the baldrige quality system and social responsibility

Managing For Sustainability Using Performance Systems 1

Integrating Market-Based Sustainability Indicatorsand Performance Management Systems

Burton Hamner, MBA, MMADirector, Cleaner Production International

[email protected] 2005, Seattle, Washington

April 11, 2023

Abstract

A promising new way to define “sustainability” for organizations, and to help them make it real, is to examine the way investors are defining Corporate Social Responsibility (sustainability). The very recent and rapid rise of the Socially Responsible Investment (SRI) movement allows us for the first time to identify a market-based definition of sustainability that organizations can use to add value and compete globably and sustainably. This paper shows how investors de-fine sustainability, and how using this definition provides a practical working definition of a sus-tainable organization. To help firms actually implement sustainability, we integrate sustainability elements with the Baldrige national quality standards used to promote competitiveness. The Baldrige framework has great potential as a framework for pursuing sustainability because it is process-based, performance-driven, recognized by organizations large and small around the world, and it already incorporates social responsibility and pollution prevention. This paper shows specifically how to incorporate sustainability into a recognized quality system.

Preface

This paper is derived from research conducted in Peru for the Consortio de Investigacion Eco-nomica y Social and the Universidad del Pacifico. The original paper is in review for publication by CIES as of January 2005. This paper is abstracted and slightly modified from the much more extensive original.

Hamner and Associates LLC Copyright 2005


Managing For SustainabilityUsing Performance Management Systems

Socially Responsible Investment (SRI) is the use of specific social and environmental criteria, in addition to traditional financial criteria, to make investment decisions. Most SRI is done by mutual funds and institutional investors who buy and sell shares of publicly traded corporations. In the past, SRI has generally been about avoiding undesirable sectors such as tobacco, nu-clear power, gambling, etc. This is called negative screening in SRI. But in the last few years SRI has changed to a positive approach of looking for the best practices among competitors. SRI funds that use positive screening have criteria for Sustainability or Corporate Social Re-sponsibility (CSR), a more traditional term) to evaluate companies. These Sustainability / CSR criteria cover a wide range of topics, including health and safety, corporate governance, pollu-tion prevention, labor relations, indigeneous peoples and more.

The SRI market has become quite developed. There are market indexes that list “responsible” or “sustainable” companies, and numerous research firms selling information about sustainabil-ity of various companies. Their customers include a full range of financial market institutions, and they are all supported by information providers and advocacy groups. Figure 1 shows the structure of the SRI market.

Figure 1: Structure of the SRI Market


Mutual Funds

Private Equity Funds

Venture Capital Funds

Development Banks

Commercial Banks

SRI Indexes

SRI Advisors

SRI Networks SRI Publications SRI NGOs


As of October 2004 there were at least 12 “families” of market indexes of sustainable compa-nies, and over 35 individual indexes in at least 7 countries. There are more than 700 SRI mu-tual funds, and about a hundred SRI funds that are specifically focused on sustainable compa-nies and not just negative screening for undesired sectors. The SRI indexes and funds publish the specific criteria for sustainability that they use to select or recommend companies for invest-ment. Leading international banks are also publishing the sustainability criteria they will require for financing certain projects. In short, the market is clearly stating how it defines sustainability. Another perspective is that investors are telling us what are the specific types of sustainability that they believe will lead to more profits.

All of this data about market-based sustainability critera gives us a unique research opportunity. We can cluster the criteria and identify the core elements of sustainability that are valued by a relatively large number of investors. Now we can say, “If you want your company to be attrac-tive to investors and buyers, these are the most important sustainability elements you must have.”

The process of creating these criteria is self-reinforcing. Figure 2 shows the cycle of market-based sustainability development. Funds and indexes publish their criteria for sustainability. This causes companies to develop management processes for those sustainability elements and to make public reports about their performance to potential investors and others. The funds and indexes study these reports and refine their criteria for sustainability, and so on. This cycle will continue to increase the market knowledge about what kinds of sustainability lead to higher market value.

Figure 2: Development Cycle of Investor-based sustainability Criteria

There are thousands of examples of investor criteria for sustainability. We wanted to know, What are the core criteria for sustainability and CSR that are being used most frequently by investors now, and how can that information be used to promote sustainable organi-zations? We believe that managers will be more convinced to improve their sustainability if they can see clearly what are the specific kinds of sustainability that are valued the most by in-vestors and bankers.


Sustainability Funds

and Indexes

Investor Criteriafor Sustainability

ManagementProcesses

for Sustainability

Public SustainabilityReporting


We conducted original research to identify the core criteria for sustainability that are important for investors. There are over 700 “responsible” investment funds, and about 100 that define themselves as specifically supporting “sustainable” investment. But it was not possible to learn from all of them what are their specific definitions of sustainability.

As a proxy for their criteria, we studied 12 of the market indexes of socially responsible compa-nies that now provide information to the SRI funds. These indexes exist to sell data to invest-ment funds, so they must be designed to provide sustainabilty data that investors desire. Table 1 shows all the indexes we identified. We included the criteria from the ones in bold type. We could not obtain details about the others.

Table 1: Market Indexes of Sustainable / Responsible Corporations

1. Dow Jones Sustainability Index2. Ethibel Global Index3. Ethical Global Index 4. FTSE4GOOD Global 100 Index5. Humanix 200 Global6. Natur-Aktien-Index 7. ASPI Eurozone Index8. Ethinvest Environmental Index Australia9. Westpac-Monash Eco Index Australia10. Jantzi Social Index Canada11. UmweltBank-Aktien Index Germany12. Morningstar Japan Socially Responsible Investment Index13. Johannesburg Stock Exchange / FTSE 4Good Index South Africa14. Humanix 50 Index Sweden15. Calvert CALVIN Social Index USA 16. KLD Domini 400 Index USA

The first part of our investigation was to find the core sustainability criteria used by the 12 SRI indexes that publish their methods. With a population of 202 criteria, many of them similar, we need to cluster them to identify the core concepts that are interesting to investors and also make sense in an organizational framework. We followed these steps

1. Semantic Analysis and Rewrite: Many of the criteria obviously mean the same thing but are some are written differently or vaguely in comparison with related criteria. First we had to study all 202 criteria to determine what each one means. In many cases where criteria were vague (for example, “social utility” is one criteria – what does this mean?) we had to read in detail both the primary literature published by the index com-panies, and also the secondary literature about the SRI industry. A set of common terms for criteria were established. Of course this introduced judgment by the investiga-tor into the process but this is unavoidable when we have to study concepts rather than measurable items.



2. Frequency Cluster: We then sorted the criteria alphabetically to count the criteria by conceptual groups. The results are listed in Table 2. It shows the most popular criteria used by the SRI indexes.

Table 2 lists the positive criteria used by the 12 indexes according to their frequency. Health and safety is mentioned the most often, included in 9 indexes. Criteria that are only mentioned by one index are not included. The frequency is also expressed as a percentage of the 12 in-dex groups.

The most significant observation from this distribution is the strong focus on internal employee relations for sustainability, such as health and safety, labor relations and pollution prevention. It is not surprising that investors understand that good performance is created by a good business culture. It emphasizes that sustainability programs should focus on internal development first, and external efforts second. It should also be noted that three of the dominant criteria are often integrated: training and education leads to pollution prevention which improves health and safety.

Table 2: Frequency Analysis of Criteria in Market Indexes of "Sustainable" Corporations

Frequency Sustainability Criteria Frequency Sustainability Criteria9x = 75%

Health and safety4x = 33% Communication

DiscriminationLegal compliance

8x = 67%Corporate governanceCSR performance re-portingLabor and union rela-tionsPollution prevention

3x = 25% ContractsCodes of ethicsAnimal relationsRisk managementEnvironmental performanceRelations to customers and suppliersEnergy sources

6x = 50%Training and educationQualityCompensationDiversity

2x = 17% Leadership and incentivesManagementNon-executive director remu-nerationConduct of businessSustainability assessmentRights ManagementProfit sharingFamily supportProduct safetyRecyclingEnvironmental management system

5x = 42% InnovationBenefitsHuman rights



Perhaps the most striking aspect of this table is its tremendous variety. Sustainability, accord-ing to investors, covers a lot. Most of it is internal, and most of it supports the people in the or-ganization. And it is very specific - this is clearly not about “values sharing” and corporate vision statements. All of these are elements that could have performance metrics and reporting. And in fact, the reporting criteria is one of the most important. If you can’t tell anyone about it, are you doing it?

Now we know how investors define sustainability:

Investors define sustainability with a strong focus on improving internal operations rather than prioritizing community welfare or external charity. The most frequently mentioned sustainability element is employee health and safety, which indicates the focus of in-vestors on internal management that drives sustainability. Of course this is perfectly sensible; employees can think about doing their work in a more sustainable way only if they are happy and healthy.

Investors value pollution prevention and resource conservation.

Investors consider the triple bottom line of finance, environment and social issues. On fi-nance, governance is a very important issue emphasizing that sustainability in any orga-nization requires commitment from the top. It need not be led from the top, but it must be supported. Pollution prevention is the most important environmental issue to in-vestors, including product design and supply chains. Employee welfare and community welfare top the social concerns.

Investors want recognition of and working towards recognized standards. This indicates that the organization is paying attention to official definitions of best practices, that it is looking up and out and around to learn how to do better. But conformance is not critical, if the organization demonstrates consistent excellence in management processes.

Investors reward innovation. Product and service design are very important as indica-tors of future growth as well as customer retention.

So now we can show what are the most important criteria for sustainability, according to profit-seeking investors. But we still have a problem of implementation. These criteria are all over the map, so to speak. How can they be organized in a way that supports implementation and adds value, and does not ask people to learn some brand new theoretical system?

Most importantly, we must show clearly how specific sustainability elements fit into an existing and respected business management model that adds value. The most important model we can identify is the Criteria for Performance Excellence from the Baldrige National Quality Pro-gram in the USA. This model already includes some concepts of sustainability.

The Baldrige Quality System and Social Responsibility

Quality management (QM) as a skill for companies was pioneered by Edward Deming in the USA in the 1950s. His ideas were adopted in Japan in the 1960s and are widely credited for the expansion of Japanese exports from the late 1960s. In fact in Japan the national quality award is called the Deming award.



In the USA the federal Department of Commerce set out to promote quality as a competitive force for US industry. In 1987 the National Institute of Standards and Technology (NIST) estab-lished the Malcolm Baldrige National Quality Program and a national contest for quality in busi-ness management. NIST created an advisory group of experts in quality and management and produced detailed guidelines for assessing quality in organizations. The program quickly grew and the guidelines are revised every year. Now, in 2004, the guidelines are called “Criteria for Performance Excellence.” Organizations, including companies or non profit organizations, fol-low the criteria to describe in great detail their processes, measurements and results for perfor-mance.

The Baldrige performance excellence criteria are a framework that any organization can use toimprove overall performance. There are seven categories of Award criteria:

1. Leadership – Examines how senior executives guide the organization and how the orga-nization addresses its responsibilities to the public and practices good citizenship.

2. Strategic Planning – Examines how the organization sets strategic directions and how it determines key action plans.

3. Customer and Market Focus – Examines how the organization determines the require-ments and expectations of customers and markets.

4. Information and Analysis – Examines the management, effective use, and analysis of data and information to support key organization processes and the organization’s per-formance management system.

5. Human Resources Focus – Examines how the organization enables its workforce to de-velop its full potential and how the workforce is aligned with the organization’s objec-tives.

6. Process Management – Examines aspects of how key production/delivery and support processes are designed, managed, and improved.

7. Business Results – Examines the organization’s performance and improvement in its key business areas: customer satisfaction, financial and marketplace performance, hu-man resources, supplier and partner performance, and operational performance. This category also examines how the organization performs relative to competitors.

The growth of the quality movement coincided with the development of guidelines for Environ-mental Management Systems (EMS). The ISO 14000 series of environmental management standards were launched in the early 1990s. The ISO 14001 standard for EMS was partly mod-eled on the ISO 9000 standards for quality management. ISO 14001 uses the same Plan-Do-Check-Act cycle for continuous improvement and focuses on the organizational processes needed for effective environmental management. Various authors developed guidelines for To-tal Quality Environmental Management to show how the concepts can be integrated. In 1994 the Global Environmental Management Initiative (GEMI), a consortium of major US corporations focused on Environment, Health and Safety, published “Total Quality Environmental Manage-ment – The Primer”. This short manual shows how to use the classic TQM tools, such as process maps, run charts, cause and effect diagrams, and others to improve EHS performance. Most of the GEMI companies claim to use this approach in EHS.

The potential application of the Baldrige quality criteria to environmental management was rec-ognized quite quickly. In the early 1990s the Council of Great Lakes Industries, an association of large companies around the Great Lakes region of the USA, developed and experimented with an EMS model based on the Baldrige system. The model uses the same seven major cat-egories for performance measurement and describes a “ladder” of best practices for each one,



to help companies increase their performance in each category (Wever, 1996). Companies such as Kodak experimented with the model, in fact the Kodak efforts are described in a busi-ness school teaching case study (Lave 1998).

Government has begun using this approach in promoting sustainability. The New Mexico State Government developed the Green Zia program in 1998 for promoting environmental excellence with assistance from Dr. Robert Pojasek at Harvard University, who has published several pa-pers demonstrating the use of the Baldrige model for environmental management (Pojasek 2000a, 2000b). Green Zia is a state assistance and recognition program that helps companies with environmental quality management and uses a similar evaluation process based on Baldrige to give annual awards to the best performers. The program is oriented to smaller com-panies, but large organizations such as Lawrence Livermore National Laboratory of the US De-partment of Energy also report excellent results using the program. Because of the large Latino population in New Mexico the program has produced most of its publications and guidance in Spanish as well as English.

All of this activity has been of great interest to the advisors to the Baldrige National Quality Pro-gram. They have continually improved the integration of sustainability into the criteria for quality and performance excellence in the Baldrige program (NIST 2003). It is specifically included as one of the two major sub-categories for Leadership, as shown in Table 3.

Table 3: Social Responsibility Assessment in the Baldrige Quality Award

“(Words in CAPITALS are specifically defined in the Guidelines)

Describe HOW your organization addresses its responsibilities to the public, ensures ETHI-CAL BEHAVIOR, and practices good citizenship. Within your response, include answers to the following questions:

a. Responsibilities to the Public

1. HOW do you address the impacts on society of your products, services, and operations? What are your KEY compliance PROCESSES, MEASURES, and GOALS for achieving and surpassing regulatory and legal requirements, as appropriate? What are your KEY PRO-CESSES, MEASURES, and GOALS for addressing risks associated with your products, ser-vices, and operations?

2. HOW do you anticipate public concerns with current and future products, services, and operations? HOW do you prepare for these concerns in a proactive manner?

b. ETHICAL BEHAVIORHOW do you ensure ETHICAL BEHAVIOR in all STAKEHOLDER transactions and interac-tions? What are your KEY PROCESSES and MEASURES or INDICATORS for monitoring ETHICAL BEHAVIOR throughout your organization, with KEY partners, and in your GOVER-NANCE structure?

c. Support of KEY Communities



HOW does your organization actively support and strengthen your KEY communities? HOW do you identify KEY communities and determine areas of emphasis for organizational in-volvement and support? What are your KEY communities? HOW do your SENIOR LEAD-ERS and your employees contribute to improving these communities?”

The Baldrige criteria promote integration of quality elements throughout the system. It is impor-tant to include here the guidance for integration of social responsibility into other process areas.

“N1. Societal responsibilities in areas critical to your business also should be ad-dressed in Strategy Development (Item 2.1) and in Process Management (Category 6). Key results, such as results of regulatory and legal compliance or environmental improvements through use of “green” technology or other means, should be reported as Governance and Social Responsibility Results (in Item 7.6).

N2. Measures or indicators of ethical behavior (1.2b) might include the percentage of independent board members, measures of relationships with stockholder and non-stockholder constituencies, and results of ethics reviews and audits.

N3. Areas of community support appropriate for inclusion in 1.2c might include your efforts to strengthen local community services, education, and health; the environ-ment; and practices of trade, business, or professional associations.

N4. The health and safety of employees are not addressed in Item 1.2; you should address these employee factors in Item 5.3.

An integral part of performance management and improvement is proactively addressing (1) the need for ethical behavior, (2) legal and regulatory requirements, and (3) risk fac-tors. Addressing these areas requires establishing appropriate measures or indicators that senior leaders track in their overall performance review. Your organization should be sensitive to issues of public concern, whether or not these issues are currently embod-ied in law. Role model organizations look for opportunities to exceed requirements and to excel in areas of legal and ethical behavior.”

It is very important to recognize the message being sent by the Baldrige program about social responsibility. It is something that can and should be measured and managed as an organiza-tion process, not as philanthropy. It is tightly integrated into related with other processes, partic-ularly those for governance and for employee management and performance. The point is that social responsibility is about professional management, not just ethics and charity.

This perspective is being transmitted around the world through national quality programs. At least 77 countries now have national quality programs. The Baldrige program is the model for most of them. The Deming Award in Japan and the European regional quality award are also used as models (Calingo 2002). Of course the three leading programs share their perspectives, and social responsibility is being firmly integrated into the measurement of organization excel-lence around the world.

This is strongly reinforcing the movement in SRI to measure sustainability at the process level in organizations as a basis for investment decisions. The Baldrige criteria do not let companies get away with simple codes of conduct or philanthropy as a basis for sustainability. And SRI fund managers are also not accepting such simplistic gestures. They are looking for results that indicate the quality of professional management and integration of sustainability into the basics



processes of the organization. It is vital that companies hear this message, otherwise they will not be competitive in quality or investment.

Integrating Quality and Sustainability

Baldrige gives us a framework that matches the specificity of the investors’ criteria for sustain-ability. Although we have summarized the investors’ definition of sustainability, we still have a wide range of important concepts. Baldrige gives us a way to express those criteria in a way that leads to their implementation.

Table 3 presents our argument for arranging the most important market criteria for sustainability in the Baldrige framework. The concepts were aligned based on our best understanding both of the desired outcomes and the necessary processes to support them. Of course others could ar-range the concepts differently and we welcome such debate. However we feel this is a very good step towards practical sustainability for organizations. Baldrige provides the framework and sustainability provides the desired goals or important themes. This gives users a global network, already existing and mostly free, to support their performance improvement, and an-other sustainability network to support their visions of the future.

This approach lends itself well to some more specific approaches. For example, it would be straight forward to arrange the Balrige criteria against specific themes such as water and energy conservation and waste prevention. In each row one can think how key organization processes support desired conservation and prevention goals.



Table 4: Core Market Criteria for Sustainability in a Quality Framework

Baldrige Performance Criteria Core Market Criteria for Sustainability

1.1 Organizational Leadership a. Senior Leadership Direction Sustainability vision and policyb. Organizational Governance Good governance

Leadership structurec. Organizational Performance Review

1.2 Social Responsibilitya. Responsibilities to the Public Responsiveness

Beyond complianceb. Ethical Behavior Codes of conduct

c. Support of Key Communities PhilanthropyConsultation

2.1 Strategy Development a. Strategy Development Process Sustainability in strategy development

b. Strategic Objectives Risk managementEnvironmental and social strategies

2.2 Strategy Deploymenta. Action Plan Development and Deployment Sustainability programs

b. Performance Projection

3.1 Customer and Market Knowledge Stakeholder knowledge3.2 Customer Relationships and Satisfaction

a. Customer Relationship Building Customer relationshipsSupplier relationships

b. Customer Satisfaction Determination Customer satisfaction

4.1 Measurement and Analysis of Organizational Performance

a. Performance Measurement Sustainability assessmentb. Performance Analysis

4.2 Information and Knowledge Managementa. Data Information and Availability Public reporting

Labeling and advertisingb. Organizational Knowledge Networking

- continued next page



- Figure 2 continued

Baldrige Performance Criteria Core Market Criteria for sustainability

5.1 Work Systemsa. Organization and Management of Work Labor management and relations

b. Employee Performance Management System Compensationc. Hiring and Career Progression Discrimination

Diversity5.2 Employee Learning and Motivation

a. Employee Education, Training and Development Trainingb. Motivation and Career Development Profit sharing

5.3 Employee Well-Being and SatisfactionWork Environment Health and safety

Employee Support and Satisfaction Non-mandated benefits

6.1 Value Creation Processes Pollution preventionInnovation

6.2 Support Processes Supplier sustainabilityEHS management systems

7.1 Customer -Focused Results Sustainability benefits to customers7.2 Product and Service Results Resources use

Waste and emissionsProduct certifications

7.3 Financial and Market Results Profit distributionTaxes and subsidies

7.4 Human Resource Results Health and safety results7.5 Organizational Effectiveness Results Certifications of processes7.6 Governance and Social Responsibility Results Compliance

AwardsSocial and environmental impacts

It is important to remember that all the sustainability criteria are derived directly from investor criteria; this is what people with money are looking for.

The Balanced Scorecard and Sustainability

It is worthwhile to note that a similar approach to performance indicators has been used for sus-tainability management. The Sustainable Balanced Scorecard is a concept popularized by a group of European researchers and industrialists. It is based on the Balanced Scorecard con-cept popularized by Kaplan and Norton in the late 1980s (Kaplan, R & D. Norton. 1996). This proposes four major areas or perspectives for performance management: Financial, Opera-tional, Customer, and Organization Development. In many ways the Balanced Scorecard is a more simple version of the Baldrige performance system. It has achieved great popularity, per-haps because of this reason.

Zingales et al published an expansive paper about the Sustainable Balanced Scorecard with an extensive literature review (Zingales 2002). The topic has been explored by others as well (Figge et al 2002a, 2000b, Schaltegger 2002, 2004). The INSEAD school of business in France



maintains a project on the topic. A Sustainable Balanced Scorecard is used by some corpora-tions. Figure 3 shows an example from Bristol-Myers Squibb (Zingales 2002).

Figure 3: Balanced Scorecard for Environment, Health and Safety at Bristol-Myers Squib

This is a very business-like approach to a sustainability scorecard, focused on metrics that can be captured by the information and accounting systems of the corproration. An alternative con-cept is shown in Figure 4. This scorecard shows broad areas for management and how they in-teract. From the bottom up, the goal of sustainable profit is supported by innovative approaches to performance of elements of sustainability (INSEAD 2005).



Figure 4: Example Sustainable Balanced Scorecard

We can build on this work by showing how the market-based sustainability indicators fit within a Balanced Scorecard framework. In Figure 5, we have taken the same market-based sustain-ability criteria that we identified earlier, and arranged them in a Balanced Scorecard framework. The choice of which perspective best fits which criteria is sometimes challenging, but some-times it is quite clear. This approach gives a more simple breakdown of the types of sustainabil-ity criteria and makes it obvious that operational factors are the most frequently cited by SRI in-dexes and mutual funds.



Figure 5: Market-Based Sustainability Criteria in a Balanced Scorecard Framework

FinancialPerspective

OperationalPerspective

Customer / StakeholderPerspective

Development Perspective

Good governance Leadership structure Responsiveness Sustainability vision and pol-icy

Risk management Beyond compliance Philanthropy Codes of con-duct

Profit distribution Environmental and social strategies

Consultation Sustainability in strategy devel-opment

Taxes and subsidies Sustainability programs Customer relationships Stakeholder knowledge

Profit sharing Labor relations Supplier relationships Sustainability assessment

Compensation Customer satisfaction InnovationDiversity Product certificationsTraining AwardsHealth and safety Sustainability benefits to

customersNon-mandated benefits Social and environmental

impactsPollution preventionSupplier sustainabilityEHS systemsResources useWaste and emissionsHealth and safety resultsComplianceCertifications of pro-cessesDiscrimination

This can be considered a more simple form of checklist for sustainability accounting: It shows what to measure, and for what purpose. It is also a simple but effective tool for leading discus-sions. For example, what are the driving connections between the items in the columns? What do these terms mean? Why are they in those columns? These questions lead to good explo-ration of what it means to be sustainable.

The Baldrige and Balanced Scorecard approaches offer interesting alternatives. Baldrige is more complex and rigorous, with more objective support from sponsoring institutions. The Bal-anced Scorecard is simpler to understand and use, so perhaps more likely to succeed in many situations. Regardless, they both have the same approach of identifying core areas for perfor-mance management. Now that we can identify how financial markets define the elements of sustainable performance, we can fit those elements into either performance management framework.



Moving Ahead With Sustainable Quality

Socially Responsible Investing is now a major force around the world for promoting Corporate Social Responsibility. Academic and market evidence show that SRI has competitive perfor-mance with investing that does not consider sustainability or sustainable development. SRI funds and indexes have identified the specific sustainability performance criteria that they be-lieve have a positive correlation with profitability. SRI motivates companies to be more responsi-ble because it gives companies a clear answer to the question, “Why should I try to be more so-cially responsible?” The answer now is, “Because you can attract more investors and make more money.”

Our research identified the core criteria for sustainability used in the SRI market. We clustered these criteria using a quality management framework that promotes their implementation within companies so they are integrated with the business processes that add value. We used our model to develop a new tool for companies to evaluate their capacity or readiness to talk with in-vestors about their sustainability performance. Any company can use this tool to learn if they would be accepted or rejected by investors or customers who are concerned about sustainabil-ity.

Besides individual companies and organizations seeking their own sustainability systems, there are several important strategic customers for our research.

Agencies promoting sustainable business should use this model. It overcomes two problems: “what is sustainability?” and “how do you do it?” By using the market based definition agencies do not have to get into a debate about what is sustainability. By us-ing the quality framework, they will find a ready alliance with local quality promotion or-ganizations. Also, they can attract customers based on both the sustainability and qual-ity appeal and find alliance with organizations promoting regional competitiveness through quality.

Organizations promoting Quality should use this model to show how sustainability concepts can support all elements of a quality program.

Pension funds that invest for the long term should use this model for selecting invest-ments. Firms with good quality and sustainability programs are quite likely to be better long term investments, according to the market research so far.

Regulatory agencies promoting “beyond compliance” behavior. This model covers many regulated aspects of business, such as employee welfare and pollution. It shows how these issues can be managed in a more integrated way, that provides a lot of addi-tional support to customers.



The market now tells us what is a sustainable organization, and the market is serious enough to put its money on specific elements of sustainability. A business that wants to attract investors should be aware of these elements. Figure 6 provides a tool that a company can use to deter-mine how ready it is to talk to investors or others about their sustainability. There are other guidelines for this, such as the Sustainability Reporting Guidelines of the Global Reporting Initia-tive (GRI 2004), but they are not clearly based on market criteria (although they certainly are in-fluenced by the market). This tools simply lists the things that investors are looking for now. An organization does not need to give great answers to all, or maybe any, of these items, but cer-tainly it will be helpful to be able to talk intelligently about sustainability. And if current trends continue, some will be required to talk about it.

Author Information

Burton HamnerHamner and Associates LLC / CleanerProduction.Com5534 30th Ave NE, Seattle, WA [email protected]

Copyright 2005.


mailto:[email protected]


Figure 6: Corporate Sustainability / Responsibility Assessment Tool

Copyright Hamner and Associates LLC, 2005


Answer Guide Rate each criteria accord-

ing to these responses

Notice * All positive answers* should be supported by

documentation. 0 = No capacity. We have nothing to say about this. 1 = A little capacity We are considering it and can describe our ap-proach. 2 = Some capacity We can describe a few activities and responsibili-ties. 3 = Good capacity We can describe about our program for this in detail. 4 = Excellent capacity We can describe our full policy, program and re-sults for this, OR we can provide our official CSR reports

Rate your company’s capacity to talk to investors about Corporate Social Responsibility (CSR)

CSR Criteria Used by Investors 0 1 2 3 4 CSR and sustainability vision and policy Good governance Leadership structure Responsiveness Beyond compliance Codes of conduct Philanthropy Consultation CSR in strategy development Risk management Environmental and social strategies CSR programs Stakeholder knowledge Customer relationships Supplier relationships Customer satisfaction Sustainability assessment Public reporting Labeling and advertising Networking Labor management and relations Compensation Discrimination Diversity Training Profit sharing Health and safety Non-mandated benefits Pollution prevention Innovation Supplier CSR EHS management systems Sustainability benefits to customers Resources use Waste and emissions Product certifications Profit distribution Taxes and subsidies Health and safety results Certifications of processes Compliance Awards Social and environmental impacts


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http://www.insead.edu/CMER/research/strategy/sbsc.htm

the baldrige quality system and social responsibility

Economy & Finance