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5 Steps for Building Sustainability into Corporate Budgeting and Planning

Each month, NBS spotlights a key sustainability issue for business leaders. These issues have been identified by NBS’s Leadership Council, a group of Canadian businesses recognized for their leadership in sustainability. This month, the focus is on building sustainability into the core business processes of budgeting and planning. Dr. Nola Buhr of the Edwards School of Business, University of Saskatchewan, and Dr. Rob Gray of the School of Management, University of St. Andrews, provide guidance. They encourage businesses to carefully define what they seek to achieve.

Businesses can build sustainability into corporate budgeting and planning by following five basic steps:

1. Understand what sustainability really means.

Do you and your business have a deep understanding of sustainability? The answer is almost certainly “no.” Sustainability is a concept that must be applied to the whole planet. Virtually all data suggest that humanity is not acting sustainably on either environmental or social issues. Any business that has a growing ecological footprint (i.e. virtually every business), is committed to increased consumption (ditto) and does not place social equity at the heart of its operations (ditto) is almost certainly un-sustainable by the World Commission on Environment and Development (Brundtland) definition.

That is not the fault of business — it is the nature of business. However, businesses are at fault if they claim to be fully sustainable when they are not.

2. Define “sustainability” for your organization and determine what factors get included or excluded during planning and budgeting.

Sustainability includes: protecting the environment; improving economic well-being; and creating healthier and more equitable societies.1 But, how does a business determine the relevant boundaries associated with sustainability — the way it will interpret each of these concepts? For example, does a more equitable society mean that: (a) employees are paid the going rate, (b) the gap between the lowest-paid and highest-paid employees is narrowing, (c) the company funds the local food bank, or (d) the company donates money to a clean water project in Africa in a location that is unconnected to the company? Moving along the continuum from (a) to (d) gets you closer to sustainability but farther away from what a profit-driven enterprise is likely to do.

Because businesses pursue profit, they are brilliant at engaging in innovative eco-efficiency — saving money while utilizing natural resources more efficiently. This is good management and not deep sustainability.

3. Determine your time horizon for profitability.

Eco-efficiency contributes positively to the bottom line by bringing engineers and accountants together to break down operational activities and identify potential cost-savings. It is difficult to oppose such “sustainability” as long as it is profitable. However, what is your time horizon for profitability? Do your “sustainability” initiatives have to be profitable this quarter, next year or in five years? Businesses should adopt the mindset of Total Quality Management, where “an ounce of prevention is worth a pound of cure.” Over the longer term, spending and saving can be two sides of the same coin.

Your time horizon will affect how you recognize and prepare for risks. Good management requires engagement with changing pressures such as new environmental legislation and consumer demands. Reflection on time frame should also lead to recognition of what the company cannot do, and there is a better than even chance that the company cannot be truly sustainable.

4. Make sure the top management definition of sustainability is commonly understood throughout the organization and built into corporate strategy and objectives.

Definitions are not enough. The top management definition of sustainability must be communicated throughout the entire organization. The vision has to be firmly embedded in corporate strategy and objectives. Strategy and objectives should, in turn, be built into operating and capital plans and budgets.

Each person in the organization must understand what the “sustainability” vision means for his or her day-to-day activities.

5. Make sure that the performance management system reports and rewards “sustainability” initiatives.

The performance management system should monitor, measure and report on corporate objectives so that managers can verify whether objectives are being achieved and identify where problems are occurring so that remedial action can be taken. If “sustainability” has been built into the company’s strategy and objectives, it should also be built into the performance management system. For example, it should be easy to tell if the company is complying with environmental regulations and meeting corporate environmental targets.

“Sustainability” vision and plans are useless unless they are implemented successfully. Employees at all levels need to be motivated, recognized and rewarded for reaching specific (and realistic) goals.

Remember, “what gets measured gets managed.”

Real choices: A corporate commitment

An example from Africa highlights the importance of definitions, objectives and time horizon in building sustainability into corporate budgeting and planning.

Between 1990 and 1998, the prevalence of HIV in South Africa rocketed from less than 1% to more than 22%. In August 2002, Anglo American announced that it was making antiretroviral therapy (ART) available to its entire southern Africa-based workforce. Even the architect of the scheme, Chief Medical Officer Dr. Brian Brink, described it as “a leap of faith.”

But by July 2010, it was clear that the benefits of the ART programme far outweighed the costs. Providing ART to one worker for one month cost Anglo $126 but resulted in savings of $219.2

Healthy workers are part of a stronger and more equitable society. Of course, they are also a pre-requisite for getting the job done. Employing healthy workers gets more difficult in a community with a 22% incidence of HIV. Whether for noble sustainability goals or simply to maintain its workforce, Anglo American set having healthy workers as an objective. Reaching this objective meant providing ART to all affected workers, a move that would negatively impact profitability in the short term. It is doubtful that this initiative got an immediate, unanimous green light, for it was described as “a leap of faith.” Yet, accounting for the costs and benefits showed, eight years down the road, that the benefits outweighed the costs.3

In this case, being socially responsible, at least within the boundaries of the corporation’s workforce, made the organization more profitable. But, what if it hadn’t? Would or should Anglo American continue providing HIV medicine if it was a drain on profits over the long-term? The answer to this question depends on how one defines sustainability and how one sees the corporate role in its pursuit.

Thus, the most critical step, by far, is the definition of sustainability. Everything else flows from there.

About the authors

Dr. Nola Buhr is Professor of Accounting at the Edwards School of Business, University of Saskatchewan, Canada. Her research focuses on accountability and her work includes environmental and sustainability accounting disclosure as well as accounting history. Nola has published widely and sits on seven academic editorial boards. She has been an active volunteer with the Canadian Institute of Chartered Accountants. She was Chair of the Public Sector Accounting Board, which sets accounting standards for all levels of government in Canada, and has been on multiple government audit committees, including for the department of Canadian Heritage and the department of Aboriginal Affairs and Northern Development Canada. She obtained her Chartered Accountant designation in 1988 and, before entering academia, worked for five years in public practice.

Dr. Rob Gray is Professor of Social and Environmental Accounting at the University of St. Andrews, Scotland. He is a qualified chartered accountant and was editor of Social and Environmental Accounting Journal from 1991 to 2007. He is the author/co-author of over 300 books, monographs, chapters and articles. His books include Accounting for the environment, Financial Accounting: practice and principles and Accounting and accountability: Changes and challenges in corporate social and environmental reporting. He is Director of the Centre for Social and Environmental Accounting Research (CSEAR). He was elected in 2004 as one of 14 founding members of the British Accounting Association Hall of Fame. He was awarded an MBE in the Queen’s 2009 Birthday Honours List and was elected to the Academy of Social Sciences in 2012.

1. The Regeneration Roadmap. (2012). Down to business: Leading at Rio + 20 and beyond. http://theregenerationroadmap.com/research/down-to-business/. Accessed October 28, 2012.

2. World Coal Association. (2012). Anglo American HIV/AIDS programme. http://www.worldcoal.org/resources/case-studies/anglo-american-hivaids-programme/. Accessed 28 October 2012.

3. From the information provided, it is difficult to know what the savings of $219 entail.

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    The Network for Business Sustainability (NBS) is a non-profit advancing sustainable development to build a fairer and more environmentally sound future. We aim to improve business practice by facilitating knowledge sharing across an international community of business leaders, scholars, students and policy makers. With these stakeholders, we co-create high-quality content that enables practical action. Our content focuses on 6 critical sustainability themes, from climate change to social justice.

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