Decent Work and Economic Growth

Living Edition
| Editors: Walter Leal Filho, Anabela Marisa Azul, Luciana Brandli, Pinar Gökcin Özuyar, Tony Wall

Contribution of Enterprises in Achieving the Sustainable Development Goals

  • Edurne A. InigoEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-71058-7_39-1

Synonyms

Definitions

Enterprises, often called businesses of companies, are the organizations that tie together several individuals for the pursue of a commercial purpose. They are usually founded by an entrepreneur (or group of entrepreneurs) or by other enterprises. They normally present a hierarchical structure whereby several layers of management direct the strategic and operational activities of the enterprise.

Large enterprises and small and medium enterprises (SMEs) are the most commonly referred categories to distinguish enterprises. They are classified by number of employees, turnover, and balance sheet total; however, the criteria vary internationally: as an example, the SME label is given to enterprises with between 11 and 250 employees in the European Union, while in the US enterprises with less than 500 employees are considered SMEs (OECD 2000). They have different characteristics and management needs and contribute to sustainable development in different ways (Baumann-Pauly et al. 2013).

Multinational enterprises (MNEs) are enterprises that operate internationally (see United Nations 1973). Such operations may refer to assets, sales, production, employment, or profits of foreign branches and affiliates. Often, companies that have a primary national orientation are denominated “transnational” or “international” enterprises (for the purpose of this entry, we will refer to MNEs in general). Due to the amount of resources that are needed to operate internationally, MNEs are usually large, measured by both turnover and number of employees.

Introduction

The ability of enterprises to contribute to sustainable development is apparent. They are the main instruments to create economic growth and jobs, since they operationalize the value-creating activities in economic systems. Because of that, they are one of the major actors in SDG 8, Decent Jobs and Economic Growth. However, the role of business in society has been often criticized, with particular emphasis on MNEs, which have often been criticized by environmental or social groups of environmental degradation and labor exploitation based on forum shopping and the promotion of a race-to-the-bottom in global environmental and social legislation (Newell 2001).

Even if enterprises are a well-established mechanism to sustain economic growth, the remaining question is, which kind of growth? Economic growth is positively correlated to several indicators of social prosperity, such as access to education, life expectancy, or lower levels of political oppression (DFID 2008). This is the main reason why developing countries often pursue economic growth before other social concerns: without sufficient tax revenue, the budget disallows for addressing other pressing issues such as building infrastructure. The Nobel Laureate Amartya Sen argued that economic development should be considered as a freedom, since economic growth is an end and a means to sustain welfare. This freedom has been denied to a large share of the global population (Sen 2000). However, increases in wealth are also coupled to environmental degradation (UNEP 2014), and disgraces such as the collapse of Rana Plaza (Reinecke and Donaghey 2015) show that the economic wealth brought by enterprises has not always been attached to decent jobs or local development.

However, enterprises do learn from these mistakes. For example, the oil sector was one of the pioneers in the implementation of corporate social responsibility policies in the wake of the scandalous oil spills in the 1970s (Frynas 2012). Policy support, citizen demands, NGO lobbying, and enterprises’ new awareness of their potential to contribute environmentally, socially, and economically to sustainable growth are steadily changing the role of business in society. The next section explores this evolution, followed by a section exploring enterprise involvement with the SDGs. Next, the mechanisms of evaluation and reporting of such involvement are outlined. After that, the main differences between SMEs and large enterprises and the consequences of such differences in their involvement with sustainable development are explored, followed by a recollection of the new enterprise models that aim to address social and economic goals. Finally, the entry closes with some notes on the future directions that enterprises research and practice might adopt in their relationship with sustainable development.

Evolution of the Role of Enterprises in Sustainable Development

The role of enterprises as actors of sustainable development has gone through a profound evolution from the 1970s to date, exploring different levels of responsibility toward society. The following subsections explore this evolution, providing a historical overview that explains the engrailment of enterprises in the pursue of sustainable development.

Traditional View: Compliance and Maximization of Shareholder Value

As illustrated by the famous article by Milton Friedman, the traditional understanding of to what extent enterprises should be involved in noneconomic causes is summarized as follows: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (Friedman 1970). Compliance with regulation and maximization of shareholder value were considered the only obligations and purposes of the firm. Therefore, under this view, any issues like the creation of quality jobs (vs. any kind of jobs), responding to the needs or demands of stakeholders different to shareholders or environmental stewardship, are not a concern of enterprises: if the firm is to attend to these issues, it is only because there is a regulation with which they need to comply (e.g., minimum wage, pollution thresholds, etc.).

Consequently, under this view, enterprises are merely instruments of the free market, and therefore they are free to maximize profits regardless of moral concerns as long as they keep playing within the rules of the game. This view is very much influenced by liberal economic thinking, which also built on a strict interpretation of US corporate law and the obligation it sets on managers and enterprises to “maximize shareholder value.” Although this interpretation evolved over the years, admitting that shareholders’ only interest shall not be short-term profits only (Stout 2012), it has led to the emergence of new enterprise forms under US law (B-corps) with the aim of capturing the twofold (economic and social) purposes of enterprises. Although this stringent understanding of corporate responsibility was more nuanced in social economies (such as most of the European economies), this was the prevalent view until the emergence of corporate social responsibility and corporate citizenship in the 1970s.

Corporate Citizenship: Responding Beyond Compliance

A new understanding that enterprises had a moral responsibility in addition to their legal and economic responsibilities gave rise to the research and practice of so-called corporate social responsibility (see entry on “Corporate Social Responsibility”). These new responsibilities are the following: ethical, obligation of the enterprise to act beyond compliance in response to societal demands. and discretional, strictly voluntary contributions to society to respond to social issues while not directly related to their main commercial purpose (e.g., philanthropic contributions) (Carroll 1979). Therefore, enterprises have an ethical responsibility of responsiveness to societal demands, often operationalized as stakeholder management (Freeman 1984). Stakeholder management transforms the purpose of enterprises from “maximizing shareholder value” to “maximizing stakeholder value,” that is, creating value for all the groups and institutions that are somehow affected by enterprises’ activity. This aligns the core activities of the enterprise – economic value creation – and social responsiveness through the integration of social groups in its strategic management.

The question about how enterprises – legally or customarily constructed abstract organizations – could have a moral responsibility was raised. This question led to the development of the idea of corporate citizenship (Moon et al. 2005). It is defined as “the role of the corporation in administering citizenship rights for individuals. Such a definition reframes corporate citizenship away from the notion that the corporation is a citizen in itself (as individuals are) and toward the acknowledgement that the corporation administers certain aspects of citizenship for other constituencies” (Matten and Crane 2005, p. 173). The main argument of corporate citizenship is that enterprises have an important role in society that exceeds their role as economic actors, since they are providers of social rights (e.g., by providing decent working conditions), enablers of civils rights (e.g., promoting nondiscrimination), and a channel of political rights for other stakeholders (e.g., MNEs often provide an institutional background more reliable than public mechanisms of governance in certain countries and support public unrecognized civil rights). Corporate citizenship set the basis for more involvement of enterprises in societal issues, transitioning from responsiveness to society to adopting a proactive role.

Proactive Role: Business in Society

The turn of the millennium brought new perspectives on the role of enterprises in society. The consolidation of the concept of sustainable development (World Commission on Environment and Development 1987) as a model of economic growth, the ideas distilled from corporate citizenship (Matten and Crane 2005; Moon et al. 2005) and stakeholder management (Freeman 1984) and the issuance of supporting policies such as the SDGs (United Nations 2014) showed an increasing potential of enterprises to actively contribute to sustainability beyond responsiveness to societal demands.

The concept of sustainable business management (see entry on “Sustainable Business Strategies”) emerged strongly, aiming to incorporate social and environmental concerns in the core activities of enterprises, rather than understanding it as an additional burden or a response to societal demands to ensure social legitimation. The new objective of enterprises shall be to align their own interests and objectives with those of sustainable development, hence creating sustainable value (Hart and Milstein 2003; Porter and Kramer 2011). Beyond the understanding of enterprises as economic actors with a social responsibility, the new role for business in society involves enterprises becoming social actors with social, economic, and environmental targets. Enterprises adopt a proactive role in the achievement of SDGs, beyond those directly concerned with economic growth or creation of employment (SDG 8).

Under this new paradigm of enterprises, they are active agents in pursuing systemic changes for sustainability (Loorbach et al. 2010). Enterprises can leverage their value-creating activities, such as innovation or their ability to provide sustainable products and services to the market for sustainability purposes. This implies advancing from impact minimization – in response to stakeholder pressure – to the maximization of their positive impact, for its own purpose (Hoffman and Bansal 2012; Adams et al. 2016). Such alignment of strategies involves trade-offs between social, environmental, and economic value but may be helpful in addressing the ongoing question about whether enterprises capture economic rents from addressing social and environmental issues (Wood 2010). Addressing such issues in an integrated way, rather than as an accessory cost to the firm, should provide a competitive advantage (Porter and Kramer 2011), hence tapping on the role of enterprises as agents of economic growth, while reconciling it with its new role of proactive social system builders (Loorbach et al. 2010; Adams et al. 2016).

Enterprise Engagement with the SDGs

The new approach of enterprises to their responsibility toward sustainable development, accompanied by ample policy support, has led many enterprises to actively engage with the SDGs, framing their own objectives along the lines of the UN documents. The next subsections explore how companies have adopted a stewardship role toward the SDGs and two institutionalized enterprise networks to address them: the UN Global Compact and the World Business Council for Sustainable Development.

Enterprise Endorsement of the SDGs

Enterprises concerned with sustainability have welcomed the SDGs as an instrument to establish goals and measure performance in sustainable development; in fact, the private sector was highly involved in their development (Scheyvens et al. 2016). While the concept of sustainable development has guided management practices for some time (Gladwin et al. 1995), this was highly context-dependent and lacking of orchestrated action. The SDGs are broken down into actual indicators (United Nations 2017) that can guide enterprises in their support for one or several of such targets. Even if no quantifiable indicators have been developed specifically for business, enterprises can adapt these objectives and integrate them in their own key performance indicators, helping to steer business action toward sustainability in the same direction.

The cost of realizing the SDGs cannot be matched without the collaboration of enterprises. Not only are enterprises the main instrument of economic growth – with some MNEs having a turnover larger than many countries GDP – it is also the case that their potential cost is so large that business actors need to be included in their development. For instance, materializing just the health-related targets in the SDGs has an estimated cost of US$274–371 billion a year over current spending (Stenberg et al. 2017). However, the realization of the SDGs also taps into new markets and opportunities from which enterprises can profit: enterprise efforts and investments are needed for the achievement of the SDGs, but there are also economic gains to be attained from participation (BSDC 2017). Moreover, taking into consideration the collaborative trends in the economy and the fact that the SDGs themselves promote partnerships as means to tackle them (SDG 17), businesses have embraced the chance to collaborate with policy-makers and other stakeholders in the pursue of sustainability (Scheyvens et al. 2016).

The UN Global Compact

In this spirit of collaboration for sustainability, the Global Compact is a UN-backed initiative for businesses that share certain values to come together in a network (see Global Compact (2018)). These values are summarized in ten universal principles that pivot around four categories: human rights, labor, the environmental protection, and fighting corruption. The Global Compact supports the mainstreaming of these principles around the world while supporting the SDGs (when it was founded, in year 2000, it supported the Millennium Development Goals). It counts over 9500 signatory enterprises in 160 countries, which commit themselves to adhering and promoting the principles through their activities and local networks. The Global Compact is one of the most successful initiatives in attracting the private sector to sustainability goals at the global level.

A survey among signatories of the Global Compact shows that they are mostly motivated by ethical concerns, but the opportunity of accessing knowledge about how to implement sustainability strategies is also very relevant (Cetindamar 2007). In fact, although many large companies are part of the grid, the Global Compact is a good learning opportunity for smaller companies, and many report its value to access better networking opportunities (Cetindamar 2007). The institutionalization of the Global Compact is quite unique, since the UN has not traditionally been a particularly business-friendly organization. However, the establishment of the Global Compact helped to appeal enterprises into sustainability action and policy-making (Kell 2005), which was later beneficial for their wider endorsement of the SDGs. To that extent, it is a prime example of global collaboration between enterprises and policy-makers.

The World Business Council for Sustainable Development

The World Business Council for Sustainable Development (WBCSD) is an earlier initiative of enterprises working together toward sustainability founded in 1992. The WBCSD is a strictly private sector organization, led by CEOs, and counting over 200 members. Unlike the Global Compact, access to this network is by invitation. Although they share similar goals – achievement of the SDGs – the WBCSD structures sustainability goals around five programs: Cities and Mobility; Energy and Circular Economy; Food, Land and Water; People; and Redefining Value (WBCSD 2018).

Dissimilar to the Global Compact, its impact is not based on networking opportunities, since it limits its number of members strictly. Its impact lies mostly on its very influential reports and programs, which help many enterprises to implement sustainability strategies even if they are not members (see, e.g., their report of business sustainability objectives for 2050 WBCSD (2010)). Beyond the fulfillment of the Global Compact’s principles, the WBCSD is guided by concerns that affect enterprises in a more direct way; therefore, its goals are mostly directed at achieving maximum impact through the integration of sustainability in business strategies, voicing businesses in international fora for sustainability, and developing research-based solutions to challenges faced by sustainability-oriented enterprises.

Evaluation and Reporting of Sustainability Performance

The challenge of sustainability performance assessment and reporting is, in fact, one that has occupied many scholars and practitioners (see Herzig and Schaltegger (2006)). In contrast with the economic pillar of sustainability, (most of) local or global regulations do not demand the reporting of social and environmental performance of the firm to the same level of detail (Kolk 2003). In the wake of greenwashing (branding a company, product, or service as sustainable while having little to none social or ecological impact), it became evident that for enterprises to act in a sustainable way, a certain degree of accountability was needed. As corporate citizens, enterprises are not only required to act/perform for sustainability but also be able to report transparently to the rest of society of what their sustainability progress was. In the same way that they reported publicly to the government and their stakeholders about their economic data, they should inform about social and environmental performance to all their stakeholders.

This gave rise to a series of reporting practices, mostly from large companies. The resources required to put forward a sustainability report are often too much for SMEs, especially if the costs of auditing are included. In this regard, although sustainability reporting has been generally well-received by most stakeholders, some criticisms stand out (see, among others, Kolk (2008) or O’Dwyer and Owen (2005)). First, the format that these reports have generally adopted misses richness of data and can be misleading, since they often highlight objectives over actual performance. Second, they are frequently developed ex post by a CSR department or external consulting service with data collected from other departments. Consequently, the impact of reporting is diminished, since it is not directly ingrained in the enterprises’ core activities. Third, the same consulting services that draft the reports are often responsible for the auditing of the sustainability reports, creating a problem of transparency and accountability that was meant to be solved by the auditing services.

Some NGO-backed initiatives emerged to be able to overcome these issues in sustainability reporting through its standardization. Standardization brings about comparability, and therefore better provision of information for stakeholders. One of the most successful endeavors has been the Global Reporting Initiative (GRI), whose framework has become the main benchmark for sustainability reporting (Dingwerth and Eichinger 2010). This framework is based on five elements: the reporting principles, which determine the required contents and the quality of the reporting; the indicators on which enterprises must report; the indicator protocols, which guide enterprises on how to fulfill each indicators requirements; sector supplements; and the application level, which determines to what extent these guidelines have been followed during the drafting of the report (GRI 2006). The GRI reporting guidelines are revised periodically within the elements of this framework.

The latest developments have been toward so-called integrated reporting, which merges traditional economic reporting with sustainability reporting, with the aim of increasing the weight of sustainability aspects in the reports for both external and internal stakeholders. The framework was developed by the International Integrated Reporting Council, a multi-stakeholder initiative, and aims to synthesize how enterprises are creating value in the three pillars of sustainability in the same report (IRRC 2013). This kind of reporting has been praised for setting equal importance for the economic, social, and environmental reporting; however, it has also been criticized for watering down social and environmental concerns. These claims are based on the fact that less social and environmental indicators are included in this framework (as compared to GRI’s), making the sustainability reporting superficial. Yet integrated reporting – even if still nascent – is generally regarded as a good practice (Dumay et al. 2016; McNally and Maroun 2018).

On the other side of the Integrated Reporting Framework, other initiatives have adopted a one-issue specialization approach. The Carbon Disclosure Project, a non-for-profit consortium of institutional investors, collects greenhouse gas emissions data from companies and has also been able to attract a large number of enterprises. About one fifth of the global greenhouse gas emissions are reported to the Carbon Disclosure Project as of 2018, with the added value that the project publishes both analyzed and raw data for maximum transparency. This shows the value of convergence mechanisms in sustainability reporting (Matisoff et al. 2013) and the active involvement of stakeholders – in this case, institutional investors – to achieve performance progress based on reporting practices (Kim and Lyon 2011).

Asymmetries Between Large, Small, and Microenterprises in Sustainable Development

A major issue when enterprises engage with sustainable development is the fact that the crucial differences between large, SMEs, and microenterprises are neglected. The size of these companies makes them structurally diverse, and the ways in which these companies make an impact on sustainable development are essentially different. The majority of frameworks for engagement of enterprises in the SDGs, most conceptual developments, and the frameworks for reporting are designed for large enterprises (Mousiolis et al. 2015). While large enterprises make a large contribution to economic growth, SMEs are the backbone of most economies: as an illustration, in the OECD area, SMEs constitute 99% of all enterprises and provide 70% of all jobs and between 50% and 60% of the value added (OECD 2017). Their share of potential economic growth and contributions to sustainable developed is just too large to be overlooked.

However, SMEs are often prevented from participating in the networking opportunities provided by platforms acting on the SDGs such as the WBCSD. Although the Global Compact promotes participation of both large enterprises and SMEs, active contributions by SMEs are scarce, since they rarely can pledge the resources – either time or financial resources – to take advantage of these opportunities. SMEs are underrepresented in multi-stakeholder agreements – as are smaller representatives of other stakeholders, such as NGOs – resulting in a vicious circle where lack of resources leads to underrepresentation, neglect of SME needs in the frameworks, and inability to support such frameworks because of non-identification. The reporting initiatives, which are costly activities, do not consider the specific constraints of SMEs, hence limiting their capability to communicate their sustainability progress to their stakeholders through a standardized approach (Bos-Brouwers 2010; Baumann-Pauly et al. 2013).

However, institutional and research developments acknowledge the importance of SMEs involvement for SDG 8 and are aiming to provide them with the necessary tool to successfully become agents of sustainable economic growth and creators of decent jobs (see, for an illustration, OECD (2000, 2017); Bos-Brouwers (2010); or Baumann-Pauly et al. (2013)). It must be noted that, despite their difficulty to access global frameworks of sustainable developments, SMEs are better equipped than larger enterprises for certain challenges: SMEs show higher levels of commitment, more flexible structures and procedures, and higher degrees of external collaboration (Baumann-Pauly et al. 2013). These features increase their ability for the organizational transformation required for becoming actors of sustainability; however, their characteristic constrain them from communication and reporting. Therefore, larger enterprises are better in the external aspects of sustainability management, while SMEs are better at the implementation aspects.

Alternative Enterprise Models

Due to the difficulties that traditional forms of enterprises often encounter when it comes to the integration of sustainable development, different organizational forms are being established in practice. While new strategies and business models are being more accommodative of the active role of enterprises in sustainable development, some enterprises have opted for a different legal form of organization that better reflects their intention to tackle economic and social objectives. In this section, two of these alternative enterprise models are examined: cooperatives and community interest companies (CIC).

Cooperatives

Cooperatives are “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise […] based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity” (ICA 2018). Although they often present hierarchical structures to facilitate the day-to-day management of the company, major decisions are usually taken in assembly by the members that compose the cooperative, which can range from members of a certain community (for instance, the community of a small village that wants to keep a school service in the village) to users of the service provided by the cooperative (as, for instance, parent-cooperatives for schools) or, as it is most common, workers of the enterprise (following the example, a teacher-cooperative owned school).

As illustrated by their definition, cooperatives ingrain certain values beyond their different ownership structure, and to that extent they are different to other figures of workers’ representation in the enterprise such as trade unions or other figures at the national level such as the workforce-owned limited liability company in Spain (“Sociedad de Responsabilidad Limitada Laboral”) or the codetermination committees in Germany (“Mitbestimmung”). They have embedded social interests, normally related to the development of local communities and the creation of maintenance of decent jobs. Hence, there is a particular interest of cooperatives for SDG 8, since its focus on creating equal opportunities and access to quality jobs make them a fit for purpose tool when it comes to promoting well-distributed, decent growth.

Cooperatives are often created by small groups that need to strengthen their position over a larger actor in the supply chain, for instance, smallholder cooperatives, which especially in developing countries present a united front toward the distributor (see Bijman et al. 2012). Often, they are also created with the aim of promoting local development through improved innovation of marketing methods that are not available for smallholders, aiming to make local development possible beyond the local production methods. However, although cooperatives often have a local flair, they can grow to become large, multinational enterprises: as an illustration, the Mondragon corporation, one of the largest cooperatives groups, operates in almost 100 countries and has over 80,000 employees as of 2018 – almost half of them concentrated in the region where it’s headquartered, the Basque Country in Spain, where it is the largest business group (Mondragon Corporation, 2018).

Community Interest Companies

CICs are enterprises that explicitly state both their economic and social functions in their statutes and that are thereby legally obliged (beyond moral responsibilities) to perform activities and to achieve such social goals. This type of companies has different names and legal obligations in different countries (e.g., CICs in the United Kingdom or B-corps – short for benefit corporations – in the United States), but in general, they are regarded and studied hybrid organizations, due to their double mandate. Additional requirements for these hybrid corporations range from measuring performance against social, environmental, and economic indicators to capping the allowed dividends so that profits are reinvested in the community. In any case, hybridity comes with a number of tensions and trade-offs, to name a few, less interest of traditional investor because of reduced dividends and higher salaries (as compared with nonsocial enterprises) or disagreements between the interest groups represented in the CIC (see Doherty et al. 2014 for a comprehensive review).

While there are increasing applications of enterprises to legally constitute in these hybrid legal forms, there is ongoing controversy regarding how the benefit of these organizations is measured and monitored. For instance, it is argued that enterprises may still adhere to such principles without obtaining an additional certification or label and noticing that achieving different sustainability results trying to follow business logics and the self-serving interest of the corporation will yield none to little results – as acknowledged by Gilbert (2018), one of the founders of the B-Corp movement. However, it is apparent that more and more enterprises are becoming interested in these organizational forms, and research on the area is increasing, and due to the novelty of their development, their impact on sustainable development is yet to be determined.

Future Directions

The current trends in the field on enterprises in relation to the SDGs suggest that the primary concern is to further integrate these targets into the core activities of firms, and how this integration changes the structure of the firm. Hart (2012) refers to the third-generation corporation, an enterprise that, unlike the industrial corporation, is disruptive, distributed, embedded in its community and building on local knowledge, intrinsic (motivated by meaning and purpose), and stakeholder inclusive. This understanding shows a new understanding of enterprises well beyond responsiveness to society, but rather as an organization that has an economic, environmental, and social purpose, breaking away from the traditional defining factor of enterprises as organizations: their commercial purpose.

In this regard, it is notable that several avenues of research are opening on this basis of this new understanding of what an enterprise is. The research on social enterprises – enterprises that see their commercial purpose as a means to achieve their social purpose – is flourishing (see the entries on “Social Business” or “Social Entrepreneurship” in this title). Hybrid organizations, those who have this double or triple sustainability purpose as main goals, are emerging strongly, with the development of a specific legal for in the United States – the B-corps – to allow for the inclusion of goals other than the commercial already in the statutes of the enterprise. Therefore, the future of enterprises may provide with new defining characteristics that make them better suited for their role as agents of sustainable development.

Cross-References

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Business Management and Organisation, Social Sciences GroupWageningen University and ResearchWageningenThe Netherlands

Section editors and affiliations

  • Edurne A. Inigo
    • 1
  1. 1.Business Management and Organisation, Social Sciences GroupWageningen University and ResearchWageningenThe Netherlands