09/03/2013 09:35 pm ET Updated Nov 03, 2013

For Corporate Directors: How Human Rights and the Environment Tie to Profits

Ensuring that there are no child workers assembling a company's products is the right thing to do. It's also good business. The company risks alienating customers when its brand is associated with human rights abuses. Over the past weekend, a New York Times article revealed that "whenever inspectors showed up at certain plants in China, the loudspeakers began playing a certain song to signal that underage workers should run out the back door, according to several monitors." Companies want to avoid being named in such news reports. This hurts the bottom line.

On the environmental front, many companies have experienced major reputational hits after being exposed for irresponsibly exploiting natural resources. This hurts the bottom line. In contrast, companies that have "cleaned up their acts" have enhanced their public image, with some becoming leaders in business sustainability.

Thirty trillion reasons for companies to advance global sustainability

Not only do companies have much to lose by violating human rights and devastating the environment, but also they have a great deal to gain by advancing global sustainability. Increasingly these issues matter to investors. According to "The Impact of Sustainable and Responsible Investing," by the Forum for Sustainable and Responsible Investment (US SIF), signatories of the Principles of Responsible Business (PRI) manage assets of $30 trillion, 20 percent of the estimated total value of global capital markets. These investors are committed to investing in socially and environmentally responsible companies.

Referred to by the US SIF as "sustainable and responsible investors," SRIs often work in partnership with each other and NGOs to persuade companies to "improve climate risk disclosure; adopt sustainable forestry practices; address poor labor and human rights conditions in their global supply chains; pledge not to discriminate against employees based on their sexual orientation; disclose health, safety, and environmental risks associated with hydraulic fracturing; improve accountability of executive pay practices; promote gender and racial diversity on their boards of directors; and issue detailed reports on sustainability." ("The Impact of Sustainable and Responsible Investing," US SIF) Companies cannot flout human rights and environmental issues and expect to maximize capital-raising opportunities.

Furthermore, Ernst & Young predicts -- based on proxy voting results from the past two years -- that the environmental and social category of shareholder proposals submitted to companies for the 2012 annual meetings will dominate for the third year in a row. The firm's tracking for 2013 already shows an increase for this year, according to a post in Bloomberg. If shareholders care, boards should take notice.

Companies profit by solving global problems

There is another reason for boards to focus on sustainability -- a number of global corporations are profiting by solving social and environmental challenges... where governments cannot. These multinational corporations recognize that
  • the world population is on a trajectory to grow from seven billion today to nine billion within the next few decades,
  • three billion new consumers will enter the middle class, primarily from developing markets,
  • with today's global population consuming resources equivalent to 1.5 Earths, we are on an unsustainable path to meet the demands of this growing population.

A number of companies believe that by finding solutions to social, environmental, and economic problems of our growing world, they will meet the interests of customers, employees, and investors; reduce costs; increase profits; and become more sustainable. Unilever has based its entire corporate purpose and goals around this approach. On its homepage, the company declares that "sustainability is integral to how we do business...With 7 billion people on our planet, the earth's resources can be strained. This means sustainable growth is the only acceptable model of growth for our business. The Unilever Sustainable Living Plan sets out to decouple our growth from our environmental impact, while at the same time increasing our positive social impact." My forthcoming book provides case studies of companies that profit by solving global problems.

Boards of directors that recognize the business opportunities and risks presented by social, environmental, and economic conditions can help to ensure that their companies will maximize their value.

Look for my next post about the UN Global Compact Leaders Summit 2013: Architects of a Better World.

Alice Korngold's forthcoming book, "A Better World, Inc.: How Companies Profit by Solving Global Problems...Where Governments Cannot" is being published by Palgrave Macmillan.