evolve primarily in line with the increasing development of the environment into a VUCA environment. 124 7 Agile Leadership <?page no="125"?> 23 Own illustration. In the following figure, we attempt to depict such a continuum of leadership as an ideal type. We are aware that the transitions between the three development phases we have indicated are fluid. We are also aware that the development phase of agile leadership is only an intermediate phase in the further development of leadership. We will then give a small outlook in chapter 5. We have attempted to describe the various developmental phases of human resource manage‐ ment through the essential features that we believe are characteristic of the phases. Characteristics of leadership management Classical leadership Agile leadership Cultural characteristics Employees are “Labor avoiders“ and opportunistic unity maximizers in their own right Employees are interested, can be motivated and want to be involved in decisions Employees are meaningand valueorientated and want to take responsibility for shaping the development of the company Structural characteristics The company is a socio-technical system. Efficient functioning is the priority The company is a socio-technical system, the needs and motivation of employees are taken into account Companies are evolutionary and learning organizations, and freedom for selforganization is encouraged. Goal, task, results orientation Direct instructions and control by manager Agreement on objectives, delegation Expert in teams selforganizing, self control through frequent feedback and reviews Understanding of roles Hierarchical decisionmaker, manager is expert Cooperative leadership, responsibility with the manger “Manager” only as enabler, changing roles, no hierarchies, team responsible Information and communication processes One-dimensional from top to bottom Manager as control center, active role of employees Direct, pen, appreciative, initiative with everyone Decision making and enforcement Hierarchical, rather authoritarian Hierarchical participative Each employee is a decision-maker as far as possible, or team decisions low VUKA-Dynamics high Fig. 7.5: The continuum of leadership 23 7.3 Conception of Agile Leadership 125 <?page no="126"?> In our view, the specific form of human resources management that a company should implement depends on whether the company is located in a calm competitive environment or in a highly dynamic and complex competitive environment. The cultural and structural development history of a company also plays an important role. In general, a tendency towards a VUCA world can certainly be observed in most competitive environments. The post-modern social tendencies described above and the resulting change in the perceptions of younger generations leads to the suspicion that a predominantly classical form of leadership is hardly accepted by employees anymore. But perhaps even more important is the argument that companies that do not move to agile HR management are failing to exploit significant potential for their business. We will therefore briefly discuss the advantages that agile HR management offers in the next chapter. 7.4 Advantages of Agile Leadership The more dynamic and complex competitive environments become, the more a company's proactive adaptability becomes an important competitive advantage. Adaptability is created through systematic organizational learning. Organizational learning requires the right cultural and structural framework conditions, but the focus is always on the knowledge carrier, i.e. the learning individual. This is exactly where agile leadership has its strengths. Agile leadership is based on putting people at the center and creating all the necessary freedom for them to make decisions on their own responsibility or together in a team in the interest of the company. Through a common value base of all employees and the company, a common meaning of all decisions and actions is created despite all freedom for self-organization. Thus, on the one hand, the advantages of a joint channeling of decentralized decisions can be used to form a common strategy on the other hand, such an approach offers the necessary space for continuous reflection and feedback processes, which enable permanent learning of the individual, the teams and thus the entire company. In addition, due to self-organizing teams and the fact that the customer is often directly involved in agile teams, it can be assumed that more creative and customer-oriented solutions are developed. Agile leadership almost demands to focus on people holistically with all their needs. A mindful and appreciative approach to employees is therefore a matter of course. In addition, promoting the mental and physical health of employees and their well-being is an important component of agile leadership. This includes measures of company health management as well as sensible possibilities to balance work and private life. Furthermore, agile leadership stands for the personal and professional development of all employees, regardless of nationality, skin color or gender. In this way, agile leadership is based on many principles that are taken for granted by the postmodern younger generations. It also takes up central demands of the UN's social sustainability agenda. It can be assumed that this leads to a high intrinsic motivation of employees and, not least of course, to a high attractiveness of employers for young skilled workers. This can also be an important competitive advantage for companies in the increasing "war for talents". However, agile HR management should not be misunderstood as an "instrument" for achieving competitive advantages in highly competitive labor markets. All the characteristics of agile leadership must be authentically integrated into an agile mindset of the entire company otherwise, employees who orient themselves to the creation of social and ecological added value will not be persuaded. 126 7 Agile Leadership <?page no="127"?> 7.5 Outlook There is much to suggest that the framework conditions for agile leadership, and in particular the tendencies towards a VUCA world and the need for increased implementation of socially and ecologically sustainable concepts, will continue to intensify. In this respect, the trend towards agile leadership will probably also continue to increase. Nevertheless, we see agile leadership only as an intermediate stage in the further development of leadership. But even today, a whole series of questions remain unanswered and give rise to further research needs: ■ How will interactional leadership evolve, or will it be replaced by purely cultural and structural human resource management? ■ Can pure employee self-leadership really work with the new agile organizational models? ■ How can concepts of Work 4.0 be implemented within the framework of agile leadership? ■ How can agile leadership contribute even more to the implementation of sustainability objectives in the future? Literature Aghina, W./ De Smet, A./ Lackey/ G., Lurie, M./ Murarka, M. (2018): The 5 Trademarks of Agile Organiza‐ tions, McKinsey& Company. Bea, F. X./ Göbel, E. (2019): Organization. Theory and design. 5th edition, Munich. BMZ. 2022. Agenda 2030: Die globalen Zielen für nachhaltige Entwicklung, Bundesministerium für wirtschaft‐ liche Zusammenarbeit und Entwicklung, https: / / www.bmz.de/ de/ agenda-2030, accessed 02.10.2022. Dierksmeier, C. (2016): Qualitative Freiheit. Selbstbestimmung in weltbürgerlicher Verantwortung. [transcipt] Bielefeld. Engagement Global gGmbH. 2022. Was sind die 17 Ziele? Bundesministerium für wirtschaftliche Zusam‐ menarbeit und Entwicklung. https: / / 17ziele.de/ info/ was-sind-die-17-ziele.html, accessed 02.10.2022. Fortmann, H. R., Kolocek, B. (eds.) (2018): Arbeitswelt der Zukunft, Wiesbaden Franken, S. (2016): Führen in der Arbeitswelt der Zukunft, Wiesbaden. Janszky, S., G. (2018): Arbeitswelten 2040 - Nehmen uns Computer die Arbeit weg? in: Fortmann, H. R., Kolocek, B. (eds.): Arbeitswelt der Zukunft, Wiesbaden 2018, pp. 15-26. Laloux, F. (2015): Reinventing Organizations. A guide to designing meaningful forms of collaboration. Munich. Lippmann, E., Pfister, A., Jörg, U (eds.) (2019): Handbuch Angewandte Psychologie für Führungskräfte, Berlin. Lippmann E., Steiger, T. (2019): Das Rollenkonzept der Führung, in: Lippmann, E., Pfister, A., Jörg, U (Hrsg.): Handbuch Angewandte Psychologie für Führungskräfte, Berlin, S. 75 - 94. Robertson, B. J. (2016): Ein revolutionäres Management-System für eine volatile Welt. Munich. Roethlis‐ perger, F. J./ Dickson, W. J. (1966): Management and the Worker. 14th ed. Cambridge. Schein, E., Schein, P. (2018): Organisationskultur und Leadership, 5th edition, Munich Scheller, T. (2017): Auf dem Weg zur agilen Organisation. München. Strauch, B./ Reijmer, A. (2018): Soziokratie: Kreisstrukturen als Organisationsprinzip zur Stärkung der Mitverantwortung des Einzelnen. München. Suchy, O. (2018): Wer nur das Meer hört - Arbeitszeit, Flexibilität und Freiheit, in: Fortmann, H. R., Kolocek, B. (Hrsg.) (2018): Arbeitswelt der Zukunft, Wiesbaden 2018, S. 299- 313. Weber, M. (1922): Wirtschaft und Gesellschaft. Grundriß der verstehenden Soziologie. 5. revidierte Auflage, Tübingen, 1976. 7.5 Outlook 127 <?page no="128"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="129"?> 1 Such as building law, regional planning law, agricultural law, traffic law, etc., and even international environmental law. 8 Legal Foundations of Responsible Corporate Governance Katja Gabius Learning Objectives: The readers ■ know the legal basis of sustainability in particular the basis of sustainability under private law and are familiar with the differentiation of terms, ■ are able to distinguish the areas of corporate social responsibility from those of corporate governance and corporate compliance, ■ recognize the resulting challenges for companies and entrepreneurs in a national and international context. Keyword List: Corporate Social Responsibility (CSR), Corporate Governance, ESG (environment, social, gov‐ ernance), Green Paper of the European Union, Action Plan of the European Commission, Sustainability Reporting, EU Taxonomy, Comply-or-Explain Principle 8.1 Basics of Sustainability How big is the influence of the sustainability debate on the rather conservative discipline of law? How big is the influence of the sustainability debate on the rather conservative discipline of law? It is considerable if you look at the development of the last 10 years, but also if you look at what the scientific literature shows. From the perspective of sustainability (also ESG, CSR, and sustainability) significant challenges and legal changes are equally apparent. In the field of law, the concept of sustainability is first and foremost evident in public law, above all in environmental law with its ancillary areas. 1 In addition, however, it plays a major role in the area of corporate law for greater transparency and more responsible management. This has direct implications for the study of how companies on the one hand present themselves to the outside world and at the same time organize themselves internally. Societal expectations of companies increase the more transparent and global they are. For some time now companies have been confronted with pressing demands for the ecological and social quality of their entrepreneurial actions and the assumption of quite possibly global macroeconomic responsibilities. In the <?page no="130"?> 2 Fuchs-Gamböck, p. 7. 3 Instead of many Eberius, R.: WM 19, 2144. 4 Pliakos, N.: Challenges, p. 5. 5 Michalski, GmbHG § 43, RNr. 49. 6 So-called. Triple-bottom-line; cf. Blowfield/ Murray Oxford 2008; Göbel: Unternehmensethik, 2010. 7 Lattermann, C., p. 187. 8 Green Paper on a European Framework for Corporate Social Responsibility, 2001, modified by the 2011 EU Communication. 9 Hell, P. NZG 19, 338. meantime, indices are being published on the stock exchanges that track the CSR performance of companies worldwide 2 , ESG as a business factor is recognized and essentially undisputed 3 . Responsible corporate action as a legally relevant area takes place on many levels and is defined with different in some cases not clearly distinguishable terms. The large areas of Corporate Social Responsibility (CSR), the overarching concept of sustainability, business ESG aspects as well as Corporate Governance (CG) together with the large field of Corporate Compliance are to be differentiated from each other. All aspects have an impact on systems of good corporate governance and are in some cases closely interrelated. The difference is that corporate governance with corporate compliance is primarily concerned with the internal as well as external structuring of corporate management while CSR initiatives focus on the responsible and morally correct behavior of economic decision-makers in an international context 4 . The following article is intended to provide an overview of the current and forthcoming (social) legal requirements by means of which corporate responsibility in the sense of sustainable economic activity is to be implemented and, if necessary, abuses are to be sanctioned. 8.2 Corporate Social Responsibility 8.2.1 Definition Corporate Social Responsibility (CSR) has its constitutional basis in the social obligation of property 5 and represents the generic term for various fields of action of corporate social responsibility. It is based on the principle of sustainability and includes economic, ecological and social aspects. The terms corporate responsibility or corporate social responsibility (CSR) stand for a wide range of activities by companies aimed at reconciling economic, social and environmental concerns in their business activities. 6 However, CSR is not only about internal corporate responsibility, but also about ethical and philanthropic aspects in addition to the economic and legal implications. 7 The definition of the European Commission 8 names social and environmental concerns as two central points for CSR. If these are expanded to include economic concerns the three dimensions of sustainability are obtained. The stakeholders associated with companies i.e., those stakeholder groups that shape the social interdependence of the company such as employees, suppliers, customers, society, the state, shareholders, are demanding greater acceptance of corporate responsibility and a higher level of corporate ethics. This demand is conspicuous in the capital markets and among (institutional) investors. 9 130 8 Legal Foundations of Responsible Corporate Governance <?page no="131"?> 10 Köppl/ Neureiter: CSR, p. 13. 11 Spießhofer, B., NZG 18, 441. 12 Meadows, D. et al.: "The Limits to Growth." 13 World Commission on Environment and Development: Our Common Future. Oxford University Press, Oxford 1987. 14 https: / / enb.iisd.org/ negotiations/ world-summit-sustainable-development-2002-wssd. 15 https: / / www.bmuv.de/ fileadmin/ bmu-import/ files/ pdfs/ allgemein/ application/ pdf/ johannesburg_declaration.pdf. 16 Wieser, C.: CSR, p. 32. 17 Raupp/ Jarolimek/ Schultz, loc.cit., p. 12. 18 https: / / www.csr-in-deutschland.de/ DE/ CSR-Allgemein/ CSR-Politik/ CSR-in-der-EU/ csr-in-der-eu.html. 19 In detail section 8.2. 20 www.oecd.org/ dataoecd/ 56/ 40/ 1922480.pdf. This has concrete economic effects because the company behind the product and the brand is increasingly decisive for purchasing and thus for success. 10 8.2.2 Historical Roots The historical roots of business ethics go back to the Middle Ages where the "respectable mer‐ chant" already appeared in the age of mercantilism. 11 Then, during industrialization companies began to assume social responsibility for example in matters of occupational and employee safety. In 1972, the study "The Limits to Growth" was presented 12 in 1987 the "Brundtlandt Report". 13 In 1992 the UNCED Conference, the United Nations Conference on Environment and Development, took place in Rio de Janeiro where the question was intensively discussed as to whether overall economic development can be based exclusively on business indicators or whether corporate social and ecological responsibility does not also contribute to success. 14 In 2002, the World Summit on Sustainable Development (WSSD) met in Johannesburg. 15 The final declaration agreed on the worldwide implementation of sustainability goals such as the reduction of poverty, the minimization of harmful effects on health and the environment in the production and use of chemicals and the reduction of the decline in biodiversity. In Europe CSR was addressed at the EU summit in Lisbon in 2000. The participating govern‐ ments agreed that by the year 2010 the EU would have developed into an economic area that is dynamic and competitive worldwide and that brings with it sustained economic growth combined with improved working conditions and higher social achievements. 16 Finally, the European Commission with its Green Book "European Framework for Corporate Social Responsibility" in 2001 decisively advanced the CSR debate in Western Europe and demanded a higher CSR commitment from companies. 17 The EU has been pursuing the goal of placing sustainable development at the center of policy and sustainable corporate responsibility for around 15 years. This is made clear in the EU's 2011 Communication 'A new EU strategy (2011-2014) for corporate social responsibility'. 18 This defines CSR as "the responsibility of companies for their impact on society." 19 8.2.3 Legal Implications of CSR a) Principle of voluntariness To date there has been no legal obligation to implement ESG processes in companies so that in practice people have essentially agreed on voluntary codes of conduct and reporting standards. These are for example the OECD Guidelines for Multinational Enterprises 20 , the UN Global 8.2 Corporate Social Responsibility 131 <?page no="132"?> 21 www.globalcompact.de. 22 www.globalreporting.org. 23 See for example on reporting standards www.sa-intl.org; www.csr-in-deutschland.de. 24 Herlyn, E./ Levy-Tödter, M., p. 2. 25 https: / / www.csr-in-deutschland.de/ DE/ CSR-Allgemein/ CSR-Politik/ CSR-in-der-EU/ csr-in-der-eu.html, accessed: 02.10.2022. 26 GG Art. 20a. 27 DIRECTIVE 2014/ 95/ EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 October 2014 amending Directive 2013/ 34/ EU as regards the disclosure of non-financial and diversity information by certain large companies and groups. 28 Löw, Th.; Braun, S. online. 29 Ibid. p. 8. 30 § 289c II HGB. Compact of the United Nations with its Compact Network (DGCN), the officially mandated national network of the GC in Germany, 21 the Global Reporting Initiative 22 and CSR standards. 23 Globally state treaties have been concluded such as the Global Agenda 2030 with the Sustainable Development Goals (SDGs), to offer companies a further opportunity to participate voluntarily in sustainable development. 24 However, in its 2011 Communication, the EU announced a gradual shift away from the completely voluntary. Its core statements are now: ■ Companies themselves should continue to take the lead in developing CSR. ■ However, public authorities should play a supporting role using a "smart combination of voluntary measures and, where necessary, complementary regulation" (e.g., to promote transparency, create market incentives and ensure corporate accountability). ■ Companies must be given the flexibility they need to innovate and develop an approach tailored to their environment. 25 b) Constitution In German law, there is also a commitment to sustainability at the highest level: in the Basic Law. This grants sustainability the highest priority by declaring in Article 20a: "The state shall protect the natural foundations of life and animals, also in responsibility for future generations, within the framework of the constitutional order through legislation and in accordance with the law and the legal system through executive power and the administration of justice. 26 c) Obligation to Report on Sustainability The EU plans outlined above indicate that the implementation of sustainability processes remains fundamentally voluntary. The assumption of social responsibility is nevertheless underpinned by an approach that is directly obligatory in terms of transparency, namely the Sustainability Reporting Directive. This "Reporting Directive" 27 implements a mandatory reporting system for certain companies which relates to non-financial information. Affected are companies of public interest such as banks, insurance companies and listed companies with more than 500 employees. In German law the CSR Directive Implementation Act (CSR-RUG) has obliged these companies in §§ 267 III 1, 289a-289e HGB 28 to supplement their management report with a non-financial statement. This can be done either as a separate section as integrated non-financial reporting in the management report or as a separate financial report. 29 In addition to the mandatory description of the business model this must refer to environmental concerns, employee concerns, social concerns, respect for human rights and the fight against corruption and bribery. 30 132 8 Legal Foundations of Responsible Corporate Governance <?page no="133"?> 31 www.deutscher-nachhaltigkeitskodex.de; www.globalreporting.org. 32 AktG § 87a. 33 Regulation on the establishment of a legal framework to promote sustainable investment and the adaptation of Regulation 2019/ 2088 on disclosure regarding sustainability in the financial services sector. 34 Lehrl, K. online. 35 Ibid. The Global Reporting Initiative (GRI) and the German Sustainability Code (DNK) provide standardization assistance. With their reporting standards and the concrete instructions they contain for the preparation of sustainability reports both create a framework and thus support the preparation of a CSR report. With its 20 criteria the Sustainability Code provides additional orientation for non-financial reporting. 31 The CSR RUG does not provide for a statutory audit requirement. However, the supervisory board must monitor whether non-financial aspects are reported in a timely manner. In the event of a breach of the obligation to report on sustainability in addition to claims for damages against the management board and supervisory board there is the threat of the skimming of profits and fines in a not inconsiderable amount, Sections 331, 334 AktG. d) Remuneration of the Management Board under Stock Corporation Law Since January 1, 2020, a further legal impetus for sustainable management in the company has been found in a somewhat more hidden place: the remuneration of management board members of a (listed) stock corporation must be based on a comprehensible and transparent system which according to Section 87a I S. 2 No. 2 AktG, also includes "the contribution of the remuneration to the promotion of the business strategy and the long-term development of the company". 32 In this way, the management should be induced by remuneration incentives to implement ESG projects in the core business to a high degree. e) EU Taxonomy In recent years, a direction taken by the EU Commission as early as 2011 has become more concrete: away from purely voluntary action with regard to sustainable management and towards the assumption of corporate responsibility stimulated by corresponding legal obligations. The EU Taxonomy 33 is a uniform classification system for sustainable economic activities. The aim is to provide transparency and uniformity with regard to the degree of sustainability of companies and their financial products. In his respect sustainability has now finally arrived in the capital market as investors are to be offered incentives for sustainable investment in this way. In 2021, the Taxonomy is to be applied to the two areas of "climate protection" and "adaptation to climate change". However, it is expected that social objectives will be added further down the line. 34 The EU Taxonomy recognizes economic activities and investments as environmentally sustainable if they make a substantial contribution to achieving one of the EU's environmental goals do not violate other EU environmental goals comply with minimum requirements in the areas of governance, human rights and employee rights and comply with the Technical Screening Criteria specified by the EU Commission (TSC) guaranteed. 35 Large insurance companies and banks which are already obliged to report non-financially under the CSR Directive will in future have to explain in their management report how and to what extent their activities are linked to environmentally sustainable economic activities. Investment funds and other financial market participants that call products "ecological" for example will in future 8.2 Corporate Social Responsibility 133 <?page no="134"?> 36 Maak-Hess, p. online. 37 Ibid. 38 Strenger, Chr. 2004. have to provide information on their taxonomy-compliant share. 36 As a result, a redirection of financial flows into sustainable products is to be achieved; the Taxonomy does not constitute an obligation to invest in sustainability projects or capital relief for green investments. 37 The Taxonomy Regulation is to be applied from 1 January 2022. Notice Corporate Social Responsibility (CSR) is a system by which companies can create value in a stakeholder-oriented, responsible and sustainable manner. A binding legal framework already exists in German law for larger companies. 8.3 Corporate Governance 8.3.1 Definition In addition to the form of social and ecological management characterized by ESG there is a large area of those rules which have as their content the realization of responsible management and control of companies. Corporate governance serves this goal. It relates primarily to the internal (administrative) sphere of the company and has the great advantage of having already codified corporate ethical regulations in the German Corporate Governance Code. Corporate governance (CG) is the generic term for a system of internal and external deci‐ sion-making, influence, and control structures of a company. This includes the company's relationships with its most important stakeholders. The goal is to manage companies responsibly in order to promote the trust of shareholders, capital providers and capital markets, employees, business partners, and the national and international public. CG establishes a legal and factual regulatory framework for the management of a company with references both internally (roles, competencies, interaction of the corporate bodies) and externally (classical and non-financial reporting). The fact that corporate value is sustainably increased through responsible corporate organization and control is a thoroughly intended effect of corporate governance. 38 This is because its purpose also lies in efficient risk management and the achievement of long-term corporate goals. 134 8 Legal Foundations of Responsible Corporate Governance <?page no="135"?> 39 KPMG House of Governance. 40 Thus already Adam Smith in 1776 ("The Wealth of nations"); Jensen, M. / Meckling, W.: Journal of Financial Economics, 1976, 305. Goals Risks Measure System Determine and assess, implement Monitor Internal Audit Board of Directors Supervisory board Corporate Governance Compliance Management Risk Management Internal Control System Fig. 8.1: The House of Corporate Governance 39 8.3.2 Historical Roots Corporate failures and collapses with drastic consequences for business and the economy have led to a rethink. In Europe, as in the Anglo-American legal sphere the loss of confidence in the capital markets associated with this development has also prompted increased efforts to codify corporate guidelines. This is because the accounting scandals of listed companies such as ENRON, Worldcom and, more recently, Wirecard have revealed considerable deficits in corporate governance. In addition, the German capital market has faced and continues to face increasingly fierce international competition on the global capital markets; the attractiveness of Germany as a financial center must increasingly be measured against international standards. Against this background it was necessary to make German company law more transparent on the one hand and more internationally comparable with regard to corporate governance on the other to adapt internationally valid standards of good conduct. 8.3.3 Principal Agent Model On the one hand, the desire for greater corporate transparency and for international capital market-oriented comparability was the trigger for an increased focus on corporate governance. On the other hand, however, a basic conflict existed long before in the industrial age that was considered to be the trigger for corporate governance concepts namely the so-called principalagent problem. The initial problem that led to a desire for sustainable and responsible corporate organization lies in the separation of capital i.e. ownership of the company on the one hand and the control of the same on the other. 40 8.3 Corporate Governance 135 <?page no="136"?> 41 Lessing, J. online; Burkhard, p. 7. 42 Wöhe, G./ Döring, U. p. 74. 43 Wentges, P., p. 83. This harbors potential for conflict since both individuals have different levels of information and different motivations for action. In company law this is reflected in the situation of the shareholder (investor and principal) who has delegated the management of the business and with it the entrepreneurial decision-making authority to the management; he is "merely" left with the role of investor. On the one hand, this can lead to information asymmetry since management regularly has more information about the company than the owner. On the other hand, management should be induced to act in the interest of its principal namely the shareholder. Based on this situation a regulatory framework is being discussed that is intended to prevent or channel conflicts of interest between management and investors. The solution mechanisms discussed in the context of the tension between principal and agent are all in the area of good corporate governance (for example, extended disclosure obligations, stock option programs, safeguarding the independence of auditors, and the expansion of internal risk management systems 41 ). 8.3.4 Corporate Objectives and Corporate Governance: Stakeholder Versus Shareholder Approach The yardsticks by which the values to be attained by the company can be measured are the corporate objectives. 42 It is questionable however according to which criteria these goals are defined, and which stakeholder groups are decisive for this. Two different approaches have been developed to answer this question: the stakeholder approach on the one hand and the shareholder value concept on the other. A company that primarily pursues the interests of its shareholders aligns its corporate objectives with the shareholder value principle. Above all other possible interests, the interests of the owners and investors in the highest possible return i.e., the increase in value of the invested capital are decisive. The other interest groups on the other hand are only given the minimum attention required by law. With a pure shareholder value approach, the goal of good corporate governance would be to discipline management to act exclusively in the interests of shareholders in order to avoid corporate crises or even insolvency. 43 The disadvantage here lies in the interest asymmetries of the principal-agent conflict already described: the management to which the management has been handed over by the owners may pursue different motivations than the owners. In contrast the stakeholder approach broadens the perspective. Stakeholders are those interest groups whose interests are influenced by the company i.e. employees, managers, customers, suppliers as well as the public and the state. All those who are directly or indirectly affected by the company's actions. The company has the task of ensuring that all stakeholders participate in the company's success in an appropriate manner and that all individual interests are given equal consideration. Ideally therefore the interests of all stakeholders involved can be reconciled with the efficiency goals of the company when defining the company's goals and values. If all interests are appropriately weighted and this also means that the capital-providing shareholders are given substantial consideration such corporate governance models lead to a sustainable increase in the 136 8 Legal Foundations of Responsible Corporate Governance <?page no="137"?> 44 Ringleb/ v.Werder: DCGK RNr. 6 mwN. 45 https: / / www.sec.gov/ spotlight/ sarbanes-oxley.htm. 46 Wolf, K./ Runzheimer, B. p. 20. value of the company. Against this background effective corporate governance is characterized by the creation of a good investment and working climate, suitable incentive, and safeguard mechanisms as well as a balance of power in order to avoid asymmetries of interests and to ensure sustainable corporate success. 8.3.5 Legal Basis Since 1990, a large number of codes, principles, rules, and guidelines have emerged in the American legal sphere dealing with good corporate governance. 44 In 2002, the Sarbanes Oaxley Act (SOA) was finally passed by the US Congress. It is a set of rules intended to improve the reliability of accounting and reporting by capital market-oriented companies. 45 Germany was comparatively late in developing a codification of corporate rules. Following the OECD Principles and the Combined Code the creation of a code was initially based on German legislative measures namely the Law on Control and Transparency in Business (KonTraG) and the Transparency and Disclosure Law (TransPuG). The KontraG came into force in 1988 and was incorporated as an article law into the AktG, HGB, and GmbHG. Its aim was to optimize internal management and control mechanisms through more intensive cooperation between the supervisory board and auditors, greater transparency in annual financial statements, and better quality of audits. 46 In 2002, the TransPUG established the legal framework for the German Corporate Gover‐ nance Code (DCGK). In addition to other regulations, the article law obligated the management and supervisory boards of listed companies to inform the annual general meeting in an annual declaration of conformity pursuant to Section 161 of the German Stock Corporation Act (AktG) of the extent to which the AG complies with the requirements of the DCGK. This Code is the result of reform proposals primarily from practitioners to improve corporate governance, control, and transparency; it is reviewed annually. The final version of the GCGC was presented to the public on January 1, 2020, The draft for 2022 is already available and contains substantial and serious commitments to sustainability. 8.3.6 The German Corporate Governance Code (GCGC) a) Term and Contents Since 2002, German law has codified good corporate governance more than a law but at the same time less so. The German Corporate Governance Code is a set of rules that was born out of the idea of making Germany a more attractive financial center for foreign investors and at the same time preventing future crises and corporate mismanagement caused by corporate misconduct. It formulates Regulations on the management and supervision of companies and is primarily aimed at listed (joint stock) companies. The GCGC directly addresses the corporate constitution and codifies the principles of good and responsible corporate governance. The Code is not a law but rather supplements existing corporate law provisions by first reiterating commercial and stock corporation law standards and then expanding on these with recommendations and suggestions. The GCGK has two 8.3 Corporate Governance 137 <?page no="138"?> 47 Ringleb et al.: DCGK RNr. 89a. 48 www.dcgk.de; Faßhauer, J.: New DCGK 2020, online. 49 Pfizer, N./ Oder, P./ Orth, C. p. 32. functions: the communication function and the regulatory function. In accordance with the communication function the aim is to strengthen the confidence of the capital markets, stake‐ holders and customers and employees through a comprehensible and transparent presentation of corporate governance. In this respect communication also has two objectives: On the one hand the discussion culture among the corporate bodies in the company is to be intensified and improved. On the other hand, the comprehensive information provided to the supervisory body is intended to ensure risk minimization. Within the framework of the regulatory function corporate governance is to be improved and the joint work of the Supervisory Board and the Board of Management is to be made more efficient from a management and supervisory point of view. The aim is to identify risks at an early stage and thus ensure sustainable corporate success. The scope of application of the GCGC is de jure initially limited to listed companies. Since the enactment of the SE Implementation Act (SE-Ausführungsgesetz, SEAG) of December 22, 2004, the legal form of a listed company in Germany may also be the European Company (SE). Since the Code applies to all listed German companies, listed SEs are also subject to its provisions. 47 According to its preamble, however the Code should also be observed by non-listed companies. b) Structure and Content of the GCGK In any case, the latest version of the GCGC 2020 has undergone significant editorial changes with the aim of achieving greater acceptance among capital market participants through improved readability and simpler presentation. 48 In terms of content after a very informative preamble, the Code is divided into seven sections which essentially regulate the areas of responsibility position and cooperation of the Management Board and Supervisory Board in the company. This is also intended to clarify internationally the dual system of separation of management board and supervisory board prevailing in German law. 49 The Code does not have the normative quality of a law passed in the proper parliamentary procedure. It is neither a law nor a legal ordinance nor a general decree issued by the authorities but rather a set of rules drawn up by a state-appointed commission that is independent of instructions and does not trigger any legal obligation to comply with the rules. However, Section 161 of the German Stock Corporation Act (AktG) with its obligation to submit a declaration of conformity and the associated accounting regulations does impose a legal obligation (see below). The Code contains internationally and nationally recognized standards of good and responsible corporate governance. In terms of the legal system, the Code is divided into three categories: Principles, Should Recommendations, and Should Suggestions. The principles provide a fragmentary presentation of applicable legal provisions essentially from the German Stock Corporation Act the German Commercial Code but also standards under capital market law. Compliance with these regulations is binding for the companies which, however, does not result from the Code itself but already from the existing legal situation. Much more interesting in their legal significance are the recommendations identified by the term "shall" and the suggestions identified by the term "should". Both the recommendations 138 8 Legal Foundations of Responsible Corporate Governance <?page no="139"?> 50 Baums, Report RNr. 8; Reg.Entwurf, p. 49, 50. 51 Ringleb/ v.Werder: DCGK RNr. 86. 52 Grigoleit/ Zellner: AktG § 161 RNr. 8 ff. 53 Law on the implementation of the Second Shareholders' Rights Directive. and the suggestions are intended to encourage critical analysis of their applicability to the specific situation of the company concerned and to leave room for company-specific adjustments 50 and are not directly legally binding. The Code's target recommendations do create certain obligations for listed companies: Pursuant to Section 161 of the German Stock Corporation Act (AktG ) German listed companies are obliged to inform the Annual General Meeting once a year whether and to what extent they have complied with the recommendations of the Code. Deviations from applicable corporate governance codes must be justified within the framework of the "Corporate Governance Statement". This is aptly referred to as the "complyor-explain principle". However, the company is at liberty not to follow the recommendations and suggestions of the code at all (so-called opting-out). In this case, the company has the duty to explain its decision to the owners i.e. the shareholders, but also to the capital market participants. Indirectly the "deviating" company may be sanctioned: the publicly declared non-compliance with the recommendations of the GCGC demonstrates that the company does not adopt the international standards of good corporate governance contained in the Code. This can lead to a negative response from the public and consequently to pressure on the company management that is relevant to the capital market although there may be good reasons for such corporate behavior. c) Current Developments in Stock Corporation Law and GCGK Since the Code does not have the quality of a normative law, it can also be amended and adapted without a lengthy legislative procedure. 51 The Code is therefore reviewed once a year to determine whether it is up to date or needs to be adapted. On January 1, 2020, the Government Commission on the German Corporate Governance Code published this year's amendments to the Code. Above all, the members of the Supervisory Board will be subject to further regulations in the future, but the Annual General Meeting will also receive new powers: in the future, it will have to decide on the system of Executive Board remuneration. 52 At the same time as the new GCGC 2020, the ARUG II 53 (Act Implementing the Second Shareholders' Rights Directive) came into force. With regard to sustainable and responsible corporate governance the two sets of rules complement each other and bring about significant changes especially for listed companies. Based on the realization that transparency and incentives as well as efficient and professional control are the best ways to ensure a sustainable corporate existence the focus continues to be strongly on the supervisory board and its cooperation with the management board. The following aspects of good corporate governance were fundamentally reorganized: The structure and transparency of Executive Board remuneration dealings with institutional investors, transparency in transactions with related parties, and greater transparency with regard to the company's shareholders. 8.3 Corporate Governance 139 <?page no="140"?> 54 COM (2011)164; see also comprehensive Rubner/ Leuering NJW-Spezial 2011, p. 591. 55 Hopt, Klaus J. EuZW 2011, p. 609. 56 See also action plan: https: / / eur-lex.europa.eu/ LexUriServ/ LexUriServ.do? uri=COM: 2013: 0150: FIN: EN: PDF. 8.3.7 Regulation of Corporate Governance at EU Level a) Green Paper of the EU Commission of 5.4.2011: European Corporate Governance Framework COM (2011) On 5 April 2011, the European Commission presented a Green Paper on the "European Corporate Governance Framework". It mainly deals with the corporate governance of listed companies. In it, 25 questions are addressed to the interested parties concerning the supervisory board shareholders and the declaration of conformity. 54 In the context of this third Green Paper the Commission sees problems with regard to the board of directors (diversity, quality, remuneration, and risk management), shareholders (institutional investors, proxy advisors, minority protection), and code practice (comply or explain). 55 After evaluating the responses to the Green Paper the Commission has decided which new regulatory steps are necessary. b) EU Corporate Governance Action Plan The Green Paper gave rise to the EU Corporate Governance Action Plan in 2013. It outlines future initiatives in the area of company law and corporate governance. The Action Plan focuses on increasing transparency between companies and their shareholders promoting long-term shareholder engagement and supporting European companies and promoting their growth and competitiveness. 56 Notice Corporate governance is a system of responsible corporate management based on trans‐ parency and control that aims to establish the trust of the capital markets in particular but also of all other stakeholders in responsible corporate management. In German law legal standards that increasingly require sustainable corporate governance can be found above all in the German Corporate Governance Code (DCGK) as well as in corporate and commercial law. At a Glance In recent years the requirements for responsible and thus sustainable corporate organization and management which a (capital market-oriented) company faces have increased considerably. In addition to the broad field of action of Corporate Social Responsibility which has to be implemented in the core business innumerable challenges arise above all from Corporate Governance. Risk minimization, control and Transparency and an efficient compliance structure should ensure sustainable, successful and efficient management of a company in a national and international context. 140 8 Legal Foundations of Responsible Corporate Governance <?page no="141"?> Suggestions for Further Reading Corporate Governance Management. Theorie und Praxis der guten Unternehmensführung von Martin Welge und Marc Eulerich., Verlag Gabler 2014. Commentary on the German Corporate Governance Code by Thomas Kremer, Gregor Bachmann et al., C.H. Beck Verlag 2017 (new edition 2020 will be published on 15.11.2020) Corporate Social Responsibility und nachhaltige Entwicklung: Einführung, Strategie und Glossar von Jan Jonker, Wolfgang Stark und Stefan Tewes; Verlag Springer 2011. Literature Baums, Th.: Bericht der Regierungskommission Corporate Governance, 2001 Blowfield, M. / Murray, A. (2008): Corporate Responsibility, Oxford Responsibility, Oxford Burkhard, S.: Corporate Governance in the USA and in Germany. Eberius, R. (2019). Verrechtlichung der ESG-Compliance: Pflichten für Fondsmanager und institutionelle Investoren bestehende und künftige rechtliche Vorgaben zum Umgang mit Nachhaltigkeitskriterien und -risiken. WM, S. 2144 ff. Faßhauer, J. (March 23, 2020). www.bdo.de. From New DCGK 2020: https: / / www.bdo.de/ de-de/ blogs/ deuts cher-corporate-governance-kodex-2020-dcgkm, accessed 02.10.2022. Fuchs-Gamböck, K (2006): Corporate Social Responsibility im Mittelstand: Wie Ihr Unternehmen durch gesellschaftliches Engagement gewinnt. Göbel, E.(2017): Unternehmensethik, 5.2. ed. Grigoleit, H.-Chr.(2020). Aktiengesetz. München, Beck Verlag. Green Paper on a European framework for corporate social responsibility, p. 29, https: / / enb.iisd.org/ negotiations/ world-summit-sustainable-develo pment-2002-wssd, accessed 02.10.2022. Hell, P. (2019). Institutionelle Investoren, Stewardship und ESG. NZG, S. 338 ff. Herlyn, E. / .-T. (2020). Agenda 2020 as the magic polygon of sustainability. Hamburg: Springer Gabler. Hopt, K.J.: Ein drittes Grünbuch: Europäischer Corporate Governance Rahmen? EuZW 2011, S. 609. Jensen, M. / Meckling, W.: Theory of the firm: Managerial Behaviour, Agency Cost and Ownership Structure, in: Journal of Financial Economics, 1976. Köppl, P./ Neureiter, M.(2004): CSR - Leitlinien und Konzepte, Wien. Lattermann, Chr. (2010): Corporate Governance im globalisierten Informationszeitalter, Munich. Lehrl, K. (Februar 2020). Going Green: Die EU Taxonomie. Von www.kpmg-lexlinks.de. Lessing, J. (2009): The checks and balances of good corporate governance in Corporate Governance ejournal Bond University Faculty of Law, London Löw, T. B. (2018). www.4sustainability.de. Von Mindestanforderungen und Obergrenzen für die Inhalte der nicht-finanziellen Erklärung: www.4sustainability.de/ fileadmin/ pdf/ Loew-Braun-Mindestanforderunge n-Obergrenzen-nichtfinanzielle-Erklaerung-2018.pdf. Maak-Heß, S. (August 14, 2020). www.bafin.de. From www.bafin.de: https: / / www.bafin.de/ SharedDocs/ Ver‐ oeffentlichungen/ DE/ Fachartikel/ 2020/ fa_bj_2008_Taxonomie-VO.html. Meadows, D., Maedows, D. H., Milling, P., & Zahn, E. (1972). Die Grenzen des Wachstums. Bericht des Club of Rome zur Lage der Menschheit. München: DVA. Michalski, L. (2010): Kommentar zum GmbHG, Munich. Pfizer, N./ Oder, P./ Orth, Chr. (2005): Deutscher Corporate Governance Kodex. Ein Handbuch für Entscheidungsträger. Pliakos, N.(2010): Herausforderungen für die Corporate Governance im Lichte der Finanzmarktkrise, Nuertingen. 8.3 Corporate Governance 141 <?page no="142"?> Raupp, J./ Jarolimek, S./ Schultz, F.(2010): Handbuch CSR. Ringleb, H.-M.(2010): Kommentar zum Deutschen Corporate Governance Kodex: Kodex-Kommentar von Henrik-Michael Ringleb, Thomas Kremer, Marcus Lutter und Axel von Werder, München . Rubner, D./ Fischer: Unabhängigkeit des Aufsichtsrats - Corporate Governance Kodex NJW-Spezial 2012, S. 399. Rubner, D. / Leuering, D.: Grünbuch Corporate Governance, NJW-Spezial 2011, p. 591 Smith, A..: The Wealth of nations, 1776. Spießhofer, B. Compliance and Corporate Social Responsibility. NZG 2018, 441 et seq. Strenger, Chr. 2004. "Investor Relations und der Vorteil guter Corporate Governance" in Handbuch Investor Relations, Ed.: DIRK e.V. Gabler Verlag 2004, pp. 567. Wentges, P.: Corporate Governance and the Stakeholde-Ansatz. Wieser, C.: CSR- Kosmetik oder Strategie? Über die Relevanz der sozialen Verantwortung in der strategi‐ schen Unternehmensführung, 2005. Wöhe, G./ Döring, U. (2010): Einführung in die Allgemeine Betriebswirtschaftslehre, 24. Auflage, München Wolf, K./ Runzheimer, B.: Risikomanagement und KontraG, Springer-Gabler Wiesbaden, 2009. 142 8 Legal Foundations of Responsible Corporate Governance <?page no="144"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="145"?> 9 Corporate Compliance Peter Förschler Learning Objectives: The readers ■ grasp the dimensions of corporate compliance and their delimitation. ■ understand the role of compliance within the framework of a company's sustainability strategy. ■ know the legal basis and standards of compliance management systems as well as their phases and elements. Keyword List: Legal Compliance, Integrity, Social Compliance, Value Management, Risk Management, Compli‐ ance Management System, Compliance Culture. 9.1 Dimensions of Corporate Compliance 9.1.1 Compliance: Briefly Explained The shortest, most commonly heard explanation for compliance is: "compliance with the law". However, this description does not do justice to the current meaning of corporate compliance. Based on the English "to comply with something" (to be in harmony with something, to correspond to something, to adhere to something), "corporate compliance" is obviously concerned with the conformity of corporate action with "something" - which needs to be defined in more detail if "compliance" is to be understood comprehensively. At its core, corporate compliance is a concept of conduct to ensure that all decisions and actions of a company's employees conform to the protected legal positions and relevant interests of all corporate stakeholders (e.g. employees, customers, suppliers, society, environment). These interests are either already protected in a legally binding and mandatory manner by state regulations or internal company regulations and must not be violated, or, where regulation is lacking, can be actively promoted by means of the voluntary exercise of social and environmental responsibility. In both cases, personal integrity is the decisive success factor. Compliance is thus an instrument for achieving a balance between people, planet and profit. 9.1.2 Compliance With Government Regulation and Business Self-Regulation The "compliance function" does not itself determine the relevant content to be followed, but merely ensures internal compliance with the rules defined elsewhere for implementing the con‐ <?page no="146"?> 1 German national standard-setters are e.g. the Bundestag, Bundesrat, parliaments of the federal states, ministries, local governments, public authorities; supranational law-making is carried out e.g. by the EU Commission, the EU Parliament or the UN General Assembly. 2 Compared to examples in DIN ISO 19600 under 4.5.1 "Compliance requirements" as "binding obligations". 3 Roth, M. (2014), p. 47. 4 Compared to German Corporate Governance Code (2019): Principle 5 also mentions the "internal guidelines" in addition to the legal requirements. 5 Eberspächer (2019), 2.2. p. 5. 6 Horzetzky, G. (2014), p. 14. 7 Femers-Koch, S. (2018), p. 8. 8 Lat. Integritas: honesty, integrity. 9 Femers-Koch, S. (2018), p. 8. 10 According to the U.S. Sentencing Guidelines 2018, §8B2.1, only an "effective compliance and ethics program" that integrates both aspects leads to liability relief. tent: These are primarily national and supranational 1 regulations in the form of laws, ordinances, official permits, administrative decisions, court rulings, state agreements or conventions. 2 However, since current state law only represents a "minimum socio-political sense" 3 that lags behind economic and social developments, the company management can voluntarily expand the "current law" by way of entrepreneurial self-regulation for its own sphere of activity by means of internally binding rules, such as guidelines, 4 work instructions, standards of conduct or contractual self-binding, on the basis of ethical value orientation, social change processes, sustainability aspects or considerations of usefulness. The violation of sovereign law is regularly sanctioned and can lead to imprisonment or fines, civil law obligations to pay damages or orders by the supervisory authorities; often there is also damage to the public image and that of business partners. However, employees may also be threatened with consequences under employment law and liability for damages if they fail to comply with internal company law. The violation of voluntary commitments can lead to damage to the company's reputation in the public eye. Code of Conduct of the Eberspächer Group 5 "Each employee must therefore assume responsibility for compliance with all laws, rules and standards of conduct that affect him or her. In the event of a culpable violation, he or she must irrespective of official proceedings against him or her expect disciplinary measures and the assertion of claims for damages." Compliance with "law and order" is non-negotiable and mandatory for everyone, regardless of personal acceptance. Since it is a matter of maintaining legality, this is referred to as "legal compliance". The task of the compliance function in companies to organize the observance of the law therefore actually lies in the "area of the self-evident". 6 9.1.3 Integrity as the Basis for Compliance However, legal compliance cannot be about "blind compliance with rules" according to the principle of "pre-writing-control-sanction" 7 with the sole aim of avoiding liability, but rather compliance requires integrity 8 of the actors as well as a "visible link between ethical principles and the derived canon of rules". 9 This is reflected above all in a value-based corporate culture, in moral and ethical 10 standards of the management culture, in short in the "value management of 146 9 Corporate Compliance <?page no="147"?> 11 Wieland, J. (2020), Rn. 8. 12 Lütge, Ch. (2012), p. 8. 13 Lütge, Ch. (2012), p. 9. 14 Compared to IHK for Munich and Upper Bavaria (2012), p. 14. 15 Roth, M. (2014), p. 49. 16 Compared to E.g., UN Guiding Principles on Business and Human Rights, 2011; OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, 2014. 17 Compared to: Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst from 24.04.2015. BGBL. 2015 Teil I Nr. 17. 642. 18 Compare to: Bundesministerium für Arbeit und Soziales (2020): Lieferketten-Gesetz adopted in 2021. the company". 11 In recent times, the ideal of the "honorable merchant", which dates back to the Middle Ages and was characterized by reliability, honesty and "responsible handling of capital and resources of all kinds", 12 and in which "entrepreneurial and ethical qualities went hand in hand", 13 has come back into focus. It can be associated with the three impact levels of corporate responsibility "do no harm", "create trust" and "driving innovation" 14 can be seen as the guiding principle for the modern approach to compliance. 9.1.4 Social and Environmental Responsibility This results in a further field of "Corporate Compliance": the voluntary assumption of social responsibility by companies out of "respect for the context". 15 This takes place through the perception of social reality by employees and managers, in the supply chain 16 on other continents, by customers or in civil society on the one hand and influences the handling of natural resources, nature, or the climate on the other. This area is usually referred to as "Social Compliance", which manifests itself in the active promotion of a wide range of projects for people and nature, for example in the areas of art, culture, education, sport, infrastructure, or environmental protection (so-called corporate social responsibility), without any binding regulations having been drawn up for employees in this respect. Social compliance is not (yet) based on a legal obligation; it is based on personal moral convictions, ethical principles, an understanding of values derived from these, and concerns the area of legitimacy. So-called models of ethical decision-making are also based on this foundation, which is why the term "Ethical Compliance" is also used. In practice, however, social compliance issues are increasingly becoming the subject of legal compliance regulations: Where social needs become apparent, the state first appeals to entrepreneurial action on a voluntary basis. If the desired balance of interests is not achieved, legal obligations are created. Example: Years of appeals to the business community to voluntarily allow women to participate appropriately on the male-dominated supervisory boards of German stock corporations (diversity) resulted in only minimal quotas for women. Consequently, the legislator rem‐ edied this in 2015 by prescribing legally binding quotas. 17 A similar situation can currently be observed with regard to corporate responsibility for the observance of human rights in the value chain (Social compliance in the Supply chain). 18 9.1 Dimensions of Corporate Compliance 147 <?page no="148"?> 19 Own representation. 20 Brundtland Commission (1987): Ch. I .3 No.27 "Humanity has the ability, to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs…" 21 VW paid €1 billion, Daimler €870 million and Audi €800 million to the state for illegal defeat devices, cartel agreements for trucks cost Daimler €1.09 billion. Ethical Bid Companie policies Social and Environmental Responsibility Contracts ArbR, AGG... GWB, UWG StGB, AO... KWG, WpHG DS-GVO, BImSchG, TierSchG Social & Ethical Compliance Legal Compliance Ethical, Social and environmental values of a society In-house legal regulations in codes of conduct, guidelines, contracts etc. Codified legal regulations in laws, ordinances, statutes etc. I n t e g r i t y Voluntary Mandatory Fig. 9.1: Dimensions of compliance 19 9.2 Compliance and Sustainability A first connection between compliance and sustainability, based on the Brundtland Commission's definition of sustainability, 20 results from the fact that legal compliance superficially serves to avoid liability and thus preserves financial resources for future generations of entrepreneurs and employees for the future development of the company instead of wasting billions of euros on fines. 21 However, this falls very short. The objective of sustainability, to achieve a balance between economic, social and ecological needs, coincides with that of compliance: the protection of individual and collective legal interests (e.g., environmental protection is a state objective under Article 20a of the German Grundgesetz) is the task of the state, which sets limits to entrepreneurial action and the pursuit of profit by means of generally binding and sanctioned legal provisions. 148 9 Corporate Compliance <?page no="149"?> 22 BGH, judgement of 17.07.2009 - 5 StR 394/ 08, "Berliner Stadtreinigung". 23 E.g. Code of Conduct with binding rules for dealing with conflicts of interest, policy on private e-mail and internet use during working hours grants and limits employees' freedom for social activities. 24 E.g. accession of a company to the UN Global Compact network. 25 Schweickert, Ch./ Janz, M., (2012), p. 9. 26 Compared to Femers-Koch, S. (2018), p. 26. 27 BKA (2018), p. 3, 5: In 2018, there were 50,550 cases of white-collar crime in Germany with a total damage of EUR 3.356 billion; EY (2017), p. 10: 20% of business people are willing to engage in unethical behaviour to improve their own career opportunities; 25% of respondents aged 25-30 would offer money to generate a business deal. 28 Compared to E.g. §§ 130, 30, 9 OWiG. Examples: Labor law protects employees from corporate abuses, the ban on price-fixing (antitrust law) protects consumers from overpriced goods and environmental criminal law seeks to protect nature from pollution. The compliance task of organized adherence to rules through preventive "prevention of legal violations, in particular also of criminal offences committed from within the company", 22 thus also ensures the protection of legally protected interests of people and the environment, who can also be stakeholders of a company. This applies to corporate self-regulation 23 as well as to the voluntary assumption of social and environmental responsibility, for example when companies in the value chain are committed to compliance with labor standards or human rights. 24 Compliance thus secures the stakeholders' "license to operate" for the company and, within the framework of corporate governance, offers the instruments "for safeguarding and managing the legitimate interests of all relevant stakeholders (by) ensuring that the company and its employees act legally … (as well as) assuming social and environmental responsibility for corporate decisions and actions with the aim of generating trust in the company among the relevant stakeholders". 25 9.3 Compliance Management Systems 9.3.1 Compliance Management as Legal Risk Management Employees in companies are confronted with an unmanageable amount of legal regulations, the complete observance of which is limited in many ways: Many do not even know or understand the applicable law, others lack the motivation to deal with rules, 26 and some even deliberately break legal regulations for opportunistic motives. 27 The consequences are well known: Damage to the company and its stakeholders, liability for damages, draconian penalties or fines for offenders and companies. 28 The danger of legal violations is therefore one of many economic risks for companies, especially in the areas of fraud, embezzlement, corruption, cartel agreements, violation of data protection regulations, occupational safety or health and environmental protection. 9.3 Compliance Management Systems 149 <?page no="150"?> 29 Compared to the similar definition in Fabian, F./ Haarmann, Ph. (2015) p. 76. 30 See also Meyer, S./ Friedrich, J. (2012). 31 Compared to German Corporate Governance Code (2019): Principles 4 and 5, Recommendation A2. 32 LG Munich I, judgment of 10.12.2013 - 5 HKO 1387/ 10, lead sentence. 33 This was the basis for the multi-million fine notices against VW, Daimler, Audi and others in the diesel emissions scandal, cf. footnote 20. 34 § 3 (1) no. 2 RefE Act to Strengthening Integrity in Business. 35 See § 15(2) no.6 RefE Act to Strengthen Integrity in Business, U.S. Sentencing Guidelines, § 8 B2.1. Compliance risks are the share of entrepreneurial risks resulting from the danger of potential breaches of rules by employees, by the organs of the organization or by third parties attributable to the company against government legislation, internal company guidelines, self-imposed guidelines and ethical principles and that result in damage and/ or a loss of reputation. 29 Compliance management must be linked to enterprise-wide enterprise risk management in order to obtain a realistic overall risk portfolio for a company. For reasons of business efficiency, an integrative approach is recommended: Both risk management systems share the same systematics and methodology, are determined by the same theories and standards and require uniform formats (e.g., for risk assessment), which speaks in favor of the holistic Governance: Risk & Compliance ("GRC") approach. 9.3.2 Compliance Management: Obligation or Freestyle? Is it entrepreneurial freedom to leave compliance with rules to chance or even to use legal violations as an instrument of economic success, or are entrepreneurs legally obliged to guarantee legally compliant actions by all employees through systematic compliance management? 30 For banks and insurance companies, the latter is prescribed by law in §§ 25a KWG, 80 WpHG, 23 VAG. For AG's and GmbH's, according to §§ 93 Abs.1 S. 1 AktG, 43 Abs.1 GmbHG, the board of directors or managing directors are obliged to apply the "diligence of a prudent and conscientious business manager / businessman". 31 In the "Neubürger judgement" 32 the LG Munich I specified this diligence to the effect that a conscientious board of directors, within the scope of its duty of legality, has to ensure that the company is organized and supervised in such a way that no infringements of the law occur: Given the type, size and organization of the company, the regulations to be observed, the geographical presence and the suspicious cases in the past, a management board can only fulfill this requirement if it sets up a compliance organization designed to prevent damage and control risk. There can therefore be no doubt as to the legal obligation to implement an individually adapted, effective compliance management system. If an employee commits a criminal offense or misdemeanor, Sections 130, 30, and 9 of the German Administrative Offenses Act (OwiG) stipulate that if the "owner" negligently or intentionally fails to take the necessary supervisory measures, the company is liable to a fine for a misdemeanor. 33 The planned corporate criminal law even provides for an association penalty for the company in the event of a criminal offence in the absence of compliance management; 34 conversely, prevention efforts can lead to a reduction in liability in the event of a breach of law. 35 150 9 Corporate Compliance <?page no="151"?> 36 E.g. DIN ISO 19600: 2016 CMS; ISO 37001: 2016 Anti-Bribery Management Systems, TÜV Rheinland TR CMS 1012: 2011, IDW PS 980 (2011). 37 German Institute for Standardization ISO 19600 (2016) CMS guidelines; the standard is to be superseded in 2021 by a new ISO standard 37301 with largely identical content. 38 Plan-Do-Check-Act. 39 DIN ISO 19600 (2016) under 4.6 in conjunction with 3.16. 40 Institute of Public Auditors in Germany, Auditing Standard 980 (2011). 41 The content of the seven elements is presented in 9.3.4 to 9.3.6 below. 9.3.3 Compliance Management System Standards Since there are no statutory minimum requirements for the establishment of a compliance management system (CMS), a creative design is always fraught with the risk of insufficient effectiveness. In practice, therefore, two CMS standards 36 in particular have become established, along with others: DIN ISO 19600 and the audit standard of IDW PS 980. DIN ISO 19600 Compliance Management Systems: 37 This international CMS standard is a management standard from quality management for organizations of any kind with adaptable recommendations for implementation, development, realization, evaluation, and improvement of a CMS. On the basis of external and internal issues (company and environmental analysis), the stakeholder interests to be determined, and the principles of good governance, the framework for the CMS to be established must first be determined and the compliance policy defined. This is followed along a PDCA cycle 38 by the identification of the binding obligations (TARGET: all mandatory legal standards and all voluntarily assumed obligations), the comparison of which with the actual fulfillment in the company (ACTUAL) can reveal a compliance risk. 39 The planning of the risk treatment to achieve the compliance objectives is followed by the operational implementation of risk-controlling measures and their regular review, measurement, and reporting. If deficiencies come to light, such "non-compliance" must be eliminated and the system continuously improved. The cyclical approach is accompanied by appropriate leadership, a constant commitment to compliance and an independent compliance function as a central organizational unit with responsibilities at all levels and other support functions (resources, awareness, communication, training, culture, etc.). The standard is characterized by its operational orientation with many concrete examples of application and the broad scope of application, which, in addition to legal compliance, also includes aspects of integrity, value orientation, and social compliance. IDW PS 980 40 : Auditing Standard 980 of the Institute of German Certified Public Accountants provides auditors with a national guideline for auditing the design, appropriateness and effec‐ tiveness of CMSs that have already been implemented. Accordingly, a CMS consists of seven interrelated elements. Seven elements of a CMS according to IDW PS 980 The compliance culture is shaped by the basic attitudes and behaviors of management; the formulation of compliance targets forms the framework for identifying, evaluating, and prioritizing compliance risks, on the basis of which a risk-controlling compliance program is to be developed and made known to employees through compliance com‐ munication, in particular through training, and implemented in effective measures. Effec‐ tiveness is to be monitored by compliance monitoring and if necessary, improvement of any weaknesses that have been identified. A compliance organization 41 is primarily responsible for these processes. 9.3 Compliance Management Systems 151 <?page no="152"?> 42 Own representation. Although these elements of a CMS can already be used for the construction of a CMS, the rather concise description of the elements offers little operational assistance due to the wide scope for interpretation. 9.3.4 The Compliance Management Loop Due to the risk-based approach, the elements of PS 980 can be placed in the cyclical flow of the risk management process, which goes through four phases: Assess, prevent, detect and react, surrounded by a compliance culture and initiated by a compliance organization. Compliance- Strukturen / Organisation ASSESS C-targets, C-riks PREVENT C-program C-communication REACT C-improvement DETECT C-monitoring Risk analyses Preventive measures Education, training Effectiveness, controls Improvement, sanctions Fig. 9.2: The compliance management loop 42 Assess the risk analysis phase: The determination of which business areas and which legal risk areas compliance should deal with must be preceded by at least a superficial company-wide vulnerability analysis. In order to be able to measure compliance success at a later stage, compliance targets must first be formulated. 152 9 Corporate Compliance <?page no="153"?> 43 Compared to "Corruption Perceptions Index" by Transparency International Deutschland e.V. 44 Compared to DIN ISO 19600, 4.6 with occasions for reassessment of risks. 45 Compared to in detail Femers-Koch, S. (2018), p. 5. 46 Femers-Koch, S. (2018), p. 13 with further references. 47 Compared to Directive (EU) 2019/ 1937 of the European Parliament and of the Council of 23.10.2019 on the protection of persons reporting infringements of Union law, Art. 8(3). Target definition Anti-corruption: The CMS aims to prevent, uncover and sanction corruption in the form of bribery or corruptibility in business dealings. We understand this to mean any conduct in which our employees demand, accept, obtain or are promised ad‐ vantages from business partners to which they have no legal claim. This is a punishable offence (e.g., under § 299 of the German Criminal Code (StGB), § 4 (5) No. 10 of the German Income Tax Act (EStG), § 370 of the German Fiscal Code (AO), or the U.S. Foreign Corrupt Practices Act). In this respect, preventive measures must be taken in companies in countries with a high risk of corruption in accordance with the CPI 43 and for all sales. employees. In defined areas (business areas, business units, projects, legal areas), compliance risks are to be identified by comparing the target/ actual situation between the binding standards/ self-imposed obligations/ company requirements and the deviating reality. Common instruments for this are questionnaires, checklists, on-site inspections, but also risk workshops, reading audit reports, or looking at competitors. The risks identified in this way must be categorized (financial, operational, strategic) and monetarily evaluated using a risk matrix according to the likelihood of occurrence and extent of impact (including reputational damage) in order to be able to prioritize risk management. This process is time-consuming and must be repeated periodically. 44 The compliance risk portfolio of the company represents the totality of all risks. Prevent the risk control phase: The risk analyses are followed by risk control, primarily through risk reduction: Based on the concrete findings of the risk analyses, rules (Code of Conduct, guidelines, e.g., on dealing with gifts, with competitors, etc.) are to be drawn up which show employees the most important risks of the company in practice and explain their operational treatment in an understandable way. However, the compliance program also includes, in particular, the rule-compliant design of business processes (e.g., purchase to pay) as well as various organizational specifications such as the four-eyes principle, separation of duties, authorization concepts, signature regulations, security controls, or the IT-supported deposit of "red flags" for critical processes (internal control system). Of particular importance in all of this is professional and effective compliance communication, which must inform employees about the relevant rules, must accompany the associated change processes, should convey external stakeholder expectations and ethically oriented CSR topics, and also must also guarantee language capability in the event of "compliance incidents" during a crisis. 45 Communication must be strategically planned, oriented to psychological findings, and target group-oriented, which is particularly clear in the area of knowledge transfer (face-toface training/ e-learning) and training. "Compliance" requires a professional introductory and continuation communication (awareness raising, permanent compliance dialogue) and a creative guiding idea. 46 Finally, the prevention concept requires a confidential whistleblower hotline for the early detection of compliance violations, which will be mandatory for all companies within the EU with more than 50 employees from 2021. 47 9.3 Compliance Management Systems 153 <?page no="154"?> 48 Schulz ,M. / Muth, Th. (2014), p. 271. 49 Förschler, P (2017) p. 14. 50 Compared to Brandes, U./ Gemmer, P./ Koschek, H./ Schültgen, L. (2014), p. 22 with presentation of the management theories X & Y by D. McGregor from 1960. 51 CMS Barometer (2019) p. 3. 52 Deloitte et.al. (2019) p.8, 20. Detectthe risk monitoring phase: The appropriate implementation of preventive measures and process-integrated controls must be reviewed for their effectiveness in the operational business process. This task is often assigned to the internal audit department. React the improvement phase and sanctioning: If process deficiencies are identified in the control phase, they must be remedied by the affected unit by adapting measures or addressing knowledge deficits through follow-up trainings. Detected misconduct must be investigated in a legally complex internal process ("internal investigations"). In the event of intentional violations of rules, sanction measures are to be taken against the persons concerned by personnel and management (e.g., warnings, termination without notice) owed to the credibility of the CMS. Compliance culture: The cycle is embedded in the compliance culture. It is shaped by the importance that company employees attach to the observance of rules and the degree of tolerance towards rule violations. 48 It is based on a continuous commitment of top management to compliance, social and environmental responsibility ("tone from the top"), which is visible to all employees, and a correspondingly credible behavior ("tone at the top"). The implementation of preventive measures is determined by the practical compliance with legal and ethical standards by managers as multipliers with a role model function ("tone from the middle"). The compliance culture is also expressed in personnel policy and employee management, 49 in the image of humanity of the managers, 50 the error and feedback culture, the incentive systems and other aspects of a values-based approach to one another. Compliance organization: Risk exposure and practicality considerations determine which organizational structures are required for the compliance function. In the medium-sized compa‐ nies, the matrix organization has proven itself, in which compliance is affiliated with existing functions such as risk management, internal audit or the legal department (dual functionality) and additional management bodies are appointed (e.g. chief compliance officer at group level, divisional compliance officers for individual business units/ regions, local compliance officers in the national companies and, if necessary, an advisory compliance committee). In large companies, there is usually an autonomous compliance line organization with all basic functions performed by the company's own compliance personnel. 9.4 Corporate Compliance in Practice Compliance has arrived in large and medium-sized companies. According to the "CMS Barometer 2019" 51 , 40% of all companies surveyed have their own compliance department with increasing personnel and financial resources, while 70% rely on external compliance expertise. The underes‐ timation of corruption and the decline in compliance awareness on the part of managers are cause for concern, as the constant commitment of managers to compliance and social responsibility are essential for compliance. After all, according to a study by Deloitte et al. 52 45% of the 500 companies surveyed have at least 4 full-time employees in the compliance organization. Further impetus for the topics of social compliance (environmental, employee and social concerns, human rights and 154 9 Corporate Compliance <?page no="155"?> corruption) is provided by the obligation for non-financial reporting for certain corporations, § 289c HGB, and indirectly for their suppliers. 9.5 Outlook Compliance will have to extend to other areas. For example, big data, IT security and product compliance are moving into focus, but stronger stakeholder orientation in the voluntary area of social compliance will also be a key success factor for companies in the future. The linchpin of successful compliance is a value-oriented integrity culture, which must go hand in hand with professional compliance communication. In this context, the focus must be increasingly on the suitability and role of managers who, as role models and multipliers, have a decisive influence on the success of compliance. For the development of preventive measures, the potentials resulting from economic psychological and criminological finding (e.g. attitude formation and probability of elaboration, differential association in teams) are to be used above all. Finally, the performance measurement of compliance measures based on key figures and the integration of automated and digital compliance tools and interfaces will become more important. At a Glance Legal compliance deals with the systematic observance of sovereign and internal legal provisions within the company with the help of compliance management systems. Critical risk areas must be identified, preventive measures implemented, and their effectiveness monitored. This guarantees the observance of legally protected positions and interests of people and the environment in an economically oriented corporate context. Social or ethical compliance is the term used to describe the voluntary assumption of social and environmental responsibility by companies on an ethical basis, beyond legal obligations, in order to achieve stakeholder value. Suggestions for Further Reading Moosmayer, Klaus (2021): Compliance - Praxisleitfaden für Unternehmen, 4th edition i.V., Munich Ebersoll, M. / Stork, F. (2017): Smart Risk Assessment - Effiziente Risikoidentifizierung und -bewertung, Berlin Makowicz, B. (2018): Global Compliance Management Standards, Munich. Wieland, J./ Steinmeyer, R./ Grüninger, S. (eds.)(2020): Handbuch Compliance-Management, 3rd edition, Berlin Literature Brandes,U./ Gemmer, P./ Koschek, H./ Schültgen,L. (2014): Management Y, Frankfurt/ New York. Brundtland-Kommission (1987): Our common future, Oxford. Bundesgerichtshof, Judgement from 17.07.2009 - 5 StR 394/ 08, "Berliner Stadtreinigung"; in: Neue Juristische Wochenschrift 2009, 3173 ff. Bundeskriminalamt (2018): Wirtschaftskriminalität - Bundeslagebild 2018, https: / / www.bka.de/ DE/ Aktuel leInformationen/ StatistikenLagebilder/ Lagebilder/ Wirtschaftskriminalitaet/ wirtschaftskriminalitaet_no de.html. 9.5 Outlook 155 <?page no="156"?> Bundesministerium für Arbeit und Soziales (2020): Pressemitteilung. "Jetzt greift der Koalitionsvertrag für ein Lieferkettengesetz", 14.07.2020, https: / / www.bmas.de/ DE/ Service/ Presse/ Pressemitteilungen/ 2020/ b undesminister-heil-mueller-koalitionsvertrag-fuer-lieferketten-gesetz.html. CMS Legal Services EEIG (2019): 4. CMS Compliance Barometer: Unternehmen unterschätzen wesentliche Risiken, https: / / cms.law/ de/ deu/ news-information/ 4.-cms-compliance-barometer-unternehmen-untersc haetzen-wesentliche-risiken. Deloitte GmbH, Quadriga Hochschule, Compliance Manager; Vertriebsmanager Magazin (2019): The Future of Compliance 2019 - Herausforderungen und Trends, München. Deutsches Institut für Normung ISO 19600 (2016): Compliance-Managementsysteme - Leitlinien ISO 19600: 2016-12. Eberspächer Gruppe (2019): Code of Conduct, https: / / www.eberspaecher.com/ fileadmin/ data/ corporatesite / pdf/ de/ Code_of_conduct_DE_Screen.pdf. Ernest & Young GL (2017): Human instinct, machine logic - Middle East, India an Africa Fraud Survey, htt ps: / / assets.ey.com/ content/ dam/ ey-sites/ ey-com/ en_gl/ topics/ digital/ ey-emeia-fraud-survey-2017.pdf. Fabian, F./ Haarmann, Ph. (2015): Compliance Risikoanalyse im Unternehmen am Beispiel des Volkswagen- Konzerns; in: Moosmayer (Hrsg.), Compliance-Risikoanalyse, München. Femers-Koch, S. (2018): Compliance-Kommunikation aus wirtschaftspsychologischer Sicht, Wiesbaden. Förschler, P. (2017) Gute Führung senkt Risiken; in: trans aktuell 2017, Heft 8, S.14. Horzetzky, G. (2014): Podiumsdiskussion Politik und gesellschaftliche Verantwortung; in: Bungen‐ berg/ Dutzi/ Krebs/ Zimmermann (Hrsg.), Corporate Compliance und Corporate Social Responsibility, Baden Baden. Institut der Wirtschaftsprüfer in Deutschland, Prüfungsstandard 980 (IDW PS 980)(2011) - Grundsätze ordnungsgemäßer Prüfung von Compliance Management Systeme. In: WPg Supplement 2/ 2011, S. 78 ff., FN-IDW 4/ 2011, S. 203 ff. Landgericht München I, Urteil vom 10.12.2013 - 5 HKO 1387/ 10; in: Neue Zeitschrift für Gesellschaftsrecht 2014, 321 ff. Lütge, Ch., (2012): Werte stärken das Vertrauen; in: IHK für München und Oberbayern (Hrsg.), Den ehrbaren Kaufmann leben: Mit Tradition zur Innovation, München. Meyer, S./ Friedrich, J. (2012): Rechtsgrundlagen einer Pflicht zur Einrichtung einer Compliance-Organisa‐ tion, Working Papers No. 67 05/ 2012 of the Institute of Management Berlin, Berlin. Regierungskommission Deutscher Corporate Governance Kodex, DCGK in der Fassung vom 16.12.2019, h ttps: / / www.dcgk.de/ de/ kodex/ dcgk-2020.html. Roth, M. (2014): Compliance - Die ungeteilte Verantwortung; in: Bungenberg/ Dutzi/ Krebs/ Zimmermann (Hrsg.), Corporate Compliance und Corporate Social Responsibility, Baden Baden . Schulz,M. / Muth,Th.: Erfolgsfaktor Compliance Kultur; in: Compliance Berater 2014, Heft 8, S. 271. Schweickert, Ch./ Janz, M. (2012): Corporate Governance in Abhängigkeit von Unternehmensstruktur und Unternehmensgröße, KICG - Forschungspapiere Nr. 3, Konstanz. U.S. Sentencing Commission (2018): Guidelines Manual https: / / www.ussc.gov/ guidelines/ 2018-guidelines -manual/ annotated-2018-chapter-8#NaN. Wieland, J. (2020): Management-Grundlagen; in: Wieland/ Steinmeyer/ Grüninger (Hrsg.) Handbuch Com‐ pliance Management, Berlin. 156 9 Corporate Compliance <?page no="158"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="159"?> 1 World Bank (2020). 2 Ernst & Young (2019). 10 International Management and Sustainability Carsten Herbes Learning Objectives: The readers ■ understand how cross-border issues and international organizations have shaped the sus‐ tainability discourse. ■ understand the scope for international business and how different organizations seek to set and monitor cross-border sustainability standards. ■ are aware that there are major cultural differences in the understanding of sustainability. Keyword List: Industry flight hypothesis, race-to-the-bottom hypothesis, pollution-haven hypothesis, ILO, Global Compact, culture, corruption 10.1 Introduction 10.1.1 International Corporate Activities - An Overview In this chapter, we will examine the special framework conditions of sustainability that companies face in their international activities. The spectrum of possible international activities is broad. Companies act as sellers in international markets for goods and services. At the same time, they buy goods and services in international markets. On the international financial markets, they raise capital from foreign investors and lenders on the one hand and act as investors in other countries on the other. Finally, on the personnel market, they recruit personnel from and in other countries. These cross-border activities now account for a large share of total economic activity in the world. International exports already reached over 30% of the world's GDP in 2018; in Germany, this figure was 47%. 1 Foreign shareholders hold an average of 55% in DAX companies. 2 In other countries, international influence is even far greater than in Germany. In 2020 and 2021, the Corona pandemic impressively demonstrated the close international integration of value chains and their vulnerability. In the first section, we look at how transnational problems and international organizations have shaped the sustainability discourse. Then we shed light on the impact of international activities <?page no="160"?> 3 Meadows, D.H. et al. (1972). 4 United Nations (1987), p. 41. of companies on sustainable development. The topic of the section 10.2 then is the specifics of sustainability aspects of international activities of companies compared to purely domestic activities. In section 10.3. it will become clear that it depends very much on the cultural and institutional background how sustainability is understood and implemented by companies all over the world. The chapter ends with a conclusion. 10.1.2 International Character of the Sustainability Issue Sustainability has always had an international aspect in terms of its content and the development of the concept. Central problems such as the fight against global warming (ecology) or poverty and hunger (social issues) are global phenomena. The effects of corporate activities cannot be limited to one country either. For example, foreign investors often play a major role in employment conditions, especially in developing countries. In the political sustainability discussion, central publications came from international organizations: After decades of growth in the 1950s and 1960s, the Club of Rome set a counterpoint for the first time with its report "The Limits to Growth" in 1972, pointing out that ecological and economic collapse was inevitable if growth continued unchecked with the technical possibilities prevailing at the time. 3 The UN Commission on Environment and Development (WCED), also known as the Brundt‐ land Commission, created a definition of sustainability in its 1987 report "Our Common Future" that is still widely used today: "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs". 4 In addition to intra-generational justice (fair development for the members of one generation, e.g. justice between industrialized and developing countries), this sentence emphasizes inter-generational justice, i.e. the need to live today in a way that future generations will also find an environment worth living in. The report also emphasizes a global perspective and the close relationship between developmental and environmental aspects. In recent years, international efforts to protect the climate within the framework of the UN Climate Change Conference have attracted a great deal of attention at the international level. At the annual climate conference, the almost 200 signatory countries to the UN Framework Convention on Climate Change negotiate the further development of the agreements on climate protection. 10.1.3 Impact of international Business on Sustainability International economic activities can be both beneficial and detrimental to sustainable development. On the positive side, international economic activities of companies lead to more growth and thus to more wealth, which increases the demand for environmental protection. In addition, international trade facilitates specialization and thus more environmentally friendly production processes. Finally, the production facilities of foreign investors can lead to spillover of knowl‐ edge to companies in the host country and the dissemination of Western environmental and 160 10 International Management and Sustainability <?page no="161"?> 5 Schlesinger, D. (2006), p. 149. 6 See the studies cited in Abdul-Gafaru, A. (2009), p. 51. 7 Dhrifi et al. (2020). 8 Herbes, C. / Schneidewind, P. (2007), p. 27. 9 Abdul-Gafaru, A. (2009), p. 56 ff., UNEP (2011); Shell (2012), Amnesty International (2020). social standards. 5 Researchers in the past often pointed out that production facilities of large multinational enterprises (MNEs) are generally more productive and also 'cleaner' than factories of local companies. 6 On the negative side, international companies contribute to increased resource consump‐ tion through production, transport, and consumption. In the past, international corporations have also used less developed countries as pollution havens (see 10.2.1) and relocated polluting industries with high emissions there. The bottom line is that both arguments can be true: Although international companies may not use as clean technologies in less developed countries as they do in their home countries, they often still do far better than local companies. The link between foreign investment and carbon emissions in developing countries varies by region. Almost always, however, these investments are accompanied by a reduction in poverty in these countries. 7 In addition, international companies can often produce products more cheaply than local producers because of their advantage in economies of scale. When these products are then imported into a developing country, they prevent the development of local businesses. In any case, however, in cross-border activities companies, bring their understanding of sustainability, which is often influenced by the culture of their home country, and this may be in conflict with the host country's understanding of sustainability, which is also culturally influenced in each case. Mostly, we think of investments by Western corporations in other countries. For some years now, however, the opposite direction of direct investment has become increasingly important. Since 2005, for example, Chinese corporations have increasingly invested in German mechanical engi‐ neering companies, thus exporting the Chinese understanding of sustainability. 8 For companies from countries with rather lax regulations in the area of sustainability, expansion into markets with a pronounced understanding of sustainability is a particular challenge. The economic power of internationally active companies often exceeds government spending even in medium-sized countries such as Belgium or Austria, and in smaller countries, even the national product is smaller than the turnover of large global corporations. In many cases, therefore, the largest globalized companies influence stakeholders around the world more strongly and more directly than the governments of their home countries. Practical example: Shell in Nigeria 9 Shell has been producing oil in the Niger Delta since 1958, and for decades the company's practices have been under critical scrutiny by environmental organizations and the United Nations. For example, the natural gas produced together with the oil was for a long time almost completely flared (95% in 1995), which not only leads to acid rain locally, but also 10.1 Introduction 161 <?page no="162"?> 10 Companies from countries with a low level of regulation in the area of sustainability, on the other hand, will perceive less room for maneuver in their international activities. accelerates global warming through CO 2 emissions. Even in 2011, gas was still being burned. Pollution from escaping oil and gas is also a problem. The further expansion of oil production is accompanied by deforestation. Shell itself states that in 2003 alone almost 10,000 barrels of oil leaked into the environment and that in the 1980s about 40% of all oil spills by Shell worldwide occurred in Nigeria. Again in 2011, there was a serious incident off the coast of Nigeria during the loading of an oil tanker The pollution levels are many times higher than the corresponding levels in the US. These differences stem mainly from the lack of enforcement of environmental regulations in Nigeria. While Shell faces severe penalties in other countries, it does not face them in Nigeria. Shell's activities in Nigeria, however, have repeatedly been publicly criticized, most recently in the extensive UNEP report. Therefore, in order to maintain its global reputation, the company feels compelled to address these issues. At least in its communications, this is very visible. Nigeria, for example, features prominently in Shell's Sustainability Report. Moreover, in early 2012, Bureau Veritas, an inspection and certification company based in France, was hired to investigate oil spills by Shell. But even in 2020, Amnesty International still complains that at more than 80% of the sites identified by UNEP, the clean-up of pollution has not even begun. 10.2 International Specifics of Sustainability Aspects We have seen that international companies exert considerable influence on the sustainable development of many countries through their activities. What is the special feature of sustainable management in international, as opposed to purely domestic, activities? Firstly, companies from Europe and the USA 10 have greater scope for action in international activities due to the lack of binding international regulations. Most laws and the most detailed laws are found at the national level. Secondly, the understanding and implementation of sustainability is very different in different countries due to different institutional and cultural frameworks. And thirdly, in host countries, international companies are often expected to do more in terms of sustainability than local companies. 10.2.1 Greater Room for Maneuver Binding legal regulations, especially on social and environmental aspects, usually only exist at national level, which is why companies generally enjoy greater freedom in their international activities. In addition, companies can avoid regulatory requirements in the area of sustainability by relocating. This is the core of the industrial flight hypothesis. It states that, in order to maximize profits, companies will avoid government regulations that impose cost burdens on them by relocating. 162 10 International Management and Sustainability <?page no="163"?> 11 Schlesinger, D. (2006), p. 150. 12 Kim/ Rhee (2019). 13 International Labor Organization (2019). In addition, there is a " competition of nation-states " 11 , i.e., states compete for foreign investors and, in doing so, sometimes fall into strategic use of low protection levels, e.g. with regard to the environment or workers' rights. One of the most important hypotheses in this context, the so-called "race-to-the-bottom" hypothesis (RTB hypothesis) is of particular interest. It states that companies choose those countries for investment in which they can make the highest profits. High taxes and strict rules for environmental and worker protection reduce profits, so companies avoid countries with such policies. To avoid capital flight, countries will therefore be forced to set lower and lower standards. As much as this hypothesis is often cited in discussions, it is not supported by empirical data. Especially when a country is more open to world trade, deteriorations in standards should be observed. In fact, this is not the case and the hypothesis has often been empirically refuted. There is now even some talk of a "race-to-the-top" hypothesis, because more demanding environmental standards in developing countries tend to attract foreign investment. 12 It is not unusual for the particularly stringent countries to be those with high labor productivity and otherwise attractive conditions. Germany, for example, as one of the most open economies in the world, is constantly tightening its already strict standards and yet continues to attract foreign investors. Closely related to the RTB hypothesis is the "pollution haven" hypothesis. It states, that heavily polluting industries relocate to countries with weak environmental protection legislation. Here, too, empirical evidence is not easy to establish. Although the three hypotheses mentioned above may not be completely true in reality, it is undisputed that companies have room for maneuvering through international activities that can be detrimental to sustainable development. For this reason, attempts have long been made to establish supranational regulations and institutions. 10.2.2 Supranational Regulations on Sustainability Aspects There are now a number of supranational or even global regulations and mechanisms that are intended to influence corporate activities in the direction of greater sustainability; moreover, these also apply to purely domestically operating companies. These mechanisms range from classic international treaties to monitoring by non-governmental organizations (NGOs), selfcommitments, and non-formalized monitoring by consumers. The arguments in favor of global standards are that they create a level playing field for all companies in global competition and make it easier for companies to monitor their suppliers for compliance with social and environmental criteria. On the other hand, it is argued that the standards are often very soft and create additional bureaucratic costs. The 1998 Core Labor Standards of the International Labor Organization (ILO) auto‐ matically establish minimum standards for all 185 ILO member states, such as freedom of association, elimination of forced and compulsory labor, abolition of child labor, and elimination of discrimination in respect of employment, thus making eight international ILO conventions binding. 13 Member states are required to report regularly to the governing body of the ILO. These reports are also received by employers' and trade union representatives, who may comment on the reports. Quasi-judicial complaint procedures are available to trade unions and employers' representatives as well as governments, and not only for their own country. In extreme cases the 10.2 International Specifics of Sustainability Aspects 163 <?page no="164"?> 14 Senghaas-Knobloch, E. (2003), p. 12. 15 OECD 2011. 16 OECD 2012. 17 Sartor et al. (2016). 18 Social Accountability International (2020). 19 Global Compact Network Germany (2020). 20 Rieth, L. (2003), p. 384. 21 Global Reporting Initiative (2020). 22 KPMG (2017). ILO also adopts sanctions, such as against Myanmar for forced labor. The challenge, however, lies in implementation. Firstly, the ILO and also the member states have only limited administrative capacities. Secondly, in many countries, there is a strong informal economy in which trade unions play no role. And thirdly, companies have access to countries that have only few ratifications of conventions, e.g. by flagging out ships. 14 The OECD Guidelines for Multinational Enterprises provide "principles and benchmarks for responsible business conduct in a global context". 15 Again, they deal with human rights, employment, the environment, and additionally also corruption. The 30 OECD members, plus eight other countries, have made a commitment to encourage multinational companies doing business on or from their territories to comply with the Guidelines. However, the OECD Guidelines are not legally binding for companies. Violations of the Guidelines can be reported to the National Contact Points, but the publication of a violation is all that can happen to the company concerned. 16 The Social Accountability Initiative (SAI) was founded in 1997 in the USA and provided the first global social standard for working conditions with SA 8000. Today, SA 8000 is considered the most important CSR-related certification worldwide. 17 The content is based on various conventions of the UN and the ILO, which deal, for example, with child labor, health and safety, and freedom of association. The joining companies assume social responsibility and have their efforts certified by independent auditors, e.g., TÜV Rheinland. However, certification is voluntary. Unlike the OECD Guidelines, environmental protection is not an issue for SA 8000. In total, nearly 4,500 organizations are now certified to SA 8000. 18 The United Nations Global Compact (GC) is a platform for companies and, with over 13,000 companies and other stakeholders, is the largest CR initiative in the world. 19 The participating companies undertake to comply with the ten principles of the Global Compact in the areas of human rights, the environment, corruption, forced labor, child labor, and other labor rights. The GC was founded in 2000 by Kofi Annan and numerous CEOs of multinational corporations and is coordinated by an office in the General Secretariat of the UN by only a few employees. The GC cannot, therefore, be a new standard setter or a monitoring organization. Rather, it is a platform for mutual learning and dialogue. Companies particularly appreciate the high global visibility and acceptance of the Global Compact. 20 The Global Reporting Initiative (GRI), a joint initiative of the United Nations Environment Program (UNEP) and the American non-governmental organization CERES (Coalition for Envi‐ ronmentally Responsible Economics), provides companies with guidelines for good sustainability reporting. 21 Whether or not a company adheres to the GRI guidelines can be an initial benchmark for the quality of its sustainability reporting, but they are not binding. For large companies, however, there is de facto pressure to report according to the GRI guidelines: already in 2017, 93% of the 250 largest companies worldwide used GRI. 22 164 10 International Management and Sustainability <?page no="165"?> 23 United States Department of Justice (2020). 24 AON (2019). National norms can also have global implications. For example, under the Foreign Corrupt Practices Act (FCPA) 23 , US authorities can prosecute bribery by companies worldwide if they are either based in the US or have securities, such as shares, listed on a US stock exchange. For example, the Siemens corruption scandal was the largest case prosecuted under the FCPA to date. We see: overall, compliance with supranational agreements and codes is often voluntary for companies, and in other cases, rule violators do not face harsh sanctions. Monitoring the activities of international companies with regard to sustainability is therefore difficult. 10.2.3 Other Supranational Sustainability Drivers However, regulations and institutions are not the only elements for monitoring companies in international business. Who else plays an important role? Internationally active NGOs deserve to be mentioned first. In the area of environmental protection, the best known are probably Greenpeace and the WWF. In the field of human rights and social issues, Human Rights Watch, Social Accountability International (see above), and the Fair Labor Association are probably best known. Some of these organizations have budgets in the millions, broad support, and an extremely professional communication policy and can thus influence corporate policy, even of large corporations. In view of ongoing criticism of working conditions at suppliers, Adidas, for example, felt compelled to join the Fair Labor Association. Since the middle of 2018, "Fridays For Future", a movement for more climate protection, which is mainly supported by young people, has been making a name for itself. In addition to NGOs, international investors are another stakeholder group that can wield large influence. Shareholder representatives and also individual investors call for sustainability at general meetings. Companies that do not take sustainability into account in the long term must expect a discount on their share price, as many major investors now use sustainability criteria for their investment decisions. In a 2019 survey, 85% of all institutional investors surveyed responded that sustainability was important, very important, or even crucial to them, and just under half already had sustainable investment guidelines in place. 24 In addition, special funds are being launched that use sustainability aspects as important decision-making criteria for their investments and explicitly solicit investors with a high level of sustainability awareness. There are even stock indices based on sustainability, e.g. the family of Dow Jones Sustainability Indices. Consumers, even without being a member of a non-governmental organization, can enforce minimum sustainability standards in international companies simply through their market power. However, spontaneous activities are usually short-lived, for example in Germany when customers briefly preferred other discounters after the Lidl spying affair. More effective in the long term is a fundamental change in purchasing behavior. Most consumers now pay more attention to sustainability when shopping and many are also prepared to pay more for sustainable products. Cross-border employee representatives and international trade unions are also not to be neglected as stakeholder groups with an affinity for sustainability. 10.2 International Specifics of Sustainability Aspects 165 <?page no="166"?> 25 Fukukawa, K. / Teramoto, Y. (2009), p. 134. 26 Katz, J.P. et al. (2001). 27 Hofstede (1980). 28 Husted, B.W. (1999), p. 350. 29 Vitell, S.J. et al. (1993). 10.3 Approaches and Understanding of Sustainability in Different Countries Sustainability, like other elements of corporate policy, is embedded in institutional and cultural frameworks that vary from country to country. Different institutional frameworks in different countries give companies different degrees of freedom to act concerning various areas of sustainability, e.g. through environmental and social standards, factor prices (e.g. minimum wages), values, and the degree to which regulations and standards are enforced. The worldwide spread of terms such as CSR or sustainability should not obscure this fact: The term CSR was coined in the USA and the values behind it are deeply influenced by American and European cultures, principles, and social structures. 25 Culture in this context is understood as the shared basic assumptions, values, and artefacts of a group of people. There is a broad consensus in the literature that cultural characteristics have a strong influence on specific aspects of sustainability. 26 For example, it has been proven that cultures with a high-power distance (Hofstede) 27 have a stronger tendency towards corruption. This is because in such paternalistic cultures employees are highly dependent on their superiors, who can distribute favors and positions as they see fit and expect loyalty in return. 28 Cultures with high levels of masculinity are also more prone to corruption. The reason for this is the strong emphasis on material success and the concomitant propensity to achieve wealth through corrupt practices. 29 Figure 10.1 provides an overview of the influences of various cultural dimensions on individual aspects of sustainability-related behavior of individuals. The table also makes it clear that cultural influences can have opposing effects on sustainability as a whole. Collectivistic cultures, for example, tend to be more environmentally friendly on the one hand, but also more corrupt on the other. Masculinity, or in other concepts "assertiveness" and "performance orientation", on the other hand, support both corruption and environmentally harmful behavior. 166 10 International Management and Sustainability <?page no="167"?> 30 Own representation, contents: Husted, B. (1999); Parboteeah, K.P. et al. (2012); Katz, J.P. et al. (2001). 31 Luo/ Tang (2016). 32 Gallen/ Peraita (2018). 33 Harris, P.G. (2006), p. 8. 34 Shafer, W.E. (2010), p. 37. Cultural characteristics High power distance Strong individuality Strong masculinity Strong uncertainty avoidance Strong future orientation Avoidance of corruption (Husted 1999) Support for environtmental protection (Katz et al. 2001) Support for sustainability (environment) (Parboteeah et al. 2012) Consumer activism (Katz et al. 2001) Fig. 10.1: Culture and various sustainability activities 30 But it is not only at the level of the individual that cultural influences on sustainability-related behavior have been demonstrated. They are also visible at the corporate level: for example, an international study showed that companies from countries with high power distance as well as countries with strong masculinity are less open about their climate gas emissions, 31 while another study showed similar results for CSR reporting in general. 32 Sustainability activities can be diametrically opposed to the values of certain cultures. In the area of human resources, for example, sustainability requires diversity management to ensure that applicants, regardless of which minority they belong to, have the same opportunities to apply for a job. This does not fit in with the kind of particularistic values that are widespread in India and China, for example. There, it is considered perfectly natural to give preference to certain applicants who are, for example, related to or known to the decision-makers. Equal rights and career opportunities for women are difficult to convey in many cultures from Japan to Saudi Arabia. There are also cultural differences in the area of environmental awareness: the attitude of most Chinese towards the environment is characterized by a low aesthetic or ethical value and the awareness that nature needs improvement by humans. 33 The construction of the Three Gorges Dam and its devastating environmental effects are a reflection of this thinking. Buddhism and Taoism may have inspired environmentalists in the West, but they are largely irrelevant to the relationship of contemporary Chinese to nature. 34 10.3 Approaches and Understanding of Sustainability in Different Countries 167 <?page no="168"?> Result: What is perceived as economically, socially, and ecologically responsible depends strongly on the respective culture. This brings us to a core problem of sustainability in an international context: To what extent should companies (or even governments or NGOs) insist on the worldwide implementation of norms developed in their own cultural context (universalism)? To what extent can they dispense with this and allow each culture its own standards (cultural relativism)? On the one hand, certain adaptations to other cultures are usually necessary for successful business abroad, but a complete relativism that approves of 'culture-based' child labor, corruption, etc. is certainly inappropriate. This is the field of tension in which internationally operating companies operate on a daily basis. At a Glance We have seen that internationally active companies have an enormous influence on sustainable development. In some cases, this influence is greater and more direct than that of the governments of individual countries. In addition, companies can escape the regulatory influence of individual governments by relocating their activities. On the other hand, there are supranational regulations and institutions such as the OECD Guidelines or the Global Compact. International NGOs such as Greenpeace, sustainability-conscious investors, and consumers limit the scope of action of companies. It has also become clear that different cultures also have different attitudes towards sustainability and its individual elements. For example, corruption is more prevalent in cultures with high power distance and masculinity than in others. In other words, the framework conditions for sustainability in international business differ to some extent from those in domestic business. Through their strategy, marketing, configuration of production networks, and other decisions, companies respond to these conditions and in turn exert an influence on sustainable development. These reactions are the subject of the other contributions in this volume. Literature Abdul-Gafaru, A. (2009): Are multinational corporations compatible with sustainable development? The experience of developing countries. In: McIntyre, J.R., Ivanaj, S. and Ivanaj, V. 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(2007): Rettung oder Risiko - Neue Übernahmewelle aus China und Indien: Auswirkungen und Gegenstrategien. In: Executive Review 1/ 2007, S. 24-31. Hofstede, G. (1980): Culture's Consequences - International Differences in Work Related Values, Newbury Park, London, New Delhi. Husted, B.W. (1999): Wealth, Culture, and Corruption. In: Journal of International Business Studies 30 (2), pp. 339-359. International Labour Organization (2019): Rules of the Game: An introduction to the standards-related work of the International Labour Organization, Fourth Edition, Geneva. Katz, J.P., Swanson, L.D., Nelson, L.K.. (2001): Culture-based expectations of corporate citizenship: a propositional framework and comparison of four cultures.In: International Journal of Organizational Analysis 9 (2), pp. 149 - 171. Kim, Y., & Rhee, D.-E. (2019): Do Stringent Environmental Regulations Attract Foreign Direct Investment in Developing Countries? Evidence on the "Race to the Top" from Cross-Country Panel Data. 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(2016): The SA8000 Social Certification Standard: Literature Review and Theory-Based Research Agenda. In: International Journal of Production Economics, 175, pp. 164-181. Schlesinger, D. (2006): Nachhaltige Weltwirtschaft - Die Rolle internationaler Umwelt- und Sozialstandards. In: Haas, H.D./ Neumair, S.-M. (Hrsg.): Internationale Wirtschaft, München, S. 147-184. Senghaas-Knobloch, E. (2003): Interdependenz, Konkurrenz und Sozialstandards. Probleme und Strate‐ gien bei der internationalen Normendurchsetzung, artec-paper Nr. 103, Universität Bremen, artec - Forschungszentrum Nachhaltigkeit, Bremen. Shafer, W.E. (2010): Social paradigms in China and the West. In: Fukukawa, K. (Ed.): Corporate Social Responsibility in Asia, London and New York, pp. 23-42. Social Accountability International (2020): About SA8000, https: / / sa-intl.org/ programs/ sa8000/ , accessed 31.08.2020. 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World Bank (2020): Exports of goods and services (% of GDP). https: / / data.worldbank.org/ indicator/ NE.EX P.GNFS.ZS. 170 10 International Management and Sustainability <?page no="172"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="173"?> 1 There are different versions of the story of the three blind men, which have their origins in Buddhism, Jainism and Sufism, among others. The variant I have quoted comes from the so-called Palikanon (Khuddaka Nikaya, Udana (Pali) 54-56), an old Buddhist scripture from the first century v. Chr. 11 Integral Management - New Perspectives for Sustainable Development Thomas Ginter Learning Objectives: The readers ■ understand that everyday business life is becoming increasingly dynamic and therefore more complex, requiring a new view of how companies work ■ know the "Integral Approach" by Ken Wilber and its importance for sustainable management ■ can transfer the basic insights of the integral approach to the management of companies Keyword List: Integral approach, developmental holarchy, states, stages of development, lines of development, typologies, four-quadrant model 11.1 Problem: Complexity and its Consequences Do you know the parable of the three blind men who were asked by a Raja in India to examine an elephant? 1 After the three blind men had palpated the elephant, the Raja told the men: You have just examined an elephant. Now tell me, what is an elephant? The first described the elephant as looking like a stately pillar, for he had examined one leg. The second asserted that the elephant was more like a brush, for he had devoted his analysis to the animal's tail. Finally, the third, who had examined the tusks, asserted that the elephant was probably more like a plowshare. And immediately the three men began to argue about who was right. This is how, or something similar, functionaries in companies try to understand the operational context every day, for example from the perspective of production, controlling, or marketing. They all describe the situation from their subjective, function-related point of view and even if so-called "cross-functional" meetings and projects are regularly initiated in many companies, the players rarely succeed in grasping the company as a whole, embedded in the market and corporate environment. What is the reason for this limited view? Basically, the focus on a specific perspective is something very natural and sometimes even as for example in a difficult open heart surgery unquestionably purposeful. However, it is important that you have the ability to change your perspective if necessary or, if the current situation requires it, to adopt a completely new <?page no="174"?> 2 For the distinction between detail complexity and dynamic complexity see, among others, Senge, P. (2011), p. 89ff. A nice essay on the topic of complexity can also be found in Malik, F. (2009), p. 21. 3 For a complete understanding of the model, see Beer, S. (1972). perspective. Furthermore, it is indispensable, especially for managers, to grasp the so-called "whole", which, however, proves to be extremely difficult due to the increasing complexity of most management situations. We can basically distinguish between detailed complexity and dynamic complexity. While the conventional tools of strategic planning are primarily geared towards coping with detailed complexity, such as running a simulation with a large number of variables and complex detailed arrangements, dynamic complexity is concerned with situations in which the underlying cause-and-effect chains are not immediately apparent to the observer and interventions that have been carried out may not lead to obvious consequences, or may have completely different effects in the short term than in the long term. For example, the balance between market changes and the corresponding adjustment of production capacities is a dynamic problem. But also the sustainable improvement of quality or the increase of customer satisfaction cannot be directly traced back to certain variables or activities. 2 Let's accept that our world, and thus of course also our everyday business life is becoming increasingly dynamic and thus more complex, the question arises as to whether management is still able to steer a company using the classic instruments of planning, organization, and control. In my opinion, the answer is obvious: Using static instruments to control dynamic complexity is like trying to fly a supersonic airplane on sight. At the same time, the focus of functionaries on detailed tasks is certainly also an expression of insecurity regarding the enormous tasks and changes with which management is confronted in the age of information and complexity. In addition to trivializing complexity by concentrating on individual tasks, many managers take refuge in actionist activity or even completely ignore dynamic problems the same as it ever was! But even the attempt to penetrate dynamic problems purely rationally leads only to a limited extent to a comprehensive understanding of the complex corporate situation. Because only rational pattern formation combined with intuitive understanding allows us to actually guess at the relevant circumstances. In order not to completely lose control, we need a completely new view of how companies function, new perspectives for sustainable development! 11.2 The Integral Approach The influence of dynamic complexity on management situations has occupied visionary thinkers from theory and practice since the middle of the last century. Systems theory in particular has played a prominent role as an orientation framework. Some of the heroes of this movement, whose work has made an invaluable contribution to rethinking companies, will be introduced at the beginning of this chapter, before we then turn to the Integral approach, which, although not directly related to systems theory, is forming in its spirit as a worthy companion to a new management approach. Stefford Beer was undoubtedly a pioneer in transferring the findings of systems theory to modern management research. His model of the 'viable system' is based on the functioning of the central nervous system in humans and serves in many systems theory approaches as the basis for the organizational structuring of companies. 3 174 11 Integral Management - New Perspectives for Sustainable Development <?page no="175"?> 4 Ulrich, H. (1968). 5 In detail Ullrich, H. / Krieg, W (1973). 6 An overview of the further developments of the St. Gallen Management Model can be found in Malik, F. (2007). 7 Senge, P. (2011) and Senge, P. / Kleiner, A / Smith, B. / Roberts, C. / Ross, R (1996). 8 In detail Wilber, K. (2001a), p. 169. 9 Wilber, K. (2001a), p. 160ff. and Wilber, K. (2001b), p. 85. In the German-speaking world, Hans Ulrich 4 and his students Walter Krieg, Peter Gomez, Gilbert Probst, Thomas Dyllick and Fredmund Malik were the first to address the topic. This initially gave rise to the St. Gallen systems approach and building on this the St. Gallen management model developed by Hans Ullrich and Walter Krieg, which enables management to grasp aspects of corporate management from a supposedly holistic, integrated perspective. While classical management approaches see complexity as an evil to be reduced, the task of management according to this approach is, among other things, to maintain the complexity of steering systems in order to ensure according to the motto: complex tasks require complex steering systems the continuous adaptation of the company to a dynamically changing corporate environment. Adaptation to the environment takes place primarily through self-organization and evolutionary adaptation processes; accordingly, the manager serves primarily as a catalyst for strategic decisions and not as a corporate leader. 5 The St. Gallen Management Model was implemented in practice by Fredmund Malik, who founded the Management Zentrum St. Gallen (today Malik Management Zentrum St. Gallen AG) in 1977 to test and further develop the approaches developed. 6 Finally, I would like to take this opportunity to mention the invaluable services of Peter Senge, the director of the Center for Organizational Learning at the MIT Sloan School of Management, founded in 1991, who is best known for his book 'The Fifth Discipline: The Art and Practice of the Learning Organization' and the 'Fieldbook' based on it, based on so-called system archetypes' made the basics for the design of a learning organization accessible to a broad public. 7 Without wishing to belittle the achievements of the pioneers of systems management, it is nevertheless the case that they too do not really consider the whole but limit themselves as far as possible to the systems perspective. Ken Wilber, whose theory we will deal with in detail in a moment, therefore accuses systems theory of a 'subtle reductionism', since systems theory pretends to explore the whole, but does not seem to be suited to explain individual and intersubjective realities or to adopt such a perspective. 8 According to Wilber, reality can be seen from four different perspectives: an internal (subjective/ qualitative) and an external (objective/ quantitative) one, as well as from an individual and a collective point of view. 9 11.2 The Integral Approach 175 <?page no="176"?> 10 Own representation: Wilber, K. (2001a), p. 85. 11 Wilber, K. (2001a), p. 57. 12 For the term HOLON see Koestler, A. (1968), p. 59. Outside Inside Individual Collective IT behavioral (objective) I intentional (subjective) WE cultural (intersubjective) IT (Plural) social (interobjective) Fig. 11.1: The four-quadrant model - Different perspectives of reality 10 In my opinion, Wilber rightly postulates that a complete picture of reality can only be imagined if all four perspectives are actually taken into account. Otherwise, reality is reduced to one perspective (like systems theory to the lower right quadrant), which is then often sold as the only valid 'truth'. And already we are in the middle of the Integral Approach. In the following we will first deal with the idea of HOLONS, then we will look at the individual components of the integral theory. - STATES, STAGES OF DEVELOPMENT, LINES OF DEVELOPMENT, TYPOLOGIES, QUAD‐ RANTEN which in the Wilberian world are collectively referred to as AQAL (all quadrants / all levels), and finally, in the following chapter, show the significance of the approach for management research. And here we go! 11.2.1 Holons "The world as a whole is not composed of things or processes, but of holons". 11 But what is behind the construct holon? The term 'holon' was coined by Arthur Koestler. Koestler, an engineer, editor, author, reporter and philosopher born in Budapest in 1905, used the term holon to describe an entity that is itself a whole and at the same time a part of another whole. Reality, then, according to Koestler, consists neither of parts only nor of an ultimate whole. 12 Thus, a whole atom is part of a whole molecule and the whole molecule is in turn part of a whole-cell and the whole cell 176 11 Integral Management - New Perspectives for Sustainable Development <?page no="177"?> 13 On this and the following in detail Wilber, K. (2001a), p. 57ff. and as a summary Wilber, K. (2004), p. 40ff. 14 Own representation, content: cf. Wilber, K. (2004), p. 40. 15 Wilber, K. (2007), p. 14f. in turn part of a whole organism according to the principle of transcending and including. The individual parts make up the human being, but at the same time they work individually and autonomously. 13 Organism Cell Molecule Atom Fig. 11.2: Development hierarchy 14 Holons thus always occur in the form of a hierarchically ordered nesting, what Wilber calls a developmental holarchy. Furthermore, each holon has inner/ outer as well as individual/ collective aspects, which brings us back to Wilber's four-quadrant model described above. Notice: Every complex entity, including a company, is composed of developmental holarchies and always has both internal/ external and individual/ collective aspects. 11.2.2 Statements A state is the way something is or is perceived at a particular moment. Ultimately, the state always describes the current condition or status of an individual holon (e.g., the human being) or a social holon (e.g., the company). Furthermore, we can distinguish between states that can be perceived rather subjectively inside or observed objectively outside. Surely you have noticed and again we can refer to Wilber's Four Quadrant Model in categorizing different states. According to this, some states refer to subjective realities within oneself (top left e.g. happy or sad) or to objectively measurable individual realities on the outside (top right e.g. feverish or fever-free). Other states, on the other hand, we share with others on a collective cultural level (bottom left e.g. team spirit or opportunism) or on a collective social level (bottom right e.g. war or peace). A central feature of states is that they come and go; each state is only temporary in nature. 15 11.2 The Integral Approach 177 <?page no="178"?> 16 Wilber , K. (2007), p. 16. 17 Wilber, K. (2007), p. 16ff. and Wilber's description of the history of human development in Wilber, K. (1984). 18 See Gardner, H. (1991) and Gardner, H. (2002). Notice: In order to comprehend the status quo of a complex entity in a holistic way, it is first necessary to describe its state, taking into account all possible realities (internal/ external, individual/ collective). 11.2.3 Development Stages While states are temporary, stages are permanent. Once a certain stage, or better developmental stage, has been reached in a stable manner, the concrete potential of the stage is permanently available practically at any time. Child development can be taken as an example here. Once a child has learned to speak, it can normally fall back on this ability at any time in the further course of its development. Wilber therefore sees the stages as the actual milestones of growth and development. 16 Each level represents a certain level of organization and complexity. For example, a molecule is of greater complexity than an atom and therefore possesses a wealth of important new qualities. We also recognize the existence of developmental stages, for example, when we study human history. The first communities organized themselves as hunter-gatherers. After the discovery of horticulture and agriculture, the complexity of the connections entered into grew and at the same time brought with it a new quality of exchange even beyond one's own clan. The next stage was represented by the transition to the industrial age and the revolutionization of production processes that accompanied it. Again, the complexity of interaction processes increased while important new qualities emerged. Finally, the transition from the industrial age to the information age took place with a hitherto unknown increase in complexity and a wealth of new qualities that we now have to discover or use. 17 Characteristic for such developmental holarchies is that each stage has to be passed through. No step can be skipped; the development does not allow any shortcuts. Notice: Stages represent the degree of growth and development of a complex entity. With each new stage, the degree of complexity grows with the simultaneous emergence of new qualities. Stages of development cannot be skipped. 11.2.4 Development Lines The concept of developmental lines is based on the research of Howard Gardner from Harvard University on multiple intelligences. 18 According to this, people possess numerous different intelligences, such as a linguistic-linguistic intelligence, a logical-mathematical intelligence, a physical-kinesthetic intelligence, an interpersonal and intrapersonal intelligence, etc. Each of these developmental lines is unique in that it can develop relatively independently of the others. Each of these developmental strands is unique in that it can develop relatively independently of 178 11 Integral Management - New Perspectives for Sustainable Development <?page no="179"?> 19 Wilber, K. (2007), p. 43. 20 In detail Gilligan, C. (1999). 21 Quoted from Wilber, K. (2009), p. 47. 22 Wilber, K. / Patten, T. / Leonard, A. / Morelli, M. (2010), pp. 141. the other lineages. Thus, it is possible to be highly developed on one line while being at the lowest level of development on another line, such as a highly intelligent unscrupulous criminal or, say, a cognitively reduced athletic athlete. Wilber emphasizes that such developmental lines exist not only in the individual inner realm, but fundamentally in all four quadrants, whereby all lines can pass through the basic stages described above. They each mark the strengths and weaknesses within a quadrant and thus indicate possible starting points for development. 19 Notice: By determining the lines of development relevant to a complex entity and evaluating them, it is possible to draw up a comprehensive strengths/ weaknesses profile for it as the basis for sustainable development. 11.2.5 Typologies Types are, in principle, related groups that have a common characteristic or characteristics. The formation of types is a methodical tool to order phenomena or characteristics in such a way that the characteristics that are considered to be essential receive special attention. A simple typology would be the distinction between man and woman. According to Carol Gilligan, male logic is mostly based on autonomy, justice, and rights, whereas female logic is primarily based on relationships, care, and responsibility. Men tend to do; women seek community, and so on. 20 One of Gilligan's favorite stories in this regard goes like this: "A little boy and a little girl are playing together. Says the boy: Let's play pirates! Says the girl: Let's play being neighbors! The boy: No, I want to play buccaneer! All right, says the girl, then you play a buccaneer who lives next door". 21 The result of such a grouping process is the identification of groups that are as similar as possible within a type, while the types differ as much as possible among themselves. Examples of types, according to Wilber et.al., can be found everywhere or in every quadrant: there are types in music (jazz, rock, classical, etc.), types of relationships (friendship, love relationship, professional relationship, etc.), types of geography (desert, forest, mountain, etc.), but also in the economic context, such as industry classifications (automotive, electrical industry, food industry, etc.) or buyer typologies as the basis of target group segmentation. While all types have their unique characteristics, advantages and weaknesses, objectively speaking, one type is not better or worse than another they are simply different. And even if two members or elements of a type develop differently, their type remains fundamentally the same. Thus, a person typologized as 'left-handed' may be a left-handed savage, a left-handed scientist, or a left-handed saint. 22 11.2 The Integral Approach 179 <?page no="180"?> 23 Wilber, K. (2009), p. 70. Notice: The typing of different groups primarily serves to identify central relevant patterns with the aim of finding a creative way of dealing with the respective patterns of a type. 11.2.6 Four Quadrant Model As already mentioned above, reality can be seen from four different perspectives: from an inner (subjective / qualitative) and an outer (objective / quantitative), as well as from an individual and a collective point of view. Let us take a closer look at the individual quadrants in relation to human beings as an example: In the upper left quadrant are the attitudes, needs, personality and values of the individual. But if we look at the individual being from the outside, quasi from an objective scientific perspective, we no longer come across thoughts, feelings and sensations, but neurotransmitters, the limbic system, the neocortex, the DNA etc., all material components observable from the outside, which show the scientist how an individual event manifests itself on the outside. Consequently, the upper right quadrant shows not emotions but neurotransmitters, not violent desires but the limbic system, not inner visions but the neocortex. But even these two perspectives reflect only part of the whole. The lower left quadrant, for example, complements the two individual perspectives described above in the sense that every individual I is always also integrated into a collective WE, i.e. into a cultural environment in the broadest sense, which then naturally also has an external equivalent or an external appearance, which is then reflected in the lower right quadrant. 23 180 11 Integral Management - New Perspectives for Sustainable Development <?page no="181"?> 24 Own representation, content: see Wilber, K. (2009), p. 72. 2 2 2 1 1 1 1 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 Survival clans Ethnic tribes Feudal empires Early nations Legal states Communities and values Holistic communities Integral networks Archaic Animistic-magic Powerful god Mythical order Scientific-rational Pluralistic Holistic Integral Instinctive Magic Egocentric Mythical self Rational self Sensitive self Holistic self Integral self IT Brain & Organism I Self & Consciousness THEY Social System & Environment WE Cultur & Worldview Fig. 11.3: The four quadrants related to humans 24 11.2 The Integral Approach 181 <?page no="182"?> This multi-perspective view can be applied not only to human beings, but also to all individual and social holons, consequently also to companies. Notice: In order to obtain the most integral view of an individual or social entity, it is essential to include all four quadrants; to deny or dismiss any of the perspectives as inessential leads to a negligent reductionism of reality. And what does all this have to do with the sustainable management of companies? We will now address this question in the following chapter. 11.3 The field of Tension of Integral Management Let's start by applying the basic insights of the Integral Approach to the management of companies: ■ Every company is made up of developmental holarchies and always has both internal/ external and individual/ collective aspects. ■ In order to comprehend the status quo or the condition of a company in a holistic way, it is necessary to carry out a status description in which all possible realities (internal/ external, individual/ collective) are taken into account. ■ Development stages represent the degree of growth and development of a company. With each new stage, the level of complexity grows while new qualities emerge. Development stages cannot be skipped. ■ By determining and evaluating the development lines relevant for a company, it is possible to create a comprehensive strengths/ weaknesses profile as the basis for sustainable development. ■ The application of typologies in an entrepreneurial context primarily serves to identify central patterns with the aim of finding a creative way of dealing with the respective patterns of a type. ■ In order to obtain the most integral view of a company, it is essential to include all four quadrants; denying or dismissing one of the perspectives as insignificant leads to a negligent reductionism of reality. It is postulated that SUSTAINABILITY can only be realized if the interactions of all four quadrants or their conditions are recognized and the above-mentioned specification criteria (states, levels, lines, types) are taken into account in the management process. In this context, let us take a more differentiated look at the axioms set out above. First of all, it is important to understand a company fundamentally as a social holon, which can only be truly understood and based on this, sustainably developed through a multi-perspective view. As a starting point of a differentiated company analysis in this sense, company-relevant conditions 182 11 Integral Management - New Perspectives for Sustainable Development <?page no="183"?> 25 Own representation. can first be identified or evaluated as an expression of the current status of the company. For many companies, the measures of success productivity, profitability, success, liquidity and profitability are an expression of the company's current situation. However, if we now apply Wilber's four quadrant model, we see that these success parameters merely reflect the collective outside and always interact with other parameters from the other three quadrants (e.g. employee satisfaction, working climate, fluctuation rate), i.e. are in direct interaction with them. The following diagram provides an overview of this: Outside Inside Individual Collektive Objective Per capita performance, Fluctuation rate Subjective Employees‘ satisfaction Working atmosphere Intersubjective Productivity, economic efficiency, success. liquidity Interobjective Fig. 11.4: States as an instrument for determining the status quo 25 It is by no means a question of which of the parameters are more or less important. Rather, the different parameters are an expression of different views of one and the same event. This statement applies in principle, as it does to the consideration of different development stages of a company. Examples of relevant stages in the operational context are shown in the following figure: 11.3 The field of Tension of Integral Management 183 <?page no="184"?> 26 Own presentation. Content: cf. also the excellent book by Beck, D. E. and Cowan, C. C. (2011) and the essay by Cook-Greuter, S. (2008), pp. 21 - 64. Imperium Instinctive action 2 2 2 1 1 1 1 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 Survival hordes Tribe Authority structure Strategic company Social network Systemic process Integral organism automatic / Instinctive animistic / tribalistic egocentric / exploitative system believing / pious materialistic / success-oriented relativistic / sociocentric systemic integrative integral concrete Wild Impulsive Opportunist Specialist / Diplomat achiever Pluralist Synthetic Synergist Selfexpression objective Selfunderstanding subjective System interobjective Culture intersubjective Individual knowledge Single tasks focus skills Specialized skills Conceptual abilities Process oriented skills Cross-functional capabilities Meta-abilities Fig. 11.5: Development stages of a company 26 184 11 Integral Management - New Perspectives for Sustainable Development <?page no="185"?> 27 See also Bär, M. / Krumm, R. / Wiehle, H. (2012). 28 Own representation. 29 Briggs Myers, I. (1995). Once the company has reached a certain level of development in a stable manner, the concrete potentials of the level are permanently available to it at practically any time. Each level represents a certain level of organization and complexity. For example, a company can develop from an authority structure to a strategic company to a social network (bottom right), but always with corresponding, interdependent development processes in the other three quadrants. Accordingly, a company organized as a social network, for example, requires as its cultural basis a relativistic/ so‐ ciocentric corporate culture (lower left), socially competent pluralists as employees (upper left), who possess broad process-oriented skills (upper right). 27 Next, let's look at the development lines of a company. Reminder: With the help of development lines, we can identify the development status in different competence areas of a company (strengths/ weaknesses) in order to derive design recommendations for sustainable company development. It is possible for a company to be very well developed on one line, while it is at the lowest level of development on another line, such as a high efficient company with exploitative management behavior or, for example, a company with a morally highly developed management without innovative strength. A selection of relevant lines of development of a company is shown in the following picture: Outside Inside Individual Collektive Objective Subjective Intersubjective Interobjective Fig. 11.6: Possible lines of development of a company 28 Finally, let us turn to typologies relevant to companies, always with the aim of finding a creative way of dealing with the respective patterns of a type. In doing so, we can draw on a wealth of typologies from business research, such as the personality typology according to Meyer-Briggs 29 11.3 The field of Tension of Integral Management 185 <?page no="186"?> 30 Gay, F. (2004). 31 Ansoff, H. I. (1979). 32 Own representation. 33 Also the comments by Barrett, R. (2006). (top left), the behavioral typology according to DISC 30 (top right), the corporate culture typology according to Ansoff 31 (bottom left), as well as on a collection of the most diverse system typologies, such as the typologization of companies according to legal form, size or industry (bottom right). The following picture summarizes what has been said once again in a concise manner: Outside Inside Individual Collektive Objective Types of behavior (e.g. according to DISC) Subjective Personality types (e.g. according to Meyers-Briggs) Corporate culture types (e.g. according to Ansoff) Intersubjective Corporate system types (e.g. according to legal form, size, industry) Interobjective Fig. 11.7: Company typologies 32 All the perspectives presented above thus form the basis for sustainable integral management. Management understood in this way is fundamentally in a field of tension between truth, truthfulness, systemic and cultural fit. 33 While truth is about controlling and directing individual behavior from the outside, truthfulness focuses on psychological understanding, whereby truthfulness can only be manifested or developed through one's own initiative and self-control. Systemic fit, on the other hand, focuses on the establishment of suitable steering mechanisms as the basis for the self-control of the entire system, while cultural fit focuses on the development of corporate values and thought patterns in accordance with a constantly changing, dynamic corporate environment. 186 11 Integral Management - New Perspectives for Sustainable Development <?page no="187"?> 34 Own representation. 35 Pessoa, F. (2006), p. 101. Integral Management Truthfulness (subjective) Truth (objective) System fit (interobjective) Cultural fit (intersubjective) Fig. 11.8: The field of tension of integral management 34 I would like to conclude this essay with a quote from Fernando Pessoa, who put it so well in his Book of Unrest: "Every thing, depending on how you look at it, is a miracle or a hindrance, an all or a nothing, a way or a problem. To look at it ever differently is to renew and multiply it.". 35 At a Glance Our world and thus, of course, our everyday business life is becoming increasingly dynamic and complex. In order to master this complexity, we need a view of reality that is as comprehensive as possible. The integral approach of Ken Wilber opens up the possibility to view or understand a company from different perspectives. It is postulated that SUSTAINABILITY can only be realized if the management takes all these different perspectives into account or includes them in the orientation of the company. Suggestions for Further Reading Barrett, R. (2006): Building a Values-Driven Organization, London & New York. Wilber, K. (2001): Ganzheitlich handeln - Eine integrale Vision für Wirtschaft, Politik, Wissenschaft und Spiritualität, Freiamt. 11.3 The field of Tension of Integral Management 187 <?page no="188"?> Literature Ansoff, H. I. (1979): Strategic Management, Hobocken. Bär, M. / Krumm, R. / Wiehle, H. (2010): Unternehmen verstehen, gestalten, verändern - Das Graves-Value- System in der Praxis, Wiesbaden. Barrett, R. (2006): Building a Values-Driven Organization, London & New York. Beck, D. E. / Cowan, C. C. (2011): Spiral Dynamics, Leadership, Values and Change, Bielefeld. Beer, S. (1972): Brain often the firm, Chichester et al. Briggs Myers, I. (1995): Gifts Differing: Understanding Personality Type, Mountain View. Cook-Greuter, S. (2008): Selbst-Entwicklung neun Stufen des zunehmenden Erfassens, in: Integral informiert, Nr. 14, September/ Oktober 2008, pp. 21 - 64. Gardner, H. (1991): Abschied vom I.Q. - Die Rahmen-Theorie der vielfachen Intelligenzen, Stuttgart. Gardner, H. (2002): Intelligenzen. Die Vielfalt des menschlichen Geistes, Stuttgart. Gay, F. (2004): Das DISG-Persönlichkeitsprofil - Persönliche Stärke ist kein Zufall, Remchingen. Gilligan, C. (1999): Die andere Stimme, Munich. Jantsch, E. (1975): Design for evolution self-organization and planning in the life of human systems, New York. Koestler, A. (1968): Das Gespenst in der Maschine, Bern. Krumm, R. (2012): 9 Levels of Value Systems, Haiger. Luhmann, N. (1984): Soziale Systeme - Grundriß einer allgemeinen Theorie, Frankfurt/ Main. Malik, F. (2007): Management: Das A und O des Handwerks (Management: Komplexität meistern, Band 1), Frankfurt/ Main. Malik, F. (2009): Systemisches Management, Evolution, Selbstorganisation - Grundprobleme, Funktionsme‐ chanismen und Lösungsansätze für komplexe Systeme, Bern et. Al. Pessoa, F. (2006): Das Buch der Unruhe, Frankfurt a.M. Senge, P. / Kleiner, A. / Smith, B. / Roberts, C. / Ross, R. (1996): Das Fieldbook zur Fünften Disziplin, Stuttgart. Senge, P. (2011): Die fünfte Disziplin - Kunst und Praxis der lernenden Organisation, Stuttgart.. Ulrich, H. (1968): Die Unternehmung als produktives soziales System, Bern. Ullrich, H. / Walter K. (1973): Das St. Galler Management-Modell, Bern/ Stuttgart. Wilber, K. (1984): Halbzeit der Evolution, Bern et al. Wilber, K. (2001a): Eros, Kosmos, Logos - Eine Jahrtausend-Vision, Frankfurt/ Main. Wilber, K. (2001b): Holistic Action - An Integral Vision for Business, Politics, Science and Spirituality, Freiamt. Wilber, K. (2004): Eine kurze Geschichte des Kosmos, Frankfurt/ Main. Wilber, K. (2007): Integrale Spiritualität - Spirituelle Intelligenz rettet die Welt, Munich. Wilber, K. (2009): Integrale Vision eine kurze Geschichte der Integralen Spiritualität, Munich. Wilber, K. / Patten, T. / Leonard, A. / Morelli, M. (2010): Integrale Lebenspraxis körperliche Gesundheit, emotionale Balance, geistige Klarheit, spirituelles Erwachen, Munich. 188 11 Integral Management - New Perspectives for Sustainable Development <?page no="190"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="191"?> 1 Ramme, I. (2009), p. 2 and the literature cited there. 2 Vaaland, T. I./ Heide, M./ Grønhaug, K. (2008), p. 929. 3 www.ama.org/ the-definition-of-marketing-what-is-marketing/ . 4 Ramme, I. (2009), p. 2. 12 Marketing and Sustainability Iris Ramme Learning Objectives: The readers ■ learn how to use marketing and especially communication to promote a sustainable lifestyle, ■ learn how to develop marketing strategies with a focus on sustainability, ■ know how to use the marketing tools (4 Ps) in a sustainable way (price, distribution, communication, product), ■ understand the challenges of sustainable marketing. Keyword List: Marketing strategy, marketing concept, positioning, targeting, segmentation, brand, green wash‐ ing, product policy, pricing policy, distribution policy, communication policy 12.1 Marketing: Briefly Explained Marketing means "to bring to the market". There are many different definitions of the term marketing. 1 The most frequently cited definition of marketing is the one of American Marketing Association (AMA). The first AMA definition dates back to 1935, with updates in 1948, 1960, 1985, and 2004. 2 The most recent 2017 definition is as follows: Definition "Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large." 3 The focus on the four marketing instruments of product, price, distribution and communication policy 4 has receded into the background; instead, customer orientation and consideration of society ("society at large") are gaining in importance. <?page no="192"?> 5 Kotler, P. (1972), p. 54 and also Elliott (1990), p. 20 and Crane (2202), p. 549. 6 Schmidt-Riediger, B. (2008), p. 10 and the literature cited there as well as Armstrong, G./ Kotler, P. (2017), pp. 482. 7 Balderjahn, I. (2004), p. 1, further definitions can be found in Schmidt-Riediger, B. (2008), p. 23. 8 The Triple P approach was developed by Elkington in the mid-1990s to measure corporate success. Cf. Slaper, T. F./ Hall, T. J. (2011), p. 1 and in detail Elkington, J. (1997). 9 Elliott (1990), p. 29. 10 Schmidt-Riediger, B. (2008), pp. 12. 11 Daub, C. H./ Ergenzinger, R. (2005), p. 998. 12 Kumar, V. et al. (2013), o.p. 13 Ramme, I. (2009), p. 215. 12.2 Marketing and Sustainability As early as 1972, Philip Kotler introduced the concept of the welfare-conscious marketing concept or Societal Marketing Concept. 5 The critical view of marketing on the societal level includes the overstimulation by advertising, the overemphasis of consumption compared to other societal values, manipulative intentions through advertising companies, planned obsolescence (design that induces premature replacement purchases), hard selling methods, too high margins for branded products, poor service for the socially disadvantaged, waste of material and energy and consequently the damage to our entire ecosystem. 6 Definition Sustainable marketing is defined here, following Balderjahn, as a concept for the marketoriented management of a company, so that the needs of customers are satisfied and company goals are achieved, while at the same time taking into account the requirements of the market environment, society and the natural environment. 7 This includes social and ecological as well as economic goals. This approach is known as the "Triple P" (profit-people-planet) 8 or 3-pillar model and implies customer focus, pursuing corporate goals, long-term orientation, and the conservation of resources. The entire marketing process must therefore follow these principles and move away from a pure focus on brand management and customer orientation. 9 Sustainable marketing has evolved from eco-marketing over the last 40 years. 10 In recent years, marketing and management theories increasingly assume that companies also have ethical and moral obligations. The social component, expressed in corporate social responsibility, is gaining importance. 11 According to Kumar et al., in the literature the holistic view of sustainability in marketing has been gaining attention together with the environmental and social perspectives. 12 12.3 Sustainable Marketing Concept 12.3.1 Components of the Marketing Concept A marketing concept includes a stringent goal-oriented plan of action, the strategy suitable for achieving the goal, and the marketing mix instruments that were determined on this basis. 13 For a sustainable marketing concept, it is important to adapt and specify the marketing objectives to the company's goals, to select the right positioning in order to differentiate the offer from the 192 12 Marketing and Sustainability <?page no="193"?> 14 Dangelico, R. M./ Vocalelli, D. (2017). 15 Dangelico, R. M./ Vocalelli, D. (2017), p. 1269. 16 Dangelico, R. M. / Vocalelli, D. (2017), p. 1270. competition, address the right target groups after appropriate segmentation (targeting) and adapt the marketing mix elements. 14 According to the research of Dangelico and Vocalelli, psychographic characteristics such as environmentally conscious attitudes and behavioral characteristics such as participation in political actions on sustainable development topics are particularly suitable for segmenting sustainable offers. As a result, clusters are created that correspond in attitude and behavior to the desired target group that thinks and buys sustainably. 15 Based on the assumption that sustainable consumers consider sustainably positioned compa‐ nies in their purchasing decisions, companies have the choice between functional and emotional positioning in order to address sustainably oriented target groups. A functional positioning strategy is based on sustainable production processes or possible uses of the product. This positioning strategy can be copied relatively easily by the competitor, as it relates to the functionality of a product. Emotional positioning is more difficult to copy and is, therefore, more suitable for differentiation. This is based on three advantages: a feeling of well-being ("warm glow"), which is often associated with altruistic action, the possibility of expressing oneself as a status symbol through the consumption of a sustainable product, and positive emotions resulting from contact with nature. A combination of emotional and functional elements has proven best for positioning a sustainable brand. 16 The following figure shows the relationships between segmentation, targeting, positioning, differentiation, and the marketing mix that will be discussed in the next sections. Positioning and Differentiation Segmentation and Targeting Distribution Policy Product Policy Price Policy Communication Policy Sustainable Marketing Strategy Sustainable Marketing Concept Sustainable Marketing Mix Fig. 12.1: Marketing concept (adapted from Dangelico, R.M. / Vocalelli, D. (2017), p. 1269) 12.3 Sustainable Marketing Concept 193 <?page no="194"?> 17 Ramme, I. (2009), p. 105. 18 Ramme, I. (2009), p. 105. 19 Miele & Cie. KG (2019). 20 TRIGEMA (2020) and Swedish Stockings (2020). 21 Dienel, W. (2000), p. 59. 22 BMU (2020). 12.3.2 Product Policy Every consumer expects the purchase of a good or the use of a service to satisfy a need. He or she has very specific benefit expectations. These refer to the characteristics of the product that are perceived when using it. All marketing policy actions that refer to the variation of these product features belong to product policy. 17 However, the task of product policy is not (only) to improve the technical properties of a product. The starting point is the needs, wishes, and problems of the potential buyer. The task of product policy is therefore to make decisions about the product and the product mix. 18 Designing the product and its characteristics involves many aspects of sustainable marketing. Here, durable materials should be mentioned in order to ensure the longest possible use of a product, as well as resource-saving raw materials in production and the focus on repair options and recycling of old products. The use of durable material leads to lower sales in the short term because a purchase is delayed. However, higher prices and in the case of only moderately higher costs higher margins can be achieved if it is possible to convince the customer that durability pays off in the long term and a contribution is made to environmental protection. Miele, for example, points out that its washing machines are designed to last 20 years and that no other brand passes these tests. 19 When offering sustainably designed consumer goods, attention should also be paid to the fact that the product can be repaired and that spare parts are available. More and more, repair is no longer worth it, either because the repair service is too expensive (keyword labor costs), because the purchase of a new product is cheaper than the procurement of spare parts, or because the price of the products has fallen so much in the meantime that repair is out of the question. This often happens with electronic products such as televisions, PCs, mobile phones or household appliances. Each individual customer counts on his or her personal bundle of benefits here, but there should be a rethink in the direction of sustainability. This applies to companies as well as to the customer side. Examples from the consumer goods sector include compostable T-shirts from TRIGEMA or durable women's stockings from Swedish Stockings made from used fishing nets. 20 The use of resource-saving raw materials and resource-saving production is already much discussed in connection with organic products. This topic has a long tradition, especially in Germany, and many consumers look for organic labels when shopping or specifically select products that promise a gentle treatment of nature or, for example, the absence of pesticides. However, a supplier must reduce quality barriers, whether perceived or actual. This applies, for example, to confectionery that contains less sugar, sausage that is produced without nitrite curing salts or milk that is not homogenized. 21 Product quality includes not only aspects of production and use, but also disposal. Products that are disposed of in an environmentally sound manner or that are recycled contribute to sustainability. With the German Kreislaufwirtschaftsgesetz [Circular Economy Act], which came into force in June 2012, and the amendment that came into force in 2020, there are binding requirements to avoid and recycle waste. 22 For almost 25 years now, Mercedes-Benz original car parts have been given a second chance: a dismantling and recycling company belonging to Daimler 194 12 Marketing and Sustainability <?page no="195"?> 23 Mercedes-Benz Used Parts (2020). 24 Belly, C. (2012), p. 78. 25 Ramme, I. (2009), p. 106 f. and the literature cited there. 26 Herbes, C./ Beuthner, C./ Ramme, I. (2018), p. 209. 27 Coca-Cola Germany (2020). 28 Armstrong, G./ Kotler, P. (2017), p. 485. AG takes back end-of-life vehicles, recycles the used parts that are still in working order, and disposes of parts that can no longer be used in an environmentally friendly manner. 23 Volkswagen, Renault and Peugeot are pursuing a similar business model. 24 Another topic is packaging. Provided it is a physically identifiable product, the packaging is often the most obvious feature of the product. The packaging originally had the function of protecting the product from damage (protective function). For example, the vacuum packaging commonly used for coffee protects the contents from exposure to sunlight and air in order to extend the shelf life. At the same time, the packaging must facilitate transport and storage (logistical function). With the increasing supply of finished goods, the acquisitive function was added. The packaging served to identify a product (e.g., via the brand name) and to encourage the consumer to buy (e.g. via the design of the packaging). With the introduction of merchandise management systems, it has become necessary to mark products with EAN codes (merchandise management function). These are usually applied to the packaging. The possibility of labelling with the green dot also often requires the product to be packaged. In this context, important developments in the wake of increasing environmental awareness were the introduction of the dual system with mandatory labelling, the obligation of retailers to take back packaging as a result of the Packaging Act of 2019, the trend towards deposit bottles and the one-way deposit. 25 According to an empirical study in three major industrial nations, consumers place the most value on the environmental friendliness of the packaging material when it is recycled rather than when it is produced. 26 Example Packaging and Coca-Cola "Coca-Cola is working to package drinks more sustainably and take back one for every bottle sold. Because we don't want our bottles and cans to end up in the ocean, in the landscape, or in the trash. For us, investing in more sustainability is an investment in the future." 27 As already mentioned, innovation, but also diversification and differentiation are part of product policy. New products are important for the competitiveness of a company. However, any replacement of a product that is still functional has the consequence that it has to be disposed of. There is an attractive second-hand market for high-value consumer goods such as cars, but many products end up in good condition on the landfill. This kind of behavior on the part of companies is called planned obsolescence and was criticized many years ago. However, it can be assumed that in the long/ term companies cannot afford to develop products that have a deliberately short shelf life because this leads to customer dissatisfaction. 28 Social institutions such as Caritas motivate consumers to donate products that are still in working order so that socially disadvantaged groups can purchase them at a low price. In the USA, for example, there are often "garage sales" that resell used products at a low price. Often clothes and household items are offered and find new buyers in lower social classes. There are 12.3 Sustainable Marketing Concept 195 <?page no="196"?> 29 Pauker, M. (2020). 30 Gupta, S./ Ogden, D. T. (2009), p. 376 as well as Jansson, J./ Marell, A./ Nordlund, A. (2010), p. 366. 31 Prax, C. (2013), p. 96. 32 Ramme, I. (2009), p. 110. 33 For the method, cf. Interbrand (2020). 34 Reidel, M. (2011), p. 22. 35 Jacob, E. (2011), p. 24 or in detail Havas Media (2020). 36 Bezencon, V./ Blili, S. (2010), p. 1305. also companies, such as Zalando, that take back worn fashion and resell it as a "pre-owned offer." 29 To a certain extent, companies can therefore provide for more recycling and additionally pursue social goals. Nevertheless, a balance between innovation on the one hand and long product life cycles to be aimed for on the other hand is a challenge for companies. However, innovation also serves to develop new products that are more resource-efficient than the previous generation, such as green energies, cars with reduced or zero CO 2 emissions, televisions with lower electricity consumption, dishwashers with lower water consumption or buildings with lower energy consumption. Often, such innovative products have greater market opportunities than products that force people to use resources more sparingly (curtailment). 30 The branding of goods and services is a central element of product policy. Sustainability aims at the core of the brand (e.g. resource conservation, ecology, ethical aspects), but above all at the longterm nature of the brand. 31 A brand essentially serves to differentiate itself from the competition. The aim is to ensure that a consumer buys precisely this brand and not a similar product. The brand also facilitates communication with the consumer. The mere mention of a brand name, such as Tesla, or the display of a brand symbol, such as the Demeter logo, leads to recognition. Brand loyalty can also be built in this way. Only if the consumer knows how to recognize a product when he or she was satisfied and wants to buy it again, brand loyalty can develop. 32 The success of a brand is often measured in rankings. One of the best-known rankings is the brand value determined by Interbrand. 33 Here, globally present brands are examined and ranked with regard to their brand strength and their economic success. 34 However, there are now also rankings that not only measure economic success, but also link the success of a brand to the quality of life of consumers. Aspects such as the sustainability of products, lack of environmental problems or the sense of responsibility of companies are taken into account. 35 Thus, when buying a product, consumers increasingly opt for products that promise values such as justice and a good conscience. 36 The following table summarizes which elements in product policy hold potential for sustaina‐ bility. Product Product composition Durable material Resource-saving production, organic products Repair instead of replacement and long-term availability of spare parts Packing Resource-saving packaging Branding decisions Development of sustainable brands Product mix Product innovation, product modifi‐ cation, diversification No planned obsolescence Innovation for sustainability Product elimination Recycling of old products Tab. 12.1: Potential for a sustainable product policy 196 12 Marketing and Sustainability <?page no="197"?> 37 Ramme, I. (2009), p. 125. 38 Meffert, H./ Burmann, C./ Kirchgeorg, M. (2019), p. 551. 39 Armstrong, G./ Kotler, P. (2017), p. 158. 40 Balderjahn, I./ Peyer, M. (2012), p. 346. 41 IfD Allensbach (2020), n.d. 42 Balderjahn, I./ Peyer, M. (2012), p. 359. 43 Dienel, W. (2000), p. 60. 44 Lee, J./ Bhatt, S./ Suri, R. (2018), p. 36. 45 LOHAS = Lifestyle of Health and Sustainability. See in detail Köhn-Ladenburger, C. (2013). 46 Hartmann, P./ Ibaiiez, V. A./ Sainz, F. J. F. (2005), p. 11. 47 Spinello, R. A. (1992), p. 617 or Buckley, J./ 6 Tuama, S. (2005), p. 127. 48 Armstrong, G./ Kotler, P. (2017), p. 482. 12.3.3 Pricing Policy The task of pricing policy is to determine the consideration to be paid by the (potential) buyers of a good or service. This consideration usually consists of money but can also be a good or a service (barter transaction). Within the framework of pricing policy, decisions must be made on initial pricing, price changes and the price portfolio. Pricing policy also includes delivery and payment conditions such as currency, payment date or leasing. 37 When setting prices, the target group's willingness to pay is determined and compared to the cost structure in order to maximize profits. If marginal costs correspond to marginal revenue, the price with the highest profit potential has been found provided that both the cost curve and the demand curve have been correctly estimated. 38 The customers' willingness to pay corresponds to the perceived customer benefit that arises from the purchase of the product. 39 This benefit depends on many factors, one of which is the awareness of ethical consumption. 40 In Germany, the proportion of people who are willing to pay more for environmentally friendly products is steadily increasing and as of July 2020 stands at one quarter. 41 According to a study by Balderjahn and Peyer, there is a higher willingness to pay for products that consumers believe have been fairly traded. 42 However, the willingness to pay is only higher to the extent that a benefit for the sustainable product can be identified. If, for example, organic vegetables are twice as expensive as conventionally produced vegetables, the willingness to pay more has reached its limits. 43 Therefore, it must be clearly communicated which additional costs have been incurred by the sustainable design of the product. Exploiting the often-increased willingness to pay of sustainably minded consumers leads to consumer dissatisfaction in the long run and not to the desired entrepreneurial success. Satisfaction only arises if the perceived benefit corresponds to the price demanded. 44 The benefit can also be of a societal nature, especially for sustainably minded people such as LOHAS, 45 i.e. contributing to society's welfare. Sustainable consumption can also serve as a status symbol or give the consumer a feeling of connection with nature. These three types of benefits are referred to as emotional (as opposed to functional) benefits by Hartmann et al. 46 A dilemma arises when it comes to products that are vital but that customers cannot afford. In this context, the problem with pharmaceuticals should be mentioned. Their high prices are often criticized, especially when they are life-saving products that patients cannot afford. Especially in the case of AIDS drugs for markets in developing countries, there are ethical concerns. 47 High prices (high price strategy) are frequently criticized as unethical as such. High commu‐ nication and distribution costs and excessive profit margins are cited as reasons for excessive pricing. 48 However, as long as customers derive an advantage from the convenience of obtaining the good (keyword distribution) or from an advantageous benefit that is communicated (keyword 12.3 Sustainable Marketing Concept 197 <?page no="198"?> 49 Campillo-Lundtbeck, S. (2013), p. 17. 50 Diller, H. (2008), pp. 162. 51 Examples can be found in the "Deception of the Year" section at www.vzhh.de. 52 Armstrong, G./ Kotler, P. (2017), p. 274. 53 Armstrong, G./ Kotler, P. (2017), p. 273. 54 Wildemann, H. (2005), p. 15. 55 Diller, H. (2008), p. 251f or Armstrong, G./ Kotler, P. (2017), p. 276. 56 Armstrong, G./ Kotler, P. (2017), p. 285. brand communication) and as long as the profit margins do not result from unfair exploitation of market power, high prices are not objectionable. Next to be discussed are low-price strategies. This pricing strategy, which at first glance seems to be very customer-oriented, is hardly sustainable if low prices are only realized through wage dumping, circumvention of environmental standards or neglect of work safety. Therefore, a low price policy should be avoided if this is only possible at the expense of future generations (keyword sweatshops). Brands should not fall into a morality trap, as happened to the textile discounter Kik, when the collapse of a factory building in Bangladesh with several hundred deaths revealed that Kik had also been working there in spite of deficient safety standards, although Kik stands for good working conditions. 49 Finally, it should be noted that long-term price stability and price transparency are essential in order to gain and maintain the customer's trust (price trust). 50 This is particularly true when the perceived barriers to switching are high, such as in the case of mobile phone contracts. Here it is sometimes only apparent from the small print that the price will increase after two years. Switching is inconvenient and often only possible if the notice period is monitored. Price changes should also not be concealed by changes in packaging sizes. 51 Pricing policy also includes determining the price portfolio when whole product groups are priced rather than the individual product. The aim here is to optimize the profit of the product group, not the individual product. Thus, in the price bundle, individual products are added to the product bundle without the price of the additional product being reflected proportionally in the marginal price of the product bundle. 52 This is justifiable as long as the additional product also offers the customer an additional benefit. However, if it only serves to sell off slow sellers, the customer feels cheated. One form of price bundling is so-called "captive pricing". Here, an additional product component must be purchased in order to use the product. The product itself has a low or moderate price, while the necessary product component, such as the ink cartridge for an inkjet printer, has a high price. 53 If this is not transparent and the customer realizes too late that the product components are too expensive for him or her, he or she will be dissatisfied and react accordingly. However, if the company uses it as a customer loyalty instrument and the customer incurs high costs as a result of a system change, 54 the use of this instrument is ethically questionable. If products are offered in a price bundle, the destruction of the product can be prevented or a more even capacity utilization can be achieved. Resources are then conserved because the product then finds a buyer through the price discount. The same applies to seasonal goods or products shortly before their expiry date which come onto the market at low prices. 55 As far as payment terms are concerned, it must be clearly pointed out that transparency and comprehensibility of the terms for the intended target group must be in the foreground. For example, the customer must understand how much he or she will ultimately have to pay for the product, whether a down payment is required and (as in the case of leasing) under what conditions a certain repurchase price is guaranteed. 56 Loans are often a marketing dilemma for another 198 12 Marketing and Sustainability <?page no="199"?> 57 Almost every tenth adult in Germany is considered over-indebted. Cf. Creditreform Wirtschaftsforschung (2020), p. 14. 58 Ramme, I. (2009), p. 147. 59 Lerchenmüller, M. (2003), p. 529. reason: some customers are easily lured to buy products in "convenient installments." The smaller the installments, the more seductive the offer, but the higher is the final purchase price due to the compound interest effect. However, if potential customers cannot afford this consumption, they fall into the trap of debt. 57 Here, marketing has a responsibility to check whether the customer can pay the installments in the long run and may have to forgo sales. The sales force also has a role to play here. From a sustainability point of view, sacrificing the deal is the better solution not only because costs are incurred for possible legal disputes, but also because the image will be damaged. Pricing Orientation towards customer benefits and costs No exploitation of high willingness to pay for sustainable products without added value Consideration of social concerns Price differentiation for essential prod‐ ucts according to social criteria High-price policy No exclusion of low-income consumers Low-price policy No low prices at the expense of social or environmental standards Price changes Price stability and price confidence Avoidance of unexpected or hidden price increases Honest communication Price structure Price bundle Avoidance of unattractive bundle ele‐ ments Captive pricing Clear communication of follow-up costs Terms of delivery and payment Loans and leasing Avoiding the debt trap for certain target groups Tab. 12.2: Potential for a sustainable pricing policy 12.3.4 Distribution Policy The necessity of distribution arises from the fact that, as a rule, neither the time nor the place of production and consumption coincide. The distribution policy includes the regulation or the determination of all marketing activities that are aimed at bringing an offer from the place of its creation to the customer, bridging space and time. Therefore, a company must determine the location, determine the sales channels and design the physical distribution to the customers. 58 The location policy aims to determine both the production location and branch locations, whether for production or sales. The aim here is to minimize distances in order to avoid or reduce transport. But it is also a matter of environmental and social concerns if production is relocated to another country only because environmental regulations or social standards are lower there. The calculation must therefore include not only the pure costs of distribution, but also environmental and social consequences, so-called external costs. This also applies to the choice of store locations. A nationwide supply of food in rural areas has not existed in Germany for a long time. 59 This 12.3 Sustainable Marketing Concept 199 <?page no="200"?> 60 Dienel, W. (2000), p. 60 and 64. 61 Belz, F. M./ Peattie, K. (2012), pp. 267. particularly affects older and low-income target groups in rural regions who do not own a car for reasons of cost or age. The procurement costs from the consumer's point of view must also be kept within reasonable limits. This is all the truer when it comes to the purchase of sustainable products. If a consumer cannot use the usual shopping locations for sustainable products, transaction costs arise not only in the form of increased search effort, but also transfer costs due to the lack of suitable shopping facilities nearby. 60 Distribution policy also includes the decision on sales channels: direct or indirect. Direct sales means that a product is sold to the end customer without an intermediary. Sales are often handled by self-employed sales representatives who live off sales commissions. A conflict becomes apparent here: Short-term sales successes lead to good commission income, which increases the motivation of the sales staff. In the long term, this is not always customer oriented. It must be avoided that "scorched earth" is left behind, i.e., that sales employees achieve high sales targets but then change jobs and no longer can or want to look after the customers. The so-called sales triathlon with the disciplines "hit", "knock down" and "run" is neither customer-oriented nor a sign of sustainable marketing. Appropriate commission models that do not only reward short-term sales targets can make a contribution here. The Landesbausparkasse, for example, has introduced a model that pays sales staff an additional bonus on top of the sales commission if the customer serves the contract regularly. Reducing the turnover in the sales force also contributes to sustainability, in particular longterm economic success. Companies that offer products that require a great deal of explanation have an easier time of it here, because sales staff need a lot of know-how to be able to sell successfully. Indirect sales channels refer to online and offline retail. Retail companies should critically question whether there needs to be an even greater variety of assortments in the wake of the sustainability debate. Here, it must be weighed up whether valuable resources should be consumed for the procurement and replenishment of goods in order to fulfil every customer's wish, or whether the customer is prepared to do with less variety. There is a similar argument in the case of 24h delivery: the offer from many online retailers is attractive but leads to an ecological burden due to an increase in transport. Resource-saving logistics keywords: carbon footprint, reverse logistics, and circular economy are required for physical distribution to customers or resellers. The forward-looking planning of the disposal of products is also very important here. 61 Here we refer to the chapter by Reintjes. Overall, the focus must shift from the conventional perspective of supply chain optimization and become more oriented towards the closed-loop approach. The conventional approach in distribution policy is about creating the most convenient shopping experience possible at the point of sale (convenience) and about efficient cooperation between manufacturers and the distribution channels on its way to the customer (efficient design of the supply chain). The challenge now is to find a balance between efficiency in the supply chain, convenience for the customer, and sustainability issues. Here, consumers must also question the idea of convenience and, if necessary, critically examine 24-hour delivery, the continued availability of broad and deep assortments, convenient sofa ordering, and home delivery. 200 12 Marketing and Sustainability <?page no="201"?> 62 Weleda AG (2020), p. 21. 63 Belz, F. M./ Peattie, K. (2012), pp. 259. 64 Ramme, I. (2009), pp. 165. Example Respectful Supply Chain at Weleda "1,000 substances from nature form the basis of Weleda products. We obtain many natural raw materials and valuable medicinal plants from suppliers around the globe. We cooperate with over fifty cultivation partners worldwide. Ethical sourcing of raw materials is important to us for people and nature. Since 2018, we have been the first European brand to be certified for this by the Union for Ethical BioTrade." 62 The closed-loop approach implies attention to sustainability aspects from production to purchase, use and disposal of products. Here, every element of the supply chain is concerned with conserving resources, reducing fossil fuels, mitigating emissions and noise, etc., so that resources are either not needed in the first place, are reduced or are reused and return to the cycle. 63 Location policy Production site Consideration of social and environmental con‐ cerns Branch location Consideration of social and environmental con‐ cerns Comprehensive supply of the population Direct sales channels Distribution No sales triathlon Low sales force turnover Indirect sales channels offline trading Critically scrutinize assortment depth Trade online Critically scrutinize 24h delivery Physical distribution resource-saving logis‐ tics Consideration of carbon footprint, noise and emissions Reverse logistics Circular economy From the "Efficient Supply Chain" to the "Closed Loop" Sustainability through‐ out the supply chain Balance between convenience and efficiency Tab. 12.3: Potentials for sustainable distribution policy 12.3.5 Communication Policy After product design, pricing and distribution, the task of marketing in the context of communi‐ cation policy is to inform about the existence and advantages of the product and to motivate people to buy it. 64 In addition to communication efficiency, i.e., the economic element of sustainability, resources can be saved in all instruments to include the ecological component, and social aspects can be taken into account, such as humane working conditions for people working in the communication industry. Resources are consumed when printing communication materials, whether in direct marketing, billposting or advertisements in magazines. Here, attempts can be made to switch to environmentally compatible materials and to reduce the print run. This is also an economic aspect. 12.3 Sustainable Marketing Concept 201 <?page no="202"?> 65 Belz, F. M./ Peattie, K. (2012), p. 202. 66 App, U. (2020). 67 Dienel, W. (2000), p. 65. 68 Prax, C. (2013), p. 96. 69 n.a. (2020). 70 Prax, C. (2013), p. 99. On the 7 sins of greenwashing, cf. n.a. (2020). 71 See www.zugutfuerdietonne.de. 72 See https: / / www.energiewechsel.de/ KAENEF/ Navigation/ DE/ Home/ home.html. 73 Prax, C. (2013), p. 99. In the case of sales promotion or visiting trade fairs, display materials or stand components can be reused if necessary, or environmentally friendly products can be used. 65 Example Out-of-Home Advertising Bus shelters as popular advertising media for out-of-home advertising are equipped with moss walls that are supposed to filter pollutants from the air. 66 Regardless of the choice of communication type and communication instruments, the function of communication is crucial. This is also or even especially true in connection with sustainable marketing. Therefore, the information and motivation function of the communicative measures of a company should be in the foreground. Dienel examines the barriers to purchasing organic food and concludes that communication policy is vital when ■ Informing about the eco-properties of products, ■ Countering doubts about authenticity and establishing credibility, ■ Eliminating or reducing the impression of the irrelevance of one's own actions, ■ Avoiding a loss of customer's prestige (cereal type), ■ Breaking habits, especially when choosing a retailer or brand, ■ Creating transparency in prices, as it is often difficult for consumers to assess the value for money of organic products. 67 In the context of the information function, companies highlight product advantages and reduce any information deficits regarding the characteristics of the product but also the availability (place of purchase) or the use and disposal of the product. Here it is also important to remind people to buy the product in order to create and maintain brand loyalty. It is very important to build trust, to maintain credibility, and not to disappoint the trust placed in the company. Sustainability should not just be an empty word, but an authentic promise of the company. 68 Greenwashing, i.e., communicating a sustainable or green image without being sustainable, 69 must be avoided. 70 The motivational function refers to the motivation to buy a product or from a particular retailer, but also to the motivation to engage in a desired behavior, such as separating waste, saving petrol by driving in an environmentally conscious manner or storing or treating products in order to increase their lifespan or period of use. Examples are the campaign against food waste "Zu gut für die Tonne" [Too good for the bin] 71 initiated by the Federal Ministry of Food and Agriculture, or the initiative "80 Millionen gemeinsam für Energiesparen" [80 million together for energy savings], which was launched by the Federal Ministry for Economic Affairs and Climate Action and promotes the efficient use of energy. 72 The finger should not be raised in this context. 73 202 12 Marketing and Sustainability <?page no="203"?> 74 Ramme, I. (2009), p. 165. 75 Lee, J./ Bhatt, S./ Suri, R. (2018), p. 42. 76 Tetra Pak (2020). Communication policy is also called upon to reduce cognitive dissonances. This arises after a purchase, especially after a difficult and lengthy purchase decision, when, doubts arise in the mind of the consumer as to whether the choice made was the right one. The customer regrets the purchase (buyer's remorse). 74 When buying products with previous intensive purchase preparation, this can happen if consumers feel deceived after the purchase by greenwashing or inflated prices. 75 Communication instru‐ ments Advertising, direct mail, PR, trade fairs, etc. Saving resources, especially for paper environmentally friendly materials reuse of materials good working conditions Communication func‐ tion Information Information on product and sus‐ tainable behavior Highlight product features Reminder to purchase the product and to behave sustainably Breaking with habitual behavior Campaigns for a sustainable lifestyle Build trust, maintain it and do not disappoint No greenwashing Communication func‐ tion Motivation Motivation to buy and to behave sustainably Foster behavioral change reduction in purchase loyalty Encouragement in the decision and avoidance of negative associations with the customer group Tab. 12.4: Potential for a sustainable communication policy 12.4 Sustainable Marketing in Practice Adolfo Orive, CEO Tetra Pak "Sustainability has long been at the heart of our business strategy and operations. It is reflected in our brand promise - SCHÜTZT, WAS GUT IST [PROTECT WHAT IS GOOD] which is delivered by protecting food, protecting people and protecting the future. Our sustainability activities span all three areas. We work with our customers and partners to make food safe and available everywhere through our innovative and market-leading food processing and packaging solutions. We continually strive to protect our own employees and support the communities in which we operate, as well as protect the future of our planet and the long-term success of our customers." 76 As a business-to-business company, Tetra Pak focuses on the success of its corporate customers in order to be successful. Sustainability is reflected here in the product policy: it is about the packaging of products that should be designed sustainably, but also in the responsibility for employees and society. The above brand promise is the most important part of the sustainability 12.4 Sustainable Marketing in Practice 203 <?page no="204"?> 77 Tetra Pak (2020). 78 Kotler, P. (1972), p. 57. 79 German Sustainability Award (2020). 80 Fischer Group (2020). concept at Tetra Pak and underlines here the importance of sustainable marketing for sustaina‐ bility throughout the company. Tetra Pak is committed to "protecting food, protecting people, and protecting the future". 77 12.5 Outlook Based on the definition of sustainable marketing as a concept for the market-oriented management of a company with the aim of satisfying the customer's needs and achieving the company's goals while at the same time taking into account the requirements of the market environment, society and the natural environment, various aspects of sustainability have been discussed, in particular with regard to the four Ps. The recommendations are not always implementable without compromise, yet we can hope that Kotler's statement from nearly 50 years ago continues to hold true: Marketing satisfies customer needs and improves their well-being based on the theory that what is good for customers in the long run is good for business. 78 Desirable are numerous companies that take their responsibility for the environment and society seriously and are economically successful at the same time. The quotation of a laureate for the German Sustainability Award 2020 79 may illustrate this: Example of an Award Winner for the German Sustainability Award "Sustainability combines aspects such as environmental protection, technology and inno‐ vation as well as economic success and social responsibility. We at the Fischer Group see all of this as one of our learning processes for living, working and doing business in harmony with nature." 80 At a Glance Sustainable marketing has two dimensions: Marketing for sustainability, e.g. promoting a sustainable lifestyle, but also the sustainable design of marketing, i.e. sustainability in the 4Ps. Suggestions for Further Reading Standard textbook in the English-language marketing literature: Armstrong, G./ Kotler, P. (2017): Marketing - An Introduction, Upper Saddle River, 13th ed. Easy to understand introduction to marketing: Ramme, I. (2009): Marketing - Einführung mit Fallbeispielen, Aufgaben und Lösungen, Stuttgart, 3rd ed. 204 12 Marketing and Sustainability <?page no="205"?> Overview article on sustainable marketing: Dangelico, R. M./ Vocalelli, D. (2017): "Green Marketing": An analysis of definitions, strategy steps, and tools through a systematic review of literature. 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(2005): Wachstumsorientiertes Kundenbeziehungsmanagement statt König-Kunde-Prinzip, online www.tcw.de/ uploads/ html/ publikationen/ aufsatz/ files/ Wachstumsorientiertes_Kundenbeziehun gsmanagement.pdf , accessed Dec 28, 2020. Zimmer, J. (2012): " Wir müssen die Servicequalität verbessern". Interview mit Holger Böhme. In: Horizont, Vol. 30, Issue 14, p. 58. 12.5 Outlook 207 <?page no="208"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="209"?> 1 On the conceptual delimitation Lasch, R. (2019), p. 1. 2 Wöhe, G. (2020) p. 441. 13 Sustainable Procurement and Logistics Management Monika Reintjes Learning Objectives: The readers ■ understand sustainability issues pertaining to procurement and logistics management, ■ know key principles and practices that make procurement, distribution, and logistics more sustainable, ■ understand how these activities affect the triple bottom line, ■ are aware of potential trade-offs in multidimensional goal systems, ■ know the contribution that procurement, distribution, and logistics can make to sustainable business management. Keyword List: Procurement, distribution, logistics, procurement logistics, distribution logistics, value creation, synchronous procurement, vendor-managed inventory, urban logistics 13.1 Basics 13.1.1 Definitions This chapter takes a view across three functional subsystems: procurement, distribution, and lo‐ gistics. Within these subsystems, the operational value creation triggers transformation processes through the combination of input factors, which generate a value increase. The task of procurement is the systematic and goal-oriented provision of all needed input factors that are not produced in-house from procurement markets in order to sustain operational processes. 1 Distribution assures that the customer has access to the products or services in the appropriate quantity, at the desired time, and in the desired location. 2 The following considerations focus on the logistical aspects of the distribution process. The functional sub-system marketing is not considered, since it is treated separately elsewhere in this volume. Logistics refers to the planning, implementation, and control of material flows and all associated flows of value and information within the company, but also between the company and its clients or suppliers. Objects of logistics are raw materials, auxiliary and operating supplies as <?page no="210"?> 3 Schulte, C. (2017) p. 3. 4 Bretzke, W.-R. (2014) p. 64. 5 McKinnon, A. (2018) pp. 9 and p. 14. well as intermediate and final products, but also merchandise, recycling, and waste materials. 3 Logistics systems and processes thus overlay the value chain within and between companies. With reference to the flow of materials, value, and information within the sub-systems procurement and distribution, the terms procurement (inbound) logistics and distribution (outbound) logistics are used. 13.1.2 Pressure to Adapt Decisions concerning the design of business strategies, structures, and processes, and are traditionally based on requirements of economic => sustainability. A decision to move to just-intime ( JIT) logistics between automotive suppliers and manufacturers is rational, since it aims at achieving and balancing efficiency and service goals. If corporate goal systems are expanded to include ecological and social sustainability, as‐ sessment standards such as environmental, health, and safety achievements are added. The consideration of environmental targets adds new conflicts to the already existing conflicts between targets, such as "high parts availability" and "low capital commitment". Example: The trade-off exists between the low capital commitment costs of a JIT delivery and the CO 2 emissions of a truck per unit delivered: The latter tends go up as the delivery frequency is increased and the trucks are not fully utilized compared to transports of bundled quantities where truck capacity is fully utilized but truck load may exceed the needs at the time of delivery. Ultimately, the balance between the opposing goals of "low capital commitment " and "low CO 2 emissions per unit" may lead to other delivery volumes which differ from an optimum that pursues purely economic goals. In addition to this shift of optimum values, a number of economic, ecological, and social developments are forcing the adaptation of strategies, structures, and processes in procurement and logistics: continuing globalization of labor, the increasing transport intensity of economic activity, logistics as a greenhouse gas polluter, generally rising transport costs, a limited transport infrastructure and societal pressure on actors in politics and business with growing consumer needs for individualization and maximum service. 4 13.1.3 Ecological Sustainability in Procurement and Logistics Procurement and distribution affect the environment in many ways. Assuming that successful long-term economic activity requires an efficient international division of labor and location, procurement and distribution directly cause the physical transport of goods, storage, and material handling. In addition to the sealing of surfaces by buildings, transshipment points, and traffic routes, this generates gaseous emissions, noise, vibrations, traffic congestion, and accidents. 5 210 13 Sustainable Procurement and Logistics Management <?page no="211"?> 6 Bretzke, W.-R. (2014) p. 64. 7 Own Illustration. In fulfilling the tasks described in section 13.1.1, an economically and ecologically sustainable business management is based on an extended system of formal objectives. In addition to longterm profit generation and customer satisfaction, companies increasingly place the conservation of natural resources and the avoidance of environmental emissions. The relationships between these goals are partly conflictive (investments in the environment cause costs), partly harmonious (positive image effect of sustainable management, avoidance of negative effects of non-compli‐ ance with environmental standards), or neutral. Last but not least, the importance of environmental protection as an economic factor is growing. The German Environmental Report, for example, shows that climate protection, increasing resource efficiency and the export of environmental technologies offer considerable opportunities for growth. But what specific contribution can procurement, distribution and logistics make in the context of the target system outlined above? Assuming that prosperity requires a growing economy that in turn requires mobility, growing traffic volumes with the known ecological consequences seem unavoidable. Now, traffic growth additionally limits the sustainable development of companies through congestion costs and mobility restrictions. Their economic success ultimately depends on the extent to which they contribute to maintaining mobility. 6 For example, the decoupling of economic growth and transport growth is not only the task of politics, which seeks to achieve this, for example, by promoting regional producers. Companies also pursue decoupling strategies, for example by reviewing centralized distribution systems for sustainability effects and sometimes adapting their distribution strategies. An example is adapted transport planning, which attempts to avoid unnecessary empty runs by bundling transport volumes. A reassessment of known strategies and structures in procurement, distribution, and logistics combined with an analysis of existing processes can ultimately make a contribution toward sustainability. Innovative technologies complement the fields of action for the sustainable design of procurement, distribution, and logistics, which is visualized in Figure 13.1. If the following considerations focus on economic and ecological sustainability and neglect the social dimension of sustainability, this is due to the limited scope of this paper. The actual significance of social concerns in companies is manifold. Strategies / Structures Processes Technologies Procurement and procurement logistics Distribution and distribution logistics Fig. 13.1: Fields of action for the sustainable design of employment, distribution, and logistics 7 13.1 Basics 211 <?page no="212"?> 8 Schulte, C. (2017), p. 448. 9 Bretzke, W.-R. (2014), p. 287. The following sections explain selected examples of these fields of action, without claiming to provide a complete overview. 13.2 Procurement and Procurement Logistics 13.2.1 Strategies and Structures From the multitude of known concepts (e.g. global sourcing, single sourcing, cooperative sourcing, just-in-time procurement, etc.), two forms of production-synchronous procurement are examined in the following. Compared to an order-to-stock strategy, in production-synchronous procurement, demand alone triggers a delivery. Delivery quantity and date are synchronized with the production needs. Several concepts are subsumed under the heading of production-synchronous procurement. Among them are the stockless just-in-time supply and Vendor Managed Inventory (VMI). 8 In the case of just-in-time delivery by suppliers close to an automobile manufacturer's plant, for example, the instrument panel arrives exactly at the moment when this module is needed at the assembly line. The economic effects of this tight synchronization are manifold: On the one hand, the short delivery time enables the automobile manufacturer to shorten its overall order throughput time. On the other hand, the flexibility of the nearby suppliers makes it possible to change production sequences and product characteristics at short notice up to a few days before the start of production. The end customer perceives this service as a benefit and an increase in value. Finally, the capital commitment period is shorter and the elimination of buffer stocks at the customer's site reduces the average capital tied up. The consideration of the ecological effects, in turn, should not be limited to the high delivery frequency of just-in-time delivery. The conclusion that transports is often carried out in underutilized transport vehicles and that this increases CO 2 emissions per unit must be put into perspective. On the one hand, the delivery overcomes a short distance, as the suppliers are usually within a 10 km radius or even on the factory premises. On the other hand, regional forwarding concepts counteract the splitting of transport quanti‐ ties. The customer commissions only one forwarder to collect material from several suppliers in the vicinity of the plant, thus bundling transport quantities. 9 However, the freight forwarders' scope for planning is limited by the fact that the car manufacturers often fix their production plan only a few days before delivery. The amount of transport orders with which the forwarder can optimize his load factor is therefore limited. Fixing the production plans over a longer period of time, would give transportation planning the necessary degree of freedom to bundle transportation units. This approach presupposes that the customer refrains, at least partially, from his desire for the greatest possible flexibility in variant and sequence planning. Vendor Managed Inventory (VMI) allows for a buffer stock between the supplier and the customer, from which the customer calls off the required material synchronously with production. The supplier replenishes the inventory according to delivery schedules and agreed upper and lower stock limits. Physically, the stock can be held just where it allows the shortest response times to the customer. If, for example, the stock is located at a supplier's warehouse, this enables the bundling of shipments across several customers. In practice, contracted forwarders often carry out 212 13 Sustainable Procurement and Logistics Management <?page no="213"?> 10 Kummer, S./ Grün, O./ Jammernegg, W. (2019) p. 139. 11 Hesse, K. (2019), p. 91. warehousing at their own locations, where they perform additional tasks such as receiving goods, picking, scheduling and providing inventory and delivery data for the customer and supplier. This supplier-controlled inventory management achieves an improved service level with the short reaction times to customer requirements. Compared to just-in-time production and delivery by suppliers in the vicinity of the plant, VMI expands the circle of supplier companies that can deliver in sync with demand. Suppliers located far away from the plant can also serve their customers synchronously via the inventories. The same applies to suppliers who, due to their production structures, technologies or set-up costs, would not be able to produce small quantities in sync with demand. Buffer stocks allow the customer to pull any small quantity while at the same time optimizing the lot size at the supplier's plant. The production of economic lot sizes in combination with simultaneous delivery causes a significant economic effect in favor of the supplier or the customer. If the supplier remains the owner of the produced and stored goods until the customer's pull (consignment principle), the customer benefits from a significantly reduced capital commitment. On the one hand he only picks items that he will consume immediately. On the other hand, he can practice this concepts with a large number of suppliers from near and far. If we look at the transport volume from an ecological point of view, we can see several effects, some of which run counter to each other. If the inventories are located in the supplier's plant, each material pull triggers a transport. This means that the corresponding explanations for JIT delivery also apply to VMI. A more differentiated picture emerges if the goods are stored with a freight forwarder. In this case, transportation from the vendor to the customer is interrupted. The main run from the vendor to the forwarder's warehouse can be bundled, unutilized transportation capacities can be avoided on this route. If necessary, transports from vendors to the forwarder's warehouse may even be postponed in order to wait for further load. However, the frequency in the on-carriage from the freight forwarder's warehouse to the customer again follows the pull principle. Smaller and more frequent transports in underutilized means of transport not only produce higher CO 2 emissions overall, but also unfavorable freight rates. The extent to which the bundling effect in the main run is able to compensate for the unfavorable shipment structure in the onward run can only be assessed on a case-by-case basis. It remains important to recognize that dispensing with the extreme form of JIT delivery and the use of buffer stocks generate considerable bundling effects in transportation that harmonize with the objective of reducing CO 2 emissions. 13.2.2 Processes In addition to the procurement logistics process described above, procurement involves additional tasks such as ordering raw materials and intermediate products, order processing, assessment of demand, order and inventory planning, and the management of external suppliers. Each of these procurement processes is in turn made up of several sub-processes. 10 Supplier management offers numerous starting points for sustainable process management which include supplier search, evaluation, selection, and supplier development. Additional potential is offered by the selection of environmentally friendly raw material and components or resource-saving recycling and disposal concepts. 11 13.2 Procurement and Procurement Logistics 213 <?page no="214"?> 12 Daimler AG (2020), online; Deutsche Post DHL Group (ed.) (2019), online; Edeka Südwest (ed.) (2018), online; Kühne + Nagel (ed.) (2019), online; Volkswagen AG (2020), online. 13 Villena, V.H. (2019), p. 1163. Economically, supplier management strives for competitive advantages by increasing deliv‐ ery quality, reducing procurement costs, and assurance of supply. Ecologically and socially motivated, suppliers are required to comply with environmental standards and ethical principles (e.g., prohibition of corruption, prohibition of discrimination) as well as working conditions (e.g., renunciation of child labor, remuneration, working hours, health, safety). Corporate sustainability reports regularly include the following elements with regard to sustainable supplier relationships: 12 ■ Define requirements for sustainable management in guidelines or codes, ■ Consideration of these requirements when selecting new suppliers, ■ Actively informing suppliers about the requirements, ■ Obligate suppliers to comply with the requirements and to integrate their sub-suppliers into the sustainability management system. ■ Implement the guidelines with the help of training for procurement staff and suppliers, ■ Verify compliance with these policies through audits and reviews, ■ Develop systems for early detection of negative behavior, ■ Rewarding cooperative behavior, and sanctioning violations of sustainability guidelines. In addition to the formulation of guidelines, requirements for sustainable management are included in supplier self-assessments. They complement criteria catalogs for the evaluation of new and existing suppliers as well as checklists for supplier visits and audits and are embedded in general terms and conditions and supply contracts. The actual verification of the sustainability performance of suppliers usually takes place annually in the form of on-site audits. Procurement departments are often obliged to carry out certain audits by means of quota regulations (e.g. at least 20% of risk suppliers must be audited annually). The determined sustainability performance can lead to the termination of a supplier relationship if, for example, the supplier cannot meet certain social standards. In the case of outstanding sustainability performance, the supplier benefits from a growing business volume or from the image-enhancing distinction of a supplier award. In the complex process of checking suppliers for compliance with sustainability requirements, companies often focus on business partners in so-called risk countries and on risk suppliers. Risk countries include, for example, countries with raw material deposits where human rights violations are known to have occurred. Suppliers who have already violated sustainability guidelines are classified as risk suppliers. The early identification of potential risks is carried out by teams of experts as well as external service providers who regularly examine selected countries for environmental risks (e.g. Business Environment Risk Intelligence S. A., www.beri.co m). In practice, the effectiveness of sustainable supplier management reaches its limits insofar as it remains impossible to check the entire supplier network. Even in large companies, this often fails because of the immense effort involved and the fact that buyers do not maintain direct contact with the purchasing departments of their suppliers. 13 Many companies rely on already existing norms and standards, e.g. the ten principles of the UN Global Compact, the social standard SA 8000 of the non-governmental organization Social Accountability International (SAI), environmental standards such as DIN: ISO 14001 or the Eco- Management and Audit Scheme EMAS as well as EU directives on RoHS (Restriction of Hazardous 214 13 Sustainable Procurement and Logistics Management <?page no="215"?> 14 Urbaniak, M. (2020), p. 105. 15 The overview by Möller, J. and Bogaschewsky, R. (2019), p. 345. 16 Weigel, U., Rücker, M. (2015), p. 193. 17 Wang, G. et al. (2016), p. 101. 18 Grzybowska, K., Awasthi, A., Sawhney, R. (2020), pp. 95. Substances), WEEE (Waste Electrical and Electronic Equipment), EuP (Eco-Design for Energy using Products), REACH (Registration Evaluation Authorization and Restriction of Chemicals) or packaging directives. 14 13.2.3 Technologies Digitalization is bringing forth new technologies that can help to improve the sustainability performance of companies. Relevant technologies include Big Data, Blockchain, Internet of Things, Augmented Reality/ Virtual Reality, or Artificial Intelligence. Based on these technologies and with the increasing use of information and communication technologies in general, digital tools intervene in both strategic and operative procurement tasks. 15 For many years now, buyers have been using so-called e-sourcing tools to support strategic tasks, e.g. by digitalizing and automating tenders, auctions, or contract negotiations. Operative tasks can be largely automated with the help of e-ordering systems, from the notifica‐ tion of requirements to the receipt of payment (purchase-to-pay processes). 16 These instruments have a direct impact on economic sustainability by accelerating processes, reducing the need for human resources, and improving process quality. Indirect effects lie in the reallocation of freed-up personnel capacities, e.g. to review the sustainability performance of suppliers. In the context of supplier management, which has already been identified as particularly relevant for sustainable procurement in section 13.3.2, big data analytics promotes transparency in supplier networks. The technology makes it possible, for example, to evaluate global press releases with regard to breaches of regulations by suppliers in real-time. Or it helps to visualize input materials across several levels of the supplier network. Or it predicts the impact of political events on individual supplier companies. 17 Examples: Web-based platforms such as WikiRate support the analysis of complex interdependencies. They provide information, for example, on the sustainability performance of individual companies in a structured form or disclose connections between individual companies. Platforms such as ChainReact allow the visualization of entire supply networks across more than 16,000 companies. On the one hand, this would allow suppliers at the outer edges of a network to be recorded and the aforementioned structural limits of sustainability monitoring of supplier networks to be overcome. On the other hand, the platform evaluates information from other tools and databases, including, for example, the "Whistle" tool, which documents human rights violations in supplier networks. 18 Finally, improved transparency about the ecological and social sustainability of a supplier network enables supplier development measures or the prompt replacement of suppliers. 13.2 Procurement and Procurement Logistics 215 <?page no="216"?> 19 The tabular overview in McKinnon, A. (2018), p. 50 ff. or in International Energy Agency (2017), p. 56. 20 Pfohl, H.-C. (2018), p. 312. 21 ibid., p. 313. 13.3 Distribution and Distribution Logistics If sustainability performance in logistics is measured by the so-called carbon footprint, science and practice offer numerous options for reducing this carbon footprint e.g. for road transport. 19 The measures listed below represent only a selection. 13.3.1 Strategies and Structures Very different environmental aspects must be taken into account if, on the one hand, urban distribution networks are to be re-evaluated and, on the other hand, long haul transportation networks are to be considered. Both systems have in common that measures for environmental protection aim for a bundled supply. Urban supply, also known as city logistics, refers to the supply and waste disposal for urban retail operations. Inner-city deliveries are complicated by limited delivery times, restrictions on vehicle sizes, narrow streets, a lack of parking space, as well as moving and standing traffic. At the same time, delivery traffic places a considerable burden of noise and exhaust fumes on inner cities and their residents. A single department store experiences up to 200 deliveries per week. City logistics thus aims to provide the required transport service, but to significantly reduce the associated traffic volume. 20 This is made possible by the regional bundling of commodity flows, which is organized in collective forms and involves the establishment of so-called hubs on the outskirts of town. Several freight forwarders and manufacturers deliver the goods destined for the city center to the hub, but only a single city logistics company schedules and distributes the deliveries to the individual downtown businesses. Operators of the hub are often several freight forwarding companies. Ecological effects of this solution arise from the consolidation of shipments on the one hand, since more shipments per customer or per stop are unloaded compared to individual delivery traffic. On the other hand, the city logistics company achieves greater density per trip through a larger number of stops per tour. Overall, fewer delivery vehicles drive into the city center. In the city of Regensburg, for example, whose historic city center covers only one square kilometer, the city logistics concept achieved a saving of 4,300 truck kilometers per year and thus a considerable reduction in noise and exhaust emissions. 21 Examples: After starting with over 90 pilot projects in the 1990s in German-speaking countries, only a few locations adopted this concept in the long run. These include metropolises such as Berlin or Paris, conurbations such as the Ruhr region or modern commercial centres at airports ("airport cities") such as London Heathrow. The following considerations may provide an explanation. The economic effects of this cooperative solution differ for the players involved. The city logistics company benefits from the consolidated and multi-year order volume and from the 216 13 Sustainable Procurement and Logistics Management <?page no="217"?> 22 Pfohl, H.-C. (2018), p. 311. 23 IHK Mittlerer Niederrhein (ed.) (2019), p. 10. leeway in tour scheduling, which allows cost-efficient delivery. The manufacturers and freight forwarders supplying the hub are relieved from the often-unattractive delivery to individual clients. In this way, they may improve their earnings situation and their image as environmentally aware companies. However, compared to individual deliveries, handling costs in the hub could possibly offset the aforementioned cost advantage. In addition, there are the costs for operating the distribution hub, which are passed on to the cooperation partners, as well as the costs of goods distribution in the city center by the city logistics company. The benefit for retail companies lies in the storage space offered by the hub, in positive image effects, and in reduced waiting times at the loading docks of the retail stores. The municipalities also benefit from the positive image effect of environmentally friendly deliveries in the downtown area. Nevertheless, numerous problems have limited or prevented the success of many city logistics projects, such as: ■ insufficient business volume for the city logistics company, ■ the unequal distribution of the benefits of cooperation, ■ high coordination and information costs (transaction costs), ■ overall higher costs of city logistics cooperation for retailers. The amount of the bundled delivery volume depends largely on the willingness of the involved retailers to cooperate. The majority of retailers in downtown locations is owned by retail groups, which often have their own distribution hub and therefore show little interest in cooperative city logistics. Another large share of the delivery volume in downtown locations is related to CEP (courier, express, parcel) service providers, who are also unlikely to cooperate. Their unique selling point is precisely the individual, short-term delivery and collection of small quantities at desired times. For transport handling by the city logistics company, however, CEP service providers would always have to subordinate their service goals to collective goals. For producers of sensitive goods (e.g. frozen foods), on the other hand, the required handling of goods in the hub precludes participation in the cooperation, as such goods usually have to be transported without interruption. In addition, predefined delivery times for certain goods (e.g. baked goods before 7 a.m.) limit the potential participants in a city logistics cooperation. Finally, forwarders often reject the cooperation because of the additional costs mentioned above. Therefore, the advantageousness of the cooperation for the participating forwarding agents depends decisively on the tariff structure of the city logistics company. Potentially suitable freight forwarders who could act as city logistics companies often shy away from taking on this task because of the high costs of initiating and implementing the cooperation (transaction costs). 22 In contrast to this central city logistics hub, over the past five years, micro-depots arose in densely populated inner-city locations. Micro-depots are i.e., properties from 20 up to 200 square meters of building space or mobile containers in public car parks. They are used for goods handling and short-term buffering of high volumes of shipments. Several cargo bicycles, micro-vehicles (such as the Dutch "cargo hopper" with electric drive), or transport aids distribute around 1400 parcels per day within a radius of two to three kilometers. Deliveries to the micro-depots are bundled by trucks and vans from one or more distribution centers (hubs). 23 The economic benefit of such micro depots lies, among other things, in a higher delivery frequency, which benefits the recipients. For the last mile delivery, a conventional transport 13.3 Distribution and Distribution Logistics 217 <?page no="218"?> 24 Müller-Jentsch, D. (2013), online. 25 Pfohl, H.-C. (2020), p. 350. vehicle is replaced by 1.5 large cargo bicycles. This also saves the scarce capacities of professional drivers. The ecological effects of the micro depots are primarily to be found in the bundled delivery to the depots, which reduces CO 2 emissions compared to individual deliveries, and in the CO 2 -neutral last-mile distribution by the cargo bikes. If cargo bikes use cycle paths, they relieve road traffic and avoid obstructions caused by parked delivery vehicles. Limitations of the solution are practically shown in the dominance of so-called single-user depots, which are used by only one CEP service provider, whereby bundling potentials remain unused. In addition, cargo bikes are not suitable for large-volume parcels and can therefore only partially replace conventional transport vehicles. Cities, research institutions, and logistics companies are working on urban logistics solutions. Some cities are taking measures to restrict mobility (e.g., by imposing road tolls in inner cities, as in Stockholm). The extent to which inner cities lose their attractiveness as a result of more difficult individual transport remains to be validated in each individual case. However, it has been proven that this reduces the volume of traffic, especially in private passenger transport, and the associated CO 2 emissions. 24 At the same time, the volume of commercial freight transport remains rather unaffected. Nevertheless, freight transport benefits from the improved traffic flow. For decades, there has been a trend toward the centralization of distribution systems for long-haul transportation. Whether it is Apple, Fresenius, Nike or Philips, industrial companies, in particular, are reducing the number of their regional warehouses in smaller geographic areas such as Europe in favor of large central warehouses. Here, the good accessibility of national markets by road favors central warehousing. Positive economic effects are mainly based on the economies of scale of centralized ware‐ housing. 25 Larger storage units in small numbers have lower fixed costs than many small storage units in decentralized distribution networks. This applies to personnel and administration costs, to building and space costs as well as to warehousing costs, which decrease as a result of lower safety stocks. Write-offs on inventories due to spoilage, obsolescence, or damage of goods are avoided or reduced due to the better transparency of centralized inventories. Large central warehouses also allow for investments in automation technology for storage, picking, and conveying systems and for process standardization. The acceleration of warehouse processes shortens order processing times, which increases customer satisfaction and reduces process costs. A lower number of storage and retrieval processes additionally accelerates order processing compared to warehousing in decentralized systems. Negative economic effects arise as a result of long transport distances between the central warehouse and the point of demand. Consequences comprise longer transport times and longer reaction time to short-term requirements, as well as comparatively higher transport costs. In addition, the transport times for a given route can fluctuate considerably over longer distances due to congestion, which complicates transport planning and impairs delivery reliability. Nevertheless, the economic advantages of central storage units often outweigh the disadvantages, especially in small economic areas such as Europe. However, distribution systems with only one central warehouse limit the bundling effects in transport management on the way from the central warehouse to the customers. In this respect, this economically often superior concept must face a critical review of the ecological effects. The lack of buffer stocks between the customer and the central warehouse means that customer demand and transport are synchronized in terms of time and quantity. The transportation of goods is demand-driven. Customers activate transportation by ordering goods. There is hardly 218 13 Sustainable Procurement and Logistics Management <?page no="219"?> 26 Deckert, C. (ed.) (2016), p. 23. any aggregation of orders with different delivery dates. Volatile order intake, which is transported immediately, produces comparatively frequent and underutilized transports with relatively high CO 2 emissions per order. Fluctuating demand additionally complicates the allocation of correctly sized transport vehicles and often leads to the assignment of large vehicles with correspondingly low CO 2 efficiency. If these avoidably high CO 2 emissions were to be charged as costs, the advantage of centralized distribution centers could suffer. Different from industrial logistics, retail logistics is characterized by rather decentralized distribution systems, especially in eCommerce. Short distances between the distribution warehouse and the customer compress warehouse response times and allow for late order arrival times (so-called cut-off times). Fluctuations in demand impact the utilization of transport capacity over the distance between the regional warehouse and the customer. The fluctuating transport load and increased delivery frequency result in both economic and ecological disadvantages. However, decentralized distribution systems replenish regional warehouses using consolidated shipments. Although this initially favors the achievement of economic and ecological goals by lowering transport costs per unit and reducing the number of tours, it requires higher inventories in the regional warehouses and a greater need for storage space with the resulting capital commitment costs and the corresponding sealing of land. In practice, hybrid structures emerge. These are often based on central distribution systems with transshipment points located in proximity to the customer. These transshipment points transfer goods without holding inventory. 13.3.2 Processes The main starting points for sustainable distribution are transportation, warehousing and packaging processes. 26 In the following, the focus is on sustainable transport management based either on avoiding or reducing the demand for transport services as a result of bundling or on shifting existing demand to alternative modes of transport. From the multitude of possible solutions to avoid and reduce the demand for transport, the following examples should be highlighted: ■ electronic freight exchanges, ■ horizontal cooperation in transport. Electronic freight exchanges are electronic marketplaces that bring together supply and demand for freight capacities, such as TimoCom (www.timocom.de), Teleroute Freight Exchange (www.teleroute.com), or Instafreight (www.instafreight.com). There are marketplaces with and without a pricing function. During so-called "reverse auctions", the lowest bidder is awarded the freight contract. In contrast, price negotiations are left to the market partners who meet on electronic marketplaces with a pure matching function. In this case, only suitable loading space is presented to an interested sender. Both forms attempt to improve the utilization of loading space and avoid empty runs. This is accompanied by positive economic and ecological sustainability effects: The reduced number of vehicles used can lower both transport costs per shipment and CO 2 emissions and help to reduce traffic congestion. In this respect, one can eagerly await future studies that will shed light on the medium-term effects of such freight exchanges on overall transport capacity and traffic volumes. In the short term, it 13.3 Distribution and Distribution Logistics 219 <?page no="220"?> 27 Bretzke, R.-W. (2014), p. 366. 28 McKinnon (2018), p. 147. 29 Bretzke, R.-W. (2014), p. 410. 30 Wittenbrink, P. (2015), p. 22. 31 See Bretzke, W.-R. (2014), p. 228 ff. for a detailed comparison of the modes of transport and Wittenbrink, P. (2015), p. 21ff. for an assessment of rail freight transport. 32 Cargo Sous Terrain AG (ed.)(2020): What is CST, online. is likely that the increase in efficiency through freight exchanges will not affect the capacity of the overall system. 27 It is also open to what extent the multitude of platform providers competing today for synergies in transport will decrease in the course of consolidation. Horizontal cooperation aims to combine given part loads of two shippers in such a way that the order-related transports for both partners can be significantly reduced. Nestle and Pepsico, for example, are companies at the same stage of the value chain, each supplying the same retail outlets with chilled goods. The joint assignment of a transport service provider to bundle the goods in line with the stores resulted in a transport cost reduction of 30% and an emissions reduction of 26% via the reduction of transport to selected destinations. 28 This approach is all the more remarkable as it overcomes classic resistance to horizontal cooperation: Reservations about the disclosure of transport volumes and conditions and concerns about mutual dependency. This is because the jointly negotiated freight rates can only be set as long as the planned volumes materialize in both companies. The risk of one-sided demand fluctuations and the resulting imbalance in the benefits of the cooperation ultimately limit the economic and ecological effects. Moreover, these effects remain limited to the selected cooperation partners and to the distribution of goods to the target areas. 29 In the light of these limitations, approaches to shifting transport services to lower-emission modes of transport are becoming increasingly important. Road freight transport, which dominates in Germany with over 70% of the transport services provided, offers at least theoretical potential for reducing emissions for a given demand. Compared with trucks, inland waterway vessels, and aircraft, rail transport not only has lower CO 2 emissions in grams per tonne-kilometer (g/ tkm), but also lower levels of nitrogen oxides and particulates. 30 From an economic point of view, in national traffic, the railway has advantages due to its mass performance, its capacity reserves, the absence of travel bans at weekends, and the small differences in running times. However, the attractiveness of the railway suffers not only from deficiencies in infrastructure development, timetable-related inflexibility, and lack of railway sidings at the shippers' premises. Shippers are fundamentally affected by the increasing urgency, smaller consignment sizes and the shift in freight structures towards goods with less affinity to rail transport. 31 Examples of Shifts in Freight Transport: An innovative approach to shifting freight traffic in and between cities into an underground tunnel system in an unmanned and automated way is being pursued by a Swiss consortium with the "Cargo Sous Terrain (CST)" project. From 2031, an initial 70 km long section of the network is to be used to Zurich; by 2050, a 500 km long overall network is to run from Lake Geneva to Lake Constance. 32 In the "Tram-Transport" project, on the other hand, the "Verkehrsgesellschaft Frankfurt am Main GmbH" and the parcel service provider Hermes are testing parcel delivery in the city 220 13 Sustainable Procurement and Logistics Management <?page no="221"?> 33 Zeitler, M. (2019), online. 34 McKinnon, A. (2018), p. 115. 35 See, for example, International Energy Agency (2017), p. 79. 36 McKinnon, A. (2018), pp. 187. centre with a combination of trams and cargo eBikes. Similar approaches are being used in the cities of Dresden (CarGoTram), St. Etienne (Tram-Fret), Moscow and Zurich. 33 For international freight, however, container shipping dominates due to its superiority over air freight in terms of costs, mass efficiency and CO 2 emissions. Air freight operates in a separate market due to its superior speed and high cost and hardly competes with container shipping. But for selected goods and routes, transcontinental rail freight offers an alternative to ocean shipping. And combined ocean/ air freight offers an alternative to pure air freight. An example of transcontinental rail freight transport is the so-called "New Silk Road" from Europe to China, the infrastructure of which is to be further expanded as part of the Chinese "One Belt One Road (OBOR)" initiative. With significantly shorter transit times and more favorable freight rates than air freight, this rail link also has ecological advantages: It is true that the CO 2 emissions per tonnekilometer are twice as high for rail as for a sea-going vessel. However, the much shorter overland route compensates for this disadvantage, so that the CO 2 emissions per consignment are about one third lower than via sea. 34 13.3.3 Technologies Unlike the change in distribution structures and operational transport processes, new technolo‐ gies are not aimed at decoupling traffic and transport volumes through bundling, nor at shifting existing transport demand. Examples include innovative drive technologies, energy efficiency technologies in buildings, and selected digitalization technologies. Alternative drive technologies are already replacing conventional combustion engines in many cases. Numerous studies have been devoted to the significance of these measures for greenhouse gas emissions. 35 Test deployments of hybrid vehicles demonstrate efficiency gains of up to 25% compared to conventional combustion engines for small trucks, which could be used primarily in city logistics and for mail and express deliveries. For small delivery trucks, electric drives rather than hybrids are more likely to prevail. For one thing, the efficiency gain of the hybrid drive is not significant for small vehicles with low mileage. For another, battery-powered electric vehicles have even lower noise pollution and open up opportunities for inner-city deliveries at night. The economic benefits of these electric vehicles are still limited by high acquisition and operating costs, inadequate charging infrastructure, and short ranges. From an ecological perspective, the predominance of conventional power generation and the CO 2 emissions generated during the production of the battery cells limit the extent of CO 2 reduction compared to both conventional diesel drives and fuel cells. Fuel cell-powered trucks achieve a range of up to 700 km at about 2.5 times the purchase and operating costs of a diesel drive and low energy efficiency compared to a battery drive. From an ecological point of view, these drive systems appear superior when greenhouse gas emissions are considered over the life cycle. 36 13.3 Distribution and Distribution Logistics 221 <?page no="222"?> 37 Landesanstalt für Umwelt, Messungen und Naturschutz Baden-Württemberg (LUBW), Daimler AG (ed.) (2017): Analyse des Einsatzes von Lang-LKW im Hinblick auf seine Klimaeffekte, online. 38 McKinnon, A. (2018), pp. 197. 39 World Economic Forum (2009) p. 20. 40 Hutt, R. (2019), online. 41 ECR Austria (ed.)(2020): Digitalisierung in der Supply Chain, online. 42 IBM (ed.)(2020): Big Data Analytics, online. Nevertheless, the development of alternative fossil, or regenerative fuels faces a large number of problems: e.g., high purchase or conversion investments, high fuel costs, and the use of large agricultural areas for the production of renewable fuels. The use of extra-long trucks to cover long distances in Germany has so far failed to meet expectations. Since the approval of up to 25.25 m long vehicles in 2012 on a limited road network, a field trial has shown a significant reduction in CO 2 emissions per transported unit. However, a final study forecasts only a small reduction of 0.22 percent in total emissions for freight transport in Germany for the year 2030. A limited range of goods and approved roads thus relegate the long truck to a market niche. 37 Developments in energy-efficient propulsion systems are also taking place in container shipping, aviation, and rail freight transport, but these cannot be considered further in this paper. Already in use are, for example, automatic towing kite systems on cargo ships, which use wind power to supplement conventional propulsion and can significantly reduce fuel consumption. 38 A significant share (371 mega tonnes or 13%) of the CO 2 emissions caused by the freight transport industry is attributable to logistics properties. Numerous studies show achievable reductions in energy consumption for the generation of electricity and heating in logistics properties of 10-15%. 39 Air conditioning and ventilation systems generate the largest share of electricity consumption. Further electricity consumption is attributable to lighting, the operation of doors, gates, conveyor technology, and order-picking systems as well as the operation of IT systems. Further increases in energy consumption can be expected with increasing automation of warehouse technology and a growing number of warehouse locations as a result of decentral‐ ization strategies. Studies show that a large proportion of companies' investments in resource-efficient technol‐ ogies are channeled into logistics properties. Certification systems such as the British "BREEAM" or the system of the German Sustainable Building Council (DGNB) offer measurement systems for recording the environmental impact of logistics properties. These organizations rate buildings according to energy consumption, land and water use, material types, and other criteria. According to this, one of the most environmentally friendly logistics buildings is located in the Dutch city of Tilburg and houses a distribution center of the logistics service provider Rhenus Logistics. 40 Companies are already using digitalization technologies in logistics, including 3D printing, augmented reality, big data analytics, bionic systems, cloud computing, digital object identifica‐ tion, the Internet of Things, robotics and automation, sensor technologies, self-driving vehicles, unmanned aerial vehicles, self-learning systems/ artificial intelligence, and telematics. 41 Big data analytics applications in logistics are highlighted as an example: Big data analytics is the process of gaining knowledge, for example, about hidden patterns or unknown correlations. Very fast, largely autonomous, automated analysis processes collect, sort and condense structured, partially structured and unstructured data sets from different sources and in different sizes (from terabytes to zettabytes). 42 222 13 Sustainable Procurement and Logistics Management <?page no="223"?> 43 Rossman, J. (2014): Amazon Anticipatory Shipping - Exactly WHAT is being anticipated? , online. Such condensed analysis results sometimes allow automated decisions. For logistics, big data analytics primarily provide very accurate demand forecasts even for irregular demand patterns, which in turn enable inventory reductions or smart push systems and thus offer economic and ecological advantages. Decreasing inventories are followed by decreasing capital commitment costs. In smart push systems, unlike in the usual pull-driven distribution systems, only forecasts trigger transports. Their exact plannability opens up potential for bundling, which results in both transport cost reductions and lower CO 2 emissions per transported unit. Example: Based on Big Data Analyses, Amazon developed the patented method of the "Anticipatory package shipments". According to this method, Amazon triggers the transport of an item even before a corresponding customer order has been received. For sufficiently densely populated sales areas, Amazon uses this method to calculate probabilities of product purchases in real time and sends the package to an "approximate" address, i.e., to a rough target area. If a concrete customer order for the item arrives during the transport time, the package already on its way is addressed with the exact destination. 43 This significantly reduces the order processing time. At a Glance Procurement, distribution, and logistics influence not only the economic and social objectives of the company but also ecological objectives in many ways. The fields of action for a sustainable design of procurement and logistics are complex. Innovative technologies often take center stage in public discussion. However, it is precisely the strategies, structures and processes in procurement organizations and distribution systems that can make significant contributions to environmental protection and resource conservation. Checking them against an extended target system can, in the extreme case, lead to the discarding or adaptation of proven concepts. The relationship between economic and ecological logistics goals is not always conflictive, as the example of lowering transport costs and reducing CO 2 emissions shows. The motivation of decision-makers to engage in sustainable design is correspondingly high when economy and ecology are in harmony. The increasing internalization of environmental costs and the rise in prices for non-regenerative resources could further increase this motivation in the future. Suggestions for Further Reading Bretzke, W.-R./ Barkawi, K. (2014): Nachhaltige Logistik. Zukunftsfähige Netzwerk- und Prozessmodelle, Berlin McKinnon, A. (2018): Decarbonizing Logistics. Distributing goods in a low-carbon world, London Literature Bretzke, W.-R. (2014): Nachhaltige Logistik. Zukunftsfähige Netzwerk- und Prozessmodelle, Berlin. Cargo Sous Terrain AG (ed.) (2020): Was ist CST, www.cst.ch/ was-ist-cst, accessed 1 September 2020. 13.3 Distribution and Distribution Logistics 223 <?page no="224"?> Daimler AG (ed.) (2020): Daimler Nachhaltigkeitsbericht 2019, https: / / nachhaltigkeitsbericht.daimler.com/ 2019/ , accessed 02.10.2022. Deckert, C. (ed.) (2016): CSR und Logistik. Spannungsfelder Green Logistics und City-Logistik, Berlin, Heidelberg. Deutsche Post DHL Group (ed.) (2019): Nachhaltigkeitsbericht 2019, https: / / www.dpdhl.com/ content/ dam/ d pdhl/ de/ media-center/ responsibility/ dpdhl-nachhaltigkeitsbericht-2019.pdf, accessed 1 September 2020. ECR Austria (ed.) (2020): Digitalisierung in der Supply Chain, www.ecr.digital/ book/ supply-side-prozesse/ digitalisierung-in-der-supply-chain, accessed 1 September 2020. Edeka Südwest (ed.) (2018): Nachhaltigkeitsbericht 2018, https: / / ebook.zukunftleben.de/ nachhaltigkeitsber icht_2018/ #0, accessed 1 September 2020. Grzybowska, K., Awasthi, A., Sawhney, R. (2020): Sustainable Logistics and Production in Industry 4.0. New Opportunities and Challenges, Cham. Hesse, K. (2019): Nachhaltige Rohstoffversorgung - Perspektive Kreislaufwirtschaft und Ressourceneffi‐ zienz, in: Wellbrock, W., Ludin, D. (eds.) (2019): Digitale Trends und ihre Auswirkungen auf die Nachhaltigkeitsperformance in der Beschaffung, Wiesbaden, pp. 91-112. Hutt, R. (2019): This warehouse is one of the world's greenest industrial buildings, https: / / www.weforum.o rg/ agenda/ 2019/ 08/ netherlands-greenbuilding-architecture-sustainability/ , accessed 02.10.2022. IBM (ed.) (2020): Big Data Analytics, https: / / www.ibm.com/ de-de/ analytics/ hadoop/ big-data-analytics, accessed 1 September 2020. IHK Mittlerer Niederrhein (ed.) (2019): Handbuch Mikro-Depots im interkommunalen Verbund am Beispiel der Kommunen Krefeld, Mönchengladbach und Neuss, s.I. International Energy Agency (ed.) (2017): The Future of Trucks. Implications for energy and the environ‐ ment. Kuehne + Nagel AG (Ed.) (2019): Sustainability Report 2019, https: / / home.kuehne-nagel.com/ documents / 20124/ 72221/ Company-Sustainability-Report-2019.pdf/ 3a5dc74a-8564-06a9-45aa-175547825b1a? t=1592 580269457, accessed September 1, 2020. Kummer, S. (Ed.) / Grün, O./ Jammernegg, W. (2019): Grundzüge der Beschaffung, Produktion und Logistik, München Lasch, R. (2019): Strategisches und operatives Logistikmanagement: Beschaffung, Wiesbaden. Landesanstalt für Umwelt, Messungen und Naturschutz Baden-Württemberg (LUBW), Daimler AG (eds.) (2017): Analyse des Einsatzes von Lang-LKW im Hinblick auf seine Klimaeffekte, www.lubw.baden-wu erttemberg.de/ -/ studie-zur-klimabilanz-von-lang-lkw-veroeffentlicht, accessed 1 September 2020. McKinnon, A (2018): Decarbonizing Logistics, London, New York. Möller, J., Bogaschewsky, R. (2019): Digitale Trends und ihre Auswirkungen auf die Nachhaltigkeitsper‐ formance in der Beschaffung, in: Wellbrock, W., Ludin, D. (eds.) (2019): Nachhaltiges Beschaffungsma‐ nagement. Strategien - Praxisbeispiele - Digitalisierung, Wiesbaden. Müller-Jentsch, D. (2013): Der Ring smarte Citymaut in Stockholm, in: avenir suisse, https: / / www.avenir -suisse.ch/ citymaut_stockholm-der-ring/ , accessed on 01.09.2020. Pfohl, H.-C. (2018): Logistiksysteme, Berlin. Pfohl, H.-C. (2020): Logistische Netzwerke, Berlin. Rossman, J. (2014): Amazon Anticipatory Shipping - Exactly WHAT is being anticipated? , https: / / the-amazon -way.com/ blog/ amazon-anticipatory-shipping-exactly-what-is-being-anticipated, accessed 1 September 2020. Schulte, C. (2017): Logistik. Wege zur Optimierung der Supply Chain, Munich. Umweltbundesamt (Hrsg.) (2020): Umwelt und Wirtschaft, https: / / www.umweltbundesamt.de/ daten/ umw elt-wirtschaft, accessed on 1 September 2020. 224 13 Sustainable Procurement and Logistics Management <?page no="225"?> Urbaniak, M. (2020): Sustainability as Criteria of Evaluation of Suppliers, in: Grzybowska, K., Awasthi, A., Sawhney, R. (2020): Sustainable Logistics and Production in Industry 4.0. New Opportunities and Challenges, Cham, pp. 103-120. Villena, V.H. (2019): The missing link? The strategic role of procurement in building sustainable supply networks, in: Production and Operations Management, May 2019, vol. 28, iss. 5, pp. 1149-1172. Volkswagen AG (ed.) (2020): Nachhaltigkeitsbericht 2019, https: / / www.volkswagenag.com/ presence/ inves torrelation/ publications/ shareholder-meetings/ 2020/ nachhaltigkeitsbericht/ Nichtfinanzieller_Bericht_2 019_d.pdf, accessed 1 September 2020. Wanga, G., Gunasekarana, A., Ngaib, E.W.T., Papadopoulos, T. (2016): Big data analytics in logistics and supply chain management: Certain investigations for research and applications, in: International Journal of Production Economics, vol. 176, june 2016, pp. 98-110. Weigel, U., Rücker, M. (2015): Praxisguide Strategischer Einkauf. Know-how, Tools und Techniken für den globalen Beschaffer, Wiesbaden. Wellbrock, W., Ludin, D. (eds.) (2019): Nachhaltiges Beschaffungsmanagement. Strategien - Praxisbeispiele - Digitalisierung, Wiesbaden. Wittenbrink, P. (2015): Green Logistics. Konzept, aktuelle Entwicklungen und Handlungsfelder zur Emis‐ sionsreduktion im Transportbereich, Wiesbaden. Wöhe, G. (2020): Einführung in die allgemeinen Betriebswirtschaftslehre, Munich. World Economic Forum (2009): Supply Chain Decarbonization. The Role of Logistics and Transport in Reducing Supply Chain Carbon Emissions, Geneva. Zeitler, M. (2019): Lieferung per Straßenbahn - eine praktikable Lösung für die nachhaltige Stadtlogistik? , h ttps: / / newsroom.hermesworld.com/ letzte-meile-lieferung-per-strassenbahn-eine-praktikable-loes ung-f uer-die-nachhaltige-stadtlogistik-17327, accessed 1 September 2020. 13.3 Distribution and Distribution Logistics 225 <?page no="226"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="227"?> 1 Corsten, H. (2009), p. 1. 14 Sustainable Production Andreas Friedel Learning Objectives: The readers ■ know the components and tasks of production; ■ know the approaches to the vision of 100% sustainable production in terms of material and energy use; ■ have the insight to know which steps have to be taken on the way to sustainable production; ■ know, which approaches exist for the implementation of sustainable production; ■ know an overview of the methods to measure sustainability in production. Keyword List: Production system, production management, concept of sustainability, sustainable use of mate‐ rials and energy, laws and standards, introduction of sustainability, implementation of sustaina‐ bility, measurement of sustainability. 14.1 Concept of Production Production is synonymous with the manufacture of goods. It is done through the combination of production factors such as labor, resources, and materials (input) and transforming them into a desired product with by-products or waste products (output). From a business perspective, production represents a phase between procurement and sales. It is also associated with the concept of value creation: The product (output) should be worth more than the sum of the values of all production factors (input). The totality of all value-adding processes, including their input and output relationships, is referred to as the production system. 1 <?page no="228"?> 2 Based on Kiener et al. (2012), p. 6. 3 Kiener et al. (2012). 4 Based on Kiener et al. (2012), p. 8. Production System Processes Transformation of production factors for the production of goods Material, Energy, Auxiliary Materials Output Input (Production factors) Product or Goods Human labor, Information, Equipment By-Products, Waste Fig. 14.1: Production system as a total of all value-adding processes 2 Value-added processes are realized in the industrial production of goods with the help of produc‐ tion technologies in the form of processes and associated equipment. Human labor continues to play the most important role, although growing automation and intelligent networking are reducing object-related tasks in favor of planning and scheduling activities. Production management deals with the theoretical foundations, the organization of production factors and the production planning and control for the manufacture of goods. The task of production management can be represented as a control function for the production of goods and services on the basis of key figures and derived measures. 3 (Fig. 14.2). Production System = ∑ all Processes Sales Procurement Production Management Plan Analyse Act Check Outputs Inputs Production factors waste, waste heat Control variables Measured variables Measures (e.g. targets) Key figures Product Sustainability Time Costs Quality Control object Control function Management variables (Targets) Fig. 14.2: The control function of production management 4 The design of sustainable production requires that sustainability, as one of the important control variables for the design of the production system, complements the classic target triangle of 228 14 Sustainable Production <?page no="229"?> 5 Kiener et al. (2012), p. 9. 6 In the following, the term "sustainable" or "sustainability" is linked to the ecological perspective. quality, cost, and time. The design of a sustainable production system would then be part of the strategic and tactical tasks of production management. 5 14.2 Concept of Sustainable Production 6 14.2.1 Vision of 100% Sustainable Production The economic operation of a production means the planning and use of the factors of production as scarce resources. Since the use of the environment as a factor of production costs little, numerous legal regulations have arisen to regulate its effects. They have led to a significant improvement in environmental performance, particularly in terms of local impacts such as emissions to air and water, and waste generation. Extensive legislation has also been enacted on energy saving and the use of renewable energy. Furthermore, 100% sustainable production means that the use of non-renewable resources is reduced to zero and that the burden on the environment allows for the continuous regeneration of the natural basis of life. Assuming a steady state of a production system, only renewable resources are extracted from the environment for this purpose on the input side. On the output side, non-biotic waste and by-products as well as the product itself must not be released into the natural environment after its use. 14.2.2 100% Sustainable Use of Materials The extraction of raw materials and the production of materials require the extraction of nonrenewable resources from the environment. Materials made from renewable raw materials can only be used for industrial production to a limited extent today. On the output side, the wastes and by-products, and after their use the products, burden the regenerative capacity of the biological environment, either as emissions to air and water or as more or less rapidly degradable wastes. The use of materials can be described as 100% sustainable in constant production if ■ the material productivity of the processes is maximized, ■ the material used is produced completely sustainably, ■ all waste and by-products (especially greenhouse gases) are eliminated or reduced to a minimum, ■ the material intensity of the output is also minimized in the use phase, ■ unavoidable waste products and the used products can be recycled. Operating and auxiliary materials are included in this consideration. For raw material production, only renewable raw materials are taken from the environment, and in a socially acceptable quantity, i.e., without making food production more expensive. This approach must be applied to the entire life cycle of the materials used. Fully sustainable production then also includes material potential factors such as operating resources. Only non-contaminated biomass is disposed of as residual waste in the environment (Fig. 14.3). 14.2 Concept of Sustainable Production 229 <?page no="230"?> Fig. 14.3: Production system with material flows for 100% sustainable material use (own figure) High-quality recycling of products for reuse and waste products and material waste for recovery is carried out in a closed system with full sustainability. The energy required for this is provided from renewable sources to enable 100% sustainability. The biggest challenge in the circular economy is the prevention and recovery of finely distributed losses, e.g., from decomposition, corrosion, and abrasion. 230 14 Sustainable Production <?page no="231"?> 7 Fraunhofer UMSICHT (2018), p. 10. 8 Quaschning (2020). 9 WEC Germany (2020). Example microplastics The emissions of microplastics for Germany are estimated at 4,000 grams per capita per year or 330,000 tons in total per year. About one third of this is due to tyre abrasion 7 . 14.2.3 100% Sustainable Energy Use Non-renewable energy is available in the form of fossil raw materials. The energy bound up in the raw materials is provided in the form of natural gas, heating oil, fuels, coal, and enriched uranium. The environmental impacts of extracting and processing fossil raw materials are similar to those of other raw materials. Primarily coal and enriched uranium are used to generate electricity. Waste and by-products of coal-fired power generation are ash and emissions to air, partly as local pollution, in the case of carbon dioxide, methane and nitrous oxide as greenhouse gases for global warming. Nuclear power plants not only produce electricity, but also radioactive waste as a by-product. Due to its long half-life and the special requirements for storage, it is hazardous to the environment. Energy is finally converted into effective energy such as light, heat, cold, mechanical energy, sound, etc. in the production process. Depending on the efficiency, waste heat is produced as a by-product. The history of the use of renewable energy began with the burning of wood. Later, electricity generation from hydropower was added, which still accounts for the largest share of global electricity generation from renewable energy sources. Their advantage is that similar to fossil fuels, energy is continuously generated on site in concentrated form and with high output. Only by using solar energy can the world's energy needs be met many times over. The installation of wind power and photovoltaic capacity is growing exponentially and could cover half of the world's electricity generation in the next 10 years. 8 Both technologies require an expansion and restructuring of the grid infrastructure to make it suitable for the intelligent distribution and regulation of de-centrally generated, stochastic and bidirectional energy flows. Energy use can be considered 100% sustainable at constant production levels when ■ the energy efficiency of the processes is maximized, ■ the energy conversion in the process is emission-free (in particular greenhouse gas-free), ■ the energy used is generated from renewable sources, ■ the energy intensity of the produced output is minimized, especially for the use phase, ■ the waste heat from processes is reused. Saving energy could be considered unnecessary if energy came entirely from renewable energy sources. However, the environmental impact of hydropower plants, the siting discussions for wind farms, and the land use of photovoltaic plants show that avoided energy demand is particularly sustainable. In addition, global demand for energy is expected to continue to rise. 9 Therefore, reducing energy consumption, especially in developed countries, will continue to be important for a global supply of renewable energy sources. 14.2 Concept of Sustainable Production 231 <?page no="232"?> 10 EnEG and EEWärmeG were replaced by the Building Energy Act (GEG) on 01.11.2020. Conversion losses into non-usable waste heat can be minimized by high efficiency, but not prevented. In contrast to finely distributed material losses, non-usable heat losses can be sustainably compensated for by regenerative energy sources. Processes Transformation of production factors for the production of goods Use of product Energy generation Return of waste heat Hydropower, Wind power, solar energy, Renewable fuels Production System Environment Power Heat Product Output Input Fig. 14.4: Production system with 100% sustainable energy use (own figure) 14.3 On the Way to Sustainable Production 14.3.1 Compliance with Environmental Regulations (Level 1) Manufacturing companies do not start from scratch on their way to sustainability. They must comply with numerous legal requirements, which are primarily aimed at limiting local and regional environmental impacts (Fig. 15.5). Recent laws and regulations on energy use aim to reduce the greenhouse effect through energy savings and the use of renewable energy. With laws such as the Energy Saving Act (EnEG) of 2005, known through the Energy Certificate, and the Renewable Energies Heat Act (EEWärmeG) of 2009, landmark regulations for sustainable energy production and energy use in buildings were enacted. 10 From today's perspective, the legal regulations on sustainability primarily affect buildings and their technical systems for the provision of electricity, heating, and cooling. Process technologies are quite comprehensively regulated in terms of waste, emissions, and effluents, but little or not in terms of their energy efficiency and the greenhouse effect. 232 14 Sustainable Production <?page no="233"?> Product: • CE-Label for related products • REACH Nr. 1907/ 2006 Obligation to inform from 0.1% content of a substance of concern or the “List of candidates” to the recipient Grundstücksbebauung: • UVPG Emissions Waste Wastewater Product Energy Materials Water Emissions: • Federal Imission Control Act (BImSchG) especially 1. and 44. BImSchV • EU F-Gas-Regulation No. 517/ 2014 Gradual phase down of HFCs Mandatory leakage testing of refrigerant circuits Energy: • Building Energy Act for all new and existing buildings and the use of the renewable energy • EDL-G for non-SMEs Materials: • REACH Nr. 1907/ 2006 for chemicals or mixtures > 1t/ a • TRGS Rules for the storage of gases from 2.5 l and hazardous substances from 1 kg Water use: • Water Resources Act (WHG) for direct extraction Waste: • Recycling Management Act Take-back obligation and proof of disposal Wastewater: • Water Resource Act (WHG) Discharge of waste not normally polluted by households BW: with heavy metals and chlorine compounds Fig. 14.5: Key environmental regulations for manufacturing companies (own figure) 14.3 On the Way to Sustainable Production 233 <?page no="234"?> 11 ISO Survey (2020). 14.3.2 Application of Environmental Standards and Guidelines (Level 2) While laws must be complied with, the application of standards and guidelines is voluntary. In some cases, environmental regulations refer to standards or are considered to be met in compliance with the standard is proved. In some EU countries, such as Germany, companies are exempt from the energy audit under the Energy Efficiency Directive (EED) if they can prove that they have implemented an energy management system according to DIN ISO 50001 or an environmental management system according to the European Eco-Management and Audit Scheme (EMAS). Environmental standards and guidelines are roughly divided into those for the design and organization of business processes (management systems) and those for measuring the environ‐ mental impacts of processes, products, and services. The standards for management systems describe principles and requirements according to which a management system is introduced, operated, and monitored (Fig. 15.6). The ISO 50001 aims at the continuous improvement of energy-related performance, which contributes to the reduction of greenhouse gases. More comprehensive is the introduction of an environmental management system according to ISO 14001 or the European EMAS in order to include all environmental impacts. Designation Title DIN EN ISO 14001 Environmental management systems - Requirements with guidance for use (ISO 14001: 2015) DIN EN ISO 14006 Environmental management systems - Guidelines for incorporating ecodesign (ISO 14006: 2020) DIN EN ISO 50001 Energy management systems - Requirements with guidance for use (ISO 50001: 2018) EMAS Eco-Management and Audit Scheme (EMAS) EC Regulation (No 1221/ 2009) Tab. 14.1: Essential standards for the design of environment-related management systems Application of Management Standards in Comparison Worldwide 2019 11 Quality management systems acc. ISO 9001: 883,521 certificates Environmental management systems acc. ISO 14001: 312,580 certificates Energy management systems acc. ISO 50001: 18,227 certificates 14.3.3 Fixing of Sustainable Production in the Company (Level 3) No law requires and no standard describes the organizational fixing of a completely sustainable production in the company. Today, it is therefore up to the manufacturing companies themselves to define this goal and, above all, the strategies to achieve it. The first step is usually that the management defines and publishes the goal of a 100% sustainable company at a certain point in time. The wording should make transparent 234 14 Sustainable Production <?page no="235"?> ■ the environmental impacts on which sustainability is based, ■ when the own company would like to be 100% sustainable with regard to these environmental impacts and what the absolute or relative reduction target is in order to achieve this; ■ when the production of the energy input should be sustainable with regard to these environmental impacts, ■ when the production of the material used is sustainable with regard to these environmental impacts, ■ when the entire life cycle of the products should be sustainable with regard to these environmental impacts. In practice, most companies today quantify their sustainability goals by reducing direct and indirect greenhouse gas emissions. Corresponding strategic goals should make it transparent whether sustainability is also to be achieved through CO 2 compensation. In this case, it must be explained whether the strategy aims to do so temporarily or permanently due to unavoidable CO 2 emissions. 14.3.4 Introduction of Sustainable Production in the Company (Level 4) The introduction and continuous implementation of sustainability in a company and thus also in production is carried on the basis of management system standards such as EMAS, ISO 14001 or increasingly ISO 50001 for energy management systems. Based on the ISO 50001, the steps for the introduction and implementation of a management system in the PDCA structure can be outlined as follows: PLAN 1. Define scope, identify internal and external parties; 2. Ensure responsibility of the top management; 3. Set up energy review and specify significant energy uses; 4. Set up energy performance indicators for monitoring; 5. Set up action plans with objectives, measures, responsible persons, deadlines and methods for measuring success; 6. Ensure staff competence and communication; 7. Ensure documentation. DO 8. Implement planned actions on significant energy uses; 9. Procurement of operating resources and energy, considering energy efficiency criteria. CHECK 10. Monitor significant energy uses against the energy performance indicators; 11. Monitor actions from the action plans; 12. Evaluate compliance with legal and other requirements; 14.3 On the Way to Sustainable Production 235 <?page no="236"?> 12 Bavarian State Office for the Environment (2006), p. 35. 13. Internal auditing of the management system and improvements; 14. Evaluation of the suitability and effectiveness of the energy management system by the top management. ACT 15. Initiate corrective action in case of non-conformities; 16. Continuous improvement of the energy management system and energy efficiency. If a management system meets the requirements of the relevant standard, the company can have it certified and, in the case of the European EMAS, validated. The certificate will be reviewed every 3 years by an external body. 14.3.5 Implementation of Sustainable Production in the Company (Level 5) The analysis and evaluation of material and energy flows at the site, e.g., as part of the introduction of an energy or environmental management system, reveals potentials that are initially typical quick wins and are more likely to be in the organizational or behavioral area. Technical measures are usually associated with investments whose payback period may well require a clear commitment to sustainability on the part of management and owners. Furthermore, sustainability refers to the entire life cycle of the products manufactured and sold, insofar as this is subject to the company's own influence. The approaches from chapters 2.3 and 2.4 are used to explain the fields of action. Maximize material productivity and energy efficiency of the process All measures that bring the amount of material used closer to the amount of the same material in the output save expenses for its production and recycling. The leverage via material utilization is usually so great that higher expenditures in manufacturing processes can be accepted for it. For metals, near-net-shape manufacturing processes that do not require heat, such as cold extrusion, cutting and bending, have the lowest environmental impact. Painting processes should be designed in such a way that paint losses are minimized during application. Increasing the energy efficiency of a process means knowing the effective energy required at the workpiece, providing the useful energy for it with minimal losses, and also generating it without losses from the energy source used. Example Painting Plants Coated components are typically dried in gas-heated hot air chambers. The required heat on the workpiece can also be provided by radiant heat instead of heating air. Suitable infrared heaters switch on when a component approaches. As a result, the heat energy for drying can be reduced to a third. 12 Organisational approaches should be explored first, before technical improvement approaches are explored. Simple and often cost-effective are all measures that reduce the required base load. 236 14 Sustainable Production <?page no="237"?> 13 Federal Environment Agency ProBas (2020). Are the heating, ventilation and air conditioning systems in operation at weekends and on public holidays? Are machines and systems, compressed air and process cooling switched off as much as possible during longer breaks and at night? This also requires appropriate behavior on the part of the employees, who should be sensitized and instructed accordingly. Eliminate waste products especially greenhouse gases from processes Besides the product as the desired output, there are waste products that a production wants to dispose of: waste and emissions to water or air. They can occur in the process during material processing and the use of auxiliary and operating materials. The disposal of waste and wastewater as well as the limitation of dust and environmentally hazardous emissions are clearly regulated by law. For example, the exhaust air from electroplating operations is washed out. The residues are treated together with the wastewater in such a way that the heavy metals in particular are precipitated out. Emissions of greenhouse gases such as CO 2 and nitrogen oxides from production processes are not regulated by law. They are mostly produced by energy conversion of process heat from fossil fuels, mostly natural gas. Apart from the much lower price, the CO 2 emission factor is currently lower than that of the domestic electricity mix, so a switch to electric heat generation without improving efficiency will have no impact. Switching from gas to renewable fuels such as wood biomass or pellets is sustainable, as long as the sources are regional. The emission values for energy sources are introduced in the following section. Use sustainably produced materials and energy from renewable sources The environmental impacts of the supply chain for the production of raw materials generally exceed the direct environmental impacts of the company's own production, as long as the manufacturing processes are operated without intensive heat input. The challenge is to go beyond general data and identify the carbon footprint of a specific source of supply. For example, 1 kg of steel produced in an electric arc furnace has a carbon footprint of 0.4 kg, while 1 kg of steel produced using blow converter technology has a carbon footprint of 1.7 kg. 13 More precise figures also depend on the country of manufacture. How does a manufacturing company know the recycling rate and the origin of its steel bars? Using 100% sustainable material would mean using only recycled material or material from renewable sources. The share of steel made from scrap is currently around 20% worldwide and just over 50% in the EU, as there is no more steel scrap available. In the case of aluminum, the purity of the scrap is the limiting factor in addition to its availability. The situation is even more critical for plastics. Many criteria lead to the fact, that only pure plastics without additives such as plasticizers or glass fibers can be used to produce new materials from 100% waste. Sourcing energy from renewable sources for sustainable production is obvious and significantly reduces greenhouse gas emissions of energy use. These emissions do not occur at the company's own production site. They occur at the energy producer and in its upstream chain through the provision of primary energy sources such as lignite and hard coal. According to the Green House Gas Protocol (GHG-P), these Scope 2 emissions are reported without the emissions from the upstream chain. These emission factors are regularly reviewed and published (Fig. 14.6). 14.3 On the Way to Sustainable Production 237 <?page no="238"?> 14 Federal Office of Economics and Export Control (2020), p. 9. 427 280 266 288 239 201 335 283 264 266 27 36 70 152 0 50 100 150 200 250 300 350 400 450 Fig. 14.6: Specific CO 2 emission factors [gCO 2 / kWh] 14 The carbon footprint of energy use can be reduced by generating electricity from combined heat and power generation and photovoltaics. Mostly heat-led combined heat and power (CHP) plants produce electricity and heat with an emission factor of 280 gCO 2 / kWh. Under the current framework conditions, photovoltaic systems are mainly worthwhile for self-used electricity. By feeding surplus electricity into the grid, CO 2 emissions are reduced for all consumers. Minimize material and energy intensity on the output side The idea of this approach is to make the product design less material and energy intensive while maintaining or improving the functional scope or customer benefits. If less material is required for the output, less material is needed on the input side. General trends towards spatial power compression of electrical devices, miniaturization in the electronics sector and lightweight construction of mechanical designs contribute to this approach. The increasing share of digital technologies and software lead to the replacement of analog functionalities and the corresponding electronic components. In general, the entire life cycle of a product must be considered in order to minimize material and energy intensity. If a product requires material and energy to function, efforts to improve material and energy efficiency should focus on the use phase. For example, the production of highstrength materials can lead to higher environmental impacts compared to conventional materials. 238 14 Sustainable Production <?page no="239"?> 15 Federal Environment Agency (2012), p. 34. These additional impacts can be saved several times over through lightweight construction with lower material use and, above all, in the case of accelerated masses through the lower weight during use. Energy efficiency has become one of the primary drivers of innovation. The replacement of old and still functioning products can be worthwhile in case of technological leaps, as long as the useful life is long enough. Examples of this are the replacement of conventional light bulbs with LEDs and uncontrolled with controlled drives, pumps and fans. More precise calculations should be made if the energy consumption of the manufacturing phase accounts for a significant share of the energy consumption in the entire life cycle. Shorter and shorter innovation cycles also lead to shorter periods of use. Both of these factors can result in the energy payback time being far longer than the period of use. In addition to energy efficiency, the sustainability of such products lies in making them modular, upgradeable and repairable. Energy Payback Time Using the Example of a Notebook Computer The share of greenhouse gas emissions from the use phase of a notebook is less than half of those of the entire life cycle with a period of use of 4 years. If a new device consumes 20% less electricity, the energy payback period evaluated with CO 2 equivalents is 17 - 44 years, depending on the baseline study. 15 Recycling of waste products, waste heat and products Waste products, such as material waste, used auxiliary and operating materials, should be minimized and recycled. If possible, their processing should take place in the company's own production facility. For example, sprue material from metal or plastic castings can be sorted by type and added to the new material proportionally. Cooling lubricants can also be processed and recirculated. If waste products have to be disposed of and recycled by external service providers, the final destination of the materials should be checked. Especially in the case of used materials, sustainable recycling means that they serve as a substitute for new materials. Accordingly, presorting should be carried out by type in order to minimize the energy required for processing. Waste heat can only be used if there is an immediate need for low-temperature heat. In wellinsulated production buildings, it is usually necessary to dissipate the heat. It can be supplied to parts of the building with office functions via air heat exchangers. Waste heat in cooling water can also be used via heat exchangers perhaps with increased temperature by means of a heat pump. Products usually change owners for use, so that their return is beyond the direct influence of the producing company. However, the Cycle Economy Act obliges it to take back the product. In doing so, it is dependent on the last owner's will to dispose of the product and on effective disposal logistics. The production department is the owner or operator of operating resources such as machines, plant technology and infrastructure. In this case it should be ensured that equipment is reused via the second-hand market at the end of its product life cycle. 14.3 On the Way to Sustainable Production 239 <?page no="240"?> 16 Balderjahn, I. (2013), p. 118. 14.4 Measuring Sustainability of a Production Sustainability is measured and monitored using key figures in order to derive measures in the sense of control variables for production, as is the case with other control variables. The key figures should primarily be used to support the definition of objectives and to monitor the achievement of objectives through the measures. Above all, these key figures should be specific to production and key processes that have an impact on the environment. Added to this is transparent marketing and communication through transferability to internationally standardized key figures. 16 The decisive fact is the environmental impact on which sustainability is to be measured. This determines the standard to be applied for identifying and presenting the impacts in the form of individual indicators or multidimensional results (Fig. 15.8). If all environmental impacts are to be considered, then all material and energy flows must be analyzed in accordance with the series of standards for life cycle assessment (ISO 14040-44) at the site and for products over the entire life cycle. As a result, their environmental impacts are identified. If sustainability is defined in terms of the greenhouse effect as one of the environmental impacts, then the definitions of the Greenhouse Gas Protocol (GHG-P) apply as a framework for setting up greenhouse gas balances and the ISO 14064-67 standards as guidelines for setting up product carbon footprints (PCF). Designation Title DIN EN ISO 14040 and 14044 Environmental management - Life cycle assessment - Principles and framework (ISO 14040: 2006) Requirements and guidelines (ISO 14044: 2006) DIN EN ISO 14046 Environmental management - Water footprint - Principles, require‐ ments and guidelines (ISO 14046: 2014) DIN EN ISO 14064, parts 1 and 2 Greenhouse gases - Parts 1 & 2: Specification with guidance … for quantification … and reporting of greenhouse gas emission …. (ISO 14064-1: 2018 and ISO 14064-2: 2019) DIN EN ISO 14067 Greenhouse gases - Carbon footprint of products - Requirements and guidelines for quantification (ISO 14067: 2018). DIN ISO 50006 Energy management systems - Measurement of energy-related per‐ formance using energy baselines (EnB) and energy performance indi‐ cators (EnPI) - General principles and guidelines (ISO 50006: 2014) GHG Protocol (2004) GHG-P (2004): The Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard VDI Guideline 4600 Cumulative energy demand (KEA) - Terms, definitions, methods of calculation (2012) Tab. 14.2: Essential standards and guidelines for the measurement and reporting of environmental performance in production 240 14 Sustainable Production <?page no="241"?> Greenhouse gases are produced in production directly through energy conversion processes and indirectly through the purchase of electricity. Their quantity can be calculated via the energy consumption according to energy carrier with the specific emission factors. The determination, evaluation, and treatment of site-related energy consumption by energy source is the basis for an energy management system according to ISO 50001 and is therefore available for non-SMEs. The ISO 50006 contains recommendations for the derivation, measure‐ ment, and presentation of energy-related indicators. The product-related balancing of primary energy consumption is also a component of an LCA and is called cumulative energy demand (KEA). Its determination is described in VDI Guideline 4600. Example of Calculation of Greenhouse Gas Emissions A manufacturing company consumed 814,538 kWh of grid electricity and 593,584 kWh of natural gas in one year. According to Fig. 15.7, natural gas consumption generates 164.54 tons of CO 2 with its emission factor. These are reported as direct "Scope 1" emissions according to GHG-P. The emissions from grid electricity consumption of 326.63 to CO 2 are created by the power producer and are therefore designated as indirect "Scope 2" emissions. The sum of both emission values of 491.17 to CO 2 can be stored by a forest of approx. 49 acres per year. This area is equivalent to 70 soccer fields. 14.5 Outlook The growing political and social awareness of the connection between climate change, extreme weather events and the anthropogenic greenhouse effect means that manufacturing companies will try to make their value adding, the upstream value chains and later the entire life cycle of their products sustainable. The main action areas are the use of materials and energy and the associated environmental impacts. Many companies in the manufacturing sector are on the verge or have crossed the threshold of committing to comprehensive sustainability and defining it in the form of detailed and comprehensible goals. The momentum towards sustainable production will be strengthened in the future if these goals are communicated in the customer-supplier relationship along the value chain and measures are demanded. At a Glance Sustainable production is realized through the sustainable design of material and energy use and upstream production in all processes. On the output side, waste products are minimized and, like the product itself, recycled for new production purposes after use. Suggestions for Further Reading Dyckhoff, H.; Souren, R.: Nachhaltige Unternehmensführung: Grundzüge industrielle Umweltmanagements (Springer-Lehrbuch) 2008. 14.5 Outlook 241 <?page no="242"?> Literature Bundesamt für Wirtschaft und Ausfuhrkontrolle (2020): Merkblatt Modul 4 - Energiebezogene Optimierung von Anlagen und Prozessen. Balderjahn, I. (2013): Nachhaltiges Management und Konsumentenverhalten. Konstanz, München: UVK Verlagsgesellschaft mbH. Bayrisches Landesamt für Umwelt (2006): Energieeinsparung in Lackierbetrieben. Long version, Augsburg. Corsten, H. (2009): Produktionswirtschaft, 10th edition, Oldenbourg Verlag Munich Vienna. Fraunhofer UMSICHT (2018): retrieved on 15.08.2020 from https: / / www.umsicht.fraunhofer.de/ content / dam/ umsicht/ de/ dokumente/ publikationen/ 2018/ kunststoffe-id-umwelt-konsortialstudie-mikroplastik. pdf, accessed 02.10.2022. ISO Survey (2020): ISO Survey of Management Standard Certifications 2019, retrieved on 2020-09-13, from https: / / isotc.iso.org/ livelink/ livelink/ fetch/ 8853493/ 8853511/ 8853520/ 18808772/ 0._Explanatory_note_an d_overview_on_ISO_Survey_2019_results.pdf ? nodeid=21413237&vernum=-2, accessed 02.10.2022. Kiener et al. (2012): Produktions-Management - Grundlagen der Produktionsplanung und Steuerung. Oldenbourg Publishing House Munich Vienna, 2012. Quaschning (2020): https: / / www.volker-quaschning.de/ datserv/ ren-Leistung/ index.php, accessed 02.10.2022. Umweltbundesamt ProBas (2020): ProBas - ProBas - Prozessorientierte Basisdaten für Umweltmanagement‐ systeme, 2020, retrieved on 20.08.2020 from https: / / www.probas.umweltbundesamt.de/ php/ index.php, accessed 02.10.2022. Umweltbundesamt (2012): Zeitlich optimierter Einsatz eines Notebooks unter ökologischen Gesicht‐ spunkten, Reihe Texte 44/ 2012, retrieved on 10.09.2020 from www.umweltbundesamt.de/ sites/ defaul t/ files/ medien/ 461/ publikationen/ 4316.pdf, accessed 02.10.2022. WEC Germany (2020): https: / / www.weltenergierat.de/ wp-content/ uploads/ 2018/ 05/ 81040_DNK_Energie2 018_D.pdf, accessed 02.10.2022. 242 14 Sustainable Production <?page no="244"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="245"?> 15 Sustainable Product Management Brigitte Biermann and Rainer Erne Learning Objectives: The readers ■ comprehend the key ideas of product management, ■ know how product success is defined from a business perspective, ■ have an overview of processes and methods for making products successful from a business point of view, ■ comprehend the key ideas of sustainable product management, ■ understand companies' motivations for applying sustainability criteria to products, ■ know relevant sustainability criteria for products, ■ have an overview of the similarities and differences between the business perspective and the sustainability perspective, ■ understand where decisions need to be made. Keyword List: Product management, product success, product management process, sustainability criteria, sustainable product management, value chain, human rights, cocoa 15.1 Why Sustainable Product Management? If sustainability aspects would have been already fully integrated into all products and business management processes, there would be no need for this contribution. In fact, sustainable business management and sustainable product management are only to be found to some extent. This can be attributed to the different rationales of the two disciplines: The business management discipline is concerned with creating and marketing products effectively and efficiently. Accordingly, it is based on the rationale of ensuring the marketability, deliverability, and profitability of products. The discipline of sustainability is not limited to the corporate perspective but takes also the perspectives of different societal groups into account and pursues the aim to secure the environmental and socio-economic foundations of future society life. This is relevant for product management insofar, as securing the future livelihood also forms the basis for economic activities and their destruction makes economic activities impossible in the long term. However, long-term sustainability issues are only of relevance for the rather short-term business rationale if they reach some degree of compatibility. That is, if the improvement of sus‐ <?page no="246"?> 1 For a detailed account of the authors' approach to sustainable product management, see Biermann, B. / Erne, R. (2020). 2 Edgett, S.J. (2010); Edgett, S.J. / Cooper, R.G. (2012); Cooper, R.G. (2017), pp.13-28. 3 See Stevens, G.A./ Burley, J. (1997); Castellion, G. / Markham, K.S. (2012); Crawford, C.M./ Di Benedetto, C.A. (2014); Lee, H. / Markham, S.K.. (2016). 4 Schneider, J. / Hall J. (2011). tainability aspects of products also displays positive effects for their marketability, deliverability, and/ or profitability within a timespan of months or years. In this respect, the three main tasks of sustainable product management include: 1. making the specific rationale of business management on the one hand and of sustainability on the other hand transparent; 2. clarifying the commonalities and differences of both rationales; 3. exhibiting the spots at which decisions for economically optimized and/ or for more sustain‐ able products can or must be taken. Said tasks cannot be completed from a single perspective. The analysis and interpretation of business and sustainability-related approaches to product management requires different perspectives that complement each other. Selected aspects of these perspectives are presented in this contribution by firstly addressing the business perspective (sections 15.2-15.4) and secondly the sustainability perspective on product management (sections 15.5-15.7). In a third and last step, both perspectives are related to each other by identifying relevant decision points in product management (sections 15.8-15.9). 1 As a continuous and common case study, the product chocolate and, more specifically, the company Alfred Ritter with its brand "Ritter Sport" has been selected as an example to illustrate the perspectives. 15.2 What is Product Management? The success of new products in the market is by no means common, but rather rare. According to studies by Scott J. Edgett and Robert G. Cooper 2 of more than 257 US companies, about 55% on average achieve their sales and profitability targets with new products. This finding is supported by other studies. 3 Well-known examples of "product flops" illustrate the statistics, such as the Segway Personal Transporter, Coca-Cola C2, or Windows Vista, which failed in the market for various reasons. 4 The interesting point in above-mentioned studies, however, is not the arithmetic mean of the companies studied, but their distribution. The best 25% of companies can be clearly distinguished from the worst 25%. This indicates that market success of products is not a matter of chance, but a result of deliberate practices that some companies master better than others (Fig. 15.1). 246 15 Sustainable Product Management <?page no="247"?> 5 Edgett, S.J. (2010). 6 Lennertz, D. (2006); Geracie, G. / Eppinger, S.D. (2013); Haines, S. (2014); Matys, E. (2018). Other authors define product management more narrowly as market analysis and the design of marketing for a product or product line, see Herrmann, A. / Huber, F. (2013); Aumayer, K.J. (2019). This is understood here as merely one albeit central task of product management. 7 See Lennertz, D. (2006); Gorchels (2011); Geracie, G. / Eppinger, S.D. (2013); Haines, S. (2014); Bruhn, M. / Hadwich, K. (2017); Matys, E. (2018); Aumayer, K.J. (2019). 62% 52% 45% 14% 28% 34% 24% 20% 21% 0% 10% 20% 30% 40% 50% 60% 70% Top Performers Middle Bottom Performers Commercial Successes Commercial Failures Killed or Cancelled Prior to Launch N = 257 US-American Companies Fig. 15.1: Success rate of new products on the market 5 In other words, proper management of products can increase the likelihood of market successes. Definition: Product Management The purpose of product management consists in making and keeping products successful in the market throughout their economic life cycle. Said cycle is composed of the phases idea generation, product definition, product realisation, market launch, product controlling and product discontinuation. In other words, a product manager has the task of business management on the level of a product, a product line or a product portfolio. 6 This job requires thinking and acting across the functional areas of a company. This requirement stems from the fact that product success is determined in varying degrees of importance by the contributions of development, procurement, production, sales and marketing as well as service. Product management is, therefore, a cross-functional task of coordinating and managing different functional areas with regard to a product, a product line, or a product portfolio 7 . In small and medium-sized companies, this job is performed by company management. In larger, more 15.2 What is Product Management? 247 <?page no="248"?> 8 Lennertz, D. (2006), p. 10. 9 Gutenberg, E. (1951), pp. 1-13. 10 Eckhardt, G.M. / Bardhi, F. (2015). 11 Botsman, R. / Rogers, R. (2010). 12 Beutin, N. (2018). 13 Meyer, P.W. (1972). diversified companies, the specialized function of a product manager is appointed and differently integrated into the organizational structure. Background: The birth of Product Management "According to economic historians, modern product management was born at May 13, 1931. At this time, Neil McElroy, head of the marketing department of the US company Procter & Gamble (P&G), had been asked to take care of the market launch of the new soap "Camay". However, this initiative should not at the same time jeopardize the success of P&G's "Ivory" soap, which was already established in the market. McElroy therefore proposed in a memorandum that he should take responsibility not only for the marketing of the new soap, but also for all other product tasks and thus for the overall market success of the product "Camay" as head of a one-product company, organizationally detached from the marketing group. Richard Depreu, president of P&G, was so convinced by the new management concept that it was adopted for all the company's new products after they had passed the market tests. This was based on the insight that individual responsibilities for single, often competing, products could increase the market success of each individual product and, subsequently, also the success of the whole company." 8 The perception of what a "product" is has changed since the 1930s. Originally, a "product" was clearly defined as the result of production process of physical goods. 9 In the meantime, a growing number of offerings consist of a combination of physical goods, services and legitimations, which are often referred to as "solutions" yielding a better unique selling proposition. This applies in particular to solutions which are offered in the business model of "sharing economy" 10 or "collaborative consumption", 11 such as flat, space and car sharing or rental models for machines. 12 Hence, from a product management perspective, the "physical state" of a product is no longer a useful differentiator for distinguishing products from non-products. A more appropriate definition criterion is the economic supply system: According to this definition, products are all solutions that are offered to customers in market-based supply systems. In simpler terms, a product is any offer that is provided on the market at a price. Only then are the tasks of product management, such as market research, marketing planning, etc., necessary. This is not required for other economic supply systems, such as self-subsistence, grants or allocation. 13 Definition: Products In the context of modern product management, "products" are defined as solutions that are offered in markets to customers in return for considerations (usually payment). These may manifest as physical goods, services, legitimations or combinations of said "physical states". 248 15 Sustainable Product Management <?page no="249"?> 14 Bio-Siegel (2008); Ritter Sport (2016). 15 Ritter Sport (2019). 16 Adapted from: Brown, T. (2009), pp.9-18; Osterwalder, A. / Pigneur, Y. (2010); Vahs, D. / Brem, A. (2013), pp. 38-51; Gassmann, O. / Frankenberger, K. / Csik, M. (2017). If the success of products in the market could be "managed" i.e. planned, implemented, and controlled a variety of decisions are required. 15.3 What is Product Success from a Business Perspective? Case Study: Trials With "Organic Sorts" at Ritter Sport Alfred Ritter, based in Waldenbuch / Germany, started with the production and marketing chocolate sorts from organic cultivation in 2009. 14 In a 65 gram package, initially the flavors almond slivers, grape cashew, whole milk and macadamia have been launched, followed by caramel slivers under the organic seal in 2016. All five flavors have since been removed from the product range of the company. 15 By what indicators can the success of such a product portfolio extension, as exemplified by Ritter Sport, be measured? Based on the answer to this question, possible reasons can be derived for the elimination of above-mentioned organic sorts. Success of new products in the context of business product management can be determined by above-mentioned three categories, which are also discussed in the contexts of innovation management, entrepreneurship, and business model development 16 : 1. Marketability: A product must be recognizable, desirable, and affordable for the targeted customer group. The first indicator "recognizability" can be measured, for example, by the (aided or unaided) product or brand awareness, the second and third on the basis of sales, market share or customer satisfaction values. 2. Deliverability: A product must be developable, producible, distributable, and serviceable in the required quality and quantity. Feasibility studies or passed quality gates ("First Pass Yield") provide information about the developability, plant reliability, or production performance measures about the producibility, the distribution quota about the distributability, and the solution rate as well as the solution time of customer problems about the serviceability. 3. Profitability: A product must be financially viable, economically self-sustaining within a defined time horizon, or at least useful in other business aspects, (e.g., learning curve with regard to new technologies or new markets). Financial viability and economic performance can be determined by financial metrics such as coverage rates, payback periods, or net present values, while qualitative business benefits are measurable by competence growth, numbers of new customers, or technology mastery (cf. Fig. 15.2). 15.3 What is Product Success from a Business Perspective? 249 <?page no="250"?> 17 Own representation. 18 Statista (2019a). 19 VuMa (2018). 20 GfK (2017). 21 Kremer, D. (2016). 22 Köhn-Ladenburger, C. (2013); Helmke, S. et al. (2016). Deliverability (i.e. developability, producibility, distributability and serviceability in sufficient quanitity and quality) Profitability (i.e. financial feasibility, economically self-sustaininig and/ or of other business use) Marketability (i.e. recognizability, desireability, and affordability for defined customer groups) Measurement and action fields for successful products Fig. 15.2: Measurement and action fields for successful products 17 An expansion of the product portfolio by organic sorts may as a first step be assessed in terms of marketability. Due to the two facts, firstly, that the per capita consumption of chocolate in Germany remained static for the last ten years 18 and, secondly, that Ritter Sport is operating in a highly competitive market, 19 the company has to make strong efforts to differentiate from their competitors, primarily from Milka by Mondelez. They tried to achieve this by editing organic sorts, since the market share of organic food has doubled in recent years. 20 However, as the organic label requires stricter standards from cocoa farmers in Nicaragua and other raw material suppliers and a psychological price limit of EUR 1.retail price for 100 g existed for chocolate at least until 2015, 21 the organic sorts have been packaged in a 65-gram format and offered for around EUR 1.30 retail price. By this product strategy, the company tried to attract new target groups. Today, these customer groups are often referred to as "LOHAS" ("Lifestyle of Health and Sustainability"), 22 This rather fuzzy term conceals rather than reveals that the purchasing criteria of this customer group relates more to health than to ecological aspects. With respect to the field of deliverability, the company faces higher requirements in several aspects: On the procurement side, raw material suppliers (e.g., of cacao) have to comply with the standards of the organic label which produces high costs. On the distribution side, a conventional chocolate producer has to gain credibility in a market dominated by established organic producers, such as Zotter, GEPA, Naturata and Rapunzel. The credibility is crucial for the decision if Ritter Sport's organic sorts are being listed by the relevant distribution channels, such as organic specialist markets. Additionally, the customer's perception does not necessarily differentiate between "organic" and "fair trade". All three issues present challenges to the company: its 250 15 Sustainable Product Management <?page no="251"?> 23 Mortsiefer, H. (2008); Schlautmann, C. (2010); Koch, H. (2013); Thieme, T. (2015); Hoewiecki, C. (2021). 24 Koch, H. (2013); Thieme, T. (2015); Hoewiecki, C. (2021). 25 Ritter Sport (2019). 26 Herrmann, S. (2019); Campillo-Lundbeck (2019). 27 Ries, E. (2011). 28 Cooper, R.G. (2017). 29 Kelley, T. / Littman, J. (2001); Brown, T. (2009). 30 Ries, E. (2011); Blank, S. (2013). commitment in Nicaragua gets under public criticism and organic specialist markets refuse to include the products of a conventional manufacturer in their assortment. 23 The first two categories have finally also an impact on the third one, profitability: sales of the organic chocolate types fell short of expectations. At the same time, the costs for raw materials, supply chain management and distribution are higher than for conventional chocolate sorts. 24 This may have led to the decision of the company to discontinue the organic products. Instead, the company offers now three vegan and two lactose-free varieties that address other target groups. 25 In addition, three varieties with a high cocoa content "from certified sustainable cocoa farming" found their way into the product range, with which the brand is betting on the trend towards high cocoa content. 26 Thus, at least from a marketing point of view, a move away from the organic product line seems to have taken place, since sales and profitability expectations have not been met. However, "profitability" must also include nonquantifiable learning experiences that Ritter Sport made in creating and marketing organic chocolate sorts. 27 However, these cannot be named and evaluated more precisely at this point. In a nutshell, the case study exemplifies, firstly, how the "success" of new products can be defined from a business point of view. Secondly, it illustrates how the three categories of product success are mutually dependent. Thirdly, the example underlines how complex the development, market launch and controlling of new products can be. The third aspect will be discussed in the following chapter. 15.4 How are Products Made Successful from a Business Perspective? The abovementioned three categories of product success form the basis for the definition of the tasks of product management. Said tasks can be outlined along the product management process. The product management process is inspired by two models or "blueprints" which are discussed in academic as well as in business contexts: On the one hand, the linear, waterfall model of the "Stage- Gate Process" by Robert G. Cooper, 28 in which each phase ("stage") is concluded by a quality gate ("gate") by which non-marketable, non-deliverable and/ or non-profitable product ideas, prototypes or product concepts are selected. Hence, the overall process adopts the shape of a funnel. This process model has been the de facto standard of new product development in most industries for years. The two major disadvantages of the Stage-Gate model lie in the facts, that, firstly, recursions to earlier phases are excluded and, secondly, that market tests are carried out at very late stages. Said disadvantages have been addressed in recent years by iterative, incremental or "agile" approaches such as "Design Thinking" 29 or "Lean Startup". 30 These models aim to create and test product prototypes very early in direct contact with representative customers thereby testing and learning about the marketability of a product as soon as possible. However, iterative and incremental process models show the disadvantage that they are primarily concerned with the marketability of products while their deliverability and profitability are set aside to a large extent. For this reason, it is proposed here to combine both process models into a "hybrid model" and to use "agile" process elements in early phases, which are discussed in innovation management as 15.4 How are Products Made Successful from a Business Perspective? 251 <?page no="252"?> 31 Gassmann, O. / Schweitzer, F. (2014). 32 Hauschildt, J. / Salomo, S. (2010); Vahs, D. / Brem, A. (2013). 33 See Geracie, D. / Eppinger, S.D. (2013), pp.113-121; Crawford, C.M./ Di Benedetto, C.A. (2014), pp.29-36; Haines, S. (2014), pp.21-25; Cooper, R.G. (2017), pp.99-146; Matys, E. (2018), pp. 148-162; Aumayr, K.J. (2019), pp. 262-280. 34 Own representation. the "fuzzy front end of innovation". 31 This is to ensure and validate the marketability of a product idea at early stages. In later phases, the model displays a more linear approach in order to achieve a deliverable result quickly and in a coordinated manner. The product management process demonstrates great overlaps with the innovation process. 32 It is segmented and specified differently by different scholars. 33 The following process model is proposed here (Fig. 15.3): Activities Product Realisation Product Controlling Product Discovery Results Define and initiate Product Development Project Develop Product Design Generate Marketing Concept Design Business Processes Devise Business Case Market Launch Plan Market Launch Define Product Controlling Prepare Stakeholders Product Discontinuation Monitor Product Develop Controlling Measures Implement Controlling Measures Controlling Measures Analyse Discontinuation Idea Decide on Product Discontinuation Develop and Implement Discontinuation Strategy Phases Prepared Stakeholder Actual Values Informed Stakeholders Product Definition Generate ideas Test ideas Idea Backlog Validated product ideas Market Launch Plan Define Market Positioning Specify Product Requirements Design Value Model Assess Profitability Profitability Assessment Value Model Product Requirements Market Positioning Solution Options Discontinuation Decision Coordinated Results Working Business Processes Validated Business Case Effective Marketing Concept Marketable Product Design Target Values Fig. 15.3: The Product Management Process 34 252 15 Sustainable Product Management <?page no="253"?> 35 Cagan, M. (2018), pp.26-30. 36 Haines, S. (2014), pp.447-480; Trott, P. (2017), pp.342-377. 37 Haines, S. (2014), pp.482-484; Crawford, C.M./ Di Benedetto, C.A. (2014), pp.494-498. 38 Gorchels, L. (2011). 39 Hofbaur, G. / Sangl, A. (2017), pp. 510-530; Bruhn, M. / Hadwich, K. (2017), pp. 331-372; Jacobs, J. (2019), pp. 102-126. The first phase of product discovery already indicates by its designation that the key idea of product management is not to "invent" products and then to "push" them into the market. The notion is rather to discover market needs and address them with an attractive price/ performance offering. 35 In order to get this done, customer needs must be thoroughly comprehended, ideas for addressing them have to be generated and then assessed and selected. As described above, cyclical, iterative or "agile" procedures are suitable for these three tasks. The purpose of the product definition phase is to specify the selected product ideas from the first phase. The specification requirements follow all three categories of product management, mar‐ ketability, deliverability and profitability. It is recommended to start with the market positioning which provides the guideline for all further specifications. On this basis, product requirements (in the form of user specs, use cases, user stories or similar) can be developed. It is also possible to devise a value model outlining the most important business processes as well as the design requirements. This in turn lays the foundation for a rough assessment of the cash-inflows and cash-outflows from the product. Said four streams of actions result in the definition of the product. The purpose of the product realisation phase is to implement the four defined elements of the product definition. To this end, a product development project has to be defined and initiated in order to coordinate the four implementation streams towards a synchronized result. 36 The four development streams include: ■ technical product development, within which product requirements are transformed into a testable product design; ■ marketing planning, by which the market positioning is specified into a marketing concept; ■ process development, in which the value model is implemented in working business pro‐ cesses; ■ business planning, which has to develop the profitability assessment to a validated business case. The purpose of the market launch phase is to introduce the product into the market as smoothly as possible so that the capital expenditures can be quickly covered by sales returns. To this end, it has to be ensured that a marketable, deliverable and potentially profitable product is ready for the market, controllable and that all relevant stakeholders are prepared. 37 The tasks from product discovery to the market launch are also referred to as "Upstream Product Management". The subsequent phases after the market launch constitute "Downstream Product Manage‐ ment". 38 Once the product has been launched in the market, product controlling starts. In this phase, the focus is on collecting information about the market performance of the product, analyzing actual performance values amidst already defined target values and developing and implementing controlling measures as necessary. 39 A topic that has not been very much in focus until now is product discontinuation. In order to decide on that, pulses from product controlling may initiate discontinuation ideas. On the basis of an analysis, a discontinuation decision must be taken which is perhaps the hardest part 15.4 How are Products Made Successful from a Business Perspective? 253 <?page no="254"?> 40 Meffert, H. / Burmann, C. / Kirchgeorg, M. (2015), pp. 425-428. 41 Adapted from Charlotte (2015). in this phase. This decision has then to be implemented, accompanied by a discontinuation and communication strategy which is very product specific. 40 The product management process outlined here underlines that product management has to demonstrate quite different skills in different phases of the process. From this point of view it gets clearer what the claim of chapter 2 means, that product management represents entrepreneurship at the product, product line or portfolio level. Alfred Ritter has implemented this ideal type of product management process approximately as follows (see Fig. 15.4): Activities Product Realisation Product Controlling Product Discovery Results Develop the sort Taste and evaluate the product internally Plan and implement the production process Market Launch Launch the new sort in the respective retail channels Product Discontinuation Phases Marketing Materials Product Definition Sort ideas Sales documents Conduct first consumer surveys Find sort name Sort name First customer acceptance results Market Survey Results Internal evaluation results Brainstorm on new sorts Supply Contracts Production Plan Samples Recipe Fig. 15.4: The sort of development process at Ritter Sport 41 254 15 Sustainable Product Management <?page no="255"?> 42 Gorchels (2011), pp.145-326; Geracie, D. / Eppinger, S.D. (2013), pp.38-49. 43 Chesbrough, H. (2003); Chesbrough, H. (2006a); Chesbrough, H. (2006b). 44 Campillo-Lundbeck (2018). 45 Schobelt (2016). 46 Heitker (2020). 47 Shillito, M.L. (2001); Campos, J. / Balland, J.-C. (2012). 48 Statista (2019b), p. 18. Almost 50% consider changing their own lifestyle to be relevant in view of climate change, acatech / Körber Foundation (2020), p. 25. As with all manufacturers of fast-moving consumer goods (FMCG), the sort development process at Ritter-Sport has a strong focus on fast-cycle ideation, marketing research, operational marketing, and market launch. 42 At Ritter Sport, "open innovation" methods such as "crowdsourcing" and "community of enthusiasts" are already in use in the product discovery phase. 43 By these methods and supported by Facebook, Instagram, and company platforms (www.sortenkreation.de), ideas such as the relaunch of the "Olympia" sort from the 1980s, 44 the introduction of the "unicorn chocolate" 45 or the recycling-oriented redesign of chocolate packaging 46 have been created together with the crowd of fans of the brand. In the product definition phase, the focus is then strongly on operational marketing aspects such as product design, which are validated intensively and comprehensively in marketing studies. Some of the marketing research methods used in this process can also be classified as "voice of the customer" methods, 47 which aim at identifying the unconscious needs of customers. The product definition phase lays the foundation for the development of the sort including the internal tests, which ultimately result in a recipe, a packaging design, a production plan, and supply contracts. The effort required for the development and production depends largely on the sort in question. In any case, in preparation for the market launch, a great deal of focus is placed on communi‐ cation strategies, as well as on the preparation and support of distribution channels. It is unknown by which metrics, target values or data collection methods Ritter Sport monitors and controls the market performance of its sorts in the phase of product controlling or "downstream product management". Presumably, sales and customer satisfaction figures, production and distribution metrics as well as values from the investment calculation are used to determine the marketability, deliverability, and profitability of a certain sort. The product management process outlines how the success of new products is managed from a business perspective. The integration of sustainability aspects into product management requires an extension of this perspective, which is explained in the following chapter. 15.5 What is sustainable product management? Classic business product management pursues the goal of making (new) products successful in markets. Sustainable product management places the additional requirement that new products must be better than old products in terms of sustainability criteria. The aim is to avoid problems caused by products along their value chain and to contribute to sustainable development. Product management can play an important role in bringing more sustainable products into markets. Surveys indicate that two-thirds of German consumers claim to consume consciously and sustainably because they are in favor of sustainability; 48 similar sustainability orientations are 15.5 What is sustainable product management? 255 <?page no="256"?> 49 WBGU (2011), p. 8. 50 Statista (2020), pp. 60-63. 51 Own estimate based on Transfair e. V. (2020), p. 8 and BÖLW (2020), p. 25. 52 Clement, R. et al. (2014), p. 96. 53 Empacher, C. (2002), Grunwald, A. (2010), Weller, I. (2013), GlobeScan (2019), p. 7. 54 In contrast to Chapter 2, here the term sustainability dimensions (and not pillars) is used because it is easier to map intersections between dimensions than between pillars; the two terms are seen as complementary, not contradictory. 55 Adapted from Stark, R. et al. (2017), p. 1. 56 The other ingredients milk (powder), palm oil, (cane) sugar, emulsifiers, vanilla etc. are not considered here as they would raise additional sustainability issues. also demonstrable on a global level. 49 81% of German consumers said in 2019 that they knew of the Fairtrade label for food and considered it to be credible. More than 90% of these Fairtrade consumers said in 2018 that they consume Fairtrade products in order to prevent child labor and to pay fair prices. 50 However, the share of Fairtrade products in all food sales is still in the low single digits. 51 The reasons why people interested in sustainability do not consume sustainably are manifold: they shy away from the effort or do not have the time to inform themselves about the more sustainable product variants. Moreover, these are often not clearly labeled, not available everywhere, unfamiliar, and/ or expensive. 52 Consumers demand not only more transparency from companies, but also clearer guidelines by political regulation in order to be able to consume more sustainably. 53 Sustainable products should reduce the problems created by the current unsustainable economy and contribute to more sustainability. Definition: Sustainable product A product is defined as sustainable if it generates as few negative and as many positive effects as possible along its entire value chain with regard to the three sustainability dimensions. 54, 55 There is hardly a product that does not have a negative impact on the environment, e.g. emissions from production or transport. A product that leads to mutagenic or toxic residues, for example, is certainly not sustainable. For sustainable products, therefore, it must be considered whether and how their environmental impacts can be managed. With regard to the economic and social effects, the situation is different: What product would not at least bring positive economic benefits to its producer or fulfill a need of its users? In terms of sustainability, the combination of these two dimensions is relevant: A product is defined as sustainable if its benefits go beyond purely economic benefits for a single organization and beyond benefits for only a few individual members or a small societal group. Additionally, the entire life cycle of products needs to be analyzed. Also those effects must be taken into account which are not apparent in the production process, but which occur at the beginning of the value chain, maybe in different regions of the world, or which only come to light with the disposal of a product. In this article, the example of chocolate is dealt with; the company with a strong sustainability claim, Ritter Sport, is used as an illustrative case. Due to the brevity of the article, however, not all ingredients of the product can be considered, but only the raw material cocoa. 56 In addition, one form of packaging is dealt with. 256 15 Sustainable Product Management <?page no="257"?> 57 Amiel, F. / Laurans, Y (2019), EU Commission (2020), Fountain, A. / Hütz-Adams, F. (2018), Hütz-Adams, F. (2012), Make chocolate fair (2017), Miedaner, T. (2018). 58 Biesecker, A. (2005), p. 66. The following table (Table 15.1) shows a selection of relevant impacts of the raw material cocoa and the product chocolate. Environment Economy Society Air and climate emissions from transport Deforestation of tropical rainfor‐ ests for cocoa cultivation, soil deg‐ radation and loss of species due to the use of pesticides, among other things. Very low earnings in smallholder cocoa farming Market concentration and -Power of fewer global cocoa processors Child labor and slavery in cocoa farming Obesity, dental caries, feelings of happiness due to chocolate con‐ sumption Tab. 15.1: Negative and positive impacts of products in the three sustainability dimensions, using chocolate as an example 57 Definition: Sustainable product management Sustainable product management aims to analyze and improve the impact of products on the environment, the economy and society. It does not only consider negative effects, but also strengthens effects that enhance sustainability. A product should only be claimed as sustainable if it is more sustainable in terms of its impacts than it was before, or than a comparable product. It is sufficient that the positive effect is achieved in one sustainability dimension; however, evidence of improved impacts in two or in all three dimensions is desirable, also in order to resolve conflicting goals between aspects in the different dimensions. In addition, the whole product value chain is relevant: For example, an energy-saving product may turn out to emit hazardous substances at its end of life, making it unsustainable. Sustainable product management is also confronted with impacts that are beyond the control of the producing or service-providing company and its customers. The product value chain is captured here in six stages: Raw material cultivation or mining, preproduction, production, trade and service, use and end of life (Fig. 15.5). Along this chain, processes are also affected that are not or only indirectly connected with economic value creation, 58 such as waste sorting in private households or the health risks of humans in regions where a product's raw materials are planted or mined. 15.5 What is sustainable product management? 257 <?page no="258"?> 59 Own representation. Many products dissolve during use or disperse into the environment; for example, cleaning agents and foodstuffs cannot be found in product form after use. This process is called dissipation, cf. Reller, A. / Dießenbacher, J. (2014), p. 98. The abrasion of tyres or of synthetic textiles through wearing and washing is a partial dissipation (microplastics). 60 Beckmann, M. / Schaltegger, S. (2014), p. 325; cf. Rockefeller Foundation (2015). Pre-Production Production Trade and Service Raw material / cultivation / mining Use End of Life Dissipation Fig. 15.5: The value chain of products from a sustainability perspective 59 Definition: The value chain of products In sustainable product management, the life cycle of products is defined broader than in business management; attention is also paid to the mining of raw materials, the cultivation of agricultural products and further processing stages. One of the aims of sustainable product management is to close material cycles: The raw materials used are to be permanently preserved and used. Therefore, the use phase and the processes at the "end of life" of products and their packaging are also considered. The concept of value creation along value chains underlines that economic actors are involved at all stages; at the same time, negative effects can also be generated at all value chain stages, socalled " damage creation along value chains". 60 Reasons why companies do not only create value but also create damage are: 1. They do not have to take responsibility for many external effects. 2. Many humans who are only indirectly affected by their value creation are outside their perspective. 3. Long-term effects are not always taken into account. 258 15 Sustainable Product Management <?page no="259"?> 61 See Chapter 2, which also refers to Meadows, D. et al. (1972). 62 This parallel is discussed in Baue, B. / Thurm, R. (2020) . 63 Examples include the breakdown of investments at the municipal level, the revenues generated by companies through services to reduce climate emissions, cf. GRI (2016), here: GRI 201: Economic Performance 2016, GRI 201-2, GRI 201-1, or transparency regarding product ingredients, cf. Gemeinwohl-Bilanz (n.d.). 64 When it comes to climate change, most companies are currently aligning themselves with the political goal of limiting the global temperature increase to a maximum of 1.5 degrees compared to pre-industrial times. For the conversion of climate emissions into target values for individual products, reduction targets would have to be set for the climate emissions of each product so that the company makes its proportionate contribution to achieving the target. In regions where children have to work in the cocoa harvest or in the ore mining and therefore receive less education, the prosperity of the next generation is reduced. Companies that currently buy these raw materials at low prices are creating damage without suffering any disadvantages, i.e., without being legally or financially liable for the human rights violations in these regions. In order to reduce the negative impacts of products, objective benchmarks must be applied to sustainability activities. Target values can be derived from the limited carrying capacity of the planet and from socio-economic structures, i.e., eco-systems, the atmosphere, social well-being, macroeconomic stability, etc. The flattening of the curve discussed during the Corona crisis i.e. limiting the number of virus infections in order to ensure the carrying capacity of health systems describes a target value for the socio-economic health system. The study "Limits to Growth" by Donella Meadows et al. from 1972 61 formulated the warning of exceeding the ecological carrying capacity of the earth by more people consuming and destroying more of the environment. The aim of both approaches is to ensure that the effects of a problem remain manageable so that the underlying system does not collapse. 62 In addition, companies' contributions to sustainability can also be realized by creating positive impacts of products. 63 It is thus possible to define target values for sustainable product management; in some fields, measurement parameters are available and are being applied. However, a big effort is required to quantify a single product's negative or positive contribution to a system's carrying capacity. 64 The exact attribution needs deeper investigation for specific sustainability impacts of products such as effects on the educational opportunities of children in a region or on the extinction of species. 15.6 What motivates companies to implement sustainable product management? Companies are subject to laws and regulations that require them to design their products while applying mandatory sustainability criteria. For example, safety standards, guarantees and war‐ ranties, and environmental protection requirements such as emission limits for air pollutants and noise contribute to a more sustainable design of products. Usually, sector-specific requirements exist, e.g., for packed food, there are declaration obligations for ingredients. However, laws and regulations are not static, and companies are actively involved in their further development. On the one hand, by contributing to shaping policies, e.g., as members of associations and lobby groups. On the other hand, because they voluntarily adopt international or industry-specific standards and, step by step, make them part of the company's internal compliance requirements. These processes are motivated by impulses from three directions: 15.6 What motivates companies to implement sustainable product management? 259 <?page no="260"?> 65 E.g. Janssen, L. / Kwasiniewski, N. (2017), Hartmann, K. (2015), Augstein, J. (2016). 66 Federal Environment Agency (2019); European Commission (2020), p. 4; Federal Law Gazette 2019 Part I, p. 2513. 67 See Federal Law Gazette 2019 Part I, p. 2520. 68 https: / / www.nestlecocoaplan.com/ , https: / / www.cocoalife.org/ and https: / / cocoainitiative.org/ , https: / / www.kak aoforum.de/ ueber-uns/ das-forum-nachhaltiger-kakao/ accessed 22.02.2020; Hütz-Adams, F. (2019), pp. 22-24. ■ Impulses from society ■ Impulses from regulation ■ Impulses from risks Impulses from society are often directly sent from customers to companies. In addition, companies follow the fact that science reveals connections between economic practices and sustainability problems, NGOs provide empirical evidence of harm caused by products, and media and educational institutions act as multipliers of corporate impacts on the broader value chain. For the product example chocolate, impulses from society include the desire for fairly produced ingredients and transparency. The product ingredients cocoa, palm oil, and milk are criticized in the media because of the unfairly paid cocoa producers, the people's displacements through palm oil plantations, and the low milk prices. 65 Companies perceive a wide range of impulses from regulation; legislative projects are monitored even before they come into force so as not to risk any delays in their application. The regulatory topic of climate protection is dealt with here as an example. With the Paris Agreement on climate protection, the international community has com‐ mitted itself to limiting global warming. The climate protection targets of the EU and Germany provide for a reduction of climate emissions by 80% to 95% by 2050 compared to the base year 1990, or climate neutrality. 66 The German Climate Protection Act (Klimaschutzgesetz, KSG) of 2019 provides for gradual emission reductions for various sectors, so that a certain amount of emissions per year may not be exceeded by companies. 67 However, how these quantities will be allocated to the individual companies and their products is currently still the subject of political negotiations. In addition to product-related regulation, companies perceive impulses from risks. Risk assessments also reflect rare events. Risks for own products should be identified at an early stage and damage to reputation should be avoided. There are also compliance risks, which may come up due to delayed or incomplete implementation of regulations. In addition, risks arise from not participating in the shaping of regulation, as a result of which product-related expertise does not flow into the preparation of regulations or bureaucratic laws are enacted. Risks are often dealt with in voluntary sector initiatives. For cocoa, national and international associations of companies and other actors exist, but so far they have only reached a fraction of cocoa producers and have not been able to solve the structural problem of their poverty. 68 For companies that depend on raw materials, poor production conditions do not only entail the risk of reputational damage but also the risks of low cocoa yield and low cocoa quality. Banks and investors also expect both of these risks to be dealt with: quality losses in the raw material cocoa and bad working conditions must be prevented. 15.7 How can products be improved sustainably? Sustainable product management thus has the task of improving products in terms of their impact, taking into account their entire value chain. Product management can react to impulses 260 15 Sustainable Product Management <?page no="261"?> 69 Positive effects of cocoa on the psyche or feelings of consumers are described e.g., in Miedaner, T. 2018. 70 Own representation. from society, from regulation, and from risks but it has to be decided for each individual product (group) which adjustments should be applied. This section outlines methods that improve products for more sustainability. This is followed by a brief classification in models of sustainable product management. A look at the value chain shows that many sustainability issues of products are beyond the control and often beyond the practical reach of product management. European chocolate manufacturers, for example, are not familiar with cocoa cultivation issues like loss of forests and species, water consumption, and living and working conditions in the equatorial regions. Common facts and problems along the cocoa value chain are depicted in the following figure (Fig. 15.6). 69 Pre‐Production Production Trade-and-Service Raw-material-/ - cultivation / - mining Use End-of-Life Dissipation Fig. 15.6: Sustainability issues along the chocolate value chain 70 15.7 How can products be improved sustainably? 261 <?page no="262"?> 71 An overview of eight environmental and eight socio-economic methods each, as well as four models for improving product impacts, can be found in Biermann, B. / Erne, R. (2020), Chapter 8. 72 Ritter Sport (2019), p. 2. 73 Hütz-Adams, F. (2012), p. 15. 74 Reinhardt, G. et al. (2020), p. 16 and 17. 75 Ritter Sport (2019), p. 26; cf. Ministerium für Umwelt etc. Baden-Württemberg (n.d.). On the practice of voluntary climate protection measures, cf. Biermann, B. (2017). 76 Heydenreich, C./ Paasch, A. (2020), p. 24; Fountain, A./ Hütz-Adams, F. (2018), p. 3. 77 Fountain, A. / Hütz-Adams, F. (2018), pp. 13-16. 78 Hütz-Adams, F. (2019), p. 38. When it comes to analyzing value chains, companies do not have to do this individually: associations and networks offer information and guidelines to companies; they help with pooling capacities. Scientifically based methods are available to companies for the analysis and measurement of product impacts. 71 In the following, commonly used methods for the analysis of product impacts in the fields of biodiversity, climate protection, human rights, and raw materials are presented and applied to the example of cocoa. Biodiversity can be preserved through crop production that relies on different plant species in a region instead of monocultures. Cocoa cultivation in biodiverse agroforestry systems, pesticiderestricted and species-protecting certified organic farming and other forms of extensive mixed farming are well-known approaches. As a rule, these are not only beneficial for ecosystems, but also enable healthier and more resilient living conditions for the local people. Ritter Sport actively addresses the issue of biodiversity at its own plantation "El Cacao" in Nicaragua: the cocoa grows in an "agroforestry system", i.e. together with other plants; in addition, 1,200 hectares of land are not farmed, but left to plants and animals. 72 Starting points for reducing the climate emissions of chocolate lie less in the first stage of the value chain, i.e. in opening the fruit, fermenting it, and drying it in the sun, 73 but rather in transport and in the processing steps of roasting, crushing into cocoa mass and conching the chocolate, for which heat and electricity are required. Chocolate containing milk has high climate emissions due to this ingredient, compared to plant-based food and sweets. 74 The production of chocolate packaging and its treatment at the end of life also generate climate emissions. The recording of climate emissions is widespread among industrial companies. The company Ritter Sport reports on its energy efficiency measures and aims to operate climate neutrally at its own sites by 2022; emissions from its own cocoa cultivation are also recorded. In addition, Ritter Sport publicly declared in October 2020 to join the Baden-Württemberg Climate Alliance, and to manufacture its products with as few emissions as possible. 75 Human rights violations, in particular child labor and slavery, in cocoa farming are wellknown phenomena and need to be addressed primarily due to their severity. The cocoa industry has set the goal of reducing child labor by two-thirds by 2020, but, according to NGOs, they did not achieve it. 76 Other severe phenomena are price fluctuations and, often, only very low prices that are achieved in cocoa farming. 77 In order to guarantee human rights, companies have to become active: They can purchase certified raw materials. However, the certifications currently available do not fully resolve human rights abuses. 78 In addition, chocolate manufacturers should co-operate with local organizations that know the problems and possible solutions, and they should ensure that their purchasing practices actually improve local living conditions. 262 15 Sustainable Product Management <?page no="263"?> 79 www.nachhaltige-agrarlieferketten.org/ fileadmin/ media/ News/ Statement_Lieferkettengesetz_INA_und_ we itere_Companies_and_Organizations.pdf, accessed 10.10.2020. 80 See Fairtrade Germany (2016), see Fairtrade Germany (2015). 81 However, even Fairtrade-certified products do not provide complete livelihood security for their producers, cf. Hütz-Adams, F. (2019), pp. 37-39. 82 The term "sustainable" is not legally protected. In 2018, more than 60% of the cocoa sold in Germany was classified as "sustainable": certified according to one of the standards mentioned or by companies (cf. Hütz-Adams, F. (2019), p. 38). Whether the new ISO standard on sustainable cocoa (ISO 34101-1-4: 2019) will standardize the definition is still open. 83 Ritter Sport (2019), pp. 2-3. 84 Alfred Ritter GmbH & Co. KG (n.d.). The only theoretical possibility of material reuse that exists here is assessed as Cradle to Cradle "Basic", see McDonough Braungart Design Chemistry (2012), p. 20. 85 Gurzawska, A. (2019). In July 2020, Ritter Sport together with more than 30 other German companies and organiza‐ tions publicly advocated for new legislation on supply chain responsibility 79 by which German companies would become European pioneers in due diligence realisation. The Fairtrade standard guarantees the protection of human rights, the payment of fixed prices above the world market price, and additional premiums to promote the development of producer communities. It also guarantees environmental standards and long-term partnerships. 80 Compared to other product labels such as UTZ certified or Rainforest Alliance, the Fairtrade label usually creates a more secure economic basis for the farmers and their families. 81 Ritter Sport communicates that the cocoa used has been 100% sustainably produced since 2018 82 and that 60% is grown in cooperatives with which long-term partnerships exist, including in Nicaragua. With its own cocoa plantation "El Cacao", Ritter Sport took on new tasks along the value chain in 2012: By 2025, a quarter of Ritter Sport's cocoa is to come from this own project, which has been UTZ-certified since 2018, thereby claiming to ensure good agricultural practices and other sustainability criteria. 83 With regard to the use of raw materials, it can be stated that the plastic film in which the 100 g chocolate bars of Ritter Sport are packaged is made of recyclable plastic and is Cradle to Cradle certified. 84 Here, selected methods have been outlined with which product management can positively change product impacts. With these, changes can be implemented that are effective in the short term or that limit strategic risks. Companies can achieve the latter by setting requirements for and monitoring suppliers in order to integrate sustainability criteria into existing product management processes. However, other models of procedure become relevant if products are to be aligned strategically with sustainability criteria. This involves expanding internal competencies and gradually incorporating new knowledge and relationships. For the example of cocoa, this can be illustrated as follows: If a chocolate manufacturer purchases "sustainably" certified raw materials, it limits the risk of negative impacts of cocoa production. However, if a manufacturer supports its suppliers in improving their production methods, if it co-operates with them and also with retailers, innovative procedures can evolve, change the production and help design more sustainable products. In this way, sustainable products could be considered as a model of sustainable product management. A further step is the model of networks for change: they are based on the association of companies and other organizations that are willing to share their expertise and develop it further. 85 Some of these networks transform over time from voluntary governance processes to state regulation, which then sets universally applicable standards. 15.7 How can products be improved sustainably? 263 <?page no="264"?> 86 Ritter Sport (2019), p. 11, p. 2. 87 Own representation. 88 On the object of experience and knowledge, cf. Wöhe, G./ Döring, U. (2013), p. 3. Our product example chocolate from Ritter Sport shows that impulses regarding the raw material cocoa are taken up and sustainability aspects are realized in different ways. Only part of the cocoa purchased by Ritter Sport is Fairtrade certified, but all of it is "sustainable". While the organic certified chocolate sorts were obviously not marketable, vegan chocolate sorts are produced that support the sustainability criteria of climate protection and animal welfare through their choice of ingredients. Ritter Sport realizes further environmental criteria through climate protection in its own company and through the selection of packaging materials. Ritter Sport works on the topic of biodiversity in its own plantation (without organic certification); in addition, human rights violations are to be prevented and positive socio-economic effects are targeted; the UTZ certification supports this. So far, a limited edition chocolate has been produced from cocoa from "El Cacao"; by 2025, a quarter of the cocoa is to come from the company's own cultivation. 86 With its own plantation, Ritter Sport has implemented value chain activities in order to produce more sustainable products directed by its own management. In parallel, selected sustainability criteria are being incorporated into operational product management. 15.8 What is the Difference Between the Business Perspective and the Sustainability Perspective? A comparison of the business perspective on product management presented in Sections 2-4 with the sustainability perspective in Sections 5-7 demonstrates that both share the concept of product, but show differences with respect to motivations, targets, time horizons, and fields of action. The differences between the two perspectives are summarized in Table 15.2: - Business perspective on product management Sustainability perspective on product management Motivation Securing and optimizing cash-flow, earnings and future potentials of the company Minimization of the damages products cause for current and future generations Target figures Securing and optimizing the marketa‐ bility, deliverability and profitability of products Preserving the sustainability of environ‐ mental and socio-economic systems (e.g. climate, biodiversity, health, living wa‐ ges) Time horizon Shortand medium-term (weekly, monthly, annual, multi-year targets) Medium to long-term (monthly to dec‐ ade-long targets) Field of action Economic product life cycle from the company's point of view Complete value chains from the perspec‐ tive of society as a whole Tab. 15.2: Differences between the perspectives on product management 87 Both perspectives share the concept of product as well as the basic procedures for identifying, assessing, defining, and optimizing their subject matter. The differences are to be found in their respective perspectives and knowledge objects as well as in their knowledge interests. 88 264 15 Sustainable Product Management <?page no="265"?> 89 Gälweiler, A. / Schwaninger, M. (2005); Sattler, R. (2003). 90 Bach, N. et al. (2003); Becker, J. et al. (2008). The interest of the business management perspective consists in securing and optimizing the essential success parameters of a company. 89 In regard to product management this can be achieved by ensuring and optimizing, the marketability, deliverability, and profitability of products. In addition, the time horizons of business activities are significantly shorter compared to the time horizons of the sustainability perspective: cash-flow targets are pursued on a weekly and monthly basis, earnings targets on a quarterly or annual basis, and future potential goals on a strategic time horizon of around three to five years. Value-creating activities outside the organizational boundaries of the company are of relevance only if the value-creating activities within a company are affected either as inputs (labor, goods, and financial markets) or as outputs (sales markets). From this perspective, of direct relevance for a company are mostly only TIER 1 suppliers and direct partners. 90 The interest of the sustainability perspective, on the other hand, relates to minimizing the damages caused by products for current and future generations. Activities' impacts only become apparent after a period of several months, years, and decades, which often exceeds the time horizon of company strategies. A further distinguishing feature is that the sustainability perspective considers criteria as relevant which are located along full value chains. Accordingly, the number of the organizations involved, and their interconnectedness, is significantly more complex and requires different approaches than the perspective of business management with its focus on a reduced set of relationships. 15.9 At What Points Do Decisions Have to be Made? Taking the product management process outlined in section 4 as a basis, decision spots for integrating sustainability issues may be located in the following phases of the process (cf. Fig. 15.7): 15.9 At What Points Do Decisions Have to be Made? 265 <?page no="266"?> 91 Own representation. Activities Product Realisation Product Controlling Product Discovery Results Define and initiate Product Development Project Develop Product Design Generate Marketing Concept Design Business Processes Devise Business Case Market Launch Plan Market Launch Define Product Controlling Prepare Stakeholders Product Discontinuation Monitor Product Develop Controlling Measures Implement Controlling Measures Controlling Measures Analyse Discontinuation Idea Decide on Product Discontinuation Develop and Implement Discontinuation Strategy Phases Prepared Stakeholder Actual Values Informed Stakeholders Product Definition Generate ideas Test ideas Idea Backlog Validated product ideas Market Launch Plan Define Market Positioning Specify Product Requirements Design Value Model Assess Profitability Profitability Assessment Value Model Product Requirements Market Positioning Solution Options Discontinuation Decision Coordinated Results Working Business Processes Validated Business Case Effective Marketing Concept Marketable Product Design Target Values Resource input Potential influence Fig. 15.7: Decision spots for sustainability aspects in the product management process 91 ■ In the product discovery phase, when sustainability aspects are discovered as customer needs and potential for differentiation. ■ In the product definition phase, insofar as product strategy decisions are made here. 266 15 Sustainable Product Management <?page no="267"?> ■ In the product realisation phase, when implementation decisions are made with more or less regard to sustainability criteria. ■ In the product controlling phase, as in this phase feedback from customers and other social groups can lead to decisions regarding the improvement of sustainability aspects. The greatest scope for integrating sustainability aspects arises in the product definition phase. Here, decisions on market positioning, product design, value models and profitability expectations are made more specific than in the product discovery phase, yet not as specific as in the product realisation phase. When defining the market positioning, it must be decided whether and how prominently sustainability aspects are highlighted as a differentiating criterion of the product or not. For example, this is not yet foreseeable in the case of the long-term Ritter Sport project of a cocoa plantation in Nicaragua. Product requirements implement, on the one hand, the market positioning and, on the other hand, impact the value model as well as the profitability assessment. The design of the value model shapes the business processes within the company and also in the extended value chain. Said decisions ultimately incur costs. Moreover, products that position themselves on the market as "sustainable products" usually address a relatively small target group segment with small-size sales and turnover figures. When defining profitability expectations, this raises always the question how the additional costs can be covered. These decisions and their effects on business management and sustainability goals constitute a key field of research in sustainable product management. A second field of research relates to the question, which sustainability issues should be handled on the company level and which on the product level. The initiative of a cocoa plantation in Nicaragua by Ritter Sport may serve as an example. At a Glance Sustainable product management refers to the task of integrating sustainability aspects into the process of discovering, defining, developing, launching, and managing products on the market so that product impacts become more sustainable. In order to complete these tasks, it has to be defined, which indicators are to be used to measure the commercial success of a product and which tasks and methods lead to commercially successful products. In addition, it must be clarified which sustainability criteria are used to identify negative impacts of products along their value chain, what motivates companies to implement these sustainability criteria, and by which methods and procedures said sustainability criteria can be incorporated into the development and management of products. Suggestions for Further Reading Biermann, B. / Erne, R. (2020): Nachhaltiges Produktmanagement. Wie Sie Nachhaltigkeitsaspekte ins Produktmanagement integrieren können. Wiesbaden, Springer Gabler. Scholz, U. et al. (2018): Praxishandbuch Nachhaltige Produktentwicklung: Ein Leitfaden mit Tipps zur Entwicklung und Vermarktung nachhaltiger Produkte. Berlin, Springer. Zimmerer, C. 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Stuttgart, Schäffer-Poeschel. 272 15 Sustainable Product Management <?page no="273"?> VuMA (2018): ): Beliebteste Tafelschokoladenmarken (Konsum in den letzten 4 Wochen) in Deutschland in den Jahren 2015 bis 2018. Statista.de, https: / / de.statista.com/ statistik/ daten/ studie/ 171532/ umfrage/ kons um-chocolate-bar-brands-in-the-last-month/ , accessed 11.11.2019. Weller, I. (2013): Sustainable Consumption, Lifestyles and Gender Relations. In: Hofmeister, S./ Katz, C. / Mölders, T. (eds.): Geschlechterverhältnisse und Nachhaltigkeit. The category of gender in sustainability science. Opladen, Berlin & Toronto: Barbara Budrich, pp. 286-301. Wöhe G. / Döring, U. (2013): Einführung in die Allgemeine Betriebswirtschaftslehre. 25th ed. Munich, Vahlen. 15.9 At What Points Do Decisions Have to be Made? 273 <?page no="274"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="275"?> 16 Sustainable Innovation Management Frank Andreas Schittenhelm Learning Objectives: The readers ■ understand the importance of innovations in the process of value creation, ■ comprehend the linkages and interrelations inside the innovation triangle, ■ are aware that legal and in-house framework conditions can promote innovation, ■ recognize the relevance of innovations for sustainable business management. Keyword List: Product innovation, process innovation, innovation process, stage-gate model, fuzzy front end, innovation culture, innovation manager 16.1 Innovation Management: Briefly Explained The first step in the process of value creation is innovation management. It is related to the concepts of research and development, but the latter two usually have a narrower focus. Innovation management for most authors is different from pure research and development, because of the explicit orientation on market success. In practice, however, the difference is frequently less clear. Typically, three types of innovations are distinguished: 1. Product innovations, 2. Process innovations and 3. Social innovation. Since social innovations already have a clear orientation on a sustainability target, we will focus mainly on the two remaining categories. Innovations are always tied to change and new approaches, but the degree of change can differ widely. Path-breaking innovations (radical innovations) such as the invention of the automobile or the computer frequently led to substantial advances over time. A large number of follow-up innovations enrich the initial development. These so-called incremental innovations are often not so much in the spotlight, but they represent an essential success factor of a radical innovation. In the automotive sector, you might think of process innovations such as assembly line production under Henry Ford and later increasing automation. In the area of product innovations, one can mention airbags, power steering or anti-lock braking systems, for example. Increasing global competition with the associated shorter delivery times and product <?page no="276"?> 1 Vahs, D. (2010) p. 9; Daecke, J. (2009) p. 179 and Pechlaner, H.; Fischer, E.; Priglinger, P. (2006) p. 123. 2 Stöger, R. (2011) p. 3. life cycles increase the pressure on companies to distinguish themselves in the market through innovations. At the same time, concentrating solely on new products and processes is becoming less and less sufficient today. Even at an early stage of innovation development, a strong consideration must be given to market opportunities, market entry strategies and thus also profitability. The improvement process at the company level is also subject to international competition and corporations are well advised to pursue an approach that is targeted and inexpensive as well as efficient and effective at the same time. In addition to clearly defined innovation processes and lively internal innovative structures, there is a need for qualified employees who take responsibility for the entire sequence from invention to innovation (the decisive success in the marketplace): the so-called innovation managers. The primary task of an innovation manager is the transformation of ideas or inventions into innovations that are a commercial success. 1 Innovations play a dominant role in the context of business sustainability. They provide the foundation for the social, ecological, and at the same time economic development of a company. However, innovation management typically pursues mainly economic goals. Stöger 2 defines innovation management for example as "turning a novelty into a market success". Three key terms that are derived from this understanding are novelty, market success, and leadership. While leadership plays an important role in this definition, it is mainly seen as an instrument, which enables successful innovation. A consistent ecological focus is missing and could only be justified if it implied economic success. 16.2 Innovation Management and Sustainability Modern innovation management is characterized by three factors: a culture of innova‐ tion, an innovation process, and one or several innovation managers. Since all three factors are mutually dependent, companies must always consider them jointly. The innovation manager implements and supports the innovation process. He acts as a reference person for all employees concerning the management of innovations and promotes a lively culture of innovation, he brings the innovation process to life, and he needs to fuel the generation and discovery of ideas. 276 16 Sustainable Innovation Management <?page no="277"?> 3 Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2011), p. 47. 4 See Lam, J. (2003) for a detailed discussion of this choice of terms. Innovation Management Innovation Manager Innovation Process Innovation Culture Fig. 16.1: The innovation triangle interrelationships between innovation manager, innovation process, and innovation culture in innovation management 3 The process provides orientation for him. A look at business practice clarifies that organizational aspects are of primary importance when setting up innovation management at the company level. This includes the definition of a comprehensive innovation process, the establishment of a corresponding organizational unit, and its integration into an existing organizational structure. Software tools and controlling instruments serve to support and coordinate the innovative processes. Drawing on the Chinese principle of Yin and Yang, these features can be considered hard factors ("Yin"). 4 These are complemented by the soft factors ("Yang") - the elements of the culture of innovation. Obviously, the culture of innovation should be aligned with the corporate culture. It forms the basis for the acceptance of innovation management in general, the innovation process, and the innovation manager and is a prerequisite for his success. Numerous companies neglect the extremely high importance of a culture of innovation. Components of the culture of innovation are a clear message from management, an open communication, as well as educational opportunities, and incentive systems for employees. The Yin thus stands for the enablers in the innovative process. The Yang mean-while represents the driving forces, which are essential for the generation of successful innovations. The difficulty at the company level consists of continuously balancing the Yin and the Yang. While this is happening automatically and without any external impetus in the original concept of Yin and Yang, the professional guidance by the innovation manager is needed at the company level. He must continuously focus on the overarching goals of the company and their relevance for innovation management. Especially the need for constant adaptation complicates the task of the innovation manager, since resistance and opposition can never be ruled out. 16.2 Innovation Management and Sustainability 277 <?page no="278"?> 5 Vahs, D./ Schmitt, J. (2010a), p. 4 and Vahs, D./ Schmitt, J. (2010b), p. 40. 6 Kleinschmitt, E./ Geschka, H./ Cooper, R.: Produktinnovationen an Markt und Kunden ausrichten, Berlin 1996, p. 52. In their study, Vahs and Schmitt 5 have summarized the link between the culture of innovation and organization and derive recommendations for action for ideal companies. The systematic collection of ideas, for example, pays off and contrarian thinkers should be supported. At the same time, clear and binding termination criteria also play an important role and should be supplemented by innovation controlling. Finally, the role of corporate leaders as shapers of the innovative process needs to be stressed. 16.3 Conception of a Sustainable Innovation Management Innovation management is in itself a cornerstone of sustainable business management. Neverthe‐ less, it is important to take certain things into account with regard to sustainable behavior. 16.3.1 Innovation Processes Innovation processes are important in order to assure a structured approach in innova‐ tion management aimed at securing the success of the innovation. A large number of different models for the definition of processes exist in the literature. Characteristic for all of them is a stepwise sequence, during which ideas are continuously assessed and discarded if necessary. The basis for most approaches is the stage-gate model developed by Robert G. Cooper. While various interpretations of the theoretical models can be found at the company level and loops in the process are frequently present, applied innovation processes are often based on these simple models. Milestone 1 Milestone 2 Milestone 3 Milestone 4 Milestone 5 Level 1 Level 2 Level 3 Level 4 Level 5 Preanalysis Detailed analysis Development Tests and production start-up Production start-up and market launch Review Fig. 16.2: Stage-gate model at a glance 6 From the companies' point of view, the generation of ideas remains a major problem in the innovation process. Complaints about the low number of ideas "produced" are frequently voiced. Especially the early phase during which ideas are generated (fuzzy front end) should always be designed in an open and dynamic way to maintain its attractiveness for the providers of ideas. The fuzzy front end is thus somewhat at odds with restrictions that could arise from the rejection of non-sustainable ideas. However, creativity should not be restricted, especially at the beginning, as this could possibly have a negative impact on the motivation of all participants. 278 16 Sustainable Innovation Management <?page no="279"?> 7 In detail Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2011), p. 36. As part of the stage-gate process of innovations, decisions must be made about the further advancement of the ideas after various development stages. In the later stages, ideas that do not conform to sustainability must be filtered out. Sustainable innovation management thus requires that the relevant decision-making criteria are adapted, and sustainability aspects are integrated in relation to the company's ecological and social goals. This must be done in such a convincing way that the impression of arbitrariness is not created and the motivation of all those involved in the innovation process is maintained. 16.3.2 Culture of Innovation Innovation culture describes the entrepreneurial framework conditions in an innova‐ tion process, which relate to rules, ways of thinking, and interpersonal forms of interaction. Empirical studies prove that practitioners assign a high relevance to an established culture of innovation. Research by the Institute for Change Management and Innovation 7 revealed the following picture. When asked about conditions that would facilitate the work of the corporate innovation manager (see figure below), close to 81% of all respondents stressed that "a culture which supports innovation at the company" is very important. "Feedback culture", "openness towards new approaches" and "fault tolerance" are other important factors in the innovative process, which support a corporate culture that values innovation. It additionally becomes clear that "support by top management" is very important for the daily work and acceptance of an innovation manager (78.6%). While these are predominantly "soft" factors, "hard factors" such as the "provision of resources" (43.9%) also play an important role for the innovation management of the companies interviewed. The least significance is assigned to quick innovative processes (26.5%) in this context. Innovation managers typically have or at least share responsibility for the implementation of innovative processes. The low relevance assigned to this item by innovation mangers can possibly be explained by the fact that they are typically confronted with cultural obstacles and acceptance problems in their daily work. 16.3 Conception of a Sustainable Innovation Management 279 <?page no="280"?> 8 Dziatzko, N./ Steinwandt, A. (2011), p. 38. 80,6% 78,6% 45,9% 70,4% 56,1% 26,5% 43,9% 14,3% 15,3% 40,8% 19,4% 31,6% 29,6% 36,7% 0% 20% 40% 60% 80% 100% Innovation-friendly Corporate Culture Support by the Top Management Feedback Openness to New Fault Tolerance Fast Processes Provision of the Resources Very Important Important Fig. 16.3: Conditions for successful innovation management 8 A sustainable innovation culture requires first and foremost a credible commitment to sustaina‐ bility on the part of the company's management. In the case of conventional innovation processes that take place within a company, this may not contradict the previous requirements for a culture of innovation. However, concepts such as open innovation, innovation in networks or crowd sourcing, which aim to cooperate across company boundaries, confront innovation management with new challenges. 16.3.3 Innovation Manager Innovation managers can be described as corporate leaders with the ability to detect innovation potential, to design and advance innovation processes at the company, to assess and actively manage innovation projects as well as to provide targeted support in their economic application. To achieve this, the innovation manager needs to assume three central roles: ■ Driver and motor of the process: the process must be continuously restarted; new ideas must be developed and introduced. ■ Organizer and coordinator of the process: ideas need to be assessed as part of the process. They are either developed further or abandoned. Transparency, traceability and fairness play a major role in this process and need to be continuously assured. 280 16 Sustainable Innovation Management <?page no="281"?> 9 Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2012), p. 23. ■ Moderator and trainer in the process: the coordination of various participants in the process constitutes a constant challenge and requires the neutral positioning of the innovation manager External Networker Interner mediator Driver / Motor Organizer / coordinator Moderator / Trainer Idea scout Trendsetter Lateral thinker Catalyst Initiator Resources manager Knowledge broker Analyst Process manager Juggler Attorney for ideas Motivator Projectmanager Fig. 16.4: Roles of the innovation manager 9 According to this understanding of the role, the following main tasks can be assigned to the innovation manager: 1. Implementation or optimization of the innovation process in the company. 2. Realization of a holistic innovation strategy including controlling. 3. Establishment and maintenance of external networks through cooperation in projects and in the market. 4. Development and maintenance of a comprehensive knowledge management. 5. Assuring a consistent market orientation. 6. Establishing a clear innovation strategy and promoting a corporate and innovation culture that favors innovation. Unfortunately, empirical research shows that the expectations placed on innovation managers are not always uniform across institutions. Of course, it is also the responsibility of the innovation manager himself to define and find his own role in the company. 16.3 Conception of a Sustainable Innovation Management 281 <?page no="282"?> Knowledge, skills and competences of the innovation manager In order to fulfill all these roles and tasks in the internal and external innovation network of the company, the innovation manager needs specific proficiencies and abilities which will be discussed in the following paragraphs. The proficiencies and abilities then serve as the basis for the competencies of the innovation manager. Knowledge is very broadly defined as proficiency in a certain topic area. It is expected of an innovation manager that he is able to master the specific terminology of innovation management. Furthermore, he should be involved in debates about the newest theoretical and applied approaches in his field of specialization. Awareness of new methods to generate ideas and availability of supporting software tools plays an important role in this regard. Depending on the type of innovation, knowledge in the field of law, for example with regard to patent registrations, patent protection or legal framework conditions can be relevant as well. In summary, the following desirable knowledge can be identified: ■ Knowledge of innovation management theory ■ Legal knowledge ■ Knowledge of project and resource management ■ Knowledge about software that supports the innovation process ■ Knowledge about methods to foster creativity Skills form an essential component in the development of competencies. In contrast to the knowledge mentioned above, which the innovation manager can basically acquire through simple learning, skills are often non-measurable abstract characteristics that describe character traits on the one hand and are based on diverse personal experiences on the other. The following skills, among others, can be formulated for the requirements profile of the innovation manager: ■ Communication skills, meaning not only a mere exchange of information, but also the ability to encourage others to communicate by initiating the creation of functioning networks between different departments and companies. ■ Potential recognition ability, i.e. the ability to recognize innovation potential and thus to possess or develop a sense for promising ideas. ■ The ability to work in a team describes the quality of being able to contribute positively to teamwork. A good team player must not put himself too much in the foreground but must take initiative in processes that are stalled and get the process going again. ■ Management skills describe characteristics that enable the innovation manager to lead a group or project and achieve the associated goals. ■ Adaptability describes a characteristic that allows to react quickly to changes, to face difficulties and to find new ways. When examining the relevance of the listed knowledge and skills that an innovation manager needs, it becomes apparent that it is primarily the skills described above that are of importance for corporate practice. Knowledge and semi-skilled knowledge play a rather subordinate role. They are taken for granted or can be purchased externally. Communication skills (76%) are seen as the most important quality. Furthermore, it appears very important (75%) to recognize innovation potentials. The ability to work in a team (60%) is particularly important for bringing together different areas and coordinating their cooperation. 57% consider flexibility, i.e. adaptability, to be very relevant, as the innovation manager must always be prepared to deal with new situations and drive change. Management skills were 282 16 Sustainable Innovation Management <?page no="283"?> 10 Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2012), p. 24. 11 Hauschildt, J./ Salomo, S. (2007), p. 45 8. 12 Scholz, C. (1993), p. 374. 13 Steinmann, H./ Schreyögg, G. (2005), p. 24. 14 Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2011), p. 44. considered important by only 50%. The respondents explained this by saying that management skills are important for any task with responsibility and do not explicitly refer to innovation management as such. 10 On the more abstract level of competencies (technical, methodological, and social competen‐ cies) the previous results are confirmed. The terms technical and methodological competence are usually difficult to distinguish from each other. Hauschildt and Salomo 11 define technical competency, especially as knowledge about technologies and markets in the respective area of expertise. Correspondingly, we will focus on the technological, legal, and economic aspects of innovation when talking about technical competency. Technical competency implies that the innovation manager can align his theoretical knowledge with the abilities described above. He is able, for example, to combine his skill of spotting innovative potential with his knowledge about technological feasibility to pick the most promising ideas. Following Scholz 12 methodological competence includes areas such as work planning, diagnos‐ tic training, work, and problem-solving techniques; in other words, the application of knowledge. In innovation management, methodological competency focuses on the design and management of processes as well as the application of different methods for the generation of ideas, their assessment and selection. Knowledge about creativity methods is supplemented by the ability to lead, and manage teams and results in the generation of numerous ideas. According to Steinmann and Schreyögg 13 social competence in general is "[.] the ability to work effectively with other people and to have an effect through other people". With regard to innovation management, this requires abilities and knowledge which enable the innovation manager to have a positive influence on all parties involved in the process so that innovations become a success. Most innovation managers already possess these abilities, frequently called soft skills, but are able to refine them as they gain additional experience in the corporate environment. In the context of the above-mentioned study, 14 the importance of social competence (63%) was cited ahead of methodological competence (39%) and technical competence (27%). Since innovation managers are primarily generalists, even if they are assigned to a technical area, they tend to function as managers who coordinate and receive technical input from experts. The following figure summarizes the results and underlines the importance of the mediating role of an innovation manager within the company. 16.3 Conception of a Sustainable Innovation Management 283 <?page no="284"?> 15 Dziatzko, N./ Kielkopf, M./ Schittenhelm, F.A./ Steinwandt, A. (2011), p. 44. 16 Gasior, S./ Schittenhelm, F.A. (2012), pp. 51. 26,5% 38,8% 63,3% 29,6% 36,7% 27,6% 0% 10% 20% 30% 40% 50% 60% 70% Expertise Media Competence Social Competence Important Very Important Fig. 16.5: Required competencies of an innovation manager 15 The innovation manager plays the decisive role in sustainable innovation management. He must carry the importance of sustainability into the company and, if necessary, into the cooperation partners and convince all parties involved of this. Accordingly, we would like to re-evaluate the knowledge and skills of an innovation manager at this point: In addition to the knowledge already listed, the sustainable innovation manager must also have knowledge of sustainable management, sustainable evaluation methods and risk management. His/ her skills have to be re-evaluated under the aspects of sustainability. The potential recognition skill should perceive the consequences of non-sustainable innovations in time. His management skills must include the ability to convince stakeholders of the benefits of sustainability and, if necessary, to enforce "unpopular" decisions against product and process ideas due to a lack of sustainability. The importance of the innovation manager will thus probably continue to increase in the future, although not every innovation manager has this exact job title. 16.4 Sustainable Innovation Management in Practice Sustainable innovation management is caught between profitability and sustainability goals. As already explained, sustainability does not play a serious role in traditional innovation management. 16 Social innovations are an exception, where social aspects are the innovation drivers anyway. 284 16 Sustainable Innovation Management <?page no="285"?> Since innovations in the product and process area represent the source of survival of every company, we are faced with a similar problem as discussed later in the chapter on financial management. In fact, the evaluation of innovations plays the decisive role in the course of the innovation process. The consideration of sustainability aspects often fails here due to the lack of knowledge about the associated profitability and risk reduction. The main reasons for this are usually incomplete evaluation methods and insufficient risk management. 16.5 Outlook It remains to be said: Sustainability needs innovations and innovative minds; only in this way it is possible to achieve all the goals of sustainable economic activity in a truly "sustainable" way. Therefore, framework conditions must be created in economic and social areas that strengthen a culture of innovation, reduce obstacles to investment and ultimately also enable profits. At a Glance Often, sustainability aspects are associated with costs and are thus detrimental to the company's economic interest in a certain sense. In such a situation, sustainability requires regulatory measures by the state. Competitive disadvantages in international comparison and economic stagnation must be prevented by simultaneous innovations or by incentives for innovative behavior. Whether countries like Germany will succeed in doing this in the automotive sector in the next few years should be exciting to observe. Suggestions for Further Reading Clear basic work on innovation management: Vahs, D.; Brehm, A. (2015): Innovationsmanagement. Von der Produktidee zur erfolgreichen Vermarktung. 5th edition, Stuttgart: Schäffer-Poeschel Verlag. Literature Cooper, R. (2002): Top oder Flop in der Produktentwicklung. Erfolgsstrategien: von der Idee zum Launch. Weinheim, Wiley-VCH. Daecke, J. (2009): Nutzung virtueller Welten zur Kundenintegration in die Neuproduktentwicklung - Eine explorative Untersuchung am Beispiel der Automobilindustrie. Dissertation, Wiesbaden, GWV Fachverlage. Dziatzko, N.; Schittenhelm, F.A. & Steinwandt, A. (2011): Berufsbild Innovationsmanager. Spektrum Heft 33, p. 99-102. Dziatzko, N.; Schittenhelm, F.A. (2011): Technologie-Trüffelschwein. Innovationmanager. Heft 14, pp. 88-89. Dziatzko, N.; Steinwandt, A. (2011): To be or not to be an Innovation Manager Zeitschrift für Innovationsmanagement in Forschung und Praxis zifp, 02/ 2011, pp. 32-43. Dziatzko, N.; Kielkopf, M.; Schittenhelm, F.A. & Steinwandt, A. (2011): Die Bedeutung des Innovationsma‐ nagements in mittelständischen Unternehmen eine empirische Untersuchung. In: A. Haubrock et al. (Eds.): Zweite Aalener KMU Konferenz-Beiträge zum Stand der KMU Forschung 2011. pp. 41- 57. 16.5 Outlook 285 <?page no="286"?> Dziatzko, N.; Kielkopf, M.; Schittenhelm, F.A. (2011): Das Berufsbild des Innovationsmanagers. In: Schild‐ hauer, Trobisch, Busch (Eds.): Realität und Magie vom Heldenprinzip heute. pp. 158-164, Monsenstein und Vannerdat. Dziatzko, N.; Kielkopf, M.; Schittenhelm, F.A. & Steinwandt, A. (2012): Der Innovationsmanager als Netzwerker in KMU, Zeitschrift für Innovationsmanagement in Forschung und Praxis zifp, 03/ 2012, pp. 20-27. Gasior, S.; Schittenhelm, F.A. (2012): Finanzierung von Innovationsvorhaben - Was erwartet der Kapital‐ geber? Spektrum, 35/ 2012, pp. 51-52. Hauschildt, J.; Salomo, S. (2007): Innovationsmanagement. 4th edition, Munich: Vahlen Verlag. Hauschildt, J.; et al. (2015): Innovationsmanagement. 6th edition, Munich: Vahlen Verlag. Kägi, M. (2020): Kompass Innovationsmanagement: Orientierung im Gebirge der modernen Methoden, 2. Edition, Buch & Netz. Kleinschmidt, E.; Geschka, H; Cooper, R.G. (1996): Erfolgsfaktor Markt: Kundenorientierte Produktinnova‐ tion (Innovations- und Technologiemanagement). Berlin, Springer Verlag. Lam, J. (2003): Enterprise Risk Management. Hoboken. Müller-Prothmann, T.; Dörr, N. (2019): Innovationsmanagement - Strategien, Methoden und Werkzeuge für systematische Innovationsprozesse, 4th edition, Munich: Carl Hanser Verlag. Pechlaner, H.; Fischer, E.; Priglinger, P. (2006): Die Entwicklung von Innovationen in Destinationen - Die Rolle der Tourismusorganisationen. In: Pikkemaat, Birgit; Peters, Mike; Weiermair, Klaus (Eds.) Innovationen im Tourismus - Wettbewerbsvorteile durch neue Ideen und Angebote. Berlin: Erich Schmidt Verlag, pp. 121-136. Scholz, C. (1993): Personalmanagement, 3rd edition, Munich: Vahlen Verlag. Schori, K.; Roch, A.; Faoro-Stampfli, M. (2006): Innovationsmanagement für KMU. Bern, Stuttgart, Wien: Haupt Verlag. Steinmann, H.; Schreyögg, G. (2005): Management - Grundlagen der Unternehmensführung: Konzepte - Funktionen - Fallstudien. 6th edition, Wiesbaden: Gabler Verlag. Stöger, R. (2011): Innnovationsmanagement für die Praxis: Neues zum Markterfolg führen. Stuttgart, Schäffer-Poeschel Verlag. Vahs, Dietmar (2009): Organisation. Ein Lehr- und Managementbuch. 7th edition, Stuttgart, Schäffer- Poeschel Verlag. Vahs, D.; Brehm, A. (2015): Innovationsmanagement. Von der Produktidee zur erfolgreichen Vermarktung. 5th edition, Stuttgart: Schäffer-Poeschel Verlag. Vahs, D.; Schmitt, J. (2010a): Organisation und Innovationskultur als Determinanten des Innovationserfolgs. Ergebnisse einer empirischen Studie. In: Zeitschrift Führung + Organisation No. 01/ 2010, pp. 4-11. Vahs, D.; Schmitt, J. (2010b): Determinanten des Innovationserfolgs - Ergebnisse einer empirischen Studie. In: Zeitschrift für Organisationsentwicklung No. 3 2010, pp. 40-46. Völker, R./ Friesenhahn, A. (Eds.) (2018): Innovationsmanagement 4.0: Grundlagen - Einsatzfelder - Entwick‐ lungstrends (Praxiswissen Management), W. Kohlhammer GmbH. Wildemann, H. (2020): Innovationsmanagement - Leitfaden zur Einführung eines effektiven und effizienten Innovationsmanagements. 20th edition, Munich: TCW Transfer-Centrum für Produktions-Logistik und Technologie-Management. Wördenweber, B. et al. (2020): Technologie- und Innovationsmanagement im Unternehmen: Lean Innova‐ tion, 4th edition, Springer Vieweg. 286 16 Sustainable Innovation Management <?page no="288"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="289"?> 1 Vanini, U./ Krolak, T./ Langguth, H. (2019), p. 38. 17 Sustainability Controlling Ulrich Sailer Learning Objectives: The readers ■ know the tasks and the importance of controlling in the management of sustainability, ■ are familiar with the challenges of integrating sustainability controlling into the organiza‐ tional structure and processes, ■ have an insight into the guiding strategies of efficiency, consistency, and sufficiency, ■ overview, the concepts and challenges of measuring sustainability performance; and ■ know how sustainability is reported. Keyword List: Business Partner, Consistency Strategy, Sufficiency Strategy, Efficiency Strategy, Monetization, Environmental Accounting, Social Accounting, Sustainability Report, GRI, IIRC, Integrated Reporting, Integrated Thinking 17.1 Controlling: Briefly Explained The central function of controlling is to support management in decision-making. Controllers provide management with decision-relevant information, with helpful models and methods for solving problems, they evaluate business management issues, stimulate the further development of the company, and advise management. They act as a "commercial conscience" in the company and ensure a rational and transparent approach. 1 To begin with, two misconceptions about controlling need to be eliminated. Sometimes controlling is wrongly misunderstood as control. However, "to control" means to steer or regulate. Controlling includes goal setting, the plan to achieve the goal as well as steering, in which the implementation is monitored, deviations are analyzed, and steering interventions are carried out. The second misconception is that controlling is a task for controllers. Every manager also must plan his goals and actions, make decisions, monitor their implementation and, if necessary, take corrective action. Making decisions is ultimately the responsibility of management. Controllers provide the necessary, success-relevant information for this purpose and thus, share responsibility for the achievement of objectives. They enable managers to better fulfill target setting, planning, and controlling. Controllers and managers therefore work closely together, which is a prerequisite for entrepreneurial success. <?page no="290"?> 2 Internationaler Controller Verein: Controller Leitbild von IGC und ICV (2013). 3 Internationaler Controller Verein (2012), p. 10. What controlling is and what controllers do can be found in the Controller Mission Statement of the IGC International Group of Controlling: "Controllers make a significant contribution to the sustainable success of the organization as a partner to management. Controllers 1. design and accompany the management process of goal setting, planning and control, so that every decision maker acts in a goal-oriented manner. 2. ensure a conscious preoccupation with the future, thereby enabling opportunities to be seized and risks to be dealt with. 3. integrate the goals and plans of all parties involved into a coordinated whole. 4. develop and maintain the controlling systems. They ensure data quality and provide decisionrelevant information. 5. are committed as a business conscience to the welfare of the organization." 2 17.2 Controlling and Sustainability "The approach of sustainable controlling advocated by the ICV supports sustainable corporate management as a future-oriented market, environmental and social concept of corporate manage‐ ment. Sustainable controlling thus expands traditional controlling and integrates market-related, ecological and social aspects into the economic target figures for lasting corporate success." 3 Integration of Economic, Ecological, and Social Aspects: What distinguishes sustainable controlling from traditional controlling? The difference lies not in the time horizon, but in an integrated view of economic, ecological, and social aspects. The latter two are not simply secondary conditions that act as guard rails limiting the scope of the company, within which, however, exclusively economic goals are still maximized. In no viable system are individual goals maximized exclusively. Just as a doctor measures various values in his patient and strives to ensure that all of them are within the normal range, the controller must also ensure a balance of goals. Example: BMW AG, Munich "We understand sustainability as a lasting positive contribution to the economic success of the company. For us, assuming social and ecological responsibility is part of our corporate identity. We are convinced that responsible action and social acceptance are essential for companies to be and remain economically successful." Source: BMW AG, www.bmwgroup.com/ de/ verantwortung/ nachhaltiges-wirtschaften.html, accessed on 24.07.20 290 17 Sustainability Controlling <?page no="291"?> 4 Sailer, U. (2020), p. 42. Increasing Complexity: Compared to a one-sided economic view and a disregard for the diverse interrelationships between the three dimensions of sustainability, controlling is becoming more complex. A controlling concept based solely on accounting data, such as the well-known DuPont KPI system, no longer meets the requirements. Ecological and social criteria must be integrated. This makes the impact of relationships more multifaceted. They combine such diverse factors as employee satisfaction, returns, environmental impact, ethical procurement standards, innovative strength, and so on. The ability to deal with complex systems is becoming more important for controlling and management. This makes it clear that sustainability controlling is not a special function such as production or sales controlling, but concerns controlling in its entire breadth. System Boundaries of Controlling are Shifting: In sustainability controlling, the system boundaries shift. The exclusive consideration of the company's internal value chain is not sufficient. From an economic perspective, the value added by a supplier is irrelevant. In sustainability controlling, on the other hand, the ecological and social impact of suppliers is highly relevant. For example, the carbon footprint of a product is not reduced if the environmentally harmful production is outsourced to a supplier. The customer expects from a product declared as sustainable that the standards are also met in the production of raw materials and the preceding production stages. Quantification has its Limits: Controllers mostly work with measurable economic data. These figures are generated in account‐ ing according to defined rules, the accounting regulations. In most cases, these figures reflect market prices (raw materials, intermediate products, salaries, etc.), but in some cases, they are also the result of certain specifications (valuation of finished products in the warehouse, depreciation, accruals, etc.). Completely different categories such as sales, personnel expenses, material expenses, or rental expenses can be cleared with each other. This allows us, for example, to plan exactly what effect a three percent reduction in the cost of materials will have on profit. Good decisions can be made on this basis. Such a mathematical approach is often not possible with the data from the environmental and social dimensions. The costs for the installation of a filter system cannot be directly balanced with the reduced air pollution and the satisfaction of the residents. At best, one can compare the costs per ton of CO 2 emissions saved to alternative actions. But should the available investment budget be used for reducing CO 2 emissions, increasing the share of fairly traded primary products, or for occupational health and safety measures? In each case, there are different yardsticks that cannot be offset against each other. However, this is not entirely new for controllers. Even in the past, they had to be able to deal with "soft" factors such as employee satisfaction, customer satisfaction, product quality, or innovative strength. 4 17.2 Controlling and Sustainability 291 <?page no="292"?> 5 Horvath, P. (2013), p. 23; Weber, J./ Schäffer, U. (2016), p. 42. 6 Vollmar, B. (2016), pp. 808. 7 Sailer, U. (2020), p. 81. 17.3 Management of Operational Sustainability Controlling with included sustainability should not reinvent proven controlling processes, nor should parallel processes be set up. Nor should an independent organizational unit for sustainability controlling be set up alongside controlling. Corporate controlling can only be carried out from a single source. Particularly in the understanding of the controller as a business partner, the integrated management of sustainability is seen as a natural consequence. 5 In this context, the methods must be supplemented, and the processes must be further developed. 6 The management of sustainability can be broken down into the following sub-processes: Sustainable investment controlling Operational sustainability controlling Measuring sustainability Sustainability communication Strategic sustainability controlling Software-Tools Normative sustainability management Fig. 17.1: Sub-processes of sustainability controlling 7 Normative Sustainability Management: First, the vision and mission must be clarified. Due to their normative character, they influence the perception and assessment of facts. The vision is the long-term objective that is to be achieved through the strategy. The mission can be understood as the order or the purpose of the company. If this includes sustainability, it gives employees and stakeholders a clear orientation that this is 292 17 Sustainability Controlling <?page no="293"?> 8 Fries, A./ Riess, B./ Brink, A. (2015), p. 375. relevant to the company. Employees can focus on this, are able to act and customers know that the company is serious about sustainability. Strategic Sustainability Controlling: Strategically relevant fields of action are identified in dialogue with stakeholders with the help of a materiality analysis and are thus incorporated into the corporate strategy. The operationalization and implementation of the strategy often take place through a balanced scorecard expanded to include sustainability, the sustainability balanced scorecard. Measuring Sustainability: In the environmental dimension, for example, CO 2 emissions, energy use, and recycling rate, and in the social dimension, occupational accidents, employee satisfaction, and compliance with social standards can be measured. Measuring sustainability is often technically difficult, but it creates comparable transparency in the environmental and social dimensions as cost and performance accounting has always done on the business level. Companies that measure their sustainability performance not only prove to be more successful in implementing sustainability, but also rate the business success of their sustainability performance significantly higher. 8 Operational Sustainability Controlling: The operational sub-plans, such as the sales plan, the production plan, or the finance plan, are supplemented by a social and environmental plan. Just as the sales plan is linked to the production plan and the latter to the procurement plan by cause-effect relationships, the environmental and social plans are also included here. Corresponding measures are assigned to the operational goals. Sustainability Communication: In the internal management report, the achievement of objectives is reported, deviations are analyzed and recommendations for action are made. The external sustainability report informs stakeholders about the achievement of environmental and social targets. In the case of integrated management, it is evident that reporting should also be integrated. The annual and sustainability reports are combined. Sustainable Investment Controlling: Investments have a significant influence on the development of the company. In addition to the economic forecasts of how income and expenses will develop, the ecological and social effects must also be forecasted and incorporated into the investment decision. Investment controlling is a significant lever for sustainable development. 17.3 Management of Operational Sustainability 293 <?page no="294"?> 9 Colsman, B. (2016), p. 49. 10 Schäffer, U. (2016), p. 329f.; Vollmar, B. (2016), p. 808; Wördenweber, M. (2017), p. 45. 11 Weber, J. (2010), p. 12. Software Tools for Sustainability Controlling: In the practical implementation of sustainability, suitable software support is indispensable. A large amount of data accumulates that must be stored, processed, and evaluated in a structured manner. On the one hand, specialized software solutions can be used, for example for the life cycle assessment or for energy management. However, integration into the existing ERP system, through which the operational tasks and resources are planned, controlled, and managed, is ultimately necessary. The merging of economic, ecological, and social data into one IT system finally allows integrated control and reporting. 17.4 Organizational Integration of Sustainability Management Sustainability is relevant in almost all operational functions. This requires a coordinated approach, where goals and measures must be aligned with each other. In the modern controlling understand‐ ing of the business partner, the controller supports the management comprehensively, without this being limited only to economic goals. The management of sustainability must therefore be integrated into controlling. If controlling is dominated by a one-sided orientation towards accounting, sustainability will not be successfully managed in an integrated manner. In these cases, one often finds separate sustainability or CSR departments that take care of ecological and social content without a close connection to controlling. The tasks of sustainability are then spread over several areas. Due to the manifold relationships between the three dimensions, coordination becomes more difficult. What are the arguments in favor of integrating sustainability management into controlling and what are the arguments against it? integrated not integrated Responsibility for corporate management lies in one hand great know-how in ecological and social issues Know-how in the methods of controlling and re‐ porting -Sustainability is the primary objective of sustainabil‐ ity departments, high identification competent in dealing with information systems Integration into the standard processes of corpo‐ rate management Controlling can focus on classic tasks Tab. 17.1: Organizational anchoring of sustainability management 9 The advantages of integration are usually rated higher. It can therefore be concluded that the management of sustainability should be integrated into controlling. 10 "Sustainability in the anchoring of management action can only be achieved if it is integrated into the control system and the controllers are responsible for this. They must check the value of environmentally [and social] behavior and serve as a counterpart for corresponding decisions." 11 294 17 Sustainability Controlling <?page no="295"?> 12 Presentation based on Berlin, S./ Schulze, M./ Stehle, A. (2014), p. 49. To prevent misunderstandings: This does not mean that controlling must take over operational tasks of environmental protection or compliance. It is "only" about controlling for these tasks, i.e., the coordination, the initiation of measures, the target orientation, and the integration into the overall management of the company. Finally, the production controller does not take on any operational tasks in production. The Specialist departments record the environmental and social data while controlling is responsible for comparing the targets, analyzing them, and compiling them in the report. The following figure shows the classification of controlling for the management of sustaina‐ bility using the example of Stuttgart Airport: Objectives of Stuttgart Airport ("fairport STR") To be permanently one of the most efficient and sustainable airports in Europe Perception as a sustainable airport by owners and the public Assumption of responsibility for and reduction/ compensation of emissions and pollution Objectives of "fairport controlling " Ensuring coordinated, goal-oriented management of economic, ecological, and social objectives Integration of sustainability into decision-making and management processes Creation of a central database for internal and external reporting on economic, ecological, and social issues Coordinator/ Rationality Assurer as the guiding principle of sustainability controlling Environmental Management Coordination of planning and implementation of ecological goals and measures Compliance with standards and guidelines Collection and quality assurance of ecological Data Evaluation of measures and monitoring Controlling Consolidation and evaluation of economic, ecological and social information / KPIs Extension of the control processes (process and system responsibility) Coordination of the IT systems and adjustment of central SAP BW HR, Law Coordination of the planning and implementation of social goals and measures Compliance with standards and guidelines Collection and quality assurance of social data Evaluation of measures and monitoring Sustainability communication, CSR (external communication, stakeholder dialogue) Strategic process and project coordination, SAP (adaptation of IT landscape and IT systems) Fig. 17.2: Sustainability controlling at Stuttgart Airport 12 17.4 Organizational Integration of Sustainability Management 295 <?page no="296"?> 13 Sailer, U. (2020), p. 133ff; Behrendt, S./ Göll, E./ Korte, F. (2016), p. 3. 14 Behrendt, S./ Göll, E./ Korte, F. (2016), p. 20. 17.5 Guiding Strategies for Sustainability Management The implementation of sustainability can be carried out according to three so-called guiding strategies: efficiency, consistency, and sufficiency. These are mostly used in the ecological dimension but can also be applied to the social and economic dimensions. 13 ■ Efficiency: A given corporate goal is to be achieved with minimal negative environmental and social impacts ("doing things right"). The focus here is on the quantity. Fewer raw materials and less energy are to be used in the manufacture of products. ■ Consistency: The aim is to achieve environmentally compatible material and energy flows. Material flows are in a closed cycle so that in the end there is no waste, but new raw materials. The amount of waste released into nature is limited to the extent that it can be absorbed by nature. Energy is obtained exclusively from regenerative sources. Thus, the qualitative aspect is in the foreground ("Doing the right things"). ■ Sufficiency: The aim is to make moderate use of ecological and social resources. Resources are to be saved through changed consumption patterns, but also through new attractive services. The three guiding strategies are compared below. The rough estimate of the potential refers to the absolute reduction of material and energy flows in a time perspective of about 20 years. Strategy Connectivity Impact Potential Efficiency very high, immanent behavior in eco‐ nomically oriented organizations Improvement towards less bad solutions, but rebound ef‐ fects 10-20% Consistency from medium (e.g., purely renewable energies) to very low (e.g., no waste in the entire value chain) Far-reaching changes in the long term due to new technol‐ ogies and processes 50-80% Sufficiency medium (e.g., car sharing) to low (e.g., avoiding air travel, meat) Changes in consumption pat‐ terns and lifestyles have a ma‐ jor impact in the longer term. 10-40% Tab. 17.2: Comparison of the three guiding strategies 14 The efficiency strategy dominates in practice. However, the consistency and sufficiency strategies are indispensable for a promising change towards more sustainability, even if companies need a lot of patience for this and the goals are only achieved gradually. 17.6 Measuring Sustainability In its study on green controlling, the International Controller Association asked controllers about the greatest challenges in setting up and implementing ecological controlling solutions. The 296 17 Sustainability Controlling <?page no="297"?> 15 Internationaler Controller Verein (2011), p.25. 16 Schäffer, U. (2016), p. 328. measurement of sustainability and, consequently, the creation of transparency is dominated by a wide margin. 15 Environmental and social sustainability performance is measured using sustainability-orien‐ ted accounting. As in management accounting, where costs are allocated to individual products, processes and activities, environmental and social costs must also be allocated to individual products, processes, and activities. A variety of different instruments are available for this purpose. Sustainability-oriented accounting can be divided into environmental accounting and social accounting. Environmental Accounting: The aim of environmental accounting is to record the type and extent of environmental impacts caused by a company, to identify their origins and influencing factors and to allocate them to the products produced or services rendered. Environmental impacts can by no means always be expressed in monetary units. Where damage cannot be monetized, it must be quantified in physical units such as tons, liters, or micrograms. Environmental costs assessed in monetary units are either already recorded in the company's accounting system or must be converted into monetary values, i.e., monetarized, with the aid of suitable methods. Social Accounting: The effects of business activities on employees or customers are recorded and their causes are uncovered. The evaluation of social impacts, such as customer and employee satisfaction, is often normative and requires dialogue with stakeholders. Social accounting creates the necessary transparency for target setting, facilitates the selection of suitable measures and enables the monitoring of success. Monetization: In some cases, environmental and social costs are recorded in the company's accounting system. These are, for example, costs arising from environmental protection measures, employee welfare measures, environmental and social charges or reimbursement payments for damage caused. If damage is not already recorded in the accounting system, it is often difficult to determine its value. 16 If a direct valuation of damages is not possible, they can be estimated using various methods: ■ Costs incurred for the removal or repair of the damage ■ Costs incurred to avoid the damage ■ Costs that an injured party accepts as fair compensation Table 17.3 compares the advantages and disadvantages of monetization: 17.6 Measuring Sustainability 297 <?page no="298"?> 17 Sailer, U. (2020), p. 170. 18 For more detailed explanations of these concepts, see for example Sailer, U. (2020), p. 165., Günther, E. (2015), p. 564. Advantages of monetization Disadvantages of monetization consistent questioning of the effects, detailed data are demanded partly methodologically questionable, pretends to be accurate different actions are more comparable with each other credibility suffers when values appear dubious or manipulated linking with the company's accounting system, so that existing tools, methods, and IT tools can be used contradicts "strong sustainability" if damages can‐ not be offset against each other or if this would be morally questionable easier integration into the existing control system - greater awareness by management and stakehold‐ ers Tab. 17.3: Advantages and disadvantages of monetization 17 Monetarization reaches its limits when the premises for calculation are difficult for third parties to understand and when different effects are offset against each other (e.g., offsetting reduced emissions against an increase in occupational accidents). Measurement Concepts: The following common measurement concepts are partly described in the other contributions in this book, and partly can be found in the literature given. 18 In environmental accounting, the following concepts can be mentioned: Traditional environmental cost accounting: ■ Environmental cost accounting on a full cost basis ■ Environmental cost accounting on a partial cost basis Process-oriented environmental cost accounting ■ Energy and material flow analysis ■ Material flow cost accounting Environmental cost accounting including external costs ■ Material and energy balances ■ Life cycle assessment ■ Ecological profit and loss account ■ Eco-efficiency analysis ■ Ecological footprint and carbon footprint ■ Ecological key figures 298 17 Sustainability Controlling <?page no="299"?> 19 Schaltegger, S. (2014), p. 23. In social accounting, the following concepts are worth mentioning: ■ Value-added statement ■ Social indicators ■ Social audit ■ Social impact assessment 17.7 Sustainability Communication Sustainability communication is the part of corporate communication that focuses on sustaina‐ bility in terms of content. Target groups are all stakeholders. Information is not only one-sided, but dialogues are also conducted on all corporate issues. Sustainability Reports: Sustainability reports are a central component of sustainability communication, as social and ecological information is produced as part of a structured and formalized process. 19 The require‐ ments of the CSR standards, mostly those of the Global Reporting Initiative, must be met both in the process of preparation and in the selection of content. However, there are further requirements for reports: ■ legal requirements or requirements of supervisory authorities ■ information needs to be formulated in the stakeholder dialogue ■ generally accepted guidelines of independent organizations for the standardization of sus‐ tainability reports (e.g., GRI, DVFA) ■ requirements of the auditing organizations (e.g., auditing companies, auditing firms) CSR Directive Implementation Act ("CSR Richtlinien Umsetzungsgesetz"): In 2014, the European Parliament and the EU member states adopted the directive on the disclosure of non-financial information. The aim was to increase transparency on environmental and social aspects. Since 2017, companies with 500 or more employees and public interest have had to report on sustainability-related content. In addition to listed companies, this applies to banks and insurance companies. In Germany, the directive was transposed into national law by the "CSR- Richtlinien-Umsetzungsgesetz" (CSR-RUG). The reporting obligation extends to corporate strategy, employee-related, environmental, and social risks, anti-corruption measures, and respect for human rights. There is wide-ranging freedom in the form of implementation. The report can either supplement the annual report or be published as a separate sustainability report. The GRI, the German Sustainability Code (Deutscher Nachhaltigkeitskodex), ISO 26000, the UN Global Compact, or the OECD Guidelines for Multinational Enterprises can be used as reporting standards. With approximately 6,000 companies across Europe, the number of companies affected by the reporting obligation is rather small, but the effect extends across the value chains to numerous suppliers that do not fall into the circle of affected companies. 17.7 Sustainability Communication 299 <?page no="300"?> 20 Overall positive experiences with the RUG are also reported in the study by the German Global Compact Network and Econsense (2018). 21 KPMG (2017), p. 28. In the meantime, the first field reports on the effects of the CSR-RUG are available. According to a survey conducted at Nuertingen-Geislingen University in 2019 with a sample of 37 companies, around two-thirds of the companies affected by the CSR-RUG had also reported on sustainability before 2017. For about a third, however, the law was the reason to do so for the first time. Just under half of the companies confirmed that they now report more extensively on sustainability. The majority describes the effort involved as high compared to previous reporting. Many companies seem to find it difficult to determine the necessary sustainability indicators in a timely manner. For more than 80% of the companies surveyed, the reporting obligation led to a more intensive preoccupation with sustainability as well as to increased attention in the management and in the supervisory board, which is explained by the audit obligation and liability. Individual companies report that sustainability is now increasingly perceived on a company-wide basis and is no longer regarded solely as a task of corporate environmental protection. 20 GRI Reporting Standard: The most frequently used reporting standard worldwide is the Global Reporting Initiative (GRI). Among the 250 largest companies in the world, 75% use the GRI, and among DAX companies 85% use it. It is a de facto standard that has gained global acceptance. 21 The GRI G4 standard introduced in 2014 represented a correction of the previously very extensive and poorly focused data collection. According to G4, before measuring their sustaina‐ bility, companies must clarify which sustainability goals are relevant to their core business. The company must systematically address sustainability internally as well as engage in dialogue with stakeholders externally. In this way, the essential sustainability factors are to be found. From this, a report tailored to the company can be created, which is of interest to the company and its stakeholders. Materiality is thus the central concept of the G4 standard. Since July 2018, a new GRI standard has been mandatory, although it is not called G5. The new GRI Sustainability Reporting Standard is intended to be more flexible and easier to apply. The previous requirements of the G4 standard still apply in terms of content. The changes mainly relate to a more precise definition of management approaches, materiality more clearly considers the impact of business activities, and the structure has been modularized so that individual aspects can be updated without having to adapt the entire report. Finally, industry-specific reports can now also be prepared. Integrated Reporting: Annual Report + Sustainability Report = Integrated Report? - No, Integrated Reporting is much more than the joint publication of two previously separate reports. Integration refers to the content, to the interconnected relationships of economic, ecological, and social factors as well as their performance measurement and control. Annual reports provide insufficient information on social and environmental aspects, even though their influence on the success and value of the company is significant. If objectives of all three sustainability dimensions are considered material in the stakeholder dialogue and in the materiality analysis, they must be anchored in the management and reported 300 17 Sustainability Controlling <?page no="301"?> 22 For example, reference is made to the presentation of integrated reporting by EY (2016), the comprehensive de‐ scription in Gleich, R./ Grönke, K./ Kirchmann, M./ Leyk, J. (2015) and the implementation guide in Internationaler Controller Verein (2017). on. Integrated sustainability goals thus lead to integrated management, which in turn leads to integrated reporting. Separate reporting in the form of a business and a sustainability report seems to be at best a transitional solution if sustainability is still managed separately from economics. Around 15% of the world's 250 largest companies have combined their annual and sustainability reports into one integrated report. In Germany, for example, BASF (since 2011), SAP (since 2012), Bayer (since 2013) and Deutsche Bahn (since 2014) are worth mentioning. A key global driver of integrated reporting is the International Integrated Reporting Council (IIRC), which was founded in 2010. Its members are the major standard setters in accounting and sustainability reporting, the world's four largest auditing firms and several global corporations. 22 The IIRC strives for a higher quality of corporate reporting. The annual and sustainability reports are not to be summarily combined, but rather a break with reporting focused on quantity in the form of detailed financial and ESG metrics. The idea was developed to present all significant information on 30 pages. This should include the business development, the economic, ecological, and social performance as well as significant opportunities and risks. Integrated reporting is intended to provide stakeholders, especially investors, with better infor‐ mation than multiple, extensive, and factually separate reports. The interactions between the three dimensions of sustainability become clear. Thus, both long-term developments, which are relevant for the shareholders and for the company, and short-term developments, as they are important for the periodic achievement of results or for securing liquidity, can be assessed. Financial and nonfinancial performance indicators are linked for this purpose to identify the success factors of the business model. In this way, an integrated report ensures the license to operate, as the economic success, the ecological footprint, the social balance sheet, the key ESG goals and the measures to achieve them are presented in a comprehensible way in the short and long term. An integrated report must also be compliant with accounting standards to replace the traditional annual report. The extensive participation of accounting organizations, sustainability reporting, audit firms, companies and academia thus provides a suitable basis for establishing this reporting. Finally, the IIRC's self-image is not limited to providing a better report. The report should also be evidence of whether a company is managed in an integrative manner. This ability is referred to as "integrated thinking". The link between "integrated reporting" and "integrated thinking" makes it clear that the goal is not just a new report, but a new, integrated form of management. Example EnBW EnBW recognized the importance of integrated reporting at an early stage, considering not only economic but also ecological and social dimensions. With the aim of providing a holistic presentation of the company's performance, we published an integrated annual report for the first time for the 2014 financial year, which is based on the recommendations of the IIRC (International Integrated Reporting Council). Through our concise and transparent reporting, we aim to meet the extended information needs of our stakeholders. Through our regular materiality analysis process, we ensure that all key topics from the past financial year are included in the Integrated Annual Report. 17.7 Sustainability Communication 301 <?page no="302"?> (Source: EnBW: Integrierte Berichterstattung, www.enbw.com/ integrierter-geschaeftsberi cht-2019/ weitere-informationen/ integrierte-berichterstattung/ , accessed: 26.07.2020) 17.8 Outlook For many companies, the professional management of sustainability is an everyday occurrence. Even if individual goals often still dominate, there is a learning process towards the integrated management of economic, ecological, and social goals. However, controlling departments are often insufficiently concerned with sustainability. Not only the will for sustainability is necessary, but also the professionalism in the practical implementation in the companies. To this end, sustainability must be integrated into corporate management, i.e., into controlling. Business economists and controllers are well advised to acquire these skills. This gives controlling an even stronger sense of purpose. At a Glance Sustainably managed companies require sustainable controlling. Convincing concepts and prac‐ tical experience exist. Corporate management can only be carried out from a single source. Neither parallel processes nor parallel structures should be set up permanently for the management of sustainability. However, many controllers are not yet prepared for this task. The management of ecological and social goals as well as the integrated consideration of the three dimensions require a further development of controlling and controllers. In terms of content, it must be clearly differentiated where efficiency is to be increased, where consistency is to be established and where sufficiency is to be striven for. Managing sustainability in the company requires transparency, and this requires the measurement of sustainability goals. Finally, managers and stakeholders also need to be informed about the commitment and achievements in sustainability. The sustainability report is more of a bridging solution; the aim should be an integrated report as a logical consequence of integrated management. Suggestions for Further Reading Sailer, U. (2022): Nachhaltigkeitscontrolling. So werden Unternehmen nachhaltig gesteuert, 4th edition, Munich. Baumast, A./ Pape, J./ Weilhofen, S./ Wellge, S. (2019): Betriebliche Nachhaltigkeitsleistung messen und steuern, Stuttgart. Literature Behrendt, S./ Göll, E./ Korte, F. (2016): Effizienz, Konsistenz, Suffizienz. Strategieanalytische Betrachtung für eine Green Economy, https: / / www.izt.de/ fileadmin/ publikationen/ IZT_Text_1-2018_EKS.pdf, accessed: 02.10.2022. Berlin, S./ Schulze, M./ Stehle, A. (2014): Umsetzung eines Green Controllings: Integration als Erfolgsrezept, in: Controller Magazin 6/ 2014, pp. 47-49. Colsman, B. (2016): Nachhaltigkeitscontrolling, 2nd edition, Wiesbaden. 302 17 Sustainability Controlling <?page no="303"?> Deutsches Global Compact Netzwerk/ Econsense (2018): Neuer Impuls für die Berichterstattung zu Nachhaltigkeit? Studie zur Umsetzung des deutschen CSR-Richtlinie-Umsetzungsgesetzes, https: / / ww w.globalcompact.de/ migrated_files/ wAssets/ docs/ Weitere-Themen/ CSR-RUG-Studie_DGCN-und-econs ense_online.pdf, accessed: 02.10.2022. EY (2016): Integrated Reporting. Linking strategy, purpose and value, https: / / www.integratedreporting.org / resource/ ey-integrated-reporting-linking-strategy-purpose-and-value/ , accessed: 02.10.2022. Fries, A./ Riess, B./ Brink, A. (2015): CRI Corporate Responsibility Index 2013. Erfolgsfaktoren unterneh‐ merischer Verantwortung, in: Schneider, A./ Schmidpeter, R. (eds.): Corporate Social Responsibility, 2nd ed., Berlin/ Heidelberg, pp. 359-380. Gleich, R./ Grönke, K./ Kirchmann, M./ Leyk, J. (2015): Integrated Reporting. Externe Berichterstattung und interne Steuerung nachhaltig verbessern, Freiburg/ Munich. Günther, E. (2015): CSR und Rechnungslegung, in: Schneider, A./ Schmidpeter, R. (eds.): Corporate Social Responsibility, 2nd edition, Berlin/ Heidelberg, pp. 557-569. Horvath, P./ Gleich, R. (2013) in: Biel, A.: Nachhaltigkeitscontrolling. Interview with Prof. Dr. Dr. h. c. mult. Peter Horvath and Prof. Dr. Ronald Gleich, in: Controller Magazin, 2/ 2013, pp. 20-25. Internationaler Controller Verein (2011): Green Controlling - Eine (neue) Herausforderung für den Control‐ ler, Gauting/ Stuttgart. Internationaler Controller Verein (2012): Controller-Statements, Grundlagen. Controller-Anforderungen, Selbstverständnis und Chancen, 3rd edition, Gauting. International Controller Association (2013): Controller Leitbild von IGC und ICV, www.icv-controlling.co m/ fi leadmin/ Verein/ Verein_Dateien/ Sonstiges/ Das_Controller-Leitbild.pdf, accessed: 26.07.2020. Internationaler Controller Verein (2017): Integrated Reporting - Schritte zu einer ganzheitlichen Unterneh‐ menssteuerung, Wörthsee. KPMG (2017): The KPMG Survey of Corporate Responsibility Reporting 2017, https: / / assets.kpmg/ con tent/ dam/ kpmg/ xx/ pdf/ 2017/ 10/ kpmg-survey-of-corporate-responsibility-reporting-2017.pdf, accessed: 02.10.2022. Sailer, U. (2020): Nachhaltigkeitscontrolling, 3rd edition, Munich. Schäffer, U. (2016): Nachhaltiges Management - Eine Bestandsaufnahme aus der Perspektive des Control‐ lings, in: Ahn, H./ Clermont, M./ Souren, R. (eds.): Nachhaltiges Entscheiden, Wiesbaden, pp. 319-332 . Schaltegger, S. (2014): Nachhaltigkeitsberichterstattung zwischen Transparenzanspruch und Management der Nachhaltigkeitsleistung, in: Fifka, M. (Hrsg.): CSR und Reporting. Nachhaltigkeits- und CSR-Berich‐ terstattung verstehen und erfolgreich umsetzen, Berlin/ Heidelberg, pp. 21-34. Vanini, U./ Krolak, T./ Langguth, H. (2019): Controlling. Grundlagen einer entscheidungsorientierten Unternehmensführung, 2nd edition, Munich. Vollmar, B. (2016): Controlling und Nachhaltigkeit, in: Becker, W./ Ulrich, P. (eds.): Handbuch Controlling, Wiesbaden, p. 797-833. Weber, J. (2010): Controlling und Nachhaltigkeit, in: Controller Magazin 2/ 2010, p. 12. Weber, J./ Schäffer, U. (2016): Nachhaltigkeit - Modewelle oder ein neues Arbeitsfeld für Controller? , in: Günther, E./ Steinke, K.-H. (Eds.): CSR und Controlling, Berlin/ Heidelberg, pp. 40-54. Wördenweber, M. (2017): Nachhaltigkeitsmanagement. Grundlagen und Praxis unternehmerischen Han‐ delns, Stuttgart. 17.8 Outlook 303 <?page no="304"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="305"?> 1 Schröder, 2019, p. 4. 18 Sustainability - Disclosure and Audit Thomas Barth and Stefan Marx Learning Objectives: The reader ■ has an overview of the development and content of sustainability reports ■ is familiar with the statutory regulations on non-financial reporting, ■ knows what forms of non-financial reporting audit are available, ■ knows the different auditors and audit procedures, ■ recognizes the limitations and criticisms of the applied form of disclosure and verification of sustainability reporting. Keyword List: Sustainability reporting, EU-CSR Directive, non-financial statement, non-financial report, audit procedures for sustainability reports, auditors of sustainability reports, implications for the audit opinion, role of the supervisory board in sustainability reporting, environmental issues, employee issues, social issues, respect for human rights, anti-corruption and anti-bribery. Sustainability - Disclosure and Audit Briefly Explained The CSR Directive of the EU obliges companies to publish non-financial information. 1 This information includes, among other things, environmental, employee, and social concerns, respect for human rights, and the fight against corruption and bribery. However, according to Section 289c of the German Commercial Code (HGB), this information only represents a minimum level of disclosure, and the legislator only intended the listed issues as a guide. The disclosures are to be made in such a way that they form an understanding of the course of business, the business result, and the situation of the corporation. Furthermore, in accordance with Section 289c (3) HGB, the concepts pursued, including the due diligence processes carried out, the material risks in the above-mentioned aspects, relevant financial performance indicators for management purposes as well as references to amounts reported in the annual financial statements and additional explanations must also be described in this context. Companies have the option of presenting the non-financial information as part of the management report in a separate chapter, referred to as the non-financial statement, or to prepare a separate sustainability report (non-financial report). <?page no="306"?> 2 Sections 289b and 315b of the German Commercial Code (HGB). 3 Section 171 (2) AktG. 4 IDW (ed.) 2017a, p. 9. 5 Durchschein 2017, p. 168. 6 Ibid. 7 IDW AS 350 n. F. para. 25. 8 IDW (ed.) 2015, p. 9, online. 9 BMU (ed.) 2000, p. 68, online. 10 BMU (ed.) 2019, p. 17, online. The so-called comply or explain principle applies to non-financial information, i.e., if, for example, there is no underlying concept for one of the aforementioned aspects in the company, this must be explained clearly and justifiably by the company. Non-financial information can be disclosed in two ways, e.g., via the Federal Gazette or on the company's own website. 2 Pursuant to Section 171 (1) of the German Stock Corporation Act (AktG), the non-financial report must be examined by the supervisory board, which must report in writing on the results of the examination at the general meeting. However, the audit does not have to be carried out by the supervisory board itself; instead, it can commission the audit 3 and also determine the scope and nature of the audit itself. 4 The audit of the non-financial statement is not a reserved task of auditors or auditing companies. 5 In this respect, it is also open to other institutions such as specific experts, specialized consulting firms, certified companies and NGOs etc. are able to conduct these audits. 6 In accordance with Section 317 (2) of the German Commercial Code, the auditor is only obliged to check whether the non-financial report has been submitted as part of the audit of the consolidated and annual financial statements. However, if a non-financial statement is provided in the management report, the auditor is required to critically evaluate the information in the non-financial statement in accordance with ISA 720 [EN] (Revised). 7 This means that it must be checked whether the information provided in the non-financial statement does not contradict the other financial information in the management report or the annual or consolidated financial statements. In addition, the supervisory board/ company has the option of having the above-mentioned auditors conduct a voluntary audit in accordance with ISAE 3000 (International Standards on Assurance Engagements). This form of audit can be designed very flexibly in terms of type and scope. Basically, ISAE 3000 distinguishes between an audit with reasonable and limited assurance. 8 The disadvantage for the addressees of the reporting is that the scope and content of the audit varies considerably and there is thus no standardized audit opinion. This makes it much more difficult to compare audits and the audit procedures used across companies. 18.1 Introduction The topic of sustainability is becoming more and more important to society. While in 2000 just under 15% 9 of the German population paid attention to the topic of sustainability, in 2018 this figure had already risen to around 75%. 10 The topic is also becoming increasingly important for companies. Events such as the financial crisis in 2008 made it clear that purely financial reporting is not sufficient to fully reflect a company. This led to a loss of public confidence in corporate reporting and created a need for greater transparency on non-financial information. 306 18 Sustainability - Disclosure and Audit <?page no="307"?> 11 Schneider, Schmidpeter 2015, p. 434. 12 Schröder, 2019, p. 4. 13 WPK (ed.) 2016, p. 3, online. 14 Commission of the European Community (ed.) 2001, p. 7, online. 15 European Commission (ed.) 2013, p. 5, online. 16 European Commission (ed.) 2013, p. 2, online. 17 Schröder 2020, p. 50. 18 Schröder 2020, p. 64. A key component of this transparency is the issue of sustainability. The business community finally responded to the changing needs by voluntarily publishing so-called sustainability reports. 11 In 2014, the European Parliament and the European Council adopted Directive 2014/ 95/ EU, the so-called Corporate Social Responsibility - CSR Directive for short, which brought the disclosure of non-financial information more into focus. The Directive obliges certain companies, groups and credit and insurance institutions to publish non-financial information. 12 The provisions of the Directive were incorporated into commercial law largely unchanged by the CSR Directive Implementation Act (CSR-RL-UmsG). 13 The non-financial statement can be published either as part of the management report or in a separate sustainability report. In Germany, the "Institut der Wirtschaftsprüfer" (Institute of Public Auditors in Germany) has dealt with the audit of the non-financial statement and developed a standard for the audit and the presentation of the result of the audit. This is intended to lend greater credibility to the report. The article describes how social and ecological aspects are presented within the framework of the CSR-RL-UmsG. Furthermore, the audit of the non-financial statement by the auditor on the basis of the IDW is presented. Finally, it will be examined to what extent the content-related audit represents a benefit for the addressee of the annual or consolidated financial statements. 18.2 CSR Directive 2014/ 95/ EU According to the European Union's definition, corporate social responsibility is "[…] a concept that serves as a basis for companies to integrate social and environmental concerns into their business activities and into their interactions with stakeholders on a voluntary basis". 14 Directive 2014/ 95/ EU arose from unsatisfactory disclosure of non-financial information. 15 With the so-called "Corporate Social Responsibility Directive" (hereinafter CSR Directive), the EU Commission set itself the goal of counteracting these circumstances. The resulting amendment proposal was seen as a further development of the existing directives. With regard to sustainable development, the directive is intended to oblige companies to be more transparent in their social responsibility. 16 The proposal for the CSR Directive was adopted by the EU Parliament and Council on 22 October 2014. 17 In Germany, the CSR Directive was implemented on 19 April 2017 by the Corporate Social Responsibility Directive Implementation Act (hereinafter CSR-RL-UmsG), which came into force retroactively for the entire 2017 financial year. 18 The legal requirements of the CSR-RL-UmsG must be implemented by certain companies and groups in the (group) management report and are regulated in Sections 289b -289e and Sections 315b - 315c HGB. Pursuant to Section 289b of the German Commercial Code (HGB), a corporation must add a non-financial statement to its management report if it fulfills the following characteristics: 18.2 CSR Directive 2014/ 95/ EU 307 <?page no="308"?> 19 IDW (ed.) 2017a, p. 18. 1. the corporation meets the requirements of section 267(3) sentence 1, 2. the corporation is capital market-oriented within the meaning of § 264d and 3. the corporation has an annual average of more than 500 employees. § Section 267 (4) to (5) shall apply accordingly. If the non-financial statement forms a special section of the management report, the corporation may refer to the non-financial disclosures contained elsewhere in the management report. Pursuant to Section 289c of the German Commercial Code (HGB), the non-financial statement within the meaning of Section 289b must briefly describe the business model of the corporation. The non-financial statement shall also include at least the following aspects: ■ Environmental emissions, water consumption, use of renewable energies, resource consumption; ■ Employee matters Gender equality, working conditions, workers' rights, safety at work; ■ Social issues Dialogue at local or regional level, ensuring the protection and development of local communities; ■ Respect for human rights Measures to ensure respect for human rights and ■ Combating corruption and bribery actions taken against corruption and bribery. While the aspects listed are to be regarded as minimum disclosures, the examples provided by the legislator serve only as guidance. Companies are permitted to report on further non-financial aspects. For the above-mentioned matters, the information to be disclosed is that which is necessary for an understanding of the development and performance of the business and the position of the company, together with the effect of the company's activities on the above-mentioned matters. In addition, further information must be disclosed, which must also relate to the non-financial aspects. Pursuant to Section 289 c (3) HGB, the following must be disclosed ■ the concepts pursued including the due diligence processes carried out as well as the results from the concepts pursued, ■ the main risks associated with the company's own business activities and business relation‐ ships that are very likely to have a serious negative impact on the above-mentioned nonfinancial aspects, and how these risks are dealt with, ■ the relevant non-financial performance indicators used for internal control, and ■ References to amounts reported in the financial statements and additional explanations where these are necessary for comprehension, to describe. Non-financial performance indicators are considered relevant to management if they contribute to the achievement of targets and the assessment of opportunities and risks. In addition, relevance is determined by their use in decisions and internal reports. 19 How deep into the supply chain the company has to report is not specified. The recommenda‐ tions of the frameworks can be used as a guide. However, it should be stated up to which level of 308 18 Sustainability - Disclosure and Audit <?page no="309"?> 20 IDW (ed.) 2017a, p. 20. 21 BT-Drucks. 18/ 9982, p. 52, online. 22 Sections 289b and 315b of the German Commercial Code (HGB). 23 Hecker, Bröcker 2017, p. 761. the supply chain the non-financial statement comments. 20 If companies do not pursue a concept for one or more obligatory aspects, they must submit a declaration in accordance with Section 289c (4) HGB and justify this (comply or explain). Companies are allowed to use national and international frameworks according to § 289d HGB. The selected frameworks must be mentioned. If none are used, this must be justified in accordance with the comply or explain principle. If the selected frameworks do not meet the content requirements of the CSR-RL-UmsG, they must be supplemented independently by the company. 21 In exceptional cases, companies are permitted to omit disclosures pursuant to Section 289e HGB. This provision applies if negotiations are being conducted on the above-mentioned non-financial matters and disclosure would be detrimental to the company. Care must be taken to ensure that the omitted information does not impair understanding of the company's business performance, results, and position. This also applies to the impact of the company's activities on non-financial matters. The decision as to which information may be omitted should be made on the basis of prudent commercial judgment. However, the omitted information must be published as soon as the reason no longer applies. The German legislator offers the companies concerned two disclosure options. In principle, the information must be published in the (consolidated) management report. However, it is possible to disclose non-financial information in a separate report if this complies with the legal requirements of the non-financial statement. In addition, the separate report must be published either with the (consolidated) management report or within four months of the reporting date in the Federal Gazette or on the company's own website. 22 This choice gives rise to two different designations: if the non-financial information is included in the management report, it is referred to as a non-financial statement. If it is published separately, it is referred to as a non-financial report. 23 18.3 Audit of the non-Financial Statement 18.3.1 Review by the Supervisory Board Section 171 (1) of the German Stock Corporation Act (AktG) requires the supervisory board, and not the auditor, to review the content of the non-financial statement. Section 171 of the German Stock Corporation Act (AktG) does not merely refer to the supervisory board taking note of the declaration, but to an obligation to review it. As the non-financial statement is an essential source of information for the various stakeholders in addition to financial reporting, it must also be trustworthy according to the will of the legislator. It should be noted here that the entire supervisory board, and not just the audit committee, is responsible for reviewing the non-financial statement. This also shows the high importance of the standard. The aim of the supervisory board should be to examine the non-financial report for propriety and appropriateness. the declaration is properly prepared if all the requirements of the 18.3 Audit of the non-Financial Statement 309 <?page no="310"?> 24 IDW (ed.) 2017a, p. 8. 25 Hecker, Bröcker 2017, p. 766. 26 Schröder 2020, p. 82. 27 IDW (ed.) 2017a, p. 9. 28 section 317 (2) HGB. 29 IDW (ed.) 2015, p. 9, online. 30 AccountAbility (ed.) 2008, p. 4, online. 31 Arvidsson 2019, p. 146. 32 In practice, IDW AS 821 and increasingly AA1000 no longer play a role. The dominant auditing standard is ISAE 3000, which is why the IDW has decided to repeal IDW AS 821. However, the approach and audit procedures described therein can still be used as a standard of orientation. German Commercial Code have been met. It is fit for purpose if its contents are in line with the company's objectives. 24 The non-financial statement must be read critically, questioned by means of plausibility con‐ siderations, and the relevant persons proactively questioned. 25 For this audit task, the supervisory board is permitted under Section 111 (2) AktG to call upon support in the form of an external auditor. In this context, the supervisory board may use the audit result of the external auditor as a basis for further decisions after a critical assessment. 26 When commissioning an external material audit, the supervisory board determines both the scope and intensity of the audit. It, therefore, has the option of extending the voluntary external audit over the entire report or only over individual sections. Furthermore, the supervisory board can choose between reasonable and limited assurance. 27 The statutory duty of the auditor requires only the formal audit, i.e., it must be verified whether the non-financial statement has been submitted to the auditor. 28 18.3.2 Development of the Audit of Sustainability Reports The International Standard on Assurance Engagements 3000 (ISAE3000) was developed by the International Auditing and Assurance Standard Board (IAASB) and was first published in 2003. The auditing standard is intended for reports that do not contain past financial information. Due to its "neutrality", this auditing standard can and is applied to sustainability reports. ISAE3000 distinguishes between reasonable and limited assurance. 29 The AA1000 Assurance Standard (AA1000 AS) is a further development of the AA1000, which was also first published in 2003. 30 The standard was developed by the UK-based NGO AccountAbility. Unlike the ISAE3000, the AA1000 (AS) was tailored to sustainability reports. Here too, a distinction is made between two audit intensities (Type 1 & Type 2 engagement). 31 The development of auditing standards in Germany began with IDW AS 820, "Principles of proper environmental report audits". This auditing standard, published by the IDW in 1999, mainly dealt with the environmental reports that were increasingly published in the 1990s. With the emergence of the disclosure of social aspects and the resulting sustainability reports, IDW AS 820 was replaced in 2006 by IDW AS 821 "Principles of proper auditing or review of reports in the area of sustainability". The audit intensity of IDW AS 821 distinguishes analogously between ISAE3000 between reasonable assurance and limited assurance. 32 310 18 Sustainability - Disclosure and Audit <?page no="311"?> 33 Durchschein 2017, p. 168. 34 Arvidsson 2019, p. 139. 35 ibid. 36 ibid. p. 140. 37 King, Bartels, 2015, p. 41, online. 38 Arvidsson 2019, p. 141. 39 IDW AS 821 para. 19. 40 IDW AS 821 para. 64. 41 IDW AS 821 para. 65. 42 IDW AS 821 para. 20. 43 IDW AS 821 para. 23. 18.3.3 Sustainability Reporting Auditor To date, the role of the external auditor for sustainability reports or the like has not been defined, so that, unlike in the case of annual financial statements, it is not reserved for auditing firms. 33 Such regulations do not exist in the international arena either. This makes it possible for other institutions to take on the role of the external auditor. 34 In the literature, the auditors are basically divided into two groups, auditors (WP) and nonauditors (NWP). In practice, sustainability reports are usually audited by the so-called Big Four (EY, KPMG, PwC, and Deloitte) auditing companies. The NWP group includes various companies, such as specific subject matter experts, specialized consulting firms, certified societies and NGOs, etc. 35 Despite the possibility of auditing by NWPs, WPs currently dominate the (niche) market. 36 In 2015, the Big Four carried out almost two-thirds of the audits of the sustainability reports of the 250 companies with the highest turnover. 37 While WPs already have a lot of experience with general audit procedures, NWPs usually have higher specific expertise and, if applicable, in-depth knowledge in the area of sustainability. 38 In order to be able to guarantee an appropriate audit opinion, the auditing standard IDW AS 821 stipulates that an audit in the area of sustainability should only be carried out by auditors with special knowledge and experience. However, there is no description of the special knowledge and experience. 39 If, however, the situation arises that material matters exceed the auditor's scope of experience, appropriate specialists must be called in. The standard gives examples of technical information, such as emission levels, soil contamination, site analyses or information in connection with health protection, occupational safety or human rights. 40 If such a case arises, the findings of the technical specialist are to be critically evaluated. 41 In the event that the auditor is unable to comprehend the findings of the technical specialist, separate certificates must be issued by both parties. 42 The procedure of the audit or review should be based on the interest of the report reader. Several criteria or characteristics are listed which the information in the report to be audited must fulfil. The information must be: 43 ■ be significant for the report (relevance), ■ adequately reflect the facts of the case (suitability), ■ enable a plausible assessment of the report (reliability), ■ reflect the objectivity of the report (neutrality), ■ be catchy for the reader of the report (comprehensibility). In addition, authorized and expert-recognized criteria from generally accessible laws or other regulations can be used. The standard names the criteria of GRI, OECD, ILO, UNCTAD, and 18.3 Audit of the non-Financial Statement 311 <?page no="312"?> 44 IDW AS 821 para. 25. 45 IDW AS 821 para. 60. 46 IDW AS 821 para. 39. 47 IDW AS 821 para. 33. 48 IDW AS 821 para. 34. 49 IDW AS 350 n. F. para. 4. 50 IDW AS 350 n. F. para. 20l. 51 IDW AS 350 n. F. para. 20k. 52 IDW AS 350 n. F. para. 25. 53 IDW AS 350 n. F. para. 20g. 54 IDW AS 350 n. F. para. 15. UNEP 44 as examples. The standard explicitly states that the audit or review does not extend to compliance with sustainability-related standards (e.g., statutory regulations on environmental protection, social legislation, or standards). It focuses primarily on compliance with the abovementioned characteristics. 45 The disclosures to be audited must meet all the selected characteristics. To this end, the auditor must first acquire an understanding of the impact on sustainability and an understanding of sustainability management, in particular its IT system. 46 The disclosures permitted in the non-financial statement are divided into three categories. This information must be either: 47 ■ stem from a demonstrable fact, ■ be comprehensible assumptions or ■ Reflect conclusions from plausible premises and assumptions. The verifiable disclosures from the actual origin are weighted more heavily in the audit opinion than the other two categories. Furthermore, the auditing standard requires a clear and understandable presentation of the disclosures. 48 18.3.4 Statutory Auditors' Mandatory Approach to the non-Financial Statement Since 15 December 2018, the audit of the management report has been based on "IDW-AS-350 - IDW Auditing Standard: Audit of the management report as part of the audit of the financial statements (IDW AS 350 n.F.)". 49 For the non-financial disclosures, the division into disclosures typical of the management report and disclosures not typical of the management report as well as their effect on the auditor's report is of particular importance. All disclosures required by §§ 289 - 289 f, 315 - 315d HGB as well as by DRS 20 are understood as typical for the management report. The content of these disclosures is to be audited in accordance with § 317 (2) HGB. 50 All disclosures that go beyond those required by law and are therefore not subject to a substantive audit are considered to be unrelated to the management report. However, this only applies if they are clearly distinguishable from the disclosures typical of the management report. 51 However, non-management report disclosures are subject to critical appraisal under ISA 720 (Revised) (EN). 52 A clear demarcation is described in IDW AS 350 n. F. as a spatial separation or identification of the unaudited disclosures that do not interfere with the clarity or transparency of the management report. 53 In case of missing or unclear demarcation, the auditor may decide to include the nonmanagement report disclosures in the substantive audit. 54 While information on sustainability reports is considered to be information unrelated to the management report, the information in the non-financial statement is subject to a special 312 18 Sustainability - Disclosure and Audit <?page no="313"?> 55 IDW (ed.) 2017b, p. 48. 56 IDW AS 350 n. F. para. 25. 57 IDW AS 350 n. F. para. 50. 58 IDW AS 350 n. F. para. 15. 59 ISA [DE] 720 (Revised) para. 11. regulation. Despite the fact that the information in the non-financial statement is considered typical for the management report, its content does not have to be audited. The auditing standard does, however, require the § Section 317 (2) of the German Commercial Code (HGB). In the case of the separate non-financial report, it must be examined whether the (consolidated) management report contains a corresponding reference to publication on the company's own website. Furthermore, in the case of the separate non-financial report, an additional audit must be performed four months after the balance sheet date to determine whether the separate report was submitted on time. For the treatment of the disclosures in the non-financial statement and for the audit of its content, the auditing standard refers to IDW DAS 351 and IDW DAS 352. Both auditing standards are currently under development. 55 For the disclosures in the non-financial statement, the auditing standard provides for the critical appraisal in accordance with ISA 720 [EN] (Revised). 56 If there is insufficient separation or identification of the non-management report and typical management report disclosures that are not subject to a substantive audit, the auditor may decide to include them in the further audit of the typical management report disclosures. The engagement agreements and the degree of impact of the disclosures are to be taken into account in the decision. The actual subject matter of the audit of typical management report disclosures relates primarily to the processes of (group) management report preparation. In doing so, the process is to be assessed for danger points that suggest a deviation from the disclosures required by law. For this purpose, the auditing standard provides for inquiries to be made of the company's legal representatives and employees who might have the relevant know-how about such "danger spots". In addition, the standard provides for an independent inspection as well as analytical audit procedures and observations by the auditor. In addition to legal compliance, disclosures typical of the financial statements are tested for deviations from material disclosures in the financial statements. 57 Disclosures are considered "material" if they can be expected to influence the decisions of the addressee (reader of the report). 58 The auditor has a duty to critically evaluate the non-financial statement. This is based on International Standard on Auditing [DE] 720 (Revised) "Auditor's Responsi‐ bilities in Relation to Other Information". The ISA [DE] 720 (Revised) first applies to audits of financial statements for periods beginning on or after Dec. 15, 2021. 59 There is also an obligation to critically evaluate other information. Other information is additional information that gives more context to the disclosures in the financial statements or the management report. However, it may also relate to other matters. In this context, the annual report is understood as a combination of documents which, in line with accounting, is understood as annual information output. According to the original version of ISA 720, the contents of both CSR and sustainability reports do not count as other information. However, the German modification stipulates that unaudited management report disclosures are generally considered other information. This means that disclosures in the non-financial statement are included if they are included in the (group) management report. While another German modification also categorizes the disclosures of the separate non-financial report with a corresponding reference in 18.3 Audit of the non-Financial Statement 313 <?page no="314"?> 60 ISA [DE] 720 (Revised) para. 5. 61 ISA [DE] 720 (Revised) para. 14. 62 ISA [DE] 720 (Revised) paras. 11, 12b, A39 et seq. 63 ISA [DE] 720 (Revised) para. A39. 64 ISA [DE] 720 (Revised) para. 17. 65 IDW AS 400 n. F. paras. 45, 52. 66 IDW AS 350 n. F. para 16v. 67 IDW AS 350 n. F. Tz. A117. 68 IDW AS 350 n. F. para. 119 in conjunction with para. 121. the (group) management report as other information, there is no such regulation for sustainability reports outside the (group) management report. 60 The auditor shall assess, by reading, whether there are any inconsistencies in the non-financial statement with ■ the disclosures in the financial statements or the (consolidated) management report, and ■ the knowledge gained by the auditor exist. 61 Which information is subject to critical appraisal is based on the so-called obligatory discretion. Relevant factors are named for the obligatory discretion. These include the significance of the amount. If material other information is misrepresented or misleading, it is said to be a misrepresentation. If material inconsistencies occur, appropriate responses and consideration in the auditor's report are expected. 62 If the critical appraisal gives rise to the suspicion of material inconsistencies or misstatements, further evidence must be requested to corroborate the statements made in the other information and thus refute the suspicion. 63 If the suspicion cannot be refuted, appropriate corrective action must be demanded, which the auditor must subsequently determine or, if he refuses to do so, demand from those responsible. 64 18.3.5 Effects on the Audit Opinion Several sections are to be formed in the auditor's report. In the "Audit Opinion" section, the result of the audit must be announced and its basis explained. If the management report contains information that is not part of the management report or is typical of the management report and is not subject to an audit, i.e. is other information, the requirements of IDW AS 350 (revised) and ISA 720 (revised) must be taken into account. 65 If the auditor decides not to include the non-financial information in the substantive audit, this must be stated in the section "Audit Opinions". It must be explicitly described here that the audit opinion on the management report does not relate to the disclosures in the non-financial statement. This rule applies to unaudited disclosures that are not clearly distinguished from substantive audited disclosures. 66 Depending on the auditor's discretion, the auditor may opt for an explicit description in the auditor's report, even in the case of clearly demarcated disclosures. 67 Pursuant to § 317 (2) HGB, a supplement is to be made in the auditor's report if a separate nonfinancial report has not been published in due time. This situation is an exceptional case. As a rule, no supplement is to be included in the auditor's report. If there is a significant, negative impact on the clarity of the report due to information in the non-financial statement in the (group) management report that is not clearly delimited from the management report, the audit opinion in the auditor's report is to be qualified or refused, depending on the extent. 68 314 18 Sustainability - Disclosure and Audit <?page no="315"?> 69 ISA [DE] 720 (Revised) para. 21. 70 ISA [DE] 720 (Revised) para. 22. 71 ISA [DE] 720 (Revised) para. D.22.2. 72 European Court of Auditors 2019, p. 40, online. 73 BT-Drucks. 18/ 9982, p. 31, online. 74 Blasco, King 2017, p. 9. 75 Kirchhoff Consult AG (ed.), BDO AG (ed.) 2020, p. 9. 76 IDW AS 821 para. 49. 77 IDW AS 821 para. 46. 78 IDW AS 821 para. 47. ISA 720 (Revised) requires a separate section in the auditor's report for other information in addition to the explicit mention in the audit opinion section. 69 This section must reflect the following matters: 70 1. a statement that the company's management is responsible for the other information. 2. an indication of what other information has been critically appraised and what is expected after the date of the note. 3. an explicit statement that the audit opinion does not cover the other information and, therefore, does not express an audit opinion or any other form of conclusion on that information. 4. the fact that the other information was subject only to a critical appraisal. 5. a statement that the auditor is not required to report or, in the case of an uncorrected material misstatement, a descriptive statement. Numbers four and five may only be described in the auditor's report if the duty of confidentiality pursuant to § 323 (1) HGB has been waived. 71 Unlike in France and Italy, 72 no obligations for substantive testing were ordered in this country. This is intended to avoid overburdening the economy. 73 Worldwide, more and more companies are deciding to have their sustainability reports audited externally on a voluntary basis. 74 The same can be said for the external audit of non-financial statements in Germany. A study by Kirchhoff Consult AG and BDO AG revealed that 28 of the 29 DAX30 companies that are obliged to produce a non-financial statement used an external audit by auditing firms. 75 18.3.6 Audit Procedures The basic audit procedures for obtaining reasonable assurance generally result from the audit of the structure and function of the IT system of the sustainability management, which is used for the non-financial information. The scope of the audit extends from the collection of data to the disclosure in the non-financial statement. Only if a capable information system can be demonstrated by the structure and function audit, the disclosures in the non-financial statement are to be audited. 76 In manageable cases, the auditing standard allows for an assessment based on evidence-based audit procedures 77 instead of a system audit. The setup audit represents a target/ actual comparison. The comparison refers to the EDP system of the sustainability management. As with the selected properties of the information, the target state can be derived from the legal requirements, codes, or internal guidelines. In the next step, the existing information system (actual object) is to be recorded and compared with the target specifications at the end (target-actual comparison). The auditor must also examine the documentation of the system process, interviews, and assessments from his own observations. 78 18.3 Audit of the non-Financial Statement 315 <?page no="316"?> 79 IDW AS 821 para. 48. 80 IDW AS 821 para. 51. 81 IDW AS 821 para. 53. 82 IDW AS 821 para. 55. 83 IDW AS 821 para. 58. The functional audit examines whether the information system described above is effective, i.e. has been used, during the specified reporting period. 79 The audit of the disclosures consists of analytical procedures and case-by-case examinations. In the case of analytical audit procedures, the disclosures are examined for material inconsistencies. In doing so, comparisons and plausibility considerations can be made with the financial statements and the management report. 80 The scope of a case-by-case assessment depends on the characteristics of the company. In particular, the size and impact on the sustainability concerns described should be taken into account. Several examples are given as characteristic case-by-case examinations for disclosures that arose from a fact. Among them are audits: 81 ■ of emissions, water & energy consumption by reconciliation with the measuring instruments, ■ of waste by reconciling bookings and incoming invoices, ■ of information on employees by information from Human Resources. In addition, IDW AS 821 provides suggestions for the examination of assumptions made and conclusions drawn. In particular, the reading of sustainability-related protocols, the questioning of relevant employees or the comparison of statements made and the analysis of investment projects of the coming years are suggested. 82 The review (limited assurance) is based on inquiries, comparisons and critical reading. The contact persons for the inquiries are employees and managers who have participated in the preparation of the non-financial statement and have the corresponding know-how. While the auditor examines the actual EDP system during the audit, only questions are asked in this regard during the audit review. The questioning is followed by a critical reading of the non-financial statement. The auditor compares whether the statements made correspond to the findings obtained from the survey. If the auditor has also audited the financial statements and management report, the findings from the audit of the financial statements and management report must be taken into account. 83 After the audit or auditor's review has been carried out, an overall opinion is to be formed. In doing so, all findings are to be taken into account. In particular, an assessment is to be made as to whether the material disclosures give a true and fair view; this applies to both positive and negative matters. 18.4 Critical Appraisal Non-financial reporting is intended to increase transparency with regard to sustainable corporate governance. This gives the readers of the report the opportunity to include these aspects in their decisions. 316 18 Sustainability - Disclosure and Audit <?page no="317"?> 84 Directive 2014/ 95/ EU. 85 BT-Drucks. 18/ 9982, p. 44. 86 Baumüller, Scheid, DB, p. 125. 87 IDW AS 821 para. 57. 88 Kirchhoff Consult AG (ed.), BDO AG (ed.) 2020, p. 9. 89 IDW (ed.) 2017a, p. 8. Only Large Companies / Target Group too Small The CSR Directive only applies to large corporations. Small and medium-sized enterprises are therefore only indirectly affected. The disclosure requirements of non-financial performance indicators in the management report of SMEs are regulated differently in the EU. Some Member States have introduced a reporting obligation. The additional expense and the question of ac‐ countability to third parties were cited as arguments against a duty in several countries, including Germany. However, according to the explanations to the addendum to the EU Commission's guidelines, large companies with a reporting obligation are obliged to include SMEs as part of the supply chain in their reporting if this is proportionate and relevant. 84 With regard to SMEs, the German legislator has only implemented the minimum reporting requirements in §289b (1) HGB. This was justified by the possible burden on SMEs. 85 The concept of materiality is again to be determined on an individual company basis and therefore the reporting limits are not clearly defined. 86 Furthermore, the question of including companies in the supply chain depends on the reporting standard chosen (e.g. GRI, IIRC or DNK). Lack of Uniformity With Regard to the Framework The legislator's decision not to specify a particular framework for the preparation of the nonfinancial statement also means that it is more difficult for the reader of the report to compare the various content elements. The reference in Section 289d HGB that if an established framework is not used, this must be stated and explained ("apply or explain") does not contribute to an increase in transparency for the reader of the report. Inconsistent Scope of Testing The extent to which the audit procedures described above, as well as the audit or review performed by auditors in accordance with the auditing standard, contribute to a better confidence in the accuracy and quality of sustainability reporting cannot be clearly determined. The Supervisory Board is required to review the non-financial reporting for propriety and appropriateness. The review involves less audit work than the audit. Here, the responses to the survey are evaluated, compared, and critically assessed as a reference for the information in the report. 87 Accordingly, the quality of the audit opinion depends on the quality of the questions. This in turn is linked to the auditor's wealth of experience. Here, too, the problem of the lack of stakeholder interaction described above arises. It is questionable whether, without interaction, the auditor can ask the appropriate questions that will result in meaningful answers. Accordingly, the assessment should be viewed with great caution. For DAX 30 companies, limited assurance on the non-financial statement is currently the most common option. 88 However, only a reasonable assurance audit is comparable to the assurance provided by the statutory audit. 89 For the reader of the report, the differences and also the limitations are not always transparent, so that he may assume accuracy as in traditional financial reporting, which is not always the case 18.4 Critical Appraisal 317 <?page no="318"?> 90 IDW (ed.) 2017a, p. 8. 91 IDW AS 821 para. 28. 92 Gomez, Lang, Wohlgemuth 2013, p. 314. due to the above-mentioned options. The large number of audit options and the lack of knowledge about the audit depth also make it difficult for the report reader to assess the added value of such an audit. Auditor not Uniformly Regulated Due to the non-uniformity of the audit by WP and NWP, the quality of the audit is also difficult to classify for the "normal" balance sheet reader. In principle, the auditor is to be regarded as suitable for the audit due to his extensive knowledge of the company and the processes as well as the professional regulations. On the other hand, there is a lack of u. Environmental and social knowledge that can only be provided by NWP. 90 The auditing standards require auditors to have specific knowledge and experience in sustainability reporting. However, there is a lack of concrete requirements regarding the necessary expertise. Moreover, it remains questionable whether all NWPs have the same understanding of audit technique and -experience. A uniform regulation regarding the training requirements for NWP and WP would be advisable as a quality assurance instrument. Audit Opinion Does Not Allow Conclusions on Performance With Regard to Sustainability The auditor's opinion relates to the regularity of the non-financial reporting, i.e. compliance with legal requirements. The audit opinion does not provide any information on the company's performance with regard to sustainability. This means that the reader of the report cannot understand the importance that the management board has attached to the fulfilment of the sustainability objectives and the role that the supervisory board has played in this respect. Involvement of Investors The existing standards and auditing standards for sustainability reporting only take the view and role of investors into account to a limited extent, both in the area of equity and debt capital. At this point, it would be interesting to see to what extent the targets set for the management take sustainability aspects into account. In addition, sustainability reporting on the part of nonlisted investors would be required. No active Involvement of Report Readers The standard IDW AS 821 does not provide for active interaction with the report readers or relevant stakeholders. Although among other things, recorded stakeholder dialogues are taken into account, 91 no direct exchange of expectations with regard to the audit processes is provided for. 92 It is questionable how the interests of the report readers can actually be represented in this way, especially since it can be assumed that different report readers also have different and possibly conflicting needs. This means that the significance of the audit for the report readers depends strongly on the selected characteristics and whether these correspond to the demands 318 18 Sustainability - Disclosure and Audit <?page no="319"?> 93 Clausen, Loew 2005, p. 37, online. of the report reader. A stronger stakeholder involvement could lead to a more meaningful audit opinion. 93 At a Glance A mandatory audit of non-financial reporting, especially sustainability reporting, is considered sensible for the reasons mentioned above. However, here, too, there is a need for a prescribed standard or the elimination of options (e.g., auditor vs. non-auditor; review vs. audit, scope of the audit, etc.), so that those reading the report have a better basis for their decisions. Only an increase in transparency by the legislator through uniform and in-depth requirements can sufficiently satisfy the increasing information needs of report readers. Literature AccountAbility (Ed.) (2008): AA1000 ACCOUNTABILITY. PRINCIPLES STANDARD 2008, https: / / www.accountability.org/ standards/ aa1000-accountability-principle s, accessed 02.10.2022. Arvidsson, S. (2019): Challenges in Managing Sustainable Business, Cham: Palgrave Macmillan. Baumüller, J.; Scheid, O.: Nichtfinanzielle Berichtspflichten im deutschen Mittelstand: "Kollateralschaden" oder "hidden agenda"? ; in: Der Betrieb, No. 4/ 2020, pp. 121-129. Blasco, J.; King, A.(2017): The KPMG Survey of Corporate, https: / / assets.kpmg/ content/ dam/ kpmg/ xx/ pdf/ 2017/ 10/ kpmg-survey-of-corporate-responsibility-reporting-2017.pdf, accessed 26/ 07/ 2020. BMU (Ed.) (2019): Umweltbewusstsein in Deutschland 2018, https: / / www.umweltbundesamt.de/ sites/ defau lt/ files/ medien/ 1410/ publikationen/ ubs2018_-_m_3.3_basisdatenbroschuere_barrierefrei-02_cps_bf.pdf, accessed 09.07.2020. BMU (Ed.) (2000): Umweltbewusstsein in Deutschland 2000, https: / / www.umweltbundesamt.de/ sites/ defau lt/ files/ medien/ publikation/ long/ 3268.pdf, accessed 09.07.2020. Clausen, J.; Loew, T. (2005): Mehr Glaubwürdigkeit durch Testate? Internationale Analyse des Nutzens von Testaten in der Umwelt- und Nachhaltigkeitsberichterstattung, https: / / www.bmuv.de/ fileadmin/ Daten_ BMU/ Download_PDF/ Wirtschaft_und_Umwelt/ testate_studie_lang.pdf, accessed 19.07.2020. Commission of the European Community (ed.) (2001): Green Paper on a European framework for Corporate Social Responsibility, https: / / eur-lex.europa.eu/ LexUriServ/ LexUriServ.do? uri=COM: 2001: 0366: FIN: EN: PDF, accessed 13.06.2000. Durchschein, C. (2017): Einfluss des Wandels der Unternehmensberichterstattung auf die Informationsfunktion des Wirtschaftsprüfers, Wiesbaden: Springer Gabler. European Commission (ed.) (2013): Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/ 660/ EEC and 83/ 349/ EEC as regards disclosure of non-financial and diversity information by certain large companies and groups, https: / / eur-lex.europa.eu/ legal-content/ E N/ TXT/ PDF/ ? uri=CELEX: 52013PC0207&from=EN, accessed 02.10.2022. European Union (Ed.) (2014): Official Journal of the European Union L 330, https: / / eur-lex.europa.eu/ legal -content/ EN/ TXT/ PDF/ ? uri=OJ: L: 2021: 330: FULL&from=EN , accessed 02.10.2022. European Court of Auditors (ed.) (2019): Rapid Case Review of Sustainability Reporting: a stocktaking exercise of EU institutions, bodies and agencies, https: / / www.eca.europa.eu/ Lists/ ECADocuments/ RCR _Reporting_on_sustainability/ RCR_Reporting_on_sustainability_DE.pdf, accessed 02.07.2020. 18.4 Critical Appraisal 319 <?page no="320"?> Gabriel A. (2015): Freiwillige Veröffentlichung und Prüfung von GRI-Nachhaltigkeitsberichten, Wiesbaden: Springer Gabler. Gómez, J.; Lang, C.; Wohlgemuth, V. (2013): -IT-gestütztes Ressourcenund-Energiemanagement, Berlin; Springer-Verlag. Hecker, A.; Bröcker, N. (2017): Die CSR-Berichtspflicht in der Hauptversammlungssaison 2018. Die Aktien‐ gesellschaft, 62(21), 761-770, https: / / doi.org/ 10.9785/ ag-2017-2103, accessed 15.07.2020. IAASB (Ed.) (2013): SAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information, www.ifac.org/ system/ files/ publications/ files/ ISAE-3000-Basis-for-Conclusions.p df, accessed 07/ 15/ 2000. IDW (Ed.) (2015): IDW Positionspapier: Vorformulierte Bescheinigungen, www.idw.de/ blob/ 101066/ f6da9bb 367ac9b05a68987ad32c2ab1e/ down-positionspapier-vorformulierte-bescheinigungen-data.pdf, accessed 12.07.2020. IDW (Ed.) (2016): International Standard on Auditing [DE] 720 (Revised) Auditor's Responsibilities in Relation to Other Information (Status: 15.12.2016). IDW (Ed.) (2017a): IDW Positionspapier: Pflichten und Zweifelsfragen zur Nichtfinanziellen Erklärung als Bestandteil der Unternehmensführung (Stand: 14.06.2017), www.idw.de/ blob/ 101498/ 30d545b52d2fcc5 d 71a71035b8336a70/ down-positionspapier-nachhaltigkeit-nichtfinanzielle-erklaerung-data.pdf , accessed 21.07.2020. IDW (Ed.) (2018a): IDW Positionspapier zu Bestandteilen der externen Berichterstattung und zur Reichweite ihrer Prüfung, www.idw.de/ blob/ 106766/ dbfa391772c951018387d9720bf6b6c0/ down-position spapier-ex ternes-reporting-data.pdf, accessed 07.07.2020. IDW (Ed.) (2018b): IDW PS visuell - Strukturierte grafische Darstellung aller IDW Prüfungsstandards für die Abschnlussprüfung, 2nd ed. Düsseldorf: IDW Verlag GmbH. King, A.; Bartels,W. (2015): The KPMG Survey of Corporate Responsibility Reporting 2015, https: / / assets .kpmg/ content/ dam/ kpmg/ pdf/ 2016/ 02/ kpmg-international-survey-of-corporate-responsibility-reportin g-2015.pdf, accessed 27.07.2020. Kirchhoff Consult AG (Ed.), BDO AG Wirtschaftsprüfungsgesellschaft (ed.) (2020): Das CSR-Richtlinienum‐ setzungsgesetz im DAX 30, https: / / www.kirchhoff.de/ fileadmin/ static/ pdfs/ 20200115_KC-BDO_DAX_3 0-Studie_CSR-RUG.pdf, , accessed 02.10.2022. Richtlinie 2014/ 95/ EU des Europäischen Parlaments und des Rates vom 22.10.2014 zur Änderung der Richtlinie 2013/ 34/ EU im Hinblick auf die Angabe nichtfinanzieller und die Diversität betreffender Informationen durch bestimmte große Unternehmen und Gruppen, ABIEU Nr. L 330 vom 15.11.2014. Schneider, A.; Schmidpeter R. (2015): Corporate Social Responsibility Verantwortungsvolle Unternehmens‐ führung in Theorie und Praxis, Berlin: Springer-Verlag. Schröder, N. (2009): CSR-Richtlinie-Umsetzungsgesetz Beurteilung aus Arbeitnehmerperspektive, Wiesba‐ den: Springer Gabler. WPK (Ed.) (2016a): Stellungnahme der Wirtschaftsprüferkammer zum Referentenentwurf des Bundesminis‐ teriums der Justiz und für Verbraucherschutz eines Gesetzes zur Stärkung der nichtfinanziellen Berichter‐ stattung der Unternehmen in ihren Lage- und Konzernlageberichte (CSR-Richtlinie-Umsetzungsgesetz, w ww.wpk.de/ fileadmin/ documents/ Oeffentlichkeit/ Stellungnahmen/ WPK-Stellungnahme_14-04-2016.pd f, accessed 02.08.2020. 320 18 Sustainability - Disclosure and Audit <?page no="322"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="323"?> 1 Ross, S. et al. (2018). 19 Sustainable Financial Management Frank Andreas Schittenhelm Learning Objectives: The readers ■ understand the basic features of investment appraisal methods and recognize their opportu‐ nities and risks, ■ are able to adequately assess the term shareholder value, ■ recognize the importance of risk management for sustainable financial management. Keyword List: Cash flow analysis, portfolio theory, risk-return analysis, utility analysis, venture capital, share‐ holder value, risk management 19.1 Financial Management: Briefly Explained The financial management of a company consists of various aspects, which essentially have a support function for the operational units in the company. Ross et al. 1 define the increase of the company value as the central goal of financial management. Two major tasks can be defined: financing and investing. The task of financing optimizes the procurement of capital in order to ensure the liquidity of the company and at the same time to keep the cost of capital as low as possible. Financing primarily serves to cover an existing capital requirement, i.e., financing provides a company with the (financial) funds needed for investments and participation in economic activity. The capital requirements of a company arise on the one hand from the procurement of production factors, i.e., all items of fixed and current assets, and on the other hand from the ongoing servicing of debt and equity capital, i.e., interest and redemption payments as well as dividend payments. Finally, capital is needed for the payment of taxes. The coverage of capital requirements assures that the company remains solvent and thus independent. While securing the liquidity is the main objective of financing, the reduction of financing costs is another important consideration. These goals are supported by financial planning (liquidity planning and pro-forma financial statements), which reduces uncertainty about the company's future financial situation, as all future cash flow streams (payments) are recorded with their estimated date. <?page no="324"?> 2 Flad, M./ Günther, P./ Schittenhelm, F.A. (2012), p. 96. First and foremost, this should lead to preventing surprising liquidity bottlenecks and thus help to avoid taking out expensive loans or even a forced emergency liquidation of assets. In addition, it allows the allocation of free cash towards more lucrative investment alternatives. The investment part of financial management deals with decision criteria for investments in general. From a financial perspective, the success of a company is based on a simple relationship between sources (liabilities) and uses (assets) of funds within the company. Accordingly, the cash flow from operating activities can only be reinvested in fixed and current assets (in the form of reserves) or returned to the providers of equity and debt capital. The following illustration makes this relationship clear: 2 Property, plant and equipment Current assets Equity Debt (long-term / short-term) Investments Reserves Dividents Interest Taxes Assets Liabilities Fig. 19.1: Cash flows in the company Two aspects are important in this context: 1) First of all, it must be noted that a company is neither poor nor rich. It only manages funds (from equity and debt investors). Both have different expectations or requirements for the return on their investment, depending on the actual or perceived risk. 2) It is the task of the company to meet these return expectations. A company is successful from a financial point of view if the actual return on the money invested (by equity and debt investors) exceeds the expected (required) return. In simple terms, this means: If a company is provided with funds at 5%, then the investment must yield at least 5%. As a rule, the different lenders have different return expectations, which is why the company must be guided by a weighted average cost of capital, also known as WACC. It must be taken into account that the return expectations may not be known explicitly. While debt capital usually comes with a fixed interest rate that is binding, equity capital is characterized by an expected or desired rate of return by the equity provider. This expected return should specifically take the riskiness of the venture into consideration and thus increase with risk. If the return expectation of the equity provider is not met, it does not massively affect the company, even though it represents a value destruction for the investors. However, if the return on debt capital cannot be achieved, the company's existence is fundamentally at risk, which can ultimately mean bankruptcy and the cessation of business operations. Invested funds (i.e. fixed and current assets) need to be liquidated and (often) sold at unfavorable conditions. The investors may only partially recover their invested capital. 324 19 Sustainable Financial Management <?page no="325"?> Difficulties arise because the company is engaged in a type of maturity transformation. Interest and dividend payments as well as the repayment of the principal do not necessarily occur at the same time the revenue is generated. Frequently the investment returns, more precisely cash inflows, only happen with some delay, while interest has to be paid continuously. Thus, the company is asked to make an assessment about the suitability of investments in light of the demands described above. For that reason, we will deal with two questions in the following: ■ How does a provider of funds assess the risk-return profile of his investment? ■ What is the role of sustainability in this regard? 19.2 Financial Management and Sustainability Since financial management involves quantitative aspects to a large extent, financial mathematics plays an important role in the evaluation process. The purely quantitative orientation often gives a negative impression of this part of business administration studies. In particular, modern financial mathematics appears to be responsible for the exploitation of resources, short-term profit-seeking, and financial crises. Thus, the question arises: ■ Is this perspective simply wrong and not supported by the facts? or ■ Are the models used in financial management consistent and coherent, but the input parameters are frequently chosen incorrectly and thus lead to undesirable results? or ■ Do the models need to be fundamentally rethought and changed? As the following explanations will show, no fundamental contradiction to sustainable manage‐ ment can be identified in the examination of common decision-making procedures for investments and financing in companies. However, the central finding is that there is a deficit in the risk evaluation of sustainable or non-sustainable behavior, from which the demand for continuous improvement of risk management in the company can be derived. Therefore, we include a chapter on basic features of an integrated risk management in the company. 19.3 Conception of a Sustainable Financial Management Modern financial management is based on the premise that return and risk are closely linked, and higher risk should be compensated by a higher expected return or benefit. If this is not the case, the investor is either acting irrationally or has insufficient information regarding his investment. The fact, that, from the investor's point of view, every financing is an investment, illustrates the relevance of this consideration for both aspects: the investment and the financing. 19.2 Financial Management and Sustainability 325 <?page no="326"?> 3 Flad, M./ Günther, P./ Schittenhelm, F.A. (2012), p. 57. 19.3.1 Sustainable Investment Calculation There are three main methods for assessing investments, which we also discuss here: 1. Cash flow analysis (dynamic investment calculation) 2. Risk-return analysis 3. Utility analysis Sustainable investment appraisal can be guided by these common methods, but it must recognize the weaknesses and deal with them appropriately. - 19.3.1.1 Cash Flow Analysis Cash flow analysis is based on the idea of time value of future cash flows. Any assessment of an investment initially requires an estimate of the future inflows and outflows of cash. The idea is to assess the resulting cash flow streams (generated from a projection) with investment criteria and determine whether a certain minimum return (hurdle rate; benchmark) is achieved. The three most commonly used investment criteria are presented below. They relate cash inflows and outflows that occur at different points in time to a common point in time (by discounting future cash flows). To simplify the discounting process, additional assumptions are sometimes made. For example, a uniform interest rate is usually used in the valuation of projects. The analysis is restricted purely to cash inflows and outflows. 3 In the net present value criterion, all future cash flows of a project are discounted to the present time. The net present value (NPV) of an investment or an investment project is then calculated by subsequently adding up the discounted future cash flows. A positive net present value can be interpreted as the added value (in addition to the required return = discount rate) generated by the investment. Since every entrepreneur strives to increase the value of the company, the investment with the highest positive net present value is chosen. Mathematically, this discounting of cash flows is done as follows: 𝑁𝑁𝑁𝑁𝑁𝑁(𝑖𝑖) = −𝑧𝑧 0 + 𝑧𝑧 1 (1 + 𝑖𝑖) 1 + 𝑧𝑧 2 (1 + 𝑖𝑖) 2 + ⋯ + 𝑧𝑧 𝑇𝑇 (1 + 𝑖𝑖) 𝑇𝑇 = −𝑧𝑧 0 + � 𝑧𝑧 𝑡𝑡 (1 + 𝑖𝑖) 𝑡𝑡 𝑇𝑇 𝑡𝑡=1 where i describes the discount factor and z t the respective (annual) cash flows, i.e. cash inflows and outflows. The discount factor to be chosen should correspond to the weighted average cost of capital (WACC) in order to describe as explained above the return expectations of equity and debt providers. A net present value of 0 exactly fulfils these expectations, a net present value greater than 0 exceeds the expectations and creates added value that ultimately accrues to the equity providers. The criterion of the internal rate of return (IRR) determines the interest rate i* for which NPV = 0. An investment is advantageous if the internal rate of return is greater than a specified minimum return on the capital invested. This minimum rate of return should correspond to the weighted average cost of capital, analogous to the consideration of the net present value. If there are several investment alternatives, the alternative with the highest (non-negative) internal rate of return is selected. There are some mathematical peculiarities when calculating the internal rate of return; we refer to the relevant specialized literature. 326 19 Sustainable Financial Management <?page no="327"?> Finally, the criterion of the dynamic payback period determines the period required to "recover" invested capital via its returns. The investment alternative that has the shortest capital recovery period (payback period) is selected. The objective is again to minimize the time uncertainty associated with the investment by emphasizing an early return of capital. A general criterion for the advantageousness of only one investment alternative cannot be formulated here. The dynamic payback period criterion accumulates the return flows of an investment, whereby the time values of the return flows are explicitly taken into account. Example: Innovations In the evaluation of innovations, as an essential aspect of sustainable business management, the method of cash flow analysis is usually used to evaluate the financial effects and allow go/ no-go decisions. The procedure is briefly outlined here. The aim is to model the future development of an innovation and to check its profitability using investment criteria. The procedure consists of the following individual steps: 1. Model the consequences of the innovation by using pro-forma balance sheets and proforma P&Ls over several years. 2. Determine corresponding (free) cash flows. 3. Evaluate the cash flows using investment criteria. 4. Check the results: a. the model using scenario and sensitivity analyses, b. the solvency (liquid funds) on the basis of short-term liquidity planning, c. profitability on the basis of a break-even analysis, in which sales are compared with fixed and variable costs. Risk assessment in the context of cash flow analysis usually means scenario and sensitivity analyses, in which different positive and negative constellations and developments are taken into account. However, there is no explicit risk measurement. In companies, the lack of risk analysis can lead to misallocations of funds if a uniform companywide discount factor is applied for the evaluation of every individual project. The problem arises from the fact that riskier investments (or assets) generally tend to generate higher expected positive cash flows. This statement can be explained by the above premise that more risk should lead to more return. But this automatically implies that riskier investments (for the same unified discount factor) show better net present values than less risky ones. The same is true for the internal rate of return, which will be higher for the riskier undertakings. Therefore, both NPV and IRR are only useful if risk is considered appropriately. As it turns out, the basic structure of cash flow analysis already takes into account or can take into account the principles of sustainable business management. With the help of the future cash flow structure, long-term developments of the company are incorporated while risks are modelled at least theoretically via the discount factor. In summary, the greatest weakness of cash flow analysis is its purely quantitative orientation, which makes it difficult to incorporate qualitative factors. Although ecological and social objectives can be integrated, they generally lead to a reduction in risk rather than to an increase in return. The various sustainable measures would have to affect the discount factor, which, however, is usually not the case in practice. The aim of sustainable financial management must therefore be to focus on risk management. As part of the risk analysis, positive or negative effects 19.3 Conception of a Sustainable Financial Management 327 <?page no="328"?> 4 Markowitz, H. (1952). 5 Flad, M./ Günther, P./ Schittenhelm, F.A. (2013), p. 93. of sustainable behavior should be particularly highlighted and result in an adjustment of discount rates in order to avoid eventually any misallocation of capital. - 19.3.1.2 Risk-Return Analysis The method of risk-return analysis is based on modern portfolio theory, which goes back to the work of Harry Markowitz 4 in 1952. It mainly addresses a weakness of the cash flow analysis tool, namely the lack of an explicit quantification of the risk of an investment. In modern portfolio theory, risk is measured for the most part with the help of the expected variance of the investment returns. Since this risk measure does not yield satisfactory results for many applications, a number of alternative risk measures have been developed over the years. Keywords here are beta, lower partial moments or value at risk. Please refer to the relevant literature for more detailed information. 5 The basis for the analysis is provided by three parameters: ■ m i : = Expected value of the return of an investment A i , ■ s i : = Standard deviation of the return to measure the risk of an investment A i , ■ r i,j : = Correlation coefficient of the returns of two different investments A i and A j . Since the parameters m, s and r are unknown, they need to be estimated. In the case of securities, for which modern portfolio theory is most widely used, the estimations are based on historical data of returns and the appropriate statistical estimators for the three parameters. One major insight of portfolio theory is the so-called diversification effect. In its simple model, portfolio theory has the advantage that risk is explicitly measured and taken into account. This offers many possibilities, especially for the aspects of sustainability. However, one is heavily dependent on historical data in order to be able to estimate the corresponding parameters. In summary, it can be stated that modern portfolio theory does not advance sustainability at the company level. Nonetheless, sustainable financial management needs to integrate portfolio theory. Modern portfolio theory provides information about the motives of a major group of stakeholders of the company, namely its investors. The significant capital demand of companies implies that investors and companies are less and less connected. A purely quantitative assessment of the investments is the logical consequence. This knowledge about the motives of investors must be considered in sustainable business management. More comprehensive approaches explicitly incorporate social and ecological aspects in addition to the parameters of risk and return. This increases the number of relevant dimensions in the process of decision-making. Such a methodology plays a role for example in the case of sustainable investments (ESG mutual funds). The core of the approach remains unchanged, but an assessment of the social and ecological performance is difficult, especially since future developments need to be considered. - 19.3.1.3 Utility Analysis Utility analysis is concerned with the fact that investment decisions of companies frequently involve more than just financial and quantitative considerations. Especially for complex invest‐ ment decisions, qualitative features are also important. Utility analysis incorporates this 328 19 Sustainable Financial Management <?page no="329"?> 6 Flad, M./ Günther, P./ Schittenhelm, F.A. (2012), p. 84. multidimensional set of criteria in the decision-making process in the form of a scoring model. It measures the overall utility of an investment alternative with the help of the following steps: 6 1. Establishing the relevant quantitative and qualitative decision criteria. 2. Setting of weights for the criteria. 3. Assessing the criteria with the help of an established scoring system. 4. Calculation of averages to arrive at the utility value of the alternative. The apparent advantage of the utility analysis is the incorporation of features that are not quantitative in nature. At the same time, this is also a weakness of the method, since the establishment of the criteria, their weights and scoring must be done in a subjective manner. And finally, it must be noted that risk is not systematically captured or measured. Nonetheless, utility analysis provides a tool for a holistic perspective on the investment decision. Among the methods presented, it offers the greatest overlap with the principles of sustainable management. The disadvantages of utility analysis, however, can lead to a problem of acceptance. Cash Flow Analysis is rather popular with many decision-makers thanks to its apparently objective precision and frequently constitutes a component of utility analysis. Modern portfolio theory serves as the basis for the investment decisions of institutional investors. Every company with a focus on sustainability must therefore consider this method. In conclusion, all three methods presented here are lacking a sufficient quantification of risk arising from a lack of sustainable behavior and development. 19.3.2 Financing First, let us revisit the connection between financing activities and investments. Every time a company receives financing, this is an investment from the perspective of the provider of capital. As discussed in the previous sections, providers of capital will make a sustainable investment if they can benefit. They will thus only provide financing at specific terms to a company that pursues the principles of sustainability if there are no alternative investments, which either offer a higher return or have lower risk. It remains true that the overall return-risk profile of the capital provider must improve. It is interesting to note that specifically, funds with a focus on sustainability are currently developing this aspect. It can be argued that companies that pursue sustainability are in fact also more successful in business and thus contribute to an improved performance. Forms of financing can be easily divided into equity and debt financing on the basis of the balance sheet breakdown and thus according to the legal status of the capital. The following criteria should be considered when raising capital: 1. Cost of capital 2. Capital availability 3. Legal aspects 4. Fiscal aspects Equity offers the advantage that the capital is made available for an unlimited period of time. One might therefore assume that equity capital or a high equity ratio can be seen as a guarantor of sustainable economic activity, but it should be noted that the demands of institutional investors 19.3 Conception of a Sustainable Financial Management 329 <?page no="330"?> 7 Gasior, S./ Schittenhelm, F.A. (2012), p. 24. for short-term profitability often turn this into the opposite. This applies in particular to listed companies, but also to start-ups that have to finance themselves through venture capital. On the other hand, it can be observed that more and more mutual funds incorporate environmental, social, and corporate governance (ESG) aspects and focus on sustainability. It is argued that companies that operate sustainably are actually more successful and therefore contribute to a better performance. Debt capital is mostly provided in the form of (long-term) bank loans. As a rule, financing approval requires a classic business plan with cash flow projections and the application of investment criteria. Thus, banks and investors have always focused on the long-term success of the company and thus on sustainability. 7 Two aspects, however, are of importance. First, sustainable financing targets soft factors. The role of the borrower of capital should evolve from a supplicant to a partner of the investor. The fact that this has often not been the case in the past, however, is due more to arrogance and a misunderstanding of the customer (on the part of the capital providers) than to a lack of sustainability in the business model. Secondly, there is the question of new financing models for funding. Here, one could think of linking the financing with sustainability indicators. For example, innovative financing products could include option rights in case of sustainability improvements. These enhancements could be credit increases, extensions, or even interest rate reductions. This presupposes in the context of Basel III a validation of positive correlation effects between risk minimization or yield enhancement and sustainability improvements. In summary, the longer an investor's capital is tied up in a company, the more importance he will attach to sustainable management and take appropriate measures to enforce this within the company and its management. On the other hand, the easier it is to pass on an investment to third parties, the more investors might profit from strong short-term value increases, which foil longterm sustainability. In the past, different measures, which were intended to create more liquidity and flexibility in the capital markets, have unfortunately led precisely in this wrong direction. Example: Collateralized Debt Obligations (CDOs) Collateralized debt obligations bundle securities or loans and are thus intended to create more liquidity in the market. This form of bond securitization thus enables investors (banks) to pass on their loans to third parties. At the same time, however, the responsibility for checking creditworthiness is reduced, as the risk is simply passed on to a third party. It is enough to convince this third party "in the short term" that the risk-return profile is favorable. This is how the creation of collateralized debt obligations helped lead to the 2008 financial crisis. Example: Initial Public Offerings (IPOs) The situation is similar on the stock market. The easy access to the capital market via initial public offerings enables existing investors to pass on existing risks to third parties regardless of the lack of sustainability in the business model. The IPO wave during the internet boom at the end of the last millennium and the associated dot.com bubble can be cited here as an example. 330 19 Sustainable Financial Management <?page no="331"?> 8 Rappaport, A. (1998). 9 Kaplan, R./ Norton, D. (1992). Sustainable financial management thus also means the creation of framework condi‐ tions that lead to long-term investments from capital providers. 19.3.3 Sustainable Company Value If one combines the explanations of the previous two chapters with the actual goal of financial management, namely the increase of the company value, the concept of shareholder value arises almost inevitably. Alfred Rappaport 8 presented his shareholder value orientation approach in 1986. Here, the orientation towards an increase of shareholder value (which is equivalent to company value) is the most important, if not the only goal of corporate management. The value of a company is measured on the basis of cash flows generated in the future, which are then discounted. The weighted average cost of capital is used as the discount factor, whereby the findings of modern portfolio theory (or, more precisely, the capital asset pricing model) are generally used to estimate the cost of equity. The shareholder value idea is thus nothing more than the consistent application of the net present value method from cash flow analysis in combination with insights from modern portfolio theory. While this approach rapidly gained acceptance, critics mostly stress the one-sided focus on monetary values. A first alternative was presented by Robert Kaplan and David Norton, 9 who introduced the Balanced Scorecard, which defines additional management goals, mostly with a perspective on finance, customers, processes, and potentials. Ultimately, however, the Balance Scorecard was never able to replace the shareholder value concept, as the financial perspective also plays an essential role in the Balance Scorecard. Thus, the Balanced Scorecard basically only extends the shareholder value idea. The shareholder value idea was consistently advanced with the notion of Value-Based Management. 19.3.4 Risk Management The above explanations have already shown the central role of risk management within sustainable financial management. Risk management thus not only serves the purpose of controlling risks, but also enables a risk-adequate assessment of investments and financing. This reveals future negative effects of today's actions, which in turn helps to avoid short-term mispricing or provides opportunities for corrective interventions from the outside into the economic process. Risk management is usually divided into a strategic and an operational component. The strategic part of risk management deals with the integration of risk management into all business processes and creating the organizational framework for the corporate risk management. The objectives of risk management are defined, whereby the creation of corporate value and the fulfilment of legal standards are essential. In addition, however, social and ecological aspects should also be included by setting appropriate goals. Operational risk management is usually characterized by a four-step process. The first step describes the identification of risks and thus captures systematically all risks the company is exposed to. In the second step, the identified risks are adequately quantified and classified. The complexity and soundness of the methods used follows from the strategic aims of risk management. Since transparency constitutes an important aspect within risk management, the 19.3 Conception of a Sustainable Financial Management 331 <?page no="332"?> comprehensibility of the method plays a major role when choosing a valuation model. The aim of risk management is to create awareness for risks in the entire company. In the third step measures to manage risks are taken. Fundamentally, the following possibilities exist: Risks can be avoided completely if certain technologies are not used. Risks can be reduced if a portfolio strategy is employed, and diversification effects are captured. Risk reduction can also play a role in the social sphere, by implementing personnel measures which reduce employee fluctuation in the company. Risks can simply be limited, for example by defining upper boundaries for the use of resources that are not environmentally friendly. For other risks, protection is possible. The strategies include security services to prevent theft, classical insurance products, and derivatives for the hedging of capital market securities. And finally, it is possible to consciously accept risks, because the company is in a position to absorb the financial costs if necessary or because this is part of the business model of the company. The fourth step in the process of risk management is focused on communication and reporting. This last step provides the transparency which was demanded earlier on and thus allows for a better risk assessment of the company which leads to a fairer valuation of the risk-return profile. In addition to preventing the mispricing of companies, risk management can thus also serve as the basis for risk adequate management remuneration. 19.4 Sustainable Financial Management in Practice At this point, we want to deal with the questions which were raised in the beginning. The answers to these questions constitute the foundations for our approach to sustainable financial management. Initially, it needs to be stated that in our opinion market forces failed to fulfill the allocative function which was expected by many observers. The orientation to quantitative thinking has resulted in: ■ an increase in financial scandals, ■ an enormous increase in management remuneration, ■ an increase in financial market volatility. However, the methods discussed here reflect current financial management practice. They are not fundamentally in conflict with business sustainability but can only support it if appropriate external framework conditions are in place. The alternative would be to discard the shareholder value idea completely. Some authors and statements go in this direction. Alternative approaches that grow out of this critique, however, must still focus on the profitability of a company, which ultimately increases the value of the company (or shareholder value) again. More likely, the idea of shareholder value is rather trivial. Of course, the investor or owner of a company will always want their investment to be profitable and therefore increase the company value. After all, the alternative for a company would be to define value destruction as a corporate goal. The negative effects described above can also be due to the fact that either company activities are valued incorrectly on a risk-adjusted basis in the short term or that activities, which are not sustainable can in fact raise the company value. Both explanations appear possible. The first aspect, i.e. short-term mispricing, can occur both in the interest of the management as well as investors: 332 19 Sustainable Financial Management <?page no="333"?> 10 It should be recalled at this point that the company itself cannot enrich itself it is neither poor nor rich. It only manages third party funds (investments). 11 Alfred Rappaport explained his concept of shareholder value in an interview: "My concept of shareholder value always referred to the sustainable increase in the value of a company. Unfortunately, many board members only carried the postulate in front of them like a political statement. They cared more about driving up profits and share prices rather than creating long-term capital flow." In Schiessl, Michaela interview with Rappaport, A. (2002), "Everyone followed the pack", Der Spiegel, 22.07.2002. ■ The so-called principal-agent problem remained unsolved in many cases. Company manage‐ ment thus had the wrong incentives for the creation of sustainable company value. This is the case particularly if components of the remuneration package are tied to the share price (and thus the current company value) without concern for the long-term preservation of the company value. If the remuneration can additionally be leveraged via options, this effect becomes even more pronounced. Ultimately it is the possibility of mispricing in the shortterm, which gives rise to inappropriate management behavior. If this possibility is ruled out, the only sensible option for the management is sustainability. ■ Short-term mispricing can also be in the interest of investors who want to sell at a maximum price or simply intend to extract capital from the company at the expense of others. 10 However, the trigger here again is the possibility of leaving buyers in the dark about the actual riskreturn profile of the company due to insufficient transparency. The second aspect relates to the fact that companies may indeed have increased their value, but at the expense of others, namely by utilizing resources that were obtained at excessively low prices, natural resources that are available for free or at minimal cost, or by exploiting labor. As a conclusion, the idea of shareholder value will remain as a corporate objective (possibly under a different name) or will remain part of several corporate objectives, 11 so that two main tasks can be defined from the perspective of sustainable financial management: ■ First of all, all advantages of sustainable management must be clearly presented. And in fact, studies show that companies that adhere to principles of sustainability do not record systematically weaker results than companies that do not share such a commitment. In addition, the transparency of companies must be strengthened further in order to avoid or at least to reduce mispricing. This transparency is created via further advances in risk management. If risk is captured in a realistic fashion, all quantitative models presented here will show adjusted company valuations. ■ Second, sustainable financial management must identify areas where the desired sustaina‐ bility does not lead to an increase in the company value. In these cases, sustainable financial management can become the trigger for external corrective measures. 19.5 Outlook The assessment of risks will certainly be one of the most important tasks in financial manage‐ ment in the future and could give a major boost to the principle of sustainable management. Nevertheless, there will not be a perfect method or model for quantifying risks. The market will also constantly adapt to new requirements and try to use the framework conditions optimally for itself. 19.5 Outlook 333 <?page no="334"?> At a Glance: The task of business management science cannot be to produce altruistically acting people. Rather, it is a matter of creating a sustainable economic system within the framework of existing conditions. The examination of realistic conditions is therefore fundamental in order to improve framework conditions and to force all parties involved to behave sustainably from economic conditions. The fact that management techniques change over time as a result is desired. Suggestions for Further Reading: Understandable introduction to risk management: Lam, J. (2003): Enterprise Risk Management, Hoboken. Standard work on shareholder value: Rappaport, A. (1998): Shareholder Value, Schäffer-Poeschel Verlag, Stuttgart. Literature Arnold, G. (2008): Corporate Financial Management, 4th edition, Financial Times Prentice Hall. Becker, H.P./ Peppmeier, A. (2018): Investition und Finanzierung: Grundlagen der betrieblichen Finanzwirt‐ schaft; 8th edition; Springer Gabler. Berk, J./ DeMarzo, P. (2011): Corporate Finance, 2nd edition, Pearson International, Boston. Blohm, H./ Lüder, K. (2006): Investition. Schwachstellen im Investitionsbereich des Industriebetriebes und Wege zu ihrer Beseitigung, 9th edition, Vahlen, Munich. Bloss, M. et.al. (2020): Financial Engineering: Strategien, Bewertungen und Risikomanagement; De Gruyter Studium; 4th ed. Brealey, R.; Myers, C. (2016): Principles of Corporate Finance, 12th ed., New York. Breuer, W. (2013): Finanzierung. Eine systematische Einführung. 3rd edition, Wiesbaden. Eayrs, W./ Ernst, D./ Prexl S. (2007): Corporate Finance Training, Schaeffer-Poeschel, Stuttgart. Ermschel, U./ Möbius, C./ Wengert, H. (2016): Investition und Finanzierung, 4th edition, Physica-Verlag, Heidelberg. Flad, M./ Günther, P./ Schittenhelm, F.A. (2012): Finanzmanagement, Pro Business. Flad, M./ Günther, P./ Schittenhelm, F.A. (2013): Investments, Pro Business. Gasior, S./ Schittenhelm, F.A. (2012): Mehr als nur ein Modewort - Wie nachhaltige Finanzierungskonzepte in Zukunft aussehen könnten, in VentureCapital Magazin, July 2012, pp. 24-25. Günther, P./ Schittenhelm, F.A. (2003): Investition und Finanzierung, Schaeffer-Poeschel, Stuttgart. Hicks, J.: Value and Capital (2nd ed.). Oxford 1946. Kaplan, R./ Norton, D. (1992): The Balanced Scorecard - Measures that Drive Performance. In: Harvard Business Review. 1992, January/ February, pp. 71-79. Kruschwitz, L./ Lorenz, D. (2019): Investitionsrechnung, 15th edition, Oldenbourg, Munich, Vienna. Kruschwitz, L./ Husmann, S. (2012): Finanzierung und Investition. 7th edition, De Gruyter Oldenbourg. Lam, J. (2003): Enterprise Risk Management, Hoboken. Markowitz, H. (1952): Portfolio Selection, Journal of Finance, 7/ 1952, pp. 77-91. McGuigan, J./ Kretlow, W./ Moyer, R.C. (2009): Contemporary Corporate Finance, South-Western. Megginson, W./ Smart, S./ Lucey, B. (2008): Introduction to Corporate Finance, South-Western. Perridon. L./ Steiner, M. (2016): Finanzwirtschaft der Unternehmung, 17th edition, Vahlen, Munich. Petersen, K./ Zwirner, Ch. / Brösel, G. (2013): Handbuch Unternehmensbewertung: Funktionen, moderne Verfahren, Branchen, Rechnungslegung, 2nd edition, Cologne. 334 19 Sustainable Financial Management <?page no="335"?> Ragotzky, S./ Schittenhelm, F.A./ Toraşan, S. (2020): Business Plan - Schritt für Schritt, 2nd edition; UVK- Verlag, Munich. Rappaport, A. (1998): Shareholder Value, Schäffer-Poeschel Verlag, Stuttgart. Ross, S. et al. (2018): Corporate Finance, 12th edition, McGraw-Hill Education. Ryan, B. (2007): Corporate Finance and Valuation, Thomson. Spremann, K. (1996): Wirtschaft, Investition und Finanzierung, 5th edition, Oldenbourg, Munich, Vienna. Von Flotow, P./ Häßler, R./ Kachel, P. (2003): Nachhaltigkeit und Shareholder Value aus Sicht börsennotierter Unternehmen. In: Von Rosen, R. (ed.): Studien des Deutsches Aktieninstituts, Heft 22. 19.5 Outlook 335 <?page no="336"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="337"?> 20 Sustainable Investing Dietmar Ernst Learning Objectives: The readers ■ know the tension between sustainability and the quest for returns, ■ are familiar with options for selecting sustainable investments, ■ know procedures to define sustainable investments, ■ review the concepts of empirical verifiability of the success of sustainable investments, ■ can explain why institutional investors prefer sustainable investments. Keyword List: ESG, institutional investors, MSCI World, sustainable investments, Sharpe ratio 20.1 Sustainable Investing The concept of sustainability has been the subject of intense debate in many areas of business administration for some time. In finance, however, the concepts of sustainable development seem to have met with little interest so far. Both institutional and private investors are too focused on the economic success of their investments. Sustainability is demanded and supported by investors in many other areas of society, but when it comes to investing capital, the focus is strictly on riskreturn criteria. In finance, the "homo economicus", which is already extinct in the rest of business administration, seems to have found a biotope in which he comes very close to the actual human image of an investor. As is well known, friendship ends when it comes to money. For some time now, however, it has been observed that institutional market participants in the field of capital investment (popularly known as big capital) have been intensively addressing the issue and developing strategies to best exploit opportunities presented by the "mega-trend" of sustainability. Is this the famous greenwashing of an industry otherwise little known for sustainability, or is a change in thinking taking place here that combines the issues of sustainability and economic success? Currently, it will not be possible to find a serious asset manager who cannot present a concrete concept for the implementation of sustainable investments. This area has long ceased to be a niche and is increasingly becoming a basic requirement in order to survive in the market and continue to be able to manage the funds of large investors as well as private individuals. The concepts go far beyond the legal requirements. Sustainable investments have long since ceased to be perceived as a "necessary evil" that entails a loss of return. Rather, concepts are being developed that make <?page no="338"?> 1 S&P Global (2018): GICS - Global Industry Classification Standard; URL: www.spglobal.com/ marketintelligence / en/ documents/ 112727-gics-mapbook_2018_v3_letter_digitalspreads.pdf (accessed 27.12.2019). it possible to generate returns by taking sustainable aspects into account and, at best, to reduce the risk in the process. The following section, therefore, explains which options the market currently offers for investing money sustainably. In addition, an exemplary application of the various investment options to the MSCI World is presented, which shows how a sustainable investment strategy can affect risk and performance in practice. 20.2 Specific Opportunities for Sustainable Investments How can sustainable investment opportunities be defined and selected? Various ways of identi‐ fying sustainable sectors and industries are described below. These possibilities are currently the measure of all things and are also used in practice by leading capital managers. Various variations and combinations of these approaches are used and are constantly being optimized. This means for companies: Companies that are classified as sustainable will have better opportunities to be financed by the capital market in the future than companies that do not meet sustainability criteria. Or to put it another way: Companies that are dependent on capital market financing must change their strategy so that they fall into the investment focus of investors. Otherwise, to put it bluntly, "the money tap will be turned off". We take a closer look at the following differentiation options for sustainable investments: 1. Definition according to GICS Sub Industries 2. Definition according to the Thomson Reuters ESG Score 3. Definition according to an exclusion list 4. Investments in Sustainability Themed Investments 5. Best-in-Class Investments 20.2.1 Definition According to GICS Sub Industries The acronym "GICS" stands for "Global Industry Classification Standard" and was developed by S&P Dow Jones Indices in cooperation with MSCI. The GICS methodology aims to standardize and thus improve the investment research and asset management process for financial professionals worldwide. It is the result of numerous discussions with various participants in the international financial markets. The methodology was designed in response to the global financial community's need for accurate, complete, and standardized industry definitions. The GICS structure consists of 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries. 1 Based on the conditions already described, the GICS methodology forms a suitable basis for the concept of implementing sustainability criteria. In this context, special attention was paid to the 158 sub-industries. Every company listed on a stock exchange is assigned to such a subindustry, which results in a complete database for listed companies. In the development process of the concept, the standardized sub-industries were divided into different levels, which are based on sustainability aspects of the respective sector. There is no uniform classification of the respective sub-industries within a level. Therefore, companies are forced to assess the various industries according to their own perspective and 338 20 Sustainable Investing <?page no="339"?> 2 GICS_map 2018; URL: https: / / www.msci.com/ our-solutions/ indexes/ gics, accessed 02.10.2022. philosophy. Sub-industries which, from a general point of view, are very sustainable and have a promising future are assigned to level 1. Industries for which neither a positive nor a negative relationship to sustainability can be assumed belong to level 2. Level 3 includes industries that can already be assessed critically in terms of sustainability from some aspects, while level 4 includes industries that are viewed very critically and in which an investment can entail major risks from a sustainability perspective. Figure 1 illustrates the classification. A complete listing of level 2 has been omitted here. Sustainable Environmental & Facilities Services Education Services Semiconductor Equipment Semiconductors Renewable Electricity Harmless Hypermarkets & Super Centers Brewers Distillers & Vintners Soft Drinks Agricultural Products Household Products Personal Products Health Care Equipment Health Care Supplies ... Questionable Integrated Oil & Gas Oil & Gas Exploration & Production Oil & Gas Refining & Marketing Oil & Gas Storage & Transportation Commodity Chemicals Diversified Chemicals Airlines Marine Packaged Foods & Meats Electric Utilities Critical Coal & Consumable Fuels Aerospace & Defense Fertilizers & Agricultural Chemicals Casinos & Gaming Tobacco 1 2 3 4 Fig. 20.1: Classification of the GICS Sub Industries In the following, we will take a closer look at Level 1 and Level 4 and define their allocated subindustries. As can be seen in the figure, Level 1 and Level 4, each with five sub-industries, form marginal groups in the breakdown. This aspect was deliberately chosen in order to include only companies that do not belong to the masses and are active in industries that are demonstrably extremely sustainable or extremely critical. The following are the exact definitions of these subindustries, which were taken from MSCI's official homepage: 2 (+) Environmental & Facilities Services Environmental & Facilities Services include companies that provide environmental and facilities maintenance services. This includes services in the areas of waste management, facilities 20.2 Specific Opportunities for Sustainable Investments 339 <?page no="340"?> management, and environmental protection. Excludes large water treatment plants, which are included in the water supply sub-sector. (+) Education Services Education Services are companies that provide educational services, either online or using tradi‐ tional teaching methods. This includes private universities, correspondence instruction, providers of educational seminars, educational materials, and technical training. Excludes companies that provide training programs for employees classified in the Human Resources & Employment Services sub-industry. (+) Semiconductor Equipment Semiconductor Equipment includes manufacturers of semiconductor equipment, including man‐ ufacturers of raw materials and equipment used in the solar power industry. (+) Semiconductors Semiconductors are manufacturers of semiconductors and related products, including manufac‐ turers of solar modules and cells. (+) Renewable Electricity Renewable Electricity includes companies engaged in the generation and distribution of electricity from renewable sources, including, but not limited to, companies that generate electricity from biomass, geothermal, solar, hydro, and wind power. Excludes companies that manufacture capital equipment used to generate electricity from renewable sources, such as solar equipment manufacturers, photovoltaic cell installers, and companies engaged in providing technology, components, and services primarily to this market. (-) Coal & Consumable Fuels Coal & Consumable Fuels describe companies primarily engaged in the production and mining of coal, related products, and other consumable fuels in connection with power generation. Excluded are companies that primarily produce gases classified under the industrial gases subsector and companies that are primarily engaged in mining for metallurgical (coking) coal for steel production. (-) Aerospace & Defense Aerospace & Defense are manufacturers of equipment, parts, or products for civil or military aerospace and defense. Including defense electronics and space equipment. (-) Fertilizers & Agricultural Chemicals Fertilizers & Agricultural Chemicals includes manufacturers of fertilizers, pesticides, potash, or other agricultural chemicals not elsewhere classified. 340 20 Sustainable Investing <?page no="341"?> 3 S&P Global (2018): GICS - Global Industry Classification Standard; URL: www.spglobal.com/ marketintelligence. / en/ documents/ 112727-gics-mapbook_2018_v3_letter_digitalspreads.pdf (accessed 27.12.2019). (-) Casinos & Gaming Casinos & Gaming refers to owners and operators of casinos and gaming facilities. This group includes companies that offer lottery and betting services. (-) Tabaco The Tabaco group includes manufacturers of cigarettes and other tobacco products. 20.2.2 Definition According to the Thomson Reuters ESG Score Another method of identifying sustainable investments is provided by so-called "ESG ratings". These are presented here using the Thomson Reuters ESG Score as an example. The reason for adding such a rating is the fact that even companies that do not belong to very sustainable industries can operate extremely sustainably. In order not to exclude these companies from the concept, the Thomson Reuters ESG Score was used to select a measure that does not include the industry in which a company operates in the ESG Score. Thus, for example, a company that belongs to level 2 or level 3 of the classified GICS Sub Industries can receive the same treatment in the concept through a very good individual ESG Score as a company that was assigned to a very sustainable industry according to the classification GICS Sub Industries. Moreover, it is worth mentioning that this description would apply to several ESG rating providers. Reasons for choosing Thomson Reuters ESG Score can be found in the fact that Thomson Reuters covers the overall market comparatively well with more than 7000 companies. The database is created using more than 400 different data points from over 150 analysts, generating a sound quality rating. The methodology used by Thomson Reuters for assigning the scores can be viewed transparently, is very well comprehensible due to a quantitative background, and is presented and visualized in detail via Thomson Reuters Eikon. In addition, Thomson Reuters Eikon and a connection to Excel ensure a problem-free implementation of the corresponding data. The scores can be updated in the calculation in Excel at any time using the corresponding stored formula via Thomson Reuters Eikon. Figure 2 illustrates the data points used by Thomson Reuters to create the database. 3 The model developed by Thomson Reuters is fully automated, data-driven and transparent, making it free of subjectivity and hidden calculations. Thomson Reuters collects and calculates over 400 data points, from which a subset of 178, the most comparable and relevant fields, are selected to drive the overall company valuation and scoring process. The underlying measures are based on considerations of comparability, data availability and industry relevance. They are grouped into ten categories. A combination of these categories, proportionately weighted by the number of data points within each category, formulates the three pillar scores and the final ESG score. This is based on publicly available information sources such as company reports or other publications. The category scores are divided into three pillars: Environmental, Social and Governance. The Thomson Reuters ESG Score is expressed in each case from 0 to 100. A score of 0 indicates a very poor value, while a score of 100 marks the highest value. 20.2 Specific Opportunities for Sustainable Investments 341 <?page no="342"?> 4 Thomson Reuters (February 2019): Thomson Reuters ESG Scores, Scores Structure, p. 6. 19 22 20 29 8 14 12 34 12 8 ESG Score Resource Use Emissions Innovation Management Shareholders CSR Strategy Workforce Human Rights Community Product Responsibility Environmental Governance Social Fig. 20.2: Thomson Reuters ESG Score data points 4 20.2.3 Definition According to an Exclusion List An exclusion list includes the exclusion of sensitive industries. Generally speaking, these include the manufacture of and trade in armaments, cluster munitions, alcohol, tobacco, gambling and pornography. The most widespread use of simple exclusion criteria is among large institutional investors, particularly in the North American region. European institutional investors also use sector exclusion, often in combination with other approaches. Sector exclusion is particularly common in France, Italy, and the UK. Many sustainable investment funds also exclude some sectors completely. 20.2.4 Investments in Sustainability Themed Investments Sustainability Themed Investments are themed funds on sustainable sectors or sector-independ‐ ent sustainable companies. Sustainability-themed funds often offer a diverse portfolio by investing in the most sustainable companies in specific sectors of the economy (sri Services 2022). Fund managers invest in companies that they expect to succeed based on their approach to environmental and social challenges. They consider in their investment strategy companies that are expected to benefit from raising standards on a range of environmental, social and governance (ESG)-related issues, without necessarily avoiding a significant number of business sectors. These funds can be managed both actively and passively 342 20 Sustainable Investing <?page no="343"?> 5 Oekom Research (2013), p. 7. 20.2.5 Best-in-Class Investments The best-in-class principle means that from a large investment universe, those companies are selected from all sectors that deliver the best sustainability performance in their sector. In the subsequent analysis, this investment universe forms the respective portfolio in which the concept is applied. Best-in-class companies perform convincingly in many areas of corporate governance and core business with regard to environmentally and socially compatible economic activity. The aim of the Best-in-Class approach is to initiate competition for the best solutions. The past 20 years have shown that this is often successful. For example, internationally active companies and multinationals consider it a seal of quality to be listed in leading sustainability indices and/ or renowned sustainability funds. They strive to improve their ESG performance in order to be included and to remain represented. The reason for this is to qualify for investment via special funds or for special institutional investors (especially church investors) and thus to maintain or improve their refinancing options. The effect was also confirmed in spring 2013 by a survey of around 750 large companies conducted by the sustainability rating agency Oekom Research in cooperation with the UN Principles for Responsible Investment and the German Global Compact Network. According to this, inquiries from sustainability analysts and sustainable investors are decisive factors for 61 and 59 percent respectively of the corporations from all over the world to deal with sustainability. 5 The Thomson Reuters ESG Score forms the basis for this approach in the further analysis. 20.3 Effects of a Sustainable Investment Concept on Risk and Performance In the next step, we want to address the question of whether investments in sustainable invest‐ ments prove to be advantageous from a return and risk perspective compared to conventional investments. As a basis for our analysis, we have taken the MSCI World as a proxy for the overall market. This scenario is referred to as the "status quo". This scenario is contrasted with three different sustainable investments that use the above approaches for selecting sustainable investments. Three combined applications of the previously listed approaches were tested as examples of sustainable investments. These are scenarios 1, 2, and 3. 1. Scenario 1: In the first scenario, companies are excluded that are active in GICS Sub Industries that belong to critical level 4 and additionally companies that have a Thomson Reuters ESG Score <25. 2. Scenario 2: Scenario 2 shows an intensified, double-weighted investment in companies that belong to level 1 for sustainable GICS Sub Industries as well as companies that have a Thomson Reuters Score >75. 3. Scenario 3: Scenario 2 is extended to include an exclusion of Tier 4 companies. 20.3 Effects of a Sustainable Investment Concept on Risk and Performance 343 <?page no="344"?> 12,86% 16,08% 21,74% 27,24% 12,85% 16,12% 21,87% 27,21% 13,08% 16,45% 22,05% 27,66% 13,04% 16,47% 22,12% 27,52% 0% 5% 10% 15% 20% 25% 30% 5Y 3Y 1Y YTD Without exclusion Exclusion from level 4 + score < 25 Double weight level 1 + score < 25 Double weighting level 1 + score > 75 and exclusion from level 4 onwards Fig. 20.3: MSCI World Total Return considering GICS and Ratings Figure 20.3 shows that the total return under the first scenario changes only very slightly compared to the status quo. A slight increase in the total return, across all periods considered, can be seen when applying the second scenario. This result does not change significantly in the third scenario. Compared to the status quo, scenarios two and three show an increase in total return in all time periods tested. 344 20 Sustainable Investing <?page no="345"?> 24,46% 22,70% 23,73% 20,73% 24,36% 22,59% 23,65% 20,69% 24,31% 22,52% 23,52% 20,53% 24,23% 22,44% 23,44% 20,51% 18% 19% 20% 21% 22% 23% 24% 25% 360D Volatility 180D Volatility 90D Volatility 30D Volatility Without exclusion Exclusion from level 4 + score < 25 Double weight level 1 + score < 25 Double weighting level 1 + score > 75 and exclusion from level 4 onwards Fig. 20.4: MSCI World Volatility considering GICS and Ratings If we now take a look at the volatilities of the individual scenarios applied, we can see that the volatility, i.e., the risk, drops with each further scenario compared to the status quo, which means a drop in risk compared to the MSCI World. In scenario three, where level 1 and companies with a score >75 are double weighted, while level 4 is excluded, volatility decreases the most. 0,8886 0,8976 0,907 0,9362 Without exclusion Exclusion from level 4 + score < 25 Double weight level 1 + score < 25 Double weighting level 1 + score > 75 and exclusion from level 4 onwards Fig. 20.5: MSCI World Sharpe Ratio 1Y considering GICS and Ratings The Sharpe ratio puts the relationship between return and risk into perspective. It can be clearly seen that the risk-return profile based on the Sharpe ratio also increases for each scenario applied 20.3 Effects of a Sustainable Investment Concept on Risk and Performance 345 <?page no="346"?> and reaches its maximum in the last scenario. Thus, the risk-return profile of the MSCI World could be increased by a specific exclusion of companies operating in critical industries, combined with an intensified investment in companies of very sustainable industries as well as companies that, regardless of their industry, show a very high Thomson Reuters ESG Score. The Sharpe ratio was increased from 0.8886 to 0.9132 as a result of this approach. 0,9132 0,912 0,9062 0,9362 Double weighting level 1 + score > 75 and exclusion from level 4 onwards Double weighting level 1 + score > 80 and exclusion from level 4 onwards Double weighting level 1 + score > 85 and exclusion from level 4 onwards Double weighting level 1 + score > 90 and exclusion from level 4 onwards Fig. 20.6: Optimization: MSCI World Sharpe Ratio 1Y considering GICS and Ratings In addition, an attempt was made to further optimize the result by means of various adjustments to the scenarios. To optimize the result, the limit for the Thomson Reuters ESG score was adjusted upwards by 5 score points in each of four further scenarios. The starting scenario here is the last scenario shown in the previous diagram. The background to this adjustment is also to reduce the proportion of the total volume included in the adjustment. The first two adjustments, which each take into account a double weighting of companies with a score >80 and a score >85, do not improve the return-risk profile of the MSCI World. However, if we look at the scenario applied in the rightmost bar, in which companies with a score >90 are double-weighted, we can see an increase in the Sharpe ratio from 0.9132 to 0.9362. Through this scenario, a smaller proportion of the total volume of the MSCI World is addressed, which facilitates practical implementation. In addition, this adjustment can further increase the risk-return profile of the index. The last scenario presented is thus the most desirable application of the approaches presented in Section 20.3, which were tested in the analysis. At a Glance It was already mentioned in the introduction to this chapter that sustainable investments are not seen by the market as a brake on performance or as an additional hurdle for investments, as many people assume. On the contrary, the consideration of sustainability criteria in investments allows returns to be increased and risk to be reduced at the same time. Therefore, especially by institutional investors, sustainable investments are seen as an opportunity to increase the return of the investments. It is also clear from the current literature and the views of various major asset managers that the mega-trend of sustainability has by no means developed a temporary momentum, but will continue to be an integral part of the world of capital investment and will 346 20 Sustainable Investing <?page no="347"?> permanently mutate into a driving factor of corporate success. What does this mean for sustainable business management? It means that institutional investors are not passively responding to current challenges such as climate issues, technology change and differing social standards, but are targeting capital and investing in industries that address these challenges and offer solutions. The main reason for this is that sustainable investments are economically worthwhile. For companies, however, this also means that now and in the future primarily sustainable business models will be financed to a greater extent. This leads to a strategic reorientation of companies that are currently not considered for sustainable investments. We are currently observing this in the energy and automotive sectors. A sign of hope for climate change is that the investment policy towards sustainability will provide companies with the necessary capital for innovation. Literature BAI (2018): ESG im Asset Management wie nachhaltiges Investieren Branche und Portfolio verändert; Frank Borseifer und Michael Bommer; 7. Investmentsfondstage der Börsenzeitung; 18. Oktober 2018. Bloomberg (2014): Look Beyond. BNP Paribas (2019): The ESG Global Survey 2019 - Asset owners and managers determined their ESG integration strategies. Forum nachhaltige Geldanlagen (2017): Nachhaltige Kapitalanlagen für institutionelle Investoren. Gabler Wirschaftslexikon (Februar 2018): Nachhaltigkeit; Ausführliche Definition; 2. Wirtschaft; URL: http s: / / wirtschaftslexikon.gabler.de/ definition/ nachhaltigkeit-41203/ version-264573, accessed: 27.12.2019. GICS_map 2018; URL: www.msci.com/ gics (Stand: 27.12.2018). Lexikon der Nachhaltigkeit (November 2015): Ausschlusskriterien / Screening; a) Konzepte; 1. Einf‐ ache Ausschlusskriterien; URL: www.nachhaltigkeit.info/ artikel/ ausschlusskriterien_screening_1672.ht m (Stand: 27.12.2019) Industry Classification and Environmental, Social and Governance (ESG) Standards. Lexikon der Nachhaltigkeit (September 2015): Best-in-Class Konzept; a) Erklärung, Ziel & Bedeutung; URL: h ttps: / / www.nachhaltigkeit.info/ artikel/ best_in_class_konzept_1674.htm#: ~: text=a)%20Erkl%C3%A4rung %2C%20Ziel%20%26%20Bedeutung,besten%20Nachhaltigkeitsleistungen%20ihrer%20Branche%20erbring en, accessed: 02.10.2022. Mercer (2019): Global Health - Investing in a time of Climate Change. Oekom Research (2013) "Der Einfluss nachhaltiger Kapitalanlagen auf Unternehmen"; München Robeco (2018): The Big Book of SI. RobecoSam (2018): MSA Methodology Guidebook. RobecoSam (2019a): Measuring Intangibles: RobecoSam's Corporate Sustainability Assessment Methodol‐ ogy. RobecoSam (2019b): Methodology Update. S&P Global (2018): GICS - Global Industry Classification Standard; URL: https: / / www.spglobal.com / marketintelligence/ en/ documents/ 112727-gics-mapbook_2018_v3_letter_digitalspreads.pdf, accessed 27.12.2019. sri Services (2022): Fund Style Name: Sustainability Themed funds, URL: https: / / www.fundecomark et.co.uk/ help/ sri-styles-directory/ sustainability? _gl=1*plx36u*_up*MQ..*_ga*MjA3NjQ1MzQ2MS4xNjY 0OTc3NTE2*_ga_29S44N3YCC*MTY2NDk3NzUxNC4xLjAuMTY2NDk3NzUxNC4wLjAuMA, accessed 02.10.2022. SustainAbility (2019): Rate the Raters 2. Expert Views on ESG. Ratings MSCI (2018): ESG Rating Methodology. https: / / www.msci.com/ documents/ 1296102/ 21901542/ ESG -Ratings-Methodology-Exec-Summary.pdf, accessed: 02.10.2022. 20.3 Effects of a Sustainable Investment Concept on Risk and Performance 347 <?page no="348"?> Thomson Reuters (2019): Thomson Reuters ESG Scores, Scores Structure Union Investment (2019): atmosphere - Die nachhaltigen Seiten des Immobilienmanagements. Union Investment (2019): Globale Zeile für nachhaltige Entwicklung - Die Sustainable Development Goals (SDG) der UN. Union Investment (2019): Klima als Teil des Chance- und Risikomanagements - Investieren unter Extrem‐ wetterbedingungen. Warburg Asset Manager Forum (2019): Nachhaltige Rendite mit einem nachhaltigen Investment - ein Widerspruch? 348 20 Sustainable Investing <?page no="350"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation 5. Understanding Transformation 6. Strategic Sustainability Management 7. Agile Leadership 8. Legal Foundations of Responsible Corporate Governance 9. Corporate Compliance 10. International Management and Sustainability 11. Integral Management - New Perspectives for Sustainable Development 12. Marketing and Sustainability 13. Sustainable Procurement and Logistics Management 14. Sustainable Production 15. Sustainable Product Management 16. Sustainable Innovation Management 17. Sustainability Controlling 18. Sustainability - Disclosure and Audit 19. Sustainable Financial Management 20. Sustainable Investing 21. Operational Environmental Management Outlook <?page no="351"?> 21 Operational Environmental Management Hans-Jürgen Gnam and Lisa Schwalbe Learning Objectives: The readers ■ know the concept of operational environmental management and the development of operational environmental protection via environmental management systems (EMS) to sustainable material flow management, ■ know how EMSs are structured and how they are meaningfully implemented in the company, ■ recognize that EMSs make an important contribution to the legally compliant organization of a company and can lead to efficiency increases and cost savings, ■ recognize that further developments are possible and make sense (note: e.g. material flow cost accounting, EFQM). Keyword List: Environmental Management System (EMS), DIN EN ISO 14001, EMAS, material flow cost accounting, EFQM 21.1 Development of Environmental Management Environmental protection only became a social issue in the 1970s. The recognition of the environ‐ mental damage caused by man-made it necessary to change behavior in dealing with the available resources. In the field of environment, the first activities of companies can be summarized under the term technical environmental protection. Technical environmental protection, based on compliance with legal framework conditions, is thus the precursor of environmental management. The aim is to avoid or reduce environmental pollution. Expensive and elaborate technology in the form of treatment plants e.g. for waste, wastewater, exhaust air, contaminated soil, for the reduction of noise and vibrations are necessary for the implementation. At the beginning of the 1990s, environmental control systems and environmental management systems (EMS) were developed and introduced to further reduce the burden on the environment. Technical environmental protection should be extended by organizational aspects in order to complete the developmental step from aftercare to precaution, i.e., the avoidance of environmental damage. The basis for the introduction of environmental management concepts was the experi‐ ence that the expenses for environmental protection also pay off economically. For example, reducing energy consumption or the amount of waste generated can at the same time also cut costs. With the environmental management systems according to the European Regulation on the Environmental (Eco) Management and Audit Scheme (EMAS) and the international standard <?page no="352"?> 1 Cord-Landwehr, K. &Kranert, M. eds. (2010), p. 495. 2 DIN, www.din.de/ de/ ueber-normen-und-standards/ din-norm, 10.10.2020. ISO 14001, companies have two recognized guidelines at their disposal for the EMS, the aim of which is to promote an ecological improvement process in companies. The concepts are based on the companies' own initiative and responsibility. A further developmental step in environmental management was taken at the turn of the millennium with a consistent orientation towards material and energy flows. Through the transparency of material and energy flows in terms of quantities and costs, cost-saving potentials that were not previously discovered can be exploited while at the same time reducing the burden on the environment. This development stage of environmental management is also called material and energy flow management. Through flow orientation, environmental protection is integrated into all operational processes and placed on a much larger basis within the company. These approaches are constantly being further developed. Likewise, other systematic approaches are increasingly being used so that companies develop more towards sustainability. Examples can be found in section 21.5 and in the chapters by Biermann/ Erne and Gourge in this book. Definitions: Environmental Management, Environmental Management System Environmental management is a sub-area of the strategic management of an organisation (e.g. company, institution, association, municipality, authority), which deals with the recording, evaluation and targeted influencing of productionand process-related environmental effects. An environmental management system is a component of an overarching management system that defines processes, strategies and instruments that are used within the frame‐ work of environmental management and that support the implementation of environmental management. The aim of an environmental management system is to ensure that the activities of an organization lead to the least possible environmental impact or that negative effects on the environment are avoided. For this purpose, the organisational structures (structural and procedural organisation), the competences (responsibilities), the procedures, instruments and resources must be defined. 1 21.2 Environmental Management According to DIN EN ISO 14001 Standards are developed in accordance with defined principles, procedural and design rules. For various topics, there are relevant committees, e.g., NAGUS as the Standards Committee on the Fundamentals of Environmental Protection. Experts are seconded to international committees for the publication of international standards. The standards are reviewed every five years to ensure that they are up-to-date and revised if necessary. 2 Requirements according to DIN EN ISO 14001: 2015 The worldwide valid standard DIN EN ISO 14001 is structured according to the ISO basic structure for management systems, the High-Level Structure. It provides a framework "to protect 352 21 Operational Environmental Management <?page no="353"?> 3 DIN EN ISO 14001: 2015, p. 8. 4 DIN EN ISO 14001: 2015, Berlin, p. 11. 5 DIN EN ISO 14001: 2015, Berlin, p. 22. 6 DIN EN ISO 14001: 2015, Berlin, p. 55. 7 DIN EN ISO 14001: 2015, Berlin, p. 26. 8 DIN EN ISO 14001: 2015, Berlin, p. 30. 9 DIN EN ISO 14001: 2015, Berlin, p. 34. the environment and to react to changing environmental conditions in accordance with socioeconomic requirements". 3 It is all about, for example, protecting the environment, improving environmental performance, managing how products are developed, produced, distributed, used, and disposed of within the company, and fulfilling binding obligations. The basis is the Plan-Do-Check-Act (PDCA) cycle. Environmental goals, for example, are defined, implemented, checked, and permanently integrated. The standard contains requirements for EMSs with guidance on how to apply them. The requirements are presented in chapters 4 to 10, and the guidance is presented in the annex. If a company wishes to be certified, the requirements, which are briefly described below, must be met and demonstrated. 4 The organization must not only understand itself but also know the expectations of its environment and determine which expectations must be met, such as legal requirements. The boundaries of the system must also be defined. Top management takes the lead and responsibility for implementing the EMS. This involves, for example, the effectiveness of the system, the definition of the environmental policy including the main requirements: Compliance with the legal basis and the commitment to the continuous improvement process (CIP), the provision of the necessary resources, and the support of the personnel entrusted with the effectiveness of the system. Responsibilities and authorities must be defined. 5 Processes that contribute to the fulfillment of the EMS must be defined and it must be implemented according to them. In particular, the risks and opportunities arising from the environmental aspects are to be identified. Environmental aspects are understood to be emissions to the atmosphere, discharges to water bodies, contamination of soils, consumption of raw materials and natural resources, energy consumption and release, generation of waste, and others outside the company that can be influenced. 6 The legal and other normative obligations within the framework of the environmental aspects must be compiled and shown how they are applied. Measures must be taken to integrate them into the company. Measurable goals for the avoidance or reduction of environmentally relevant effects must be formulated and it must be determined how these goals will be achieved. 7 The required competencies of the personnel must be identified and ensured to be in place. Ensure that staff is aware of the EMS, in particular the environmental policy. Internal and external communication must be ensured. 8 The next chapter of the standard deals with planning and control for the avoidance and reduction of negative environmental impacts. This is done with defined processes, also taking into account the life cycle of a product or service with corresponding emergency preparedness and hazard prevention. 9 Environmental performance must be monitored, measured, analyzed, and evaluated. This also includes compliance with legal and normative obligations. The internal audit determines whether the documentation meets the standard requirements and is implemented according to them. The top management carries out an evaluation taking into account the measures implemented, changes that have an impact on the environmental aspects and environmental performance, 21.2 Environmental Management According to DIN EN ISO 14001 353 <?page no="354"?> 10 DIN EN ISO 14001: 2015, Berlin, p. 36. 11 DIN EN ISO 14001: 2015, Berlin, p. 39. 12 DIN EN ISO 14001: 2015, Berlin, p. 23. 13 Commission Regulation (EU) 2017/ 1505 of 28 August 2017. 14 Commission Regulation (EU) 2018/ 2026 of 19 December 2018. 15 Commission Decision (EU) 2017/ 2285 of 6 December 2017. 16 Environmental Verification Committee (UGA), Federal Environment Agency (UBA) ed. (2019), p. 17. opportunities and risks, errors and corrective measures, external comments. It includes a statement on the suitability of the EMS, decisions on further improvements, and conclusions for the strategic direction of the company. 10 The last chapter deals with the improvements, the errors and corrective actions, and the further process to improve the environmental performance. 11 The entire standard also indicates which requirements must be documented. 12 21.3 Environmental Management According to EMAS Based on the Council Regulation of 1993 (EEC) No. 1836/ 93 of 29 June 1993, the European Community Eco-Management and Audit Scheme was legally introduced in Germany in December 1995 under the name EC Eco-Audit Regulation. The Regulation has been amended several times and the current legal basis is Regulation (EC) No. 1221/ 2009 of the European Parliament and Council of 25 November 2009 (EMAS III), which was amended by Regulation (EU) No 2017/ 1505 (Annexes I to III) 13 and Regulation (EU) No 2018/ 2026 (Annex IV). 14 The revision of the EMAS Regulation aims to ensure the continued compatibility of EMAS with an environmental management system according to ISO 14001. The EMAS User Manual has also been revised and published as Annex 1 to Commission Resolution (EU) 2017/ 2285 of 06 December 2017 in the Official Journal of the European Union (L 328/ 38 of 12 December 2017), replacing the 2013 User Manual (Commission Decision of 04 March 2013, L 76/ 1 of 19 March 2013). The User's Guide describes the main elements of the scheme and explains the steps an organization needs to take if it wants to participate in EMAS. 15 The User's Guide refers, among other things, to sector-specific reference documents. These include best environmental management practices as well as sector-specific environmental performance indicators. The User's Guide specifies how these are to be taken into account in environmental management. The sector-specific reference documents provide support and assistance to all companies wishing to improve their environmental performance. In addition, a procedure was introduced via the user manual that enables organizations in certain sectors with several sites to reduce the effort required for verification and validation (socalled "sampling procedure" for multisite organizations). Previously, EMAS organizations wishing to include several sites in their registration had to have each site independently verified and then carry out a collective registration. If all requirements are met, it is now possible, in consultation with the environmental verifiers, to group the sites to be verified according to comparability and have only a random selection verified on site. The management center, however, is always checked. The sampling procedure is worthwhile for companies with six or more similar sites. 16 Participation in EMAS is voluntary and is possible for organizations in a wide range of economic sectors within and outside the European Union. An organization can implement the EMS at 354 21 Operational Environmental Management <?page no="355"?> 17 Commission Decision on a User's Guide (2017), p. 6 18C. 18 Regulation (EC) No 1221/ 2009 (2009), p. 5. 19 Commission Decision of on a User's Guide (2017), p. 13. one or more sites. EMAS helps organizations to improve their resource efficiency and reduce environmental risks, and the costs of implementing an EMS are more than offset by the savings. 17 Definition: Organization Organization means a company, corporation, business, enterprise, agency or institution, or any part or combination thereof. The organisation may operate within or outside the community, with or without legal personality, publicly or privately, with its own functions and administration. 18 EMAS Requirements The main objective of EMAS is the continuous improvement of the environmental performance of organizations through the establishment of an EMS and the performance of environmental audits. To this end, the requirements of DIN EN ISO 14001 must first comply with (see section 21.2) and additional requirements described below. The organization has to first carry out an environmental review. This involves examining all of the organization's activities with regard to their environmental aspects and identifying the applicable environmental regulations. The environmental audit serves as a starting point for the introduction of an EMS in accordance with ISO 14001. The environmental audit records and evaluates the environmental performance of the organization with the aim of continuously improving it. The organization's management has to provide the necessary resources (personnel, funding) for the implementation and monitoring of the EMS and has to appoint a top management representative with defined responsibilities and authority to ensure that the EMS requirements are met. Responsibilities have to be documented and made known to facilitate effective environmental management. With regard to the legal and normative base, these are determined, and the impact should be made known. Limits and restrictions are fulfilled and there are procedures whereby compliance is to be assured on a permanent basis. The environmental objectives shall address both direct and indirect environmental aspects. Direct environmental aspects relate to the activities of the organization over which it has control, and indirect environmental aspects relate to the activities, products, and services of an organization over which it may not have full control (Table 21.1). Direct environmental aspects Indirect environmental aspects ■ Emissions to the atmosphere, water emissions, waste ■ Use of natural resources ■ Local phenomena (noise, vibrations, odours) ■ Land consumption ■ Transport-related air emissions ■ Hazards arising from environmental accidents and emergency situations ■ Product life cycle aspects ■ Capital investment ■ Insurance Services ■ Administrative and planning decisions ■ Environmental performance of contractors and suppliers ■ Selection and composition of services (e.g. trans‐ port, etc.) Tab. 21.1: Examples of direct and indirect environmental aspects 19 21.3 Environmental Management According to EMAS 355 <?page no="356"?> Employees are actively involved to improve environmental performance in the company. This includes the direct involvement of employees, the provision of information and feedback to employees. When dealing with the EMS topics including the suggestion system it makes sense to use working groups. External communication in accordance with the standard must be supplemented and demon‐ strated by a dialogue with the public, the authorities, and other interested parties. Environmental reporting is helpful in this respect. The environmental statement informs the public and other interested parties about the environmental impacts and performance of the organization and the continuous improvement of this environmental performance. With regard to environmental performance, the following core indicators must be reported: Energy efficiency, material efficiency, water, waste, land use in relation to biodiversity, and emissions. 21.4 Procedure and Implementation for the Introduction of an EMS A systematic approach is useful for the implementation of an EMS (Table 21.2). Steps DIN ISO 14001 EMAS 1 - Environmental Assessment 2 Structure of the EMS Structure of the EMS 3 Internal audit Environmental audit 4 Management review Environmental statement 5 External audit by auditor Verification by environmental verifier 6 Issue of certificate by certification com‐ pany Registration, validation and publication of the environmental statement Tab. 21.2: Procedure for the introduction of an EMS 21.4.1 Steps 1 and 2: Environmental Assessment and Establishment of the EMS The first step in implementing EMAS is to carry out an environmental audit. This step is carried out in accordance with ISO 14001 as part of the development of the EMS. Within the framework of a context analysis (environment analysis), overarching topics and developments relevant to the organization and the environmental management system must be determined. Many of these external and internal issues in the organization's environment have an influence on the design and success of the environmental management system. In this context, it must be determined to what extent the environment can have an impact on the organization (e.g., through the consequences of extreme weather events or the overexploitation of natural resources). The environment of any organization also includes the stakeholders, both internal (e.g., employees or local service providers) and external (e.g., public authorities or customers), who have expectations and requirements with regard to the environmental aspects and impacts of an organization. The organization is expected to specify which expectations and requirements it wishes to meet or already meets, e.g., in the context of a contractual relationship, a code of conduct, or voluntary reporting. This then results in binding 356 21 Operational Environmental Management <?page no="357"?> 20 Environmental Verification Committee (UGA), Federal Environment Agency (UBA) ed. (2019), p. 4. 21 DIN EN ISO 14001, Berlin, p. 23. 22 Commission Decision of on a User's Guide (2017), p. 14. 23 Environmental Verification Committee (UGA) - ed. 2015, p. 7. 24 ISO 14001: 2015, p. 52. obligations, in addition to the applicable legal provisions, which must be taken into account in the environmental management system. These issues form the basis for determining risks and opportunities, identifying and evaluating significant environmental aspects, and setting environmental targets. 20, 21 However, organizations must also thoroughly examine their internal structures and activities. The aim is to identify all aspects that may have an impact on the environment. Environmental aspects can be input-related (e.g., material and energy consumption) or output-related (e.g., emissions to the atmosphere, waste generation). In order to obtain an overview of the spectrum of environmental aspects, it is advisable to use the corporate eco-balance. For this purpose, all operational inputs and outputs are first collected, registered and evaluated with regard to their essentiality. The assessment of essentiality should take into account, among other things, the environmental hazard potential, the vulnerability of the local, regional or global environment, the extent (e.g. emission levels, energy and water consumption) and number of aspects or impacts, the existence of relevant environmental regulations and their requirements, and the interests of third parties and the organization's employees. Examples of environmental aspects of industries and their environmental impacts are given in Table 21.3. Industry Environmental aspect Environmental impact Traffic ■ Used motor oils ■ Carbon emissions from trucks ■ Soil, water and air pollution ■ Greenhouse effect Office services ■ Consumption of paper, toner, etc. ■ Power consumption ■ Municipal waste pollution ■ Greenhouse effect Chemical industry ■ Waste water ■ Emissions of volatile organic com‐ pounds and ozone-depleting substan‐ ces ■ Water pollution ■ Photochemical ozone ■ Destruction of the ozone layer Tab. 21.3: Examples of environmental aspects and environmental impacts 22 When assessing environmental aspects, "product life cycle aspects" must be considered. The life cycle approach aims to ensure that those relevant environmental impacts that occur in upstream and downstream stages of the life cycle of products and services are also taken into account. The consideration, therefore, includes all activities and processes that are necessary for the provision, use, and disposal of a product or service. In the context of EMSs, those actors and life cycle stages are to be considered on which an organization can directly or indirectly exert an influence. The qualitative and quantitative assessment of all environmental impacts is carried out accord‐ ing to self-established criteria. The assessment must be comprehensible. The organizations must present the essential environmental aspects and record the evaluation procedure in writing. 23, 24 With the help of the evaluation, weak points can be identified and the need for action can be shown. From this, the goals, as well as focus areas and priorities for the company's environmental, program are derived. 21.4 Procedure and Implementation for the Introduction of an EMS 357 <?page no="358"?> Environmentally relevant procedures or processes are identified and defined, which are then implemented. These include the core processes that lead to the company's product or service results as well as the supporting procedures or processes such as procurement or the procedure for complying with environmental law. The management processes are usually also presented, and all processes are systematized in an overview as a map. Example: The following process (Figure 21.1) illustrates one way of mapping a procedure for identifying and implementing changes in environmental legislation. The process begins with the trigger that the cycle for checking for changes in the legal basis has been reached. This cycle could be monthly or quarterly (1). The check for relevance (3) for the company follows. A note in the legal directory, change relevant or not relevant (4), shows that the check has been carried out. The areas affected by the change (8) are informed. If action is required (10) a plan for implementation (11) is made. The measure is implemented (12) and confirmed by a mail to the environmental management representative (UMB) (13). The effectiveness is confirmed in the follow-up audit (14) and documented in the audit report (15). 358 21 Operational Environmental Management <?page no="359"?> Environmental law directoy Turn of the test reached Examination of the environmental legal bases for relevance Relevant? Updating of the environmental law directory Information about changed basics to affected areas Need for action? Planning of the measure Implementation of the measure Evaluation of the measure in the following audit Measure implemented Notice in the environmental law register Environmental law directory Mail amended environmental legal basis Mail converted measure Audit report ja ja no no 1 3 5 7 8 10 11 12 14 16 2 4 6 9 13 15 Input Process: Update on Environmental legislation Output R E I EMO EMO EMO EMO EMO A1 A1 A1 EMO EMO EMO Auditteam Areas Areas BM EMO R: Responsibility, E: Employee, I: Information, EMO: Environmental Management Officer, BM: Business Manager, A1: Area 1 (Example) Fig. 21.1: Possible procedure for updating environmental requirements 21.4 Procedure and Implementation for the Introduction of an EMS 359 <?page no="360"?> 25 Commission Decision of on a User's Guide (2017), p. 17. 26 Environmental Verification Committee (UGA), Federal Environment Agency (UBA) ed. (2019), p. 12. The legal requirements are often compiled in tabular form, as the following example shows. Legal basis Booth Requirements to be implemented Comments KrWG 24.02.2012 20.07.17 Change not relevant for the company §6 Waste hierarchy, order of priority: avoidance, preparation for reuse, recycling, other recovery, in particular energy recovery and backfilling, disposal §7 Basic obligations of the environmental service branch: Waste producer is obliged to recycle. §8 Observe the order of priority and high quality of the recycling measures §9 Keeping waste separate for recycling, mixing ban. The requirements are met: separate collection of the waste types at the decentralized and the central collec‐ tion point Tab. 21.4: Example from a legal directory A program for achieving the environmental objectives and targets must be established and maintained. This environmental program must define the responsibilities, means, and timeframe for achieving the objectives and targets. In the event of new developments, new or modified activities, products, or services, the program shall be amended accordingly, if necessary. Example: 25 Environmental objective: minimisation of the generation of hazardous waste Specific objective: Reduce the use of organic solvents in the process by 20% within 3 years. Measure: Reuse of solvents as far as possible, recycling of organic solvents In principle, top management must assume a leadership role in environmental management and promote the continuous improvement of environmental performance. To this end, the environmental management system must be integrated into the business processes to a greater extent. Stronger integration of environmental management into management structures can be achieved, for example, by anchoring environmentally relevant topics in management circles. The stronger integration of environmental management into business processes can mean, for example, that environmental aspects are anchored in product development or procurement processes, that environmentally relevant criteria are defined for processes and that employees are trained. 26 21.4.2 Step 3: Internal Audit and Environmental Audit EMAS internal audits or internal reviews are used to determine whether an organization is complying with the established procedures and whether there are any problems or opportuni‐ ties for improvement related to these procedures. Within a certain period of time, all activities of an organization must be subjected to an internal audit according to the standard or an environmental audit according to EMAS. The auditors may be employees of the organization with sound training and experience for the specific audit activity or external auditors. They 360 21 Operational Environmental Management <?page no="361"?> 27 ISO 14001: 2015, Berlin, p. 38. shall be sufficiently independent of the activities they audit to provide an objective and neutral assessment. The activities involved in carrying out the audit or internal audit shall include, interviews with personnel, examination of operating conditions and equipment, examination of records, written instructions, and other relevant documents with a view to evaluating the environmental performance of the activity being audited. After each EMAS audit or internal audit according to the standard, a written report in an appropriate form and with adequate content shall be prepared by the auditors for formal submission. The report shall contain all findings and conclusions of the audit. The findings and conclusions must be officially reported to the management of the organization. The audit cycle must be completed at regular intervals, which may not exceed three years (or four years for small and medium-sized enterprises according to EMAS). Within this cycle, all requirements must be audited at least once. The frequency with which an activity is audited depends on the following factors: The nature, scale, and complexity of the activities, the essentiality of the associated environmental impacts, the significance and urgency of issues identified in previous audits, and the history of environmental issues. More complex activities with more significant environmental impacts are audited more frequently. Organizations must establish their own verification program and determine the frequency of verification. 21.4.3 Step 4: Management Review and Environmental Statement The organization's top management must evaluate the environmental management system at specified intervals to ensure its continuing suitability, adequacy, and effectiveness. The evaluation by top management shall address any necessary changes to environmental policy, environmental objectives, and other elements of the EMS based on the results of audits, changing circumstances, and commitment to continual improvement. 27 According to EMAS, an environmental statement is prepared following the management review. The aim of the environmental statement is to inform the public and other interested parties about the environmental impact and performance of the organization and the continuous improvement of this environmental performance. The environmental statement is one of the unique features of the EMAS scheme. Core indicators shall be identified in relation to environ‐ mental performance. The core indicators apply to all types of organizations. They serve to measure environmental performance in the following key areas: Energy efficiency, material efficiency, water, waste, land use in relation to biodiversity, and emissions. On first registration and every 3 years thereafter (or every 4 years for small and medium-sized enterprises), the organization shall provide the information in a consolidated printed version. The organization shall update the information annually (or every 2 years for small and mediumsized enterprises) and have any changes validated by an environmental verifier annually. After validation, these changes shall also be communicated to the competent body and made publicly accessible. 21.4 Procedure and Implementation for the Introduction of an EMS 361 <?page no="362"?> 28 Commission Decision of on a User's Guide (2017), p. 51. 21.4.4 Step 5: Verification by External Auditors or Environmental Verifiers The external auditors, who have experience in the industry to be audited and knowledge of the EMS, audit the EMS and in a report provide the company with the results. This can lead to recommendations, improvements, and also to the termination of the procedure if the standard requirements are not fulfilled in essential points, e.g. if no management review is available. According to EMAS, the EMS is reviewed as part of an internal environmental audit. An external, state-approved and supervised environmental auditor assesses the procedure and process for carrying out the environmental audit and the suitability of the EMS for achieving the specified goals. Compliance with all legal regulations as well as the implementation of selfimposed goals, including an environmental statement, is verified. The environmental verifier will not validate the environmental statement when during the verification, he/ she finds for example when undergoing spot checks, that the organization does not comply with legal requirements. The environmental verifier also validates the environmental statement, i.e. the execution and contents of the environmental statement are declared "valid". The accreditation of environmental verifiers is based on the general principles of competence set out in the EMAS Regulation. The accreditation bodies can accredit individuals, organizations, or both as environmental verifiers. The accreditation and supervision of verifiers in Germany are clearly regulated by the Environmental Verifier Committee (UGA) and the German Accreditation and Licensing Body for Environmental Verifiers (DAU). 21.4.5 Step 6: Award of ISO 14001 Certificate or Registration and Publication of the Environmental Statement When the EMS can be proven according to the standard, the company receives a certificate and can advertise it on their letterhead. Upon successful completion of the audit and validation of the environmental statement according to EMAS, the organization applies for EMAS registration with the competent body. In Germany, these are the Chambers of Industry and Commerce or the Chambers of Crafts. The validated environmental statement and the certificate signed by the environmental verifier confirming that the verification and validation have been carried out in accordance with the EMAS Regulation must be attached to the application. The competent authority should take the final decision on the EMAS registration of an organization within three months of the application. Thereafter, the environmental statement can be published. EMAS registration entitles the organization to use the EMAS logo (Figure 21.2). The EMAS logo conveys that the EMAS scheme is correctly applied and is well suited to communicate environmental awareness to the outside world. The EMAS logo may only be used by organizations with valid EMAS registration. It must not be used on products or product packaging to avoid confusion with environmental product labels. 28 362 21 Operational Environmental Management <?page no="363"?> 29 Commission Decision of on a User's Guide (2017), p. 52. 30 Bavarian State Office for the Environment (LfU) ed. (2018), p. 9. Fig. 21.2: EMAS logo 29 Certified environmental management Reg. no. EMAS is considered the more demanding system in comparison to ISO 14001. EMAS is essentially widespread in Europe, while ISO 14001 is still gaining international acceptance beyond the EU. 21.5 Simplified System Approaches EMAS and ISO 14001 only reach small and medium-sized enterprises to a limited extent due to the length of time and high costs involved. Environmental management approaches support small and medium-sized enterprises, especially in the introduction of EMSs. The approaches are usually aimed at specific target groups (e.g. craft enterprises, church institutions, and church communities). Although all environmental management approaches are oriented towards the requirements of EMAS, most approaches focus exclusively on environmental aspects and savings. External auditing is the predominant form of quality assurance without an independent accreditation system for the auditors. 21.5.1 Existing EMS Approaches Ecoprofit (Ecological project for integrating Environmental technology) is an environmental consulting program and is aimed at small and medium-sized companies in all sectors. It is well suited as an introduction to systematic environmental management. The companies undergo a detailed environmental audit and can thus benefit from some of the advantages of environmental management, e.g. legal certainty, cost-saving environmental protection measures, for example through the reduced consumption of raw materials, water, and energy. Through the formation of a local network, all participating players benefit. The participating companies are supported in the implementation with workshops, exchange of experience, on-site consulting, as well as practice-oriented working materials. The municipalities have to acquire a license for the use of the ecoprofit system and provide organizational support for the meetings of the participating companies. The first steps of ecoprofit are identical to EMAS. 30 At the end, the participants receive an award after passing the examination. 21.5 Simplified System Approaches 363 <?page no="364"?> 31 Brinkmann, B. (2011), p. 5. 32 EU Commission, Directorate General Environment (2007), p. 3-5. 33 Simon, F.-G.&Dosch, K. (2010), p. 759. 34 Schmidt, M. & Schneider, M. (2010), p. 163. "Green Cock" The preservation of creation as an active action is a central task of the church. Church environmental management has been developed and continuously refined by the Evangelical Church in Wuerttem‐ berg. "The Green cock" is an environmental management system according to the European EMAS regulation adapted to church needs. The system approach is a method that has been successfully tested in church communities, administrations, conference centers, and diaconal institutions. Clear responsibilities and regulated processes result in continuous improvements. Volunteers and fulltime staff are involved. Church communities and institutions have been able to reduce their energy and water consumption as well as their waste production by up to 30% with cost-neutral and lowinvestment measures, and thus have financial leeway in the face of generally rising costs. 31 EMAS Easy EMAS easy is a method of EMAS validation tailored to small and medium-sized enterprises. The aim of EMAS easy is not to reduce the requirements of an EMAS validation, but to enable a simpler entry into environmental management. This enables companies to achieve a complete and officially recognized EMAS registration. Correspondingly, certification according to ISO 14001 is also associated with this. EMAS easy can be carried out by ten employees over ten days in exactly 30 work steps and can therefore be implemented in a relatively short time. EMAS easy supports the development of an environmental management system with standardized forms. In terms of registration and use of the logo, EMAS easy is equivalent to a common EMAS validation, but the EMAS easy method is easier to implement. As a group project, EMAS easy can be carried out together with other companies. This allows certification costs to be shared and experience to be exchanged. 32 21.6 Further Development of Environmental Management Material Flow Cost Accounting One of the central challenges for a sustainable society in the 21st century is the reduction of material and energy consumption. Improving material and energy efficiency in companies is of particular importance here. Studies in companies have shown that even simple measures can improve material efficiency by 2 to 3 percent, i.e., by reducing material costs, companies can increase their return on sales much more easily than by increasing sales figures. 33 Material and energy flow management is an important tool to support the environmental management systems according to EMAS and ISO 14001, with the aim of improving the increase in efficiency in the use of materials and energy. With the ISO 14051 standard, a guideline on the framework conditions of material flow cost accounting was published. Material flow cost accounting is a management tool that can support companies in identifying environmental and cost-related improvement potentials in the area of material and energy use. It was developed in the 1990s in German-speaking countries by Wagner and Strobel and has found the greatest dissemination and institutionalization in the Japanese manufacturing industry. 34 364 21 Operational Environmental Management <?page no="365"?> 35 DIN EN ISO 14051: 2011-12 (2011), p. 8. 36 Schmidt, M. & Schneider, M. (2010), p. 164. 37 Strobel, M. (2001), p. 305. 38 Wagner, B., Nakajima, M., Prox, P. (2010), p. 2. 39 DIN EN ISO 50001: 2018-12(2018). The ISO 14051 standard formulates general framework conditions for material flow cost accounting. By developing a material flow model that tracks and quantifies material flows and inventories, as well as energy use within a company in physical units, the transparency of material and energy consumption, is increased. All costs arising from and / or associated with material use or energy use are quantified and allocated in the same way. The focus of material flow cost accounting is the comparison between costs that are attributable to products and costs that are attributable to material losses (such as waste and wastewater). Many companies are not aware of the actual costs caused by material losses, because data on material losses and the associated costs are often very difficult to obtain from conventional company environmental information systems or accounting systems. With the help of material flow cost accounting, this data can be made available and used to identify opportunities to reduce material consumption and/ or material losses, improve material and energy use, reduce undesirable environmental impacts and reduce costs. 35 Material flow cost accounting does not replace conventional cost accounting in the company but is an additional specific evaluation. In this kind of scenario, those costs are shown that could be saved if the residual materials were completely avoided. However, this does not say anything about the technical feasibility. Savings potentials in the range of 5% of turnover seem quite conceivable whether they are actually implemented in the companies, however, depends decisively on the willingness to innovate and change in the companies. 36 Flow cost accounting is becoming a central instrument of sustainable management and ecoefficiency. 37 In Japan, there are already signs of dynamic development of material flow cost accounting as an established tool of sustainability management, which in particular pursues the objective of process innovation. In the future, material flow cost accounting in Japan is to be developed in such a way that the method can also make a contribution to social sustainability. In Germany and Europe, the topic is more important in the focus of politics and companies with regard to resource efficiency. 38 21.6.1 Energy Management Systems According to DIN ISO 50001 Energy efficiency is a central theme of EU environmental and energy policy. For the realization of energy efficiency, energy or environmental management systems in companies play an important role. In summer 2011, the international standard ISO 50001 appeared, which was published in December 2011 in German as "DIN EN ISO 50001: Energy management systems - Requirements with guidance for use" and amended in 2018. 39 The objective of this standard is to assist organizations in establishing systems and processes to improve their energy efficiency. The systematic approach will enable the organization to achieve continuous improvement in energy management performance, energy efficiency, and energy savings. The standard was developed for a stand-alone application but can be adapted to or integrated into other management systems and is applicable to all organizations. The structure of ISO 50001 is also based on the High-Level Structure, the uniform basic structure for ISO management system standards. ISO 50001 now follows the same structure as the quality management standard ISO 21.6 Further Development of Environmental Management 365 <?page no="366"?> 40 Federal Environment Agency (UBA), Federal Ministry for the Environment (BMU) ed. (2020), p. 9. 41 EFQM, 2019, p. 5. 42 See EFQM, 2019, p. 9. 43 EFQM, 2019, p. 10. 44 EFQM, 2019, p. 28. 9001, the environmental management standard ISO 14001, which is also part of EMAS, and the occupational health and safety standard ISO 45001. 40 EMAS and ISO 14001 do not automatically fulfill all the requirements of ISO 50001, but for most companies, energy use as a significant environmental aspect is already part of the environmental management system, so that only a few substantive adaptations and concretizations will be necessary, e.g., with regard to energy-related performance, energy evaluation. EMAS is an approved alternative to the energy audit (according to § 8 Law on energy services and other energy efficiency measures). EMAS environmental verifiers are authorized to issue certification certificates according to ISO 50001. Within the certification procedure, they have the duty to check all requirements of the standard. 21.6.2 European Foundation for Quality Management (EFQM) The EFQM model is a framework and serves as an aid for organizations to redefine their ways of working and to show where one is on the path to sustainable value. The following values form the basis for this: ■ The Charter of Fundamental Rights of the European Union ■ The European Convention on Human Rights ■ Directive 2000/ 78/ EC on equal treatment in employment and occupation ■ The European Social Charter ■ UN Global Compact (2000) Ten Principles for Sustainable and Socially Responsible Manage‐ ment ■ The 17 Sustainable Development Goals of the 2030 Agenda. 41 Companies using this model see themselves as part of a larger and more complex ecosystem, setting an example and actively embracing change. 42 The system consists of seven criteria, which are further subdivided and their fulfillment is assessed with a maximum of 1000 points. The criteria are: 1. Purpose, vision and strategy 2. Organizational culture and organizational leadership 3. Engage stakeholders 4. Creating sustainable benefits 5. Driving performance and transformation 6. Stakeholder perception 7. Strategyand performance-related results. 43 The assessment is first carried out internally, then by external assessors. The assessment includes the results, the procedures, the implementation, and the improvement. 44 366 21 Operational Environmental Management <?page no="367"?> At a Glance: In the 1990s, technical environmental protection was extended to include organizational aspects with the introduction of environmental management systems, thus completing the developmental step from aftercare to precaution. With EMAS and ISO 14001, companies have two internationally recognized standards for environmental management systems at their disposal, which aim to promote an ecological improvement process in companies. The concepts are based on the companies' own initiative and responsibility. The requirements of ISO 14001 for an environmental management system are also a core component of EMAS. In order to integrate these systems into the organization, it is helpful to orient them to the processes that take place within the organization. A quality management system according to ISO 9001 supports this approach. Material and energy flow management is an important tool to support the environmental management systems according to EMAS and ISO 14001, with the aim of increasing efficiency in the use of materials and energy. The ISO 14051 and ISO 50001 standards have published guidance documents on the framework for material flow cost accounting and energy management systems. Flow cost accounting is becoming a key tool for sustainable management and eco-efficiency. Another approach that includes ecology and thus environmental concerns is the EFQM model with thematically more far-reaching requirements than the EMSs presented here. Suggestions for Further Reading: Baumast, A. & Pape, J. - Ed. (2013): Betriebliches Nachhaltigkeitsmanagement, Stuttgart Engelfried, J. (2016): Nachhaltiges Umweltmanagement Schritt für Schritt: Arbeitsbuch, Stuttgart. Förtsch, G. & Meinholz, H. (2018): Handbuch Betriebliches Umweltmanagement, 3rd Edition, Wiesbaden. DIN EN ISO 14002-1: 2019 Entwurf Umweltmanagementsysteme - Leitlinien für die Nutzung von ISO 14001 zur Behandlung von Umweltaspekten und -zuständen innerhalb eines Umweltthemengebiets - Teil 1: Allgemeines, Berlin. DIN EN ISO 14005: 2019Umweltmanagementsysteme - Leitlinien für einen flexiblen Ansatz zur phasen‐ weisen Verwirklichung, Berlin. DIN EN ISO 14006: 2020 Umweltmanagementsysteme - Leitlinien zur Einbeziehung umweltverträglicher Produktgestaltung. DIN EN ISO 17007: 2019 Umweltmanagement - Leitlinien zur Ermittlung von Umweltkosten und -nutzen. DIN EN ISO 14008: 2020 Monetäre Bewertung von Umweltauswirkungen und damit verbundenen Umweltaspekten, Berlin. DIN EN ISO 14031: 2013 Umweltmanagement -Umweltleistungsbewertung - Leitlinien, Berlin. DIN EN ISO 14044: 2006 + A1: 2018 Umweltmanagement -Okobilanz - Anforderungen und Anleitungen, Berlin. DIN EN ISO 14046: 2016 Umweltmanagement Wasser-Fußabdruck - Grundsätze, Anforderungen und Leitlinien, Berlin. DIN EN ISO 14063: 2020 Entwurf Umweltmanagement -Umweltkommunikation - Leitlinien und Beispiele, Berlin. DIN EN ISO 14064-1: 2018 Treibhausgase - Teil 1Spezifikation mit Anleitung zur quantitativen Bestimmung und Berichterstattung von Treibhausgasemissionen und Entzug von Treibhausgasen auf Organisationsebenen, Berlin. DIN EN ISO 19011: 2018 Leitfaden zur Auditierung von Managementsystemen, Berlin. 21.6 Further Development of Environmental Management 367 <?page no="368"?> Literature Bayerisches Landesamt für Umwelt (LfU) - Ed. (2018): Betrieblicher Umwelt-schutz mit Umweltmanagementsystemen, Augsburg. Beschluss der Kommission vom 4. März 2013 über ein Nutzerhandbuch mit den Schritten, die zur Teilnahme an EMAS nach der Verordnung (EG) Nr. 1221/ 2009 des Europäischen Parlaments und des Rates über die freiwillige Teilnahme von Organisationen an einem Gemeinschaftssystem für Umweltmanagement und Umweltbetriebsprüfung unternommen werden müssen (geändert durch Beschluss (EU) 2017/ 2285 der Kommission vom 6. Dezember 2017). Brinkmann, B. (2011): Der grüne Gockel, kirchliches Umweltmanagement für eine lebenswerte Zukunft, Munich. Cord-Landwehr, K. & Kranert, M. - Ed. (2010): Einführung in die Abfallwirtschaft, 4th Edition, Wiesbaden DIN EN ISO 14001: 2015 Umweltmanagementsysteme- Anforderungen mit Anleitung zur Anwendung, Berlin. DIN EN ISO 14051: 2011-12 (2011): Umweltmanagement -Materialflusskostenrechnung - Allgemeine Rah‐ menbedingungen, Berlin. DIN EN ISO 50001: 2018-12 (2018): Energiemanagementsysteme - Anforderungen mit Anleitung zur An‐ wendung, Berlin. EFQM 2019, Das EFQM-Modell. https: / / www.ilep.de/ wp-content/ uploads/ 2020/ 12/ EFQM_MODEL_-_Germ an_-_Free.pdf, accessed 02.10.2022. EU-Kommission, Generaldirektion Umwelt (2007): EMAS "easy" für kleine und mittlere Unternehmen Schmidt, M. & Schneider, M. (2010): Kosteneinsparungen durch Ressourcen-effizient in produzierenden Unternehmen, 18 (pp. 153-164). Simon, F.-G. & Dosch, K.. (2010): Improving the material efficiency of small and medium-sized enterprises, Wirtschaftsdienst 11 (pp. 754 - 759). Umweltbundesamt (UBA), Bundesministerium für Umwelt, Naturschutz und nukleare Sicherheit (BMU) - Ed. (2020): Energiemanagementsysteme in der Praxis - Vom Energieaudit zum Managementsystem nach ISO 50001: Leitfaden für Unternehmen und Organisationen, Dessau-Roßlau. Umweltgutachterausschuss (UGA) - Ed. (2015): In 10 Schritten zu EMAS Ein Leitfaden für Umweltmanagementbeauftragte, Berlin. Umweltgutachterausschuss (UGA), Umweltbundesamt (UBA) - Ed. (2019): EMAS Novelle 2017/ 2019, Berlin. Verordnung (EG) Nr. 1221/ 2009 des Europäischen Parlaments und des Rates vom 25. November 2009 (über die freiwillige Teilnahme von Organisationen an einem Gemeinschaftssystem für Umweltmanagement und Umweltbetriebsprüfung - EMAS III). Verordnung (EU) 2017/ 1505 der Kommission vom 28. August 2017 zur Änderung der Anhänge I, II und III der Verordnung (EG) Nr. 1221/ 2009 des Europäischen Parlaments und des Rates vom 25. November 2009 (über die freiwillige Teilnahme von Organisationen an einem Gemeinschaftssystem für Umweltmanagement und Umweltbetriebsprüfung - EMAS III). Verordnung (EU) 2018/ 2026 der Kommission vom 19. Dezember 2018 zur Änderung des Anhangs IV der Verordnung (EG) Nr. 1221/ 2009 des Europäischen Parlaments und des Rates vom 25. November 2009 (über die frei-willige Teilnahme von Organisationen an einem Gemeinschaftssystem für Umweltmanagement und Umweltbetriebsprüfung - EMAS III). Wagner, B., Nakajima, M., Prox, P. (2010): Materialflusskostenrechnung die internationale Karriere einer Methode zur Identifikation von Ineffizienzen in Produktionssystemen, 18 (pp. 197 - 202). 368 21 Operational Environmental Management <?page no="370"?> Planetary boundaries Management Economy Society Introduction Planetary Boundaries and Society Management and Value Creation Outlook 22. Enterprise Future: A Utopian Retrospective Back from the Year 2050 <?page no="371"?> 1 Bosch, for example, was one of the pioneers: https: / / www.faz.net/ aktuell/ wirtschaft/ unternehmen/ co2-bosch-wi ll-ab-2020-komplett-klimaneutral-sein-16178383.html. 2 Like this Siemens: https: / / new.siemens.com/ de/ de/ unternehmen/ nachhaltigkeit/ co2neutral.html. 3 https: / / www.globalcitizen.org/ de/ content/ new-zealand-human-welfare-gdp/ ? fbclid=IwAR28po2DGH3Z-Pfme-I -e_cG6hxTKrOJ0HDsUAPa6DSdtX8kulge1AyifrY. 22 Enterprise Future: A Utopian Retrospective Back from the Year 2050 Klaus Gourgé Learning Objectives: The readers ■ can book a mental time travel, simple or with return journey, ■ know how to ride a Black Swan without going under, ■ make acquaintance with the unknown known, ■ understand how to use the Wild Card in their strategy games, ■ are already a bit further into the future after reading this chapter than at the beginning guaranteed (about 20 minutes = estimated reading time) Keyword List: megatrends, transformation, common good orientation, quality of life (indices, measurement), resilience, trend, and future research, future skills 22.1 It Will Once Have Been … the Fulfilled Future We are in the year 2050. Books on "Sustainable Business Management" no longer exist - just because of their great success back in the 2020s. Nobody talks about sustainable business management anymore for the simple reason that there are only sustainable companies left. By 2020, the first large corporations had already declared themselves completely climate neutral, 1 others had proclaimed this as a goal for the coming years. 2 At the latest after the first Corona crisis, the second financial crisis, the third refugee crisis, and above all in view of the dramatic consequences of the global climate crisis, the vast majority of companies had not only understood the principles of sustainability but had also internalized it. And those who still hadn't taken it seriously were gone. No one ever missed them. It soon became clear that these companies, which were unwilling to change, were not only not relevant to the system but, from a social point of view, simply superfluous. When, after smaller pioneering countries such as Scotland, Iceland, New Zealand, 3 and the Kingdom of Bhutan, the <?page no="372"?> 4 Measured by gross domestic product (GDP). 5 Various indices for measuring quality of life, sustainability or even happiness have been available for some time. For example, the OECD's Better Life Index: http: / / www.oecdbetterlifeindex.org; or the United Nations' Human Development Index: http: / / hdr.undp.org/ en/ content/ human-development-index-hdi; or the Happy Planet Index: http: / / happyplanetindex.org; or the Kingdom of Bhutan's concept of Gross National Happiness (GNH), http: / / w ww.gnhcentrebhutan.org. 6 Khanna, Parag (2021): Move. How Mass migration will reshape the world. https: / / www.paragkhanna.com/ wp-co ntent/ uploads/ 2021/ 07/ UK-MOVE-Press-release-1-1.pdf. 7 https: / / ea-stiftung.org/ s/ Kunstliche-Intelligenz-Chancen-und-Risiken.pdf. 8 https: / / www.faz.net/ aktuell/ wirtschaft/ netzwirtschaft/ elon-musk-kuenstliche-intelligenz-gefaehrlicher-als-nord korea-15148011.html. large industrial nations also consistently changed their policies from 2025 and no longer declared economic growth 4 but the quality of people's lives to be the yardstick and goal of their actions, it became clear: 5 a sustainable lifestyle and economic style clearly had a positive effect on life satisfaction. 22.2 The "Great Transformation": Off to New Territory! Before we look at the positive utopia of life in 2050, let's make one thing clear: as things stand today, this best-case scenario is unfortunately anything but likely. It would be naïve to believe that we will get there without much effort. On the contrary, it will take a unique, sometimes radical transformation of our society on many levels to get there. The positive utopia is merely to show: It is worth all efforts. To achieve this desirable version of our future, these critical To Dos are to tackle for the next few years: Climate Crisis / Planetary Boundaries: Climate protection is not everything, but without climate protection everything is nothing. As global warming continues unabated, we run a serious risk of making large parts of the earth uninhabitable. Depending on the estimations, 6 a billion climate refugees or more will then inevitably have to make their way somewhere. It is not only the EU that is conceivably ill-prepared for this. And yes, there are other planetary boundaries besides climate that we can no longer ignore. The longer we wait, the higher the costs will be. Artificial Intelligence: Here, as so often, enormous opportunities and risks lie close together. With the rapid further development of self-learning systems, "historically unprecedented ethical challenges are emerg‐ ing". 7 From the experience with the comparatively harmless possibilities of Web 2.0 and social media: initially celebrated as a great opportunity for participatory democracy and equal communication, we were soon surprised by problems such as fake news, hate speech, populism, election interference, filter bubbles, data misuse, barely controllable monopolies and more, not to mention cybercrime and the machinations of the darknet. Precisely because we will hardly be able to do without the possibilities of AI to solve many problems, we need robust rules against its misuse: because Elon Musk is not the only one who sees artificial intelligence as the greatest danger to human civilization. 8 372 22 Enterprise Future: A Utopian Retrospective Back from the Year 2050 <?page no="373"?> 9 VUCA is an acronym for the terms volatility, uncertainty, complexity and ambiguity. https: / / de.wikipedia.org/ w iki/ VUCA. 10 https: / / www.oecd.org/ education/ 2030-project/ teaching-and-learning/ learning/ skills/ in_brief_Skills.pdf. Resilience: The Corona pandemic of 2020 will not be the last "surprise". It is a typical feature of today's VUCA world 9 that it confronts us more and more frequently with unexpected events. Next time, it may be a computer virus instead of a biological one, or whatever. Companies, as well as all other social institutions, are well-advised to professionalize their resilience and adaptability to crises. More on resilience as a success factor for sustainable business in Chapter 4. Common Good Orientation: The more noticeably the negative side effects of many economic and consumption patterns become apparent, the more the (actually old) idea of the common good orientation of companies gains topicality. The common good is formulated as a goal in many state constitutions; it would only need to be filled with life again see also Chapter 4. Democracy / Participation: When it comes to sustainability, political institutions also need to innovate, on both a large and small scale: Where challenges can only be solved globally, there would also be a need for global political institutions. Conversely, it is precisely at the level of cities that it is evident that action can be taken much more quickly and effectively. And isn't it high time that the Fridays for the Future generation, most of whom are under 18, were allowed to vote since it is their future that is at stake? New forms of political and social participation are also needed to counteract the polarization, marginalization, and sometimes radicalization of parts of the population. Sustainable education: Even more than the much-invoked digital competence, educational researchers believe that it will be important to promote those future skills that distinguish humans from computers. In the age of artificial intelligence, human skills that an algorithm cannot (yet) master so well will be in demand: creativity, social competence, empathy, imagination, and more. To put it casually: nothing against knowledge of mathematics, but in this respect, we are hopelessly inferior to the algorithms. In general: what today often still constitutes learning in schools and universities is being overtaken by three other future skills on a four-level scale of the OECD: more than pure knowledge, values, attitudes, and competencies will be essential in the future. 10 So, when we have managed all these challenges and a few more, then and only then can we imagine the world in 2050 like this: 22.3 A Tour Through the Year 2050: The city of the Future Let's take a look at life in a major city in the year 2050, say Frankfurt (it could be any other city in Europe.) The first thing that a time traveler catches the eye upon arrival in the year 2050: The entire 22.3 A Tour Through the Year 2050: The city of the Future 373 <?page no="374"?> 11 Hopkins, Rob (2014): Simply. Now. Do. How we take our future into our own hands. Munich. 12 For example Julian Dörr, Nils Goldschmidt, Frank Schorkopf (eds.) (2018): Share Economy: Institutionelle Grundlagen und gesellschaftspolitische Rahmenbedingungen (Die Einheit der Gesellschaftswissenschaften im 21. Jahrhundert, vol. 1). Tübingen. 13 Felber, Christian (2010): Gemeinwohlökonomie, Vienna. 14 Rifkin, Jeremy (2014): The Zero Marginal Cost Society: The Internet of Things, Collaborative Commons, and the Retreat of Capitalism. 14th edition, Frankfurt / New York. 15 In 2018, there were more than 250,000 people injured in traffic accidents in inner cities in Germany alone, of which around 36,000 serious injuries and 984 fatalities https: / / www.dvr.de/ unfallstatistik/ de/ innerorts/ . 16 www.adac.de/ infotestrat/ autodatenbank/ autokosten/ autokosten-rechner/ default.aspx. 17 https: / / www.zukunft-mobilitaet.net/ 78246/ analyse/ flaechenbedarf-pkw-fahrrad-bus-strassenbahn-stadtbahn-fu ssgaenger-metro-bremsverzoegerung-vergleich/ . 18 https: / / www.bundestag.de/ presse/ hib/ 2018_03/ 548536-548536. 19 https: / / www.tagesschau.de/ ausland/ luxemburg-kostenloser-nahverkehr-101.html. inner city and all residential areas are free of cars, and the streets are unrecognizable. The whole thing looks like a combination of pedestrian zone and playground, neighborhood meeting place and allotment garden colony, marketplace, and many other forms of use for which the vocabulary of 2020 had not even developed terms. At that time, people were just learning Anglicisms like Urban Gardening, Repair café, and Transition Town 11 and being able to pronounce terms like Sharing Economy, 12 Common Good Economy, 13 or Zero Marginal Cost Society 14 without accidents. Speaking of accident-free: Today, in 2050, there are virtually no accidents worth mentioning in inner cities; no one has to walk their children to school or even chauffeur them there by car as in the past. And the fact that the accident figures of earlier years 15 were apparently accepted as an unavoidable fate or law of nature is now completely inconceivable. The same applies to the high levels of air and noise pollution at that time, as well as the, in retrospect, almost absurdly inefficient waste of time, space, and money: a normal VW Golf at that time cost its owner an average of 500 euros 16 every month, stood around unused for around 23 hours a day, took up 13 square meters of the scarce, expensive, sought-after inner-city parking space 17 for parking alone and, finally, often moved its usually only occupant 18 hardly faster than a cyclist. As it became increasingly clear that this perceived normal mobility behavior would never be sustainable, let alone for 10 billion people on this globe, individual cities initially became eager to experiment. Copenhagen, Barcelona, Paris. Then, in 2020, small, rich Luxembourg became the first country in the world to introduce free public transport for all. 19 It was to take some time before "car nation" Germany followed the trend but eventually the domestic car industry also reinvented itself in an admittedly not entirely painless transformation process. Here, learning experiences from the first Corona crisis paid off, when some companies managed to switch to completely new and urgently needed products even within a few weeks. Incidentally, the car-free (inner) city provides us with a fine example of how much the usual ideas of the future based on the current state differ in their outcome from the thought exercise shown here, namely to recognize in retrospect, from a future presented as desirable (e.g. sustainable), which development path should be taken: In the first case, countless expected objections immediately arise as to why this is quite impossible: but then what about jobs, etc.? In the second case, on the other hand, it quickly becomes clear that if the city of the future has to be sustainable and worth living in and is to look something like the one described above, then it is necessary to set the course in this direction sooner rather than later - even if this means saying goodbye to the mobility behavior that is taken for granted today. 374 22 Enterprise Future: A Utopian Retrospective Back from the Year 2050 <?page no="375"?> 20 Rifkin, Jeremy (2014): The Zero Marginal Cost Society: The Internet of Things, Collaborative Commons, and the Retreat of Capitalism. 14th edition, Frankfurt / New York. 21 Braungart, Michael, Mc Dounough, William (2014): Cradle to Cradle: Simply producing intelligently. 22 The formulation appears for the first time in Sommer, Bernd / Welzer; Harald (2014): Transformationsdesign. Ways into a sustainable modernity. Munich. 22.4 Better Different: How we Live and Work in 2050 Living, working, learning, leisure, and consumption will also have changed decisively by 2050 less visibly than the car-free city just considered, but just as tangible in everyday life. Electricity comes out of the socket just as naturally, it is 100 percent green and, what's more, almost free. 20 Technical developments have made renewable energies unbeatably cheap, and what used to be just a snappy saying has come true: The sun doesn't send a bill. Neither do wind or water, for that matter. The fact that gigatons of coal used to be burned to generate electricity, knowing full well about the consequences for the climate, can no longer be understood in 2050. The typical commute between home and work will be the exception in 2050. Not only because there is little left to do in the automated factory that cannot be managed remotely. The trend towards "product-as-a-service" that emerged in the 2020s has become a success story thanks to the stringent link with the cradle-to-cradle principle 21 (circular economy): consumption today no longer takes place in a three-step process of buy, use, dispose. Steps one and three are no longer necessary; almost all consumer goods are neither bought nor disposed of, but simply used. The customer only pays for the use, the manufacturer remains the owner and takes back the fully recyclable, repairable or compostable goods at any time if desired. This principle shows that a sustainable economic model needs more than technical product innovation. Only in combination with changed forms of use, with changes in behavior on both sides of supply and demand, does the full potential unfold. Initially, it took some tax incentives and regulatory requirements to move the principle out of the niche and into the mainstream. But the benefits quickly became obvious to all involved. And our working world: Smart Factory, Internet of Things, Industry 4.0, and M2M (Machine-tomachine business) are just as much a part of everyday life as co-working spaces, home offices, and work in virtual organizations. In the former bank towers of the Frankfurt skyline, a wide variety of uses now alternate from floor to floor: Food market, start-up incubator, residential lofts, daycare center, civic office, continuing education center, shopping gallery, hotel floor, fitness studio, coworking space, gastronomy… The fact that robots and algorithms will have taken over many millions of traditional jobs by 2050 turned out to be a blessing in disguise. Since the introduction of appropriate taxation, their unbelievably increased value creation has led to a social wealth that can be used to solidly finance the long-discussed unconditional basic income. And the average working week in 2050 will be 20 hours. 22.5 Alternative Futures: "By Design or by Disaster"? So, this is what the world could look like in 2050. Could. But the truth is also that everything could turn out quite differently. Man-made institutions in politics and the economy could prove incapable of managing the global crises, above all the ecological crises. In that case, the reality of our lives would also change drastically, but not "by design", but "by disaster": 22 As global warming progresses, various tipping points would be passed, beyond which self-reinforcing processes 22.4 Better Different: How we Live and Work in 2050 375 <?page no="376"?> 23 In any case, the automatic spelling aid in MS Word still marks 'futures' as incorrect in December 2020! 24 Blake, William (1803): "Auguries of Innocence", www.goodreads.com/ quotes/ 103931-what-is-now-proved-was-o nce-only-imagined. 25 The phrase "unknown unknown" was popularized by Donald Rumsfeld at a press conference: https: / / www.yout ube.com/ watch? v=GiPe1OiKQuk. would become unstoppable and cause the temperature to rise further and further with the result that large parts of the earth's surface would no longer be habitable, hundreds of millions of people would have to look for a new home (but where? ), plus food and water shortages, new diseases, species extinction and more. That would be an unfortunately not completely improbable future, which no one wants, and which could nevertheless become reality in the end if we continue as before. In short: Even though we usually only speak of the future, there are many futures. This takes some getting used to, and not only in terms of language. 23 "What is now proven was once only imagined". 24 Only if we have a picture of the future we want, can we begin to realize it. The good thing is: this vision already exists, it has been decided and proclaimed by (almost) all states of the world. It is the UN agenda "Transforming our World" with its 17 concretely defined Sustainable Development Goals. In short, the goal for the future is a sustainable society. Only the best way to get there and the necessary pace of progress still need to be discussed. This brings us to a point where we should briefly consider trend research and future studies: Scenarios, Wild Cards, Black Swans & Co. The positive scenario described above will only have become reality if companies, politics, and civil society have decided on a certain path of transformation in the years 2020. This future tense II also bears the beautiful designation "fulfilled future" or "future perfect" and is especially suitable for looking back from the future: Trend research then contrasts this best of all possible futures, the "best-case scenario", with a "worst-case scenario", in which it becomes clear how something could turn out in the worst case. In between, other scenarios can be defined based on certain basic assumptions. Figuratively speaking (see Figure 22.1), this results in a scenario funnel that continues to grow from today on the timeline towards the future. However, the course of events means that we cannot simply extrapolate a development from the past into the future in a linear fashion without having to be prepared for surprises. Trend researchers call these serious, highly improbable events "Wild cards" or, even more vividly, "black swans": because black swans are very rare in nature but do sometimes appear. They are the "known unknown": Even before the first Corona crisis in 2020, people knew that this could and would happen, just not when. Systematically even more difficult than black swans, on the other hand, is something called the "unknown unknown": "things, which we do not know that we do not know" 25 and which, in the spirit of resilience, we should nevertheless, or precisely because of this, try to imagine. However, it is probably crucial that we commit ourselves to the one desirable future out of the many possible futures. Especially when the "business as usual" variant would lead to an undesirable future: 376 22 Enterprise Future: A Utopian Retrospective Back from the Year 2050 <?page no="377"?> 26 Similarly Voros, Joseph (2003): A generic foresight process framework, in: Foresight Journal Vol 5 / 3, Cf. also Hancock T, Bezold C. (1994): Possible futures, preferable futures, in: Healthcare Forum Jg. 37(2): 23-29. (1994): Possible futures, preferable futures, in: Healthcare Forum Jg. 37(2): 23-29.; similarly itz Institut für Trend- und Zukunftsforschung https: / / www.zukunftpassiert.de/ beratung/ . possible desirable "business as usual" probable plausible „Futures“ today Fig. 22.1: Possible, probable and desirable futures 26 22.6 Restart: Because Tomorrow Today is Already Yesterday So, now we have looked ahead into the fulfilled future (future tense II) and from there looked back again into the unfinished past (imperfect tense). As far as we know, among all living beings only Homo Sapiens can undertake such mental time travels. But we humans can also only act in the here and now. What motivates us and what keeps us from actually tackling the changes in our lifestyles and economies that are urgently needed for a desirable, sustainable future? If we agree that the best-case scenario described would offer us a clearly higher quality of life than the unfortunately also possible worst-case scenario, then that should actually be motivation enough, even for initially unfamiliar innovations. It's quite possible that in hindsight, many will wonder why we didn't start this new, sustainable lifestyle much earlier. What kept us from making the fresh start? Probably a mixture of lack of imagination, stubborn habits, understandable insecurities and ultimately unfounded fears. Let's try to transform this basic attitude, which unfortunately is not very effective, into a sustainable mindset that can open up completely new perspectives for each of us individually as well as for companies and our society as a whole. And when, in the hopefully not too distant future, sustainability will have become the new normal, we will no longer need a book on "Sustainable Business Management". It would have served its purpose. 22.6 Restart: Because Tomorrow Today is Already Yesterday 377 <?page no="378"?> At a Glance: There is not one future, but many futures. Only one thing is clear: things will not stay the way they are. At the latest with the climate crisis, it is obvious that a profound transformation toward a sustainable economic and lifestyle is necessary and already underway. Faced with the choice of whether further development will take place "by design or by disaster", the preferable solution should actually be clear. Suggestions for Further Reading: New thinking for business and society, engagingly presented: Göpel, Maja ((2020): Unsere Welt neu denken. 3rd edition, Berlin The idea of green growth as a vision for the future: Rifkin, Jeremy (2019): The Global Green New Deal, Frankfurt / New York Why a major transformation is inevitable and how it can be done: Sommer, Bernd / Welzer; Harald (2014): Transformationsdesign. Ways into a sustainable modernity. Munich Stay up to date with news, blogs and videos on future and sustainability topics: www.zukunft.mba Literature Blake, William (1803): "Auguries of Innocence"; quoted from www.goodreads.com/ quotes/ 103931-what-is -n ow-proved-what-once-only-imagined. Braungart, Michael, Mc Dounough, William (2019): Cradle to Cradle: Einfach intelligent produzieren, 5th ed. Edition, Berlin. Dörr, Julian et al. (eds.) (2018): Share Economy: Institutionelle Grundlagen und gesellschaftspolitische Rahmenbedingungen (Die Einheit der Gesellschaftswissenschaften im 21. Jahrhundert, vol. 1). Tübingen. Felber, Christian (2010): Gemeinwohlökonomie, Vienna. Hancock T, Bezold C. (1994) Possible futures, preferable futures, in Healthcare Forum Jg. 37(2): 23-29. Hopkins, Rob (2014) Einfach. Jetzt. Machen. Wie wir unsere Zukunft selbst in die Hand nehmen. Munich. OECD (n.d.): Skills for 2030. https: / / www.oecd.org/ education/ 2030-project/ teaching-and-learning/ learning / skills/ in_brief_Skills.pdf. Rifkin, Jeremy (2014): Die Null-Grenzkosten-Gesellschaft: Das Internet der Dinge, kollaboratives Gemeingut und der Rückzug des Kapitalismus. 14th edition, Frankfurt / New York. Sommer, Bernd / Welzer; Harald (2014): Transformationsdesign. Wege in eine zukunftsfähige Moderne. Munich. Voros, Joseph (2003): A generic foresight process framework, in: Foresight, Vol 5 / 3, S. 10-21. Wenzel, Eike (n.d.): Wie funktioniert wissenschaftliche Trend- und Zukunftsforschung? www.zukunftpass iert.de/ beratung/ . 378 22 Enterprise Future: A Utopian Retrospective Back from the Year 2050 <?page no="379"?> List of Authors Photo Name, title Brief description Prof. Dr. Christian Arndt Chapter 3: Economic Perspective and Environ‐ mental Economics Christian Arndt is a Professor of Economics, esp. Empirical Economic Research at Hf WU. He heads the Center for Sustainable Development (ZNE) as well as the Innovation and Methods Lab (MLab) and is the Sustainability Officer of Hf WU. His research and transfer activities focus on the distribution of income and wealth, multinational enterprises, innovation, and the establishment of sustainable organizations. To‐ gether with a colleague, he leads the EXISTfunded project "Zukunft.Gründen" at Hf WU. Prof. Dr. Thomas Barth Chapter 18: Sustainability - Disclosure and Au‐ dit Prof. Dr. Thomas Barth is Professor of Business Administration with a focus on controlling and accounting. Before his appointment at the uni‐ versity, he worked for an international auditing company for several years. In addition, Prof. Barth works as a tax consultant in Stuttgart. Prof. Dr. Brigitte Biermann Chapter 15: Sustainable Product Management Brigitte Biermann is a Professor of Sustaina‐ ble Product Management at Hf WU since 2015. She teaches environmental and socio-economic sustainability topics and competencies for more sustainable management in the courses of study Sustainable Management, Sustainable Mobili‐ ties, and Future Trends and Sustainable Man‐ agement. She is a trainer in certified workshops of the Global Reporting Initiative, advises companies on sustainable development with her innova‐ tion agency triple innova, and conducts inter‐ disciplinary research on effective sustainability transformations. Prof. Dr. Horst Blumenstock Chapter 7: Agile Leadership Prof. Dr. Horst Blumenstock is a professor of business administration, specializing in corpo‐ rate management and human resources man‐ agement. In addition to his university activities, he works as a consultant for small and mediumsized enterprises and family businesses. He is also the founder and shareholder of Bodensee Campus GmbH. <?page no="380"?> Prof. Dr. Erskin Blunck Chapter 6: Strategic Sustainability Manage‐ ment Prof. Dr. Erskin Blunck is Professor of Interna‐ tional Management and Dean of the MBA Inter‐ national Management at Hf WU. After studying in Hohenheim, Portland, Oregon and earning his doctorate at the University of Hohenheim, Prof. Blunck worked as a strategy consultant and head of product management. Since April 2004, he has been teaching and researching at Nuertingen-Geislingen University as a pro‐ fessor. In addition, together with a colleague, he heads the EXIST-funded start-up support program Zukunft.Gründen at Hf WU and works as a strategy consultant. Prof. Dr. Rainer Erne Chapter 15: Sustainable Product Management Rainer Erne has been a professor at the Nuertin‐ gen-Geislingen University of Applied Sciences since 2014, where he focuses on product, proc‐ ess, and project management. Previously, he worked in the same fields at IBM Global Serv‐ ices, Vector Consulting, and the Bosch Group. In addition to his university activities, he is still active in consulting and training companies and public service organizations on the abovementioned topics. Prof. Dr. Dr. Dietmar Ernst Chapter 1: Sustainable Business Management Chapter 20: Sustainable Investing Prof. Dr. Dr. Dietmar Ernst is Professor of In‐ ternational Finance. He is Dean of Studies and heads the Master's program in International Finance at Hf WU. He is also director of the Eu‐ ropean Institute of Quantitative Finance (EIQF). Previously, he was an investment manager at a private equity company and worked for several years in the field of mergers & acquisitions. Dietmar Ernst studied International Economics at the University of Tübingen and holds a PhD in both Economics and Natural Sciences. He is the author of textbooks and other publications. Prof. Dr. Peter Förschler Chapter 9: Corporate Compliance Prof. Dr. Peter Förschler is a professor of busi‐ ness law, specializing in corporate compliance and receivables management, and an honorary professor at the University of Hohenheim. After receiving his doctorate from the University of Tübingen, he worked for more than 10 years as a state attorney and civil judge at the regional court in the judicial service of the state of Baden-Württemberg. Since 2001 Prof. Förschler has been teaching at the Hf WU in Nuertingen and since 2004 at the University of Hohenheim. He also works as a compliance expert and author of specialist books. 380 List of Authors <?page no="381"?> Prof. Dr.-Ing. Andreas Friedel Chapter 14: Sustainable Production Andreas Friedel was appointed Professor of Manufacturing Processes and Production Or‐ ganization at Offenburg University of Applied Sciences in 2015. He started his career as a re‐ search associate at the Fraunhofer Institute for Manufacturing Engineering and Automation (IPA) in Stuttgart, Germany, where he earned his doctorate. This was followed by 16 years in industry as head of quality and plant manager in various mechanical engineering companies. In addition to his teaching activities, he is also responsible for the Bachelor's and Master's de‐ gree programs in industrial engineering. He also advises manufacturing companies on pro‐ duction and energy management. Prof. Dr. Katja Gabius Chapter 8: Legal Foundations of Responsible Corporate Governance Professor Dr. Katja Gabius is a professor of business law with a focus on banking law, corporate law, capital market Law, and general civil law. She is the director of the Institute for Corporate Governance (ICG) at Hf WU. After receiving her doctorate from the Univer‐ sity of Freiburg, Prof. Gabius initially worked as a lawyer in an internationally oriented com‐ mercial law firm, after which she was respon‐ sible for the legal department of a bank for more than 10 years. Katja Gabius studied law in Constance and Freiburg after completing a banking appren‐ ticeship and has been a full professor at Hf WU in Nuertingen-Geislingen since February 2008, initially as Dean of Studies for the Business Law program, and since March 2012 in Nuertingen for the subjects of contract law, capital market law, corporate governance and business ethics. Her research focus The focus is on corporate law and corporate governance. Prof. Dr. Robert Gabriel Chapter 1: Sustainable Business Management Chapter 2: Sustainability - An Introduction Professor Dr. Robert Gabriel is Professor of sus‐ tainable business management at the Faculty of Business Administration and International Finance at Hf WU. Before being appointed to the university in 2017, he built up a sustaina‐ bility consulting and software company with 300 employees as part of a founding team. Over a period of almost 20 years, Robert Gabriel advised and guided over 100 multinational com‐ panies in making their business models and global value chains sustainable. He still passes on this experience as a strategy consultant and coach for executives. List of Authors 381 <?page no="382"?> Prof. Dr. Thomas Ginter Chapter 5: Understanding Transformation Chapter 11: Integral Management - New Per‐ spectives for Sustainable Development Thomas Ginter is Professor of Business Ad‐ ministration with a focus on Organization / Transformation Design and Management. He has been teaching at Hf WU in Nuertingen- Geislingen since 2011 and, as Dean of Studies and Head of Studies, is responsible for the Mas‐ ter's in Organizational Design and the Master's in Transformation Design & Management. In addition to his professorship, Thomas Ginter has also been active as a business consultant and organizational developer since 2001. As a founding partner and scientific director of the Institute for Value-Centered Management (IWM), Professor Ginter supports companies in strategy and transformation projects. Prof. Dr. Hans-Jürgen Gnam Chapter 21: Operational Environmental Man‐ agement Prof. Dr. Hans-Jürgen Gnam has been Professor for Environmental and Material Flow Manage‐ ment at Hf WU in Nuertingen-Geislingen since 2002. Previously, he held various positions in the pharmaceutical industry, including Group Representative for Environment, Safety and Health Protection. In addition to his university activities, he works as a consultant for small and medium-sized enterprises. Prof. Dr. Klaus Gourge Chapter 4: Social Responsibility: From Profit to the Common Good and Back Again Chapter 22: Enterprise Future: A Utopian Ret‐ rospective Back from the Year 2050 Prof. Dr. Klaus Gourge was appointed to the Hf WU in 2005. Since 2016, he has been head of the MBA program "Future Trends and Sustain‐ able Management". He teaches and publishes on topics such as CSR and normatives Manage‐ ment, Trends and Transformation. Previously, he worked as a senior executive in corporate communications at a DAX-listed company and as managing director of the IFU Institute for Corporate Communications in Frankfurt. Prof. Dr. Carsten Herbes Chapter 10: International Management and Sustainability Prof. Dr. Carsten Herbes has been Professor of International Management and Renewable Energy and Managing Director of the Institute for International Research on Sustainable Man‐ agement and Renewable Energy at Hf WU since 2012. Previously, he worked for almost 10 years in an international management consultancy in the Munich and Tokyo offices, then in a bioenergy company, most recently as a board member. Working focus: Marketing, costs and social ac‐ ceptance of renewable energies; international development of renewable energies; strategy and organization of internationally active com‐ panies; Japanese economy. 382 List of Authors <?page no="383"?> Prof. Dr. Stefan Marx Chapter 18: Sustainability - Disclosure and Au‐ dit Prof. Dr. Stefan Marx is Professor of Business Administration with a focus on auditing and accounting. He is Director of the Institute for Corporate Governance (ICG) at Hf WU and Dean of the Bachelor of Business Administra‐ tion (B.Sc.) program. He has more than 20 years of professional experience at an international auditing firm in the field of auditing and consulting corporate governance services as well as auditing con‐ solidated and individual financial statements according to IFRS and HGB. In addition, Prof. Marx continues to work as an auditor in Nur‐ emberg. Prof. Dr. Iris Ramme Chapter 12: Marketing and Sustainability Prof. Dr. Iris Ramme has been Professor of Busi‐ ness Administration with a focus on marketing and market research at Hf WU since 1997. After receiving her doctorate from the Technical Uni‐ versity of Dortmund in 1989, Prof. Ramme held management positions in market research and marketing in the media and financial services industries. In addition to her professorship, Prof. Ramme has been Director of International University Affairs since 2010. Prof. Dr. Monika Reintjes Chapter 13: Sustainable Procurement and Lo‐ gistics Management Prof. Dr. Monika-Reintjes-has been a professor of business administration with a focus on procurement and logistics management since 2010. After receiving her doctorate from the University of Siegen in 1997, Prof. Reintjes held leading positions in the IT services sector and electronics industry from 1997 to 2009, most recently as the managing director of a mediumsized production and development site. Prof. Dr. Marc Ringel Chapter 3: Economic Perspective and Environ‐ mental Economics Prof. Dr. Marc Ringel has been Professor for En‐ ergy Economics and Environmental Economy. Previously, he was a national expert at the Di‐ rectorate-General for Energy of the European Union, an economic analyst on "Green Growth" at the OECD, and deputy head of a unit at the Federal Ministry for Economic Affairs and Energy. His research focuses on the transforma‐ tion of energy systems, energy efficiency and renewable energies, green growth, and multilevel governance with a focus on the EU. List of Authors 383 <?page no="384"?> Alexander Romppel Chapter 5: Understanding Transformation Alexander Romppel is a serial entrepreneur, Co-Founder of Team Technology, an IBM Bea‐ con Award-Winning Tech-Company in the field of "Collaborative Work Solutions" and Co-Founder & Managing Partner of the Insti‐ tute for Value-Centered Management (IWM). In addition, Alexander Romppel is a university lecturer for work organization, transformation & leadership, innovation & business model de‐ velopment. Together with Prof. Ginter, he has conceived and constituted the master of Organ‐ izational Design and the professional Master of Transformation Design & Management at Hf WU. He researches in the field of New Phe‐ nomenology on poetic intelligence, the vital drive, and the importance of coherence of peo‐ ple as a basis for potential development. Prof. Dr. Ulrich Sailer Chapter 1: Sustainability - An Introduction Chapter 17: Sustainability Controlling Prof. Dr. Ulrich Sailer has been Professor of Business Administration with a focus on Con‐ trolling and Sustainability at Hf WU in Nuertin‐ gen since 2001. There, he heads the master's program in controlling. His main areas of in‐ terest are the digitalization of controlling and sustainability controlling. Before his appoint‐ ment at the university, he worked for 10 years in the commercial management and executive management of several companies. Prof. Dr. Steffen Scheurer Chapter 7: Agile Leadership Prof. Dr. Steffen Scheurer has represented the "Accounting and Controlling" department at Hf WU Nuertingen-Geislingen since 2011. He heads the Health and Tourism Management program as well as the MBA program "Interna‐ tional Project Management and Agile Project and Transformation Management". He is the author of numerous articles and co-author of a textbook on "Project Management." He is also involved in the GPM e.V. in various functions. In addition, he has over 25 years of consulting experience in the areas of project management, corporate management, and controlling. Prof. Dr. Frank Andreas Schittenhelm Chapter 16: Sustainable Innovation Management Chapter 19: Sustainable Financial Management Prof. Dr. Frank Andreas Schittenhelm has been Professor of International Financial Manage‐ ment at Hf WU Nuertingen-Geislingen since 2012. Prior to that, he held a professorship at Esslingen University of Applied Sciences since 2001. As Vice-Dean of the Faculty of Busi‐ ness Administration there, he established the Master's program in Innovation Management and led it for several years. In addition to his university activities, he works as a consultant specializing in risk management and as a lec‐ turer at the German Actuarial Academy. Prior to his appointment as a professor, he was a consultant in the financial services sector. 384 List of Authors <?page no="385"?> Prof. Dr. Lisa Schwalbe Chapter 21: Operational Environmental Man‐ agement Prof. Dr. Ing. Lisa Schwalbe is since 2001 at the Hf WU for Supply and Waste Disposal Technology. She is head of the two bachelor's degree programs, Energy and Resource Man‐ agement since 2002 and Sustainable Product Management since 2012, which was established by her. Prior to her appointment, she worked independently in the areas of quality, environ‐ mental, health and safety management. Before that, she worked for various industries in the fields of environmental engineering, environ‐ mental measurement technology, environmen‐ tal impact assessment, environmental manage‐ ment and waste management. In addition to her professorship, she works as a consultant for management systems in various companies. List of Authors 385 <?page no="387"?> Glossary 3-Pillar-Model: The model justifies that sustainability is only possible if ecological, social, and economic aspects are considered equally. Alternatively to 3-Pillar-Model the terms: dimensions of sustainability or sustainability triangle, are also used. 2030 Agenda: "Transforming our World - Agenda 2030" is the official title of the Sustainable Development Goals adopted by the United Nations (UN) in 2016. Agile Mindset: An agile mindset is understood as the attitude: to continuously adapt to changes, to understand mistakes and unclear challenges as an opportunity to learn; and, to collect feedback to constantly improve. Agile Human Resource Management: Agile HR management is based on putting people at the center and giving them all the necessary freedom to make decisions for the benefit of the company in a self-organized manner, either on their own responsibility or together in a team. Brundtland Report/ Brundtland Commission: Gro Harlem Brundtland chaired the World Commission on Environment and Development established by the United Nations. The final report of this commission from 1987 is entitled "Our Common Future" and is usually referred to as the Brundtland Report. This report played a key role in shaping the concept of sustainable development. Carbon Accounting: Recording and evaluation of a company's emissions. Used for external accounting of emission allowances and emissions reporting. Closed Loop Approach: Attention to sustainability aspects in distribution policy from production to purchase, use, and disposal of products. Common good orientation, common good economy (Gemeinwohlökonomie): For companies, a focus on the common good is gaining in importance in order to define their role in the social environment. This involves the strategic positioning and legitimation of entrepreneurial activity in the sense of a holistic view, in which economic value creation represents only a section of the contribution to the common good. In the concrete model of the common good economy (GWO), success is no longer to be determined by the profit made, but by the contribution made to the common good. The central instrument for this, already tested in practice, is the "common good balance sheet," which measures the criteria of social responsibility, ecologically sustainable economic activity, internal democracy, and overall social solidarity. Core Labor Standards of the International Labor Organization (ILO): These 1998 standards automatically set minimum standards for all 185 ILO member states, such as freedom of association, elimination of forced and compulsory labor, abolition of child labor, and elimination of discrimination in employment, thus making eight international ILO conventions <?page no="388"?> binding. Difficult to enforce in many countries, where there is a strong informal economy or shadow economy in which trade unions play no role. Corporate Compliance: Compliance is a behavioral concept based on integrity to ensure that all decisions and actions of a company's employees comply with applicable law of any kind (legal compliance) and the voluntary safeguarding of the legitimate interests of all relevant stakeholders of a company within the framework of social and environmental responsibility (social compliance). Corporate Citizenship: Social commitment in the local environment of the company that goes beyond the actual business activity, e.g. sponsoring, foundations, donations. Corporate Governance: Good and transparent corporate governance, which in Germany is based primarily on the Corporate Governance Code. This code contains rules for transparent corporate management and control and is intended to strengthen confidence in the company's management. Corporate Social Responsibility (CSR): Concept that serves as a basis for companies to integrate social and environmental concerns into their business activities and interactions with stakeholders on a voluntary basis. (CSR definition in the Green Paper of the European Commission) DIN EN ISO 14001: German version of the internationally valid standard entitled "Environmental management systems - Requirements with guidance on application". Donut Economics: Still fairly new model for describing sustainable economic activity, developed by Oxford econ‐ omist Kate Raworth. According to this model, two boundaries define the space of just and sustainable life and economic activity. The outer ring represents the planetary boundaries, the inner ring the minimum conditions of decent living for the entire world population. This results in an intermediate space of sustainable living, figuratively resembling a donut. EFQM: The European Foundation for Quality Management (EFQM) developed the EFQM model. This quality management approach is much more comprehensive than ISO 9001. All the success factors of a company must be taken into account and systematically improved. The basis of the approach is a self-assessment, from which strengths and weaknesses emerge. In the EFQM model, the assessment criteria take into account not only results (indicating good performance in the past) but also so-called enablers, i.e. activities in which the companies are to ensure good results in the future with a planned, systematic approach. EMAS: Abbreviation for "Eco-Management and Audit Scheme"; name for Regulation (EC) No. 1221/ 2009 of the European Parliament and of the Council of 25 November 2009 on the voluntary participation by organizations in a Community eco-management and audit scheme. Environmental Management System (according to EMAS): The part of the overall management system that includes the organizational structure, plan‐ ning activities, responsibilities, behaviors, procedures, processes, and means for establishing, 388 Glossary <?page no="389"?> implementing, achieving, reviewing, and maintaining environmental policy and managing environmental aspects. Ethics (business/ business ethics): In general, the philosophical-methodical study of questions of morality, i.e. the evaluation of human actions with regard to their justifiability and reflection. Thus, business and corporate ethics deal with questions of permissible, legitimate, or desirable options for action in economic contexts. ESG: Refers to the three pillars of sustainability from a business and capital market perspective: environmental, social, governance. This is an evaluation system for corporate social responsibility. Fridays for Future (FFF): FFF is a social movement active in many countries, mainly supported by high school and university students. It calls for policy changes to achieve the 1.5°C target of the Paris => Comply with climate conference. Before the Corona pandemic, local groups of FFF went on strike in many places during school hours to draw attention to their cause. Greta Thunberg is considered the founder of the movement. Future Skills: Competencies that will become much more important in the coming years for professional life or social participation. On the one hand, these competencies include qualifications in dealing with digitization and artificial intelligence, but on the other hand future skills also refer to precisely those characteristics in which humans are (still) superior to robots and algorithms, such as creativity, imagination, social competence, and empathy. German Sustainability Code: Recommended for introduction by the German Council for Sustainable Development in 2011. The German Sustainability Code is intended to make the sustainability performance of companies visible in a database in order to make it transparent and comparable with a higher degree of bindingness. Global Compact: Call by the United Nations in 1999 for leading companies to establish minimum standards in the areas of human rights, environmental protection, labor standards, and the fight against corruption. Global Reporting Initiative (GRI): The GRI is a non-profit foundation established jointly by CERES and the United Nations Environment Program (UNEP) in the USA in 1997. The goal of GRI is to support sustainability reporting by all organizations. The GRI reporting standard is the world's best-known and most widely used standard for sustainability reporting. Greenwashing: Companies engage in greenwashing when they falsely boast of their sustainable commitment, although this is not present or only present to a small extent. Holacracy: Holacracy is a new organizational model that uses evolutionary principles and mechanisms of self-organization. The management hands over the decision-making power to the employees by signing a constitution. The rules and principles are laid down in the constitution and all employees Glossary 389 <?page no="390"?> are guided by them. All decisions are always and only based on the common purpose of the organization. Integrated Reporting: In an integrated report, companies should inform on their economic, environmental, and social performance, their business development, and the main opportunities and risks. This merges the annual and sustainability reports with the aim of improving the quality of reporting. The standard is set by the International Integrated Reporting Council (IIRC). iooi model: The letters stand for input output outcome impact and show the four stages in which the social commitment of companies can be planned and evaluated. In the end, it is only the fourth level of impact, which can often only be determined in the long term, that is decisive for success. ISO 14001: Internationally recognized environmental standards developed by the International Organization for Standardization in 1996, according to which companies can have their environmental management system certified. This is criticized because production is optimized and waste is avoided, but the core business and product design are not developed in a forward-looking manner. ISO 26000: A sustainability guideline published by the International Organization for Standardization in 2010 which contains standards on corporate social and societal responsibility. Due to its widespread international acceptance, it is considered the dominant guideline for responsible business. License to operate (LTO): Refers to the social acceptance of a company and its business model. This acceptance declines or is lost altogether if the company's stakeholders no longer regard its business activities as morally acceptable or socially useful. LOHAS: Abbreviation for "Lifestyle of Health and Sustainability", an important target group for sustainable product offerings. Material Flow Cost Accounting: Instrument for the quantitative recording of material flows and stocks in processes or production lines in both physical and monetary units. Inefficiencies in the use of materials in the production economy can be revealed with this method of analysis. Megatrends: Long-lasting drivers of change that initiate and reinforce social transformation processes; in trend and futures research, a megatrend is defined as one that has an impact of at least 30 years, tends to affect all areas of society, and does not just occur regionally. Megatrends are, for example, climate change or demographic development. OECD Guidelines for Multinational Enterprises: The 34 OECD members and eight other countries have committed themselves to encourage multinational companies doing business on or from their territory to comply with the Guidelines (human rights, employment, environment, and additionally corruption). However, the OECD Guidelines are not legally binding for companies. Violations of the Guidelines can be reported 390 Glossary <?page no="391"?> to the National Contact Points, but the publication of a violation is all that can happen to the company concerned. Planetary Boundaries: Collective term for a total of nine ecological stress limits of the Earth, the exceeding of which endangers the stability of the ecosystem as well as the livelihoods of humankind, some of which have already been exceeded. Global warming (climate change) and species extinction (loss of biodiversity) are only the best-known, but not the only planetary boundaries. This immediately raises the question of the limits to (economic and population) growth. Pollution Haven Hypothesis: This means that heavily polluting industries relocate to countries with weak environmental protection legislation. However, there is no clear empirical evidence of this. Product Management: Product management has the function of making and keeping products successful on the market throughout their life cycle. In other words, a product manager has the task of corporate management at the level of a product, a product line, or a definable product portfolio. This includes the tasks and tools of idea generation, product definition and realization, market launch, product controlling, and discontinuation. These tasks and tools constitute the elements of a product management process. Public Value: Refers to the value contribution and benefit that an organization provides to society. Public value is intended to show what makes an organization valuable to society. Purpose: Refers to the meaning and drive of a company, from the self-image of the company's management, but also in relation to the stakeholders of the company and society as a whole. Race-to-the-Bottom Hypothesis (RTB Hypothesis): This means that companies select countries for investment where they can make the highest profits. High taxes and strict rules for environmental and worker protection reduce profits, so companies avoid countries that have such policies. To avoid capital flight, countries will therefore be forced to set lower and lower standards. There is no clear empirical evidence. Resilience: Originally a term used in psychology to describe bearing capacity, stress resistance, and also adaptability in crisis situations. When applied to companies, institutions, or social systems in general, resilience is increasingly becoming a success factor in times of major change and crisis. Self-Organization: A distinction must be made between autogenous and autonomous self-organization. Autogenous self-organization is understood to be all processes that lead "by themselves" to behavior patterns or rules. It is a "spontaneous order". Ideally, such spontaneous orders lead to openness, creativity, willingness to cooperate and innovation. Autonomous self-organization refers to the state where employees decide on their own responsibility and organize themselves after delegating tasks. Glossary 391 <?page no="392"?> Shared Value: The concept of Shared Value identifies the links between social and economic progress. It assumes that both economic and social questions should be asked in the company when it comes to values. See also Public Value. Shareholder Value: Shareholder value is the market value of equity. In simplified terms, shareholder value corresponds to the value of a company from the point of view of the equity investors and the value of the shares dependent on this. The shareholder value approach was developed by Alfred Rappaport. It is a business management concept that bases corporate management on future payments (cash flows) to equity investors. Other stakeholders besides equity investors are not explicitly taken into account. Social Impact: The positive and long-term impact sought by companies/ organizations in relation to a social problem or a target state considered desirable. For example, the impact of a company could be to make an effective contribution to the Sustainable Development Goals. Stakeholders: Stakeholders are all interest groups and groups of people who participate in some form in the sustainable success of a company. These include, for example, employees, communities, customers, suppliers, lenders, and the owners of the company (shareholders). The influence of the stakeholders on the company differs in terms of their power and their fundamental interest in influencing the company. Often, a conflicting interest is assumed between the shareholders and the remaining stakeholders. Stakeholder Value: On the one hand, stakeholder value refers to the value of earnings or the benefits to which those groups that have a relationship with the company are entitled. On the other hand, stakeholder value stands for a value-oriented corporate strategy that strives for a balance of interests between all stakeholders. The prerequisite for this is a socio-ecologically oriented economic system. Sufficiency: The standard of living is to be increased or maintained with fewer material needs and thus also with fewer material resources. In addition to sufficiency, measures that increase sustainability can be assigned to efficiency and consistency. Sustainability: Guiding principle for the sustainable development of mankind. "Sustainable development means taking environmental aspects into account on an equal footing with social and economic aspects. In other words, sustainable management means leaving our children and grandchildren an intact ecological, social, and economic fabric. You can't have one without the other." (Basic idea for sustainable action of the German Council for Sustainable Development) Sustainability Assessment: An assessment model that provides insight into situation and strategy related strengths and weaknesses of sustainability management at all management levels of the company. 392 Glossary <?page no="393"?> Sustainability Balanced Scorecard (SBSC): The Balanced Scorecard (BSC), an instrument for strategy implementation, is supplemented by the dimension of sustainability. The financial, customer, process, and learning/ development perspectives of the BSC are combined with economic, social, and ecological sustainability, resulting in 12 fields of action of the SBSC. Strategically significant indicators are assigned to each of these, anchoring sustainability in the strategy and in strategy implementation. Sustainable Business Management: Sustainable business management is concerned with the long-term successful management of companies, taking into account the interrelationships with other companies and the surrounding economic sectors. Long-term success is achieved through the optimal use of all production factors. The interests of all stakeholders are brought together in the negotiation path by allowing them to participate in an appropriate way in the company's actions and success. Sustainable Business Model Innovation: Sustainable business model innovations describe modified or completely new business models that contribute to the development of competitive solutions by radically reducing and/ or creating either negative and/ or positive externalities for the natural environment and society. Sustainability Controlling: Sustainability controlling ensures transparency of strategy, results, finances, and processes and thus contributes to greater economic efficiency, more social justice, and more environmental pro‐ tection. Sub-goals and sub-plans are coordinated in a holistic manner and corporate future-orien‐ ted reporting across all companies. Sustainable controllers moderate and shape the management process of goal setting, planning, and control in such a way that every decision-maker can act in a goal-oriented manner. They provide the necessary service of business, ecological and social data and information supply and they design and maintain the controlling systems. Sustainable Development Goals (SDGs): The 17 United Nations (UN) Sustainable Development Goals (SDGs) which aim to ensure sustainable development worldwide. They entered into force on January 1, 2016, with a term until 2030. That is why they also bear the title "Agenda 2030". Sustainable Marketing: Concept for the market-oriented management of a company so that the needs of customers are satisfied and company goals are achieved while at the same time taking into account the requirements of the market environment, society, and the natural environment. Sustainable Product Management: Product management that analyzes and improves the impact of products on the environment, the economy, and society. In doing so, not only negative impacts are reduced, but also sustaina‐ bility-promoting impacts are strengthened. In sustainable product management, the life cycle of products is defined more broadly than in business management; for example, the mining of raw materials, the cultivation of agricultural products and other life cycle stages of raw materials are dealt with. One objective is to close material cycles in order to preserve raw materials in the long term and minimize environmental impact. Product management also looks at the use phase and the processes at the "end of life" of products, as this is where important levers can be found for the realization of sustainable lifestyles and for the substitution of products for services, among other things. The challenge of sustainable product management lies in the fact that processes that have not yet been mapped in business terms for each product (group) must also be taken into account. Glossary 393 <?page no="394"?> Sustainability Report (CSR Report): Disclosure of information relevant to social responsibility and creation of transparency on sustainable management. Numerous companies now follow the guidelines of the international Global Reporting Initiative. This provides analysts, investors, and the public with high-quality and comparable information. Systems Theory: Interdisciplinary approach to explaining systems of varying complexity. Both biological organ‐ isms and sociotechnical systems such as organizations and societies can be understood in terms of systems theory. Complex systems themselves consist of the interaction of subsystems. For example, the economy, law, politics, or education can be described as subsystems of the overall social system. Systems Competition among Nation-States: Countries compete for foreign investors and sometimes fall into a strategic use of low levels of protection, e.g. for the environment or workers' rights. Transformation: In economic and social terms, transformation is understood as a fundamental and lasting change from the current state to a (desired) target state in the future. Drivers of transformation can be technical (e.g., digitization), social (e.g., globalization), or ecological (e.g., climate change). UN Climate Change Conference / UN Framework Convention on Climate Change: The annual UN climate conference is also known as the United Nations Climate Change Conference or Conference of the Parties (COP). It is attended by the parties to the UN Framework Convention on Climate Change, who discuss and agree on climate protection targets that are binding under international law. The UN Framework Convention on Climate Change is also known as the United Nations Framework Convention on Climate Change (UNFCCC). It is an international climate protection agreement signed in 1992 with the aim of slowing climate change and managing its consequences. 394 Glossary <?page no="395"?> Index Action Plan-140 Adaptive Cycle-84 Agile Leadership-114, 118 Auditing Standards-318 Audit of the Non-Financial Statement-309 Audits Opinion- Effect on the-314 Autopoiesis-85 Balance Scorecard-331 Biodiversity-262 Brundtland Report-32 Business Partner-292 Business Value Framework-24 Cash flow Analysis-326 Change-86 Circular Economy-375 Cocoa-251 Communication Policy-201 Complexity-81 Compliance Culture-154 Compliance Management Systems-149 Comply-or-Explain Principle-139 Conflict of Goals-21 Consistency Strategy-296 Corporate Governance-134 Corporate Governance Code-137 Corporate Social Responsibility-23, 35, 130 Corruption-168 Co-Working Space-375 Cradle to Cradle-99 Cradle-to-Cradle Principle-375 Creating Shared Value-23 Culture-166 Decision-Oriented Business Administration-19 Development Lines-178 Development Stages-178 DIN EN ISO 14001-352 Distribution-210 Distribution Logistics-216 Distribution Policy-199 Ecology-Oriented Approach-20 EFQM-366 EMAS-354 EMS-353 Energy- Sustainable Use of-236 Environmental Accounting-297 Environment-Oriented Approach-19 ESG-341 Ethical-Normative Ecological Business Management-19 EU-CSR Directive-307 Externalities-45 Factor Theory Approach-19 Four-Quadrant Model-177 Global Compact-164 Green Paper-140 GRI-300 Holacracy-120, 123 Human Rights-262 IIRC-301 ILO-163 Impact-67 Implementation of Sustainability-236 Industrial Flight Hypothesis-162 Innovation Culture-279 Innovation Manager-280 Innovation Process-278 Integral Approach-174 Integrated Reporting-300 Integrated Thinking-301 Integrity-146 Introduction of Sustainable-235 Legal Compliance-146 License to Operate-66 Logistics-210 Marketing Concept-192 <?page no="396"?> Material- Sustainable Use of-235 Measuring Sustainability-240, 293 Monetization-297 MSCI World-338 Non-Financial Report-305 Non-Financial Statement-308 Nuertingen Model-26 Pollution Haven-161, 163 Portfolio Theory-331 Positioning-193 Pricing Policy-197 Principal Agent Model-135 Procurement-210 Procurement Logistics-212 Production System-227 Product Management-245 Product Management Process-254 Product Policy-194 Product Success-249 Public Value-67 Purpose-65 Race-to-the-Bottom-163 Rebound Effect-46 Relevance-69 Reputation-71 Resilience-70, 99 Resonance-70 Risk Management-149, 331 Risk-Return Analysis-328 Shared Value-67, 100 Shareholder Value-331 Sharpe Ratio-345 Smart Factory-375 Social Accounting-297 Social Compliance-147 Social Responsibility-72 Strategic Sustainability Management-92 Strategy Process-96 Sufficiency Strategy-296 Supervisory Board-317 Sustainability Criteria-255 Sustainability Report-299, 305 Sustainability Reporting Auditor-311 Sustainable Business Management-20, 37 Sustainable Development Goals-34 Sustainable Investment-338 Three-Pillar Model-33 Transformation-77, 83 Typologies-179, 185 Utility Analysis-328 Value Chain-257 VUCA-81, 86 396 Index <?page no="397"?> BUCHTIPP Ingo Balderjahn Nachhaltiges Management und Konsumentenverhalten 2., vollständig überarbeitete Auflage 2021, 264 Seiten €[D] 25,90 ISBN 978-3-8252-5491-9 eISBN 978-3-8385-5491-4 Produktion, Wertschöpfung und Konsum nachhaltig gestalten Wie lässt sich die Zukunft sozial gerecht und die Wirtschaft ökologisch verträglich gestalten? 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