CHAPTER 2

• Sustainability Principles


  • Material domain
  • Economic domain
  • Domain of life
  • Social domain
  • Spiritual domain
• Material domain


  • Continuous flow of resources through and within the economy as permitted by physical laws and provides justification for regulating the flow of materials and energy
  • Promotion of highest resource productivity, recycling of non-regenerative resources and regenerating energy
• Economic domain


  • Provides the guiding framework for defining, creating, and managing wealth
  • Relies on market mechanisms and smart regulation for the proper allocation of resources and capital assets
• Domain of life


  • Provides the basis for appropriate behavior in the biosphere
  • Preservation of life
  • Accountability and stewardship
• Social Domain


  • Provides the basis for social interaction
  • Basis for providing the maximum degree of freedom and self-realization for all human and their social interactions
• Spiritual Domain


  • Provides the necessary attitudinal, value orientation, and acts as the basis for a universal code of ethics
• Sustainability Theories


  • Shareholder/Agency Theory
  • Stakeholder Theory
  • Legitimacy Theory
  • Signaling/Disclosure theory
  • Institutional Theory
  • Stewardship Theory
• Shareholder/Agency Theory


  • Defines the relationship between shareowners (principal) and management (agent) and addresses the potential conflicts of interest between management and shareholders
  • Focuses on risk sharing and the agency problems between principal and agent
  • Asymmetry of interest
• Stakeholder Theory


  Suggests that sustainability activities and performance enhancement of the long term value of the firm fulfill the firm's social responsibilities, meet their environmental obligations and improve their reputation
• Legitimacy theory


  • Firms are facing social and political pressure to preserve their legitimacy by fulfilling their social contract
  • Suggests that social and environmental sustainability performance is desirable for all stakeholders including customers and non-compliance with social norms and environmental requirements threatens organizational legitimacy and financial sustainability
• Signaling/Disclosure Theory


  • Suggest that firms tend to signal "good news" using various corporate finance mechanisms including voluntary reporting of non-financial ESG sustainability performance
  • Suggests that firms with good sustainability performance differentiate themselves from firms with poor sustainability performance
• Institutional Theory


  Primarily focuses on rationalization, legitimacy, and practicality and aspects of social structure and related processes in establishing guidelines and best practices in compliance with applicable law
• Stewardship theory


  The extent to which an individual willingly subjugates his or her personal interests to act in protection of others
• Embedding Sustainability in Organizations


  • Tone at the top
  • Identifying and prioritizing material sustainability matters
  • Managing material sustainability matters
  • Communicating
• Tone at the top


  • Organizations with strong corporate governance culture will be better positioned to manage sustainability risks and opportunities
• Identifying and prioritizing material sustainability matters


  • Sustainability matters are considered material if they: 1) Reflect the organization's significant ESG impacts 2) Substantively influence the assessment and decisions of its stakeholders
  • Sustainability matters – are the risks and opportunities arising from the ESG impacts of an org's operations and activities
  • Materiality – the principle of identifying and assessing a wide range of sustainability matters and refining them to what are the most important to your organization and your stakeholders
• Applying Materiality


  1. Phase 1: Objectives and Scope

  2. Phase 2: Identification and Categorization of Sustainabilitu Issues

  3. Phase 3: Stakeholder Engagement

  4. Phase 4: prioritization

  5. Phase 5: Process Review
• Managing Material Sustainability matters


  • Developing policies and procedures
  • Implementing various initiatives, measure, or action plans
  • Setting indicators and goals
  • Implementing new or changing existing systems
• Communicating and Providing credibility to your sustainability performance and disclosures