Corporate Sustainability in the Context of the 2021 United Nations Climate Change Conference

Olga Degtiareva ¹ , Svitlana Teleshevska ¹

¹ Odessa National Economic University

https://doi.org/10.5817/CZ.MUNI.P280-0197-2022-2

Abstract

The paper emphases the results of research on estimation of corporate sustainability of Ukrainian business that are directly related to targets of the Glasgow Climate Pact 2021. The data were collected with a cross-sectional random sampling of industrial enterprises in Ukraine. The variety of research methods (e.g. abstract-logical method; economic and statistical methods; survey, method of expert assessments; correlation-regression, graphical methods) allowed to propose the adopted methodology for estimation of corporate sustainability. Integrated sustainability index was found to define the level of corporate sustainability as well as a direction for company further development. The research results offer practical implementation for firms’ sustainable development strategy as far as they are operating with strategic gaps and sustainability values while maintaining high market performance.

Keywords: sustainable development, corporate sustainability, business sustainability, Glasgow Climate Pact 2021, integrated sustainability index

1 Introduction

The 2021 United Nations Climate Change Conference united in Glasgow world leaders and national delegates from nearly 200 countries in their intention to stave off the dangerous climate changes. The negotiated Glasgow Climate Pact has a number of challenging targets, such as reductions in global greenhouse gas emissions, phase-down use of unabated coal power and phase-out of inefficient fossil fuel subsides, forest conservation, financial help for climate change mitigation and other. The leading industrial corporate sector is expected to forward to zero emission. Ukrainian president Volodymir Zeleskiy in his speech mentioned besides the climate changes other global and regional challenges related to the energy crisis and the security situation in Europe, particularly in eastern Ukraine. And the further situation development showed that they were interconnected.

Different authors note multidisciplinary features of corporate sustainability and variety of its effects. So, i.e. a study of J. Ukko et al. (2022) showed its positive influences on the market performance of the company and future company value; their results of their study correspond to conclusions of R. Lozano et al (2021) concerning interconnection between development of e-businesses and supplier collaboration on sustainability in the e-business context. Many authors highlight contribution of corporate sustainability into energy transition (Patala, Juntunen, Lundan & Ritvala 2021), corporate and regional energy efficiency (Fowlie, Greenstone & Wolfram 2018), and to reduction of consumption-based CO2 emissions (Baloch & Danish 2022) in different countries and regions. Our previous research demonstrated a positive impact of sustainable energy consumption on energy intensity (Degtiareva & Pudycheva 2020). For this reason, the Outcomes of the Glasgow Climate Change Conference (2021) refer to corporate sustainability as an essential way to confront the climate change and its consequences.

There are different approaches how to reach the corporate or business sustainability. On the one hand, J.S. Shapiro (2021) considers that the state legal regulation is an effective instrument of sustainable development on macro and micro level. Thus, global externalities, related to the climate change, affect foreign and domestic companies. That’s why the taxation is considered as an effective tool to extend to the class of local externalities, e.g. non-cooperative Pigouvian tax. On the other hand, M.A. Baloch and I.G. Danish (2022) note that modern society becomes more responsive to international debates and motivated to promote sustainable development targets to mitigate environmental pollution and to increase the corporate social responsibility. This statement can be expended by study of P. Sun et al. (2021) in context of social and environmental context of business competition. Thus, the corporate sustainability becomes a necessary requirement for the functioning of modern businesses especially of big ones.

Hence, in context of achievements and limitations of the Glasgow Climate Change Conference literature represents an important avenue for advancing the research for corporate sustainability. To this end we integrated the fragmented corporate sustainability research into hierarchical system of interrelated components (Degtiareva & Teleshevska 2012) and suggested a four-factor model for sustainable development of enterprises (Teleshevska 2015).

2 Method

2.1. Theoretical Background

In today's business environment, society's expectations of business are increasing, and stakeholders are asking companies to become more mindful in their sustainability interests (Pinelli & Maiolini 2017). Many authors highlight that companies are responding to these expectations and they build up the corporate or business sustainability model in frameworks of sustainable development paradigm (Ashrafi, Acciaro, Walker, Magnan & Adams 2019). M. Pinelli, R. Maiolini (2017) as well as P. Bansal and M. R. DesJardine (2014) prove that neither corporate nor business sustainability is not the same as the corporate social responsibility. In the same time there was found not big difference between business and corporate sustainability in the theory and practice. That’s why in this paper we will consider them as similar categories.

T. Dyllick and K. Muff (2016) differ certain stages on the way from business-as-usual to true sustainability: business sustainability 1.0 (Refined Shareholder Value Management), 2.0 (Managing for the Triple Bottom Line) and finally 3.0 (True Sustainability). On this point there is discussion what should be considered as a true sustainability?

The global goals of sustainable development are represented by the conservation of environmental resources, the eradication of poverty and economic injustice, are compatible and complementary. Production is directly related to the consumption of significant natural, material and energy resources, and hence - depletion, pollution of the biosphere by emissions and waste, as well as damage to ecosystems. Most environmental issues are related to ownership issues. Many natural resources cannot be privately owned (Earth's atmosphere, waterways, landscapes, sound or electromagnetic spectra) or collectively owned (oil deposits, fishing zones). These are resources that are open and free. The main cause of environmental problems is the inability of the market system in the existing structure to effectively allocate environmental resources, i.e. to give a "correct" monetary assessment of the destructive nature of their use.

Upon reaching a certain level of sustainability, the company "slowing down", revives the environment, i.e. uses more modernized equipment, machinery, new technological processes. This process of "revival" of nature must be implemented on a subconscious level. This negative manifestation appeared because of poor planning from the beginning. The managements of the enterprises made multiple mistakes - first deteriorating the environmental situation, and then trying to restore it, which will require even more investments. Business leaders in linking production activities should link two processes: reduction or some stabilization of natural resources, pollution, on the one hand, and growth of economic indicators (production and marketing) through improved technologies, low-waste and resource-saving production, use of secondary waste - on the other.

Both of these areas involve a radical restructuring of the enterprise in favour of nature conservation and ecological system social system economic system Stimulation and growth Stimulation and growth conservation science-intensive activities, as well as for the benefit of mankind. If we do not immediately eliminate such a detrimental attitude towards the environment, it can result in total collapse after some temporary profits.

It should also be noted that society needs to pay more attention to the management of environmental education and environmental education of young people and remember that environmental resources are not limitless. We need to appreciate and protect the environment, cover management issues in the media, publish articles in journals, develop new approaches to the interaction of man and nature. Management of environmental education should be non-linear, flexible, open, stimulating. Everyone should realize that the most important thing is to preserve human health, that pollution of the environment with toxic substances, lack of raw materials is a problem of humanity.

In context of the Glasgow Climate Pact companies should pay attention not only to their or corporate sustainability, but also to cooperation across sectors in order to effectively confront climate change and adjust transition. It provides specific actions to improve coherence and focus on ocean and land protection, and to encourage local, national and cross-sectoral partnerships. As part of the United Nations Special Envoys for Climate Change Action “Towards Zero” campaign, nearly 8,000 non-state actors, including 1,049 cities, 5,235 companies, 441 financial institutions, 1,039 educational institutions and 52 healthcare organizations, have pledged to halve emissions by 2030. In addition, the Under2 coalition, whose membership accounts for 50% of the economy and 1.75 billion people committed to keeping global temperature increases below 2°C, updated membership criteria at COP26 in line with the 1.5°C target. C. Seventy of its members have already updated their commitments to achieve net zero emissions by 2050, and work is underway to ensure that the rest of the members follow suit.

2.2 Methodology

The methodological challenge that refers to the estimation of the corporate sustainability is based on the fact that every company may have its own sustainability goals. That’s why there are many approaches how to measure its level or estimate the company’s progress in achieving individual level of sustainability (Süß, Höse & Götze 2021). This variety of methods complicates the formation of the standardized measurement system (incl. indexes and indicators) and choosing an effective method for quantitative and qualitative evaluation as individual business so comparison of different companies, the success of their sustainability-oriented business models.

While analyzing methods for assessing the corporate sustainability in EU and in Ukraine we found out essential differences, first of all in scope of assessment. Thus, we suggest following classification of existing methods for assessing the corporate sustainability:

• methods based on the application of the theory of stability of systems, interpret the mathematical indicators of stability, designed to take into account the impact of external and internal environments;

• techniques based on the principles of the systems approach, which determine the integrated indicator of stability, unifying, which allows to evaluate different subsystems;

• methods based on the analysis of financial statements of enterprises, assess the structure of assets and capital;

• complex methods, combining quantitative and qualitative economic indicators, allow to identify factors that threaten the stability of the system.

In our theoretical model we suggest an algorithm that allows, on the one hand, estimating the corporate sustainability level and, on the other hand, progress in achieving of sustainable development goals as part of the UN Special Envoys for Climate Action’s Towards Zero campaign. The metrics has been developed that, for the first time, enables cities, regions, companies and investors to measure their progress towards building climate resilience for 4 billion people most at risk by 2030. As part of the Windows on Resilience program, more than 7,000 people attended the Climate Resilience Center at COP26, providing an opportunity to amplify the voices of people on the front lines of the fight against climate change and to discuss common challenges and solutions.

3 Results

3.1 Theoretical model

The theoretical model covers the complex analysis of following components of corporate sustainability: financial performance, efficiency as well as environmental, social and legal factors. It is based on the previous research while developing the author's approach to assessing the sustainable development of the enterprise on the basis of a four-factor model: economic factor, social factor, environmental factor, and legal factor (Teleshevskaya 2015).

As mentioned before, formulation of company’s goals is an important stage on the way for corporate sustainability. Companies develop own goals, which can be classified as fundamental and auxiliary goals. The important requirement is that the goals are interrelated and non-contradictory and aimed at one end result, thus to achieve a high state of sustainable development by the industrial enterprise.

The theoretical model includes an approximate set of the goals. The fundamental goal of the enterprise should be formed as follows: it is conditionally endless operation of the enterprise and its progressive development with high economic performance, normal social status of employees and a stable environmental situation. Guaranteeing goals that ensure sustainable development have two directions: 1). maintaining the existing stability of the enterprise (its indicators) and preventing the deterioration of the situation, which allows organizations to exist in the future, i.e. preventing the deterioration of the environmental situation, maintaining a stable level of economic and social systems; 2). rational use of resources owned and used by the enterprise to maintain economic, environmental and social sustainability of enterprises. Contributing goals, i.e. goals that will allow the company to maintain such a special state as sustainable development and will create an obstacle to the transition of the economic system into a state of instability. Contributing goals include creating conditions in which employees can and should exist. They support the vital parameters of society, being its components. Also conduct to the promotion of environmentally friendly products to meet consumer needs. The last, and no less important, component of this goal is the resumption of ecologically, economically and socially conditioned transformation of the system of sustainable development of the enterprise. This is an important task that the head of the companies must take on.

The realization of ancillary goals is the key to the success of the enterprise, which is achieved through conservation, i.e. preservation of nature, minimizing the negative impact of enterprises on the environment, as well as limiting the limit of human intervention in nature. The latter is achieved through the development and compliance with environmental standards, standardization of living and working conditions. But this is only one part of the problem. The other is related to the restructuring of human’s technological basis. The fact is that if humanity continues to inefficiently use existing resources, as is happening now, no environmental standards and restrictions will save ecosystems from harmful human-made impacts. The technological systems used by the enterprise must be improved so that their eco-destructiveness decreases as the population grows, the number of enterprises and products increases. In other words, there must be a constant "movement forward" - improving the efficiency of the socio-ecological and economic system.

The fundamental goal is the conditionally continuous functioning of the enterprise and its progressive development with high economic indicators, the normal social status of its employees and a stable environmental situation.

Guaranteed goals:

• maintaining the existing stability of the enterprise (indicators) and preventing the deterioration of the situation, which will allow the organization to operate in future;

• rational use of resources owned and used by the enterprise to maintain economic, environmental and social sustainability.

Contributing goals:

• resumption by the heads of the enterprises of the conditions in which employees must work;

• production of environmentally friendly products to meet consumer preferences;

• resumption of ecologically-economically-socially conditioned transformation of the system of sustainable development of the enterprise.

To develop a methodology for assessing the sustainable development of industrial enterprises developed the following algorithm (Fig. 1), which is based on a comprehensive system approach to research, which allows to present sustainable development of industrial enterprises as a multicomponent phenomenon in the form of sustainable development factors.

Figure 1

The scheme of interaction of hierarchical levels of the structure of the concept of sustainable development of the enterprise

Economic and social systems seek development, growth, striving for the top, which is understandable, because the purpose of any enterprise is to make a profit, which in turn raises the social level. The ecological system must be fixed at a sustainable level, on the one hand the system seems to "stretch" to the bottom, oppose the other two systems, fighting for its place at the top of the pyramid, and on the other hand, continues its natural development. Obviously, the pyramid begins with the economic system: the economy is the basis, the basis of enterprise development. The top of the pyramid is the ecological system - if the functioning of the enterprise itself will cause harm to nature so in this way it can affect humanity. It is senseless to develop such organizations if that will cause irreparable harm to humanity.

Given the current situation in the country, namely fierce competition between producers, due primarily to the instability of the external environment, including inflation, rising unemployment, difficult political circumstances, lack of payment ability of the population, the future vector depends on the right vector. The activity of any organization is manifested in constant development, activity, discovery of something new and new opportunities, opening of existing potential, which allows increasing its income.

Properly chosen vector of the company's development is an integral part of its organization, which can ensure the viability of the organization, and this can only contribute to a comprehensive and in-depth assessment of sustainable development of the enterprise, which will identify vulnerabilities and develop a set of measures to overcome negative consequences of developed sectors of the structure.

3.2 Practical implementation of the model

The procedure for calculating the integrated sustainable development index has five levels of hierarchy. The weights of the indices were obtained using the method of expert estimates. The final formula for calculating the sustainable development index for the bakery industry is:

(1),

I _ур – index of sustainable development,

F _ес - index of economic stability,

F _с - index of social stability,

F _ек - index of environmental sustainability,

F _пу - index of legal stability.

Thus, at the first stage, the primary data is processed, the coefficients are formed using the appropriate formulas, and then the normalization of these coefficients is carried out. In the second stage, using the normalized coefficients, we calculate the weights of the coefficients, and only then we obtain group indicators. The third stage is calculated by analogy with the previous one. At the fourth stage, having received the factors of sustainable development, using weight factors, we find the integrated index of sustainable development.

This method was tested for the enterprises of the baking industry of Ukraine. For example, we present the results of the assessment of the level of sustainable development for one of the sample enterprises. Novovolynsk Bakery located in Volyn Oblast in Ukraine and it is characterized by a small run-up in the sustainable development index over the years under study. Thus, the mean deviation D = 0.006.

Figure 2

Rating of PJSC "Novovolynsky bakery" of the Volyn region. according to the level of the sustainable development index 2012-2022

Novovolinsk bakery is the most stable enterprise in terms of sustainable development comparing to other Ukrainian bakeries which were investigated in the same period of time. That at the beginning and at the end of the reviewing period the values of sustainable development index were slightly above the norm. There was even a slight increase of sustainable development index.

Therefore, the economic factor was in the zone of high sustainable development, and its fluctuations in one direction or another were insignificant. The company had a stable profit, a stable increase of capital, a stable high paying capacity. Thus, the economic component of the enterprise was developed quite strongly.

The environmental factor of the enterprise also has small fluctuations, but its values are on the verge of transition from instable to crisis, as the company's activities are accompanied by high expenses of resource conservation, low product quality and low environmental culture.

The value of the legal factor can be characterized as deviating from the normalized value because of small administrative fines.

The social factor of the enterprise grew throughout the study and moved from the zone of unsustainable development to the zone of sustainable development. There was an increase in social activities, improving the level of skills and stability of the personnel system.

In general, high value of the economic factor is compensated by low value of the environmental factor, so that is neutralizing the growth of the social factor, however as a result we are getting stable values for the relevant characteristics of the enterprise.

Thus, the proposed method of estimating the integrated index of sustainable development has a number of significant advantages, comparing to existing methods. The methodology developed by us to normalize the values of the coefficients uses an individual approach to the normalization of each coefficient depending on its calculation formula, which completely eliminates the defects of normalization.

Discussions

The transition to sustainable development is a strategically important direction and with the right approach is an extremely effective means of achieving the goal of humanity: economic development while maintaining the environmental situation and a decent social status. Thus, the sustainable development goals are their figurative motivation for action that comes from all countries - poor, rich, middle-developed. The role of policy makers is to combine economic growth with educational and social protection, climate change, environmental protection, and energy sustainability.

The functioning of the enterprise can be compared with the vital activity of a living organism: proper care and attention will lead to its healthy and normal development. Some aspects, traits belonging to the organism should be developed, and some, on the contrary, should be kept at a certain level. Thus, the paper analyzes the existing methods of assessing the corporate sustainability level, identifies their advantages and disadvantages. On the base of the sustainability criteria we developed the adopted methodology for estimation of the corporate sustainability level and corresponding integrated sustainability index. The special feature of the proposed methodological approach is a four-factor model, which represents the corporate sustainability as a multicomponent phenomenon in the form of a set of factors and corresponding indicators to shape them.

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Corresponding authors 

Dr. Olga Degtiareva, DSc

Odessa National Economic University, Faculty of Economics and Enterprise Management, Department of Business Economics and Entrepreneurship,

65082 Preobrazhenska 8, Odessa, Ukraine

degtiareva@gmail.com