You are the sustainability manager in a small Norwegian food retail chain. One day you get a call from a journalist in a business newspaper, asking you about your policy on tobacco sales and whether you have considered stop selling tobacco products in your stores. The background is the retail chain Lidl, who has announced that they will phase out tobacco sales in Denmark. You answer that you are very concerned with following all laws and regulations regarding tobacco sales, but that you currently have no such plans.
After ending the call, you reflect on the sustainability of tobacco. You are aware that tobacco is one of the most dangerous products in your stores. Every year around 5000 people die of smoking in Norway. Smoking also leads to several types of illnesses and poor health. The number of smokers has gone down considerably. In 2000, around 32% of Norwegian adults smoked daily, today it is only around 7-8%. However, the use of snus has increased considerably and around 14% of Norwegians use snus daily. Fortunately, snus is much less dangerous than smoking (although far from healthy).
Discussion questions
What are the likely consequences of stopping tobacco sales? Should the chain stop selling tobacco? What other options do they have to limit (but not stop completely) tobacco sales?
You are the sustainability manager in a small grocery retail chain, with around 3% of the total grocery market in Norway. NRK, the national broadcasting corporation, has contacted you and asked about your policy on tobacco sales. The background is that Lidl has announced that they will stop selling tobacco in their Danish stores by 2028, out of concern for publich health. You answer to NRK that you are very concerned with your customers’ health, but that you are not currently considering such a move. You decide to discuss the issue in the next group management meeting, and start to make an analysis of the pros and cons.
You know that tobacco, in particular cigarettes, is one of the most dangerous products in your stores. Every year more than 5000 people die of smoking in Norway, and smoking leads to a wide range of diseases and health problems. The percentage of people smoking has gone down considerably, around 7% of Norwegians smoke daily. Using snus has become much more popular, around 16% of the population use snus daily, but fortunately snus is much less dangerous (but not healthy).
Discussion questions
What are the arguments for and against stopping selling tobacco for the retail chain?
What other options do the chain have, if they want to limit (but not stop completely) the sales of tobacco products?
Oda is a Norwegian-Swedish online-only food retailer. Since its founding in 2013 the company has gone through ups and downs, with great expansion in the Covid years, to a tougher financial situation a merger with a Swedish sister company, and layoffs now in 2024. This case tells the story of Oda’s first sustainability director and her situation in 2019/2020.
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Louise Fuchs was hired in 2018 as the first Sustainability director and started her job by doing a situation analysis of the company’s social and environmental impact. Regarding CO2 emissions, the main direct impact of Oda was in the last mile delivery to customers, including the direct fuel used by the vans and the plastic bags used to package and deliver the customers’ orders. These activities accounted for around 78% of direct CO2 emissions in 2020.
Oda eventually concluded that cardboard boxes would be the best option, combining environmental sustainability with efficiency and hygiene. The cardboard boxes could easily be folded together and put in household paper recycling bins. Each cardboard box would replace up to three plastic bags, and life cycle analysis showed that the boxes had a lower CO2 impact.
Replacing the fossil fuelled trucks was more complicated. The main challenge was the battery capacity and realistic driving range. Oda needed vans with cooling to keep the products fresh. Combined with long delivery routes and sometimes very cold outside temperatures, which reduce the battery capacity, electric vans would make operations much less efficient. The technology was improving constantly, and in the end, Oda’s management made a bet and promised publicly that all vans would be electric from 2025.
Mapping the impact of their supply chain
Oda had analysed their emissions following the GHG protocol[1]. Scope 1 emissions (direct emissions from the company, in Oda’s case mainly fuel for vehicles) accounted for 4% in 2020, and scope 2 emissions (emissions from purchased energy, mainly electricity and heating for warehouse and offices), 3%. The rest were scope 3 emissions (emissions in the supply chain, from transportation, travel, waste, boxes and bags)[2]. However, this analysis did not include a complete analysis of the products purchased and sold by Oda. Within food retail, this is the lion’s share of the impact, and Oda expected that at least 95% of their emissions come from products sold.[3]
Oda collaborated with a climate research institute and used existing, category-average data to calculate the CO2 emissions of the products they sold. The general picture for Oda’s products was very similar to the general findings about the CO2 impact of food (see Exhibit 1). Meat products, in particular beef and lamb, and dairy products had high emissions. Vegetables had much smaller impacts[4].
The largest impact came from the actual production of the food, including land use change (e.g., forests cut down to make space for agricultural production), farm production (e.g., methane emissions from the animals, use of fuel for energy and vehicles) and animal feed. Processing, transportation, retail handling and packaging had a smaller impact.
The challenge of reducing emissions from the products sold
Oda had ambitious sustainability goals, by 2025, Oda was aiming to reduce their own emissions intensity by 50%. They also aimed to reduce the emissions intensity of the products sold by 50% in the same period. By using emissions intensity (tonnes of CO2 or equivalent, divided by the operating income) instead of absolute emissions, Oda accounted for the strong growth that was planned.
Louise Fuchs realised that it would be a big challenge to reduce the emissions intensity of the products sold. She had to find effective solutions that would not reduce customers’ spending, nor their satisfaction with the store.
Discussion questions
How can Oda reduce their scope 1, 2 and 3 emissions?
How do you think Oda will be affected by climate change?
Silje Johannessen, sustainability manager at Orkla Confectionary & Snacks, was lucky to find a seat on the tram towards the Orkla headquarters in Oslo. She had a busy week ahead of her and took up her mobile to check her calendar and email. On top of the inbox was a reminder to provide the central sustainability team with input to the stakeholder analysis in the sustainability report.
After a recent reorganization, Orkla Confectionary & Snacks is one of 12 companies making up the large Norwegian conglomerate Orkla group. Orkla has a strong position in several categories of consumer goods in the Nordics and Baltics as well as some other countries, selling pizza, snacks, biscuits, soaps, cleaning products, and other things.
Orkla Confectionary & Snacks has 13 factories in the Nordic countries, Iceland and the Baltics, producing and selling chocolate and confectionary, biscuits and snacks such as potato chips and peanuts. Important brand names are Kalev, Smash!, Kims, OLW and Göteborg Kex, among others. The company has more than 3000 employees and around 700 million Euros per year in sales, with around 100 million Euros in profits. The most important customers of Orkla are the supermarket chains in the markets.
Orkla headquarters has a sustainability team in charge of coordinating sustainability work and reporting on sustainability for the whole group. Each of the 12 companies is responsible for their own sustainability processes and performance, including stakeholder mapping and stakeholder dialogue.
Orkla Confectionary and snacks have important impacts on their stakeholders. Their products are delicious, but unhealthy. They are a big buyer of chocolate, and indirectly cocoa, which is grown by smallholder farmers mainly in the Ivory Coast. Orkla does not buy directly from the smallholders, but through suppliers in Europe. They are an important local employer but has closed factories and concentrated their production in fewer and larger sites.
Johannessen made a mental note to herself to discuss whether they should argue for the inclusion of cocoa growers in the stakeholder analysis and dialogue. She knew that several of the Orkla companies had issues in the supply chains, where working conditions and pay sometimes was poor. But was it realistic to establish a real dialogue with cocoa farmers?
Exercises
Make a list of Orkla Confectionary & Snacks’ stakeholders. Should cocoa growers get status as a stakeholder?
Discuss how the company can implement the stakeholder dialogue with the different primary stakeholders
Evaluate the company’s positive and negative impact on the primary stakeholders. Is there any stakeholder that should get “better treatment”?
When we discuss business and sustainability, we often think about large companies with lots of shareholders and perhaps even listed on stock exchanges. These companies are often “designed” for profit, the shareholders expect a return on their investments, the management gets rewarded based on financial results, and so on. However, this is far from the only way that business can – and does – operate. Lots of different types of firms exists and thrive, with different consequences for sustainability.
Smaller, privately owned companies
Most companies (as measured in the number of companies) are small companies and privately owned. This means that they have one or a few employees, and one or a few owners. Many of them are family businesses, meaning that a family controls and often manages the business.
Are these companies different when it comes to sustainability? It is not clear. Each company might have a smaller individual impact (both positive and negative), but it is not obvious that the sum of lots of small companies producing something is different from one large company producing the same amount of output. The large company may have some advantages, such as resources and competences in sustainability, but also some disadvantages, the small company may have a “feeling” of its impacts on stakeholders that large bureaucracies may lack.
An advantage of privately owned companies (meaning – not listed on a stock exchange) is that they can prioritize as much sustainability as they want and do not have to take short-term perspectives to satisfy shareholder interest or to increase the stock price. On the other hand, competition is often tough and they also have to make sure that the products and services provided are not too expensive.
Cooperatives
A cooperative is an organization that is owned and controlled by its members, to provide products/services/benefits to its members. Cooperatives are democratic (typically one member = one vote), benefits are shared with the members based on their contribution or use of the services. In Norway, some well-known cooperatives are Coop (food retailing++, owned by the customers), Tine (dairy products, owned by the farmers that supply the milk), Nortura (meat and eggs, owned by the farmers that supply the company), Landkreditt Bank, and Bilkollektivet (Car sharing/rental in Oslo).
Since cooperatives exist not to maximize profits but to serve its members, they may have some advantages when it comes to sustainability, compared to for-profits. On the other hand, the interests of the members may not be aligned with sustainability in general either. Cooperatives also typically must compete with for-profits, meaning that they must take the needs and interests of the market into account, and cannot always prioritize sustainability.
Social entrepreneurs/enterprises
Social entrepreneurs try to combine social value and positive societal impact with profitability (Saebi et al 2019). Social enterprises are often started with the ambition of both solving social problems and achieving a sound financial situation. This is different from for-profit companies, which are started with profitability as a primary goal and do not have solving social problems as a primary goal. Social entrepreneurs often explore new business models and try to find new ways of raising income. A challenge is to balance the two purposes and not let one take over for the other, then the positive social impact will disappear, or the financial situation become unsustainable (Saebi et al 2019).
Unicus: Consultants with autism Unicus is a Norwegian IT consulting firm established in 2009. The company specializes in employing individuals on the autism spectrum, leveraging their unique skills to deliver high-quality IT services. Unicus focuses on areas such as data engineering, data science, software development, and quality assurance.
In 2023, Unicus merged with Auticon, a global IT consultancy with a similar mission of employing people with autisms. This merger created the world’s largest company where most employees are on the autism spectrum, operating in 15 countries with over 600 employees. The company aims to improve their social impact and provide a wider range of IT services to clients worldwide after the merger. Sources: Wikipedia, Auticon, Ferd
Degrowth (or green growth?)
Degrowth challenges the mainstream paradigm of eternal economic growth and suggests a deliberate (i.e. politically decided) downscaling of production and consumption to improve the environmental and social situation. Degrowth theorists argue that infinite growth is incompatible with the finite resources of the Earth and that degrowth/negative economic growth is the only known way of reducing environmental problems and degradation. Important ideas in degrowth include prioritizing environmental regeneration, reducing wasteful consumption, fostering localized economies, and focusing on non-material measures of progress. The degrowth movement is also concerned with social equality and justice and wants degrowth to contribute to a better distribution of wealth and resources (Edwards 2021).
For business, degrowth will pose several challenges. For-profit companies typically want to grow (since this increases profits), and in a situation with politically determined de-growth they will have to adjust in many ways. In degrowth, one can imagine that businesses will thrive by redefining success beyond profit maximization. Firms will have to provide value through taking care of the environment and meeting real needs. Firms will have to adopt circular economy principles, such as designing for durability, repairability, and resource efficiency to minimize waste and extend product lifecycles. Businesses also will have to shift from products to services, and towards local solutions and less dependence on global supply chains. Sharing economy initiatives may also be important under degrowth.
Increased salaries or reduced working hours? For the individual worker (and society in total!), economic growth can be used to increase salaries in real terms or to reduce working hours. In 1930, Keynes famously predicted that the working week in 2030 would be around 15 hours due to economic growth (Crafts 2022).
As can be seen from the figure, working hours were reduced considerably in the 19th and 20th century. However, the last decades the reduction seems to largely have stopped/the number of working hours to have plateaued, although the exact situation varies from country to country. In Norway, the summer holidays were increased from 4 to 5 weeks in most sectors around 2000. Others have noted that the total amount of working hours in the lifetime has gone down due to increased life expectancy (Crafts, 2022). Still, it is clear that Keynes’ prediction has not become reality, yet. The number of working hours is decided by a range of different factors, such as individual preferences for income, the joy of working, status considerations, and structural forces such as political decisions, public regulations and employer demands (Golden 2009).
In Norway, some political parties have suggested a 6-hour working day (instead of the 7,5 which is standard now). Some companies or factories have also experimented with a shorter working day. Examples are Tine’s Heimdal factory (which went back to 7,5 hours) and some kindergartens. These experiments test whether the productivity can be the same but with shorter working hours.
Green growth
Green growth is an alternative to both the current situation and to degrowth, and believes that economic activity can continue to grow while reducing greenhouse gas emissions, pollution and resource use. The “decoupling” of growth and environmental problems can happen through technological innovation and government regulation. Green growth is a current popular approach among governments, businesses and other policymakers (Capasso et al 2019).
What role for the business school?
Business schools educated a considerable amount of students that go into businesses. How should business schools change (or, should they at all change?) to take the sustainability crisis and challenges into account? Unsurprisingly, this is and has been debated for some time in business schools and academic communities (e.g. Painter-Morland et al. 2016, Akrivou et al 2015). The debate is both about what should be in the curriculum so that students have the necessary knowledge to work in a business world where sustainability is more important, and whether business schools contribute to the problem by emphasising economic growth and profits over sustainability. There is some evidence that business schools shape student attitudes and business behavior (Lämsä et al 2008, Jung and Shin 2018).
A logical step is to include learning about sustainability in the curriculum. This can be done in different ways, with specific courses on sustainability or throughout the whole curriculum (integrated in every course), or both. For business schools, this can be difficult enough, since it means reducing other parts of the curriculum and building up new competences. Sustainability is important in existing areas in business schools, such as accounting, but business schools may also have to bring in new courses and faculty from the natural sciences (Painter-Morland et al 2016).
Others say that the problem in business schools is not as much what is not taught about sustainability, but what is taught about other subjects. If business schools in the majority of courses teach that the purpose of the corporation is purely profit-maximization, it does not help to include small amounts of sustainability knowledge (this then becomes a type of greenwashing). Following this logic, the business school becomes one of the problems regarding sustainability, because the business school educates new generations of businesspeople armed with the tools to build down or destroy nature (as a side-effect, not as a purpose). This point of view argues for a more radical reorganization of business schools, with much more emphasis on how business should contribute to a better world through integrating knowledge from other fields and by new methods of teaching and learning (Acrivou et al 2015).
References
Akrivou, K., & Bradbury-Huang, H. (2015). Educating Integrated Catalysts: Transforming Business Schools Toward Ethics and Sustainability. Academy of Management Learning & Education, 14(2), 222–240. https://doi.org/10.5465/amle.2012.0343
Capasso, M., Hansen, T., Heiberg, J., Klitkou, A., & Steen, M. (2019). Green growth–A synthesis of scientific findings. Technological Forecasting and Social Change, 146, 390–402.
Edwards, M. G. (2021). The growth paradox, sustainable development, and business strategy. Business Strategy and the Environment, 30(7), 3079–3094. https://doi.org/10.1002/bse.2790.
Golden, L. (2009). A brief history of long work time and the contemporary sources of overwork. Journal of Business Ethics, 84, 217–227.
Jung, J., & Shin, T. (2018). Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions. Administrative Science Quarterly, 000183921876852. https://doi.org/10.1177/0001839218768520
Lämsä, A.-M., Vehkaperä, M., Puttonen, T., & Pesonen, H.-L. (2008). Effect of business education on women and men students’ attitudes on corporate responsibility in society. Journal of Business Ethics, 82, 45–58.
Painter-Morland, M., Sabet, E., Molthan-Hill, P., Goworek, H., & de Leeuw, S. (2016). Beyond the curriculum: Integrating sustainability into business schools. Journal of Business Ethics, 139, 737–754.
Saebi, T., Foss, N. J., & Linder, S. (2019). Social Entrepreneurship Research: Past Achievements and Future Promises. Journal of Management, 45(1), 70–95. https://doi.org/10.1177/0149206318793196
Marketing is defined as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (American Marketing Association 2024). Sustainable marketing is marketing that intends to satisfy the needs of current generations, without destroying the opportunities of future generations to satisfy their needs. Belz & Peattie (2012, p. 29) defines sustainability marketing as “planning, organizing, implementing and controlling marketing resources and programmes to satisfy consumers’ wants and needs, while considering social and environmental criteria and meeting corporate objectives”.
Sustainability marketing: The sustainable 4 Ps
Sustainable products and services
In a sustainable marketing perspective the idea is to create products and services that satisfies consumer needs’ as well as possible, while reducing or eradicating (or even reversing) negative effects on other consumers, other stakeholders and the environment. At the same time, the company financial objectives must be considered.
Many products and services fail to truly satisfy consumer needs (or satisfy one need, while destroying the ability to satisfy future needs). An example is unhealthy foods, which satisfies the need for energy and not feeling hungry but have negative long-term health effects. Many products and services satisfy the need of the customers but come at the expense of other groups or the environment. Alcohol has positive and negative effects for the individual, but have many negative externalities (violence, drunk driving etc). Some needs are also almost completely unsatisfied, providing banking or telecommunications services to people in poor countries who were previously unserved has a large positive impact on quality of life (Aker & Mbiti 2010).
Reducing the negative impact of a product or service involves both maximizing the needs satisfaction while minimizing the negative impact on the environment and on other groups or stakeholders.
Environment: To minimize negative impact products must be designed to use as little resources as possible through the whole life cycle of the product or service. The resources used should be sustainable. The choice of material is often more important than how the material is produced (although both matters). Example: The choice of type of building material (wood vs concrete) has a bigger effect than the
One approach is to change products to services, or to create sharing systems. While the distinction between products and services is not totally clear (and most market offerings have a bit of both), products are more physical and typically use more resources. To create sharing systems is also an option, where resources are shared in different ways (sharing cars, flats, clothes etc).
Other stakeholders: The impact on other stakeholders must also be assessed. Products and services have effects also on others than the buyers or users. A simple example is tobacco smoking, with negative effects of passive smoking.
Sustainable marketing must take the whole life cycle into account, meaning both the production, use and disposal of the products. Product durability is an important concept, how long does a product last (and is used?). Planned obsolescence is when companies plan for a limited durability of products, to encourage more frequent buying (Maitre-Ekern & Dalhammar 2016). The disposal phase is important, how easy is it to reuse for other purposes/sell/give away (best) or recycle (worse) the product.
Marketing communications
Marketing communications is advertising, social media and influencers, PR and media publicity, direct sales and communication to the customer, sponsorship, and other types of paid and unpaid communications. The purpose of marketing communications is typically to sell the product or service, or to build a brand or brand associations. Consequences for sustainability depends to a large degree on the product/service. If advertising increases purchase and use of environmentally unfriendly products over more friendly ones, the result is negative. If the advertising influences towards more sustainable products and services, the result can be positive.
Advertising has frequently been criticized for creating “artificial needs” and making people more materialistic (prioritizing material objects and income over other things). Advertising is also criticized for creating dissatisfaction with life through social comparison, where people compare themselves to the “idealized” image in advertisements. Empirical studies of the effects of advertising have however failed to find clear negative (or positive) effects of advertising on life satisfaction (Griffith et al. 2022, Michel et al 2019). Some marketing communication is misleading or wrong, influencing consumers to make poor choices
Not all effects are negative, marketing communications also work as a signal of good quality, making it possible for customers to make informed choices. Advertising can make the characteristics and prices of products available for customers, so that they can get their needs satisfied in the best possible way.
Marketing communications can be used to communicate about the environmental or social characteristics of the product or service, making it possible for consumers to take sustainable choices. Some brands position themselves around sustainability (think Patagonia). Certifications and labels are frequently used to communicate sustainability, since sustainability is complex and often difficult to convey to the customer. In Norway, the Nordic Swan Ecolabel (Svanemerket) is a general ecolabel for sustainable products. Other common labels are Fair Trade, Organic, MSC, the Keyhole, and many more.
In sustainable marketing communications, the content, channel and target groups must be considered. Is the contents correct and fair? (Is the use of manipulated images of models in advertising acceptable? Probably not). Is the place/distribution of the advertising fair? (Should McDonalds have a large board outside the local school?). Should we target vulnerable groups/groups with less resources (Advertising towards children? typically not).
Sustainable pricing
What is a sustainable price? It is difficult to say, but it probably does not mean maximizing the price/profits at any time. Surely, the company needs to cover its costs and make a reasonable profit/return on investments, but sustainable marketing would also consider the needs and situation of the customer. Maybe some groups for instance should have lower prices than others based on their lower ability to pay. Note that this is already the case for many services (such as public transportation where students and children get lower prices).
In any case, prices should be clear and transparent, and fair across groups. Sustainable pricing would not include hidden fees, bait-and-switch offers, hard to understand price plans, and so on.
An important point is also that in sustainable marketing, the price of the product also includes the true costs to society. Today, many products and services have too low prices since they do not include the costs for the environment or other stakeholders (e.g. carbon emissions, poor treatment of employees). Fast fashion is often argued to be too cheap because it does not do this.
Distribution
Distribution is about where and when to offer the product or service. A sustainable distribution policy would consider the needs of customers across time and space. Remote areas and towns with small population numbers are perhaps not very profitable, but inhabitants need products and services to live good lives. In some areas, too intense distribution is a problem (think gambling stores in deprived areas)
Retailers have a large opportunity (or responsibility) to decide what is sold and bought. Food retailers can influence the health of customers by influencing them to take better choices in the store by for instance changing the store layout, or selecting to stock more healthy and fewer unhealthy products. Retailers can also demand high levels of sustainability from their suppliers, or prioritize small and local producers.
Marketing and greenwashing
Greenwashing is when companies promote themselves or their products as more environmentally friendly or sustainable than in reality (Delmas & Burbano, 2011). Companies use greenwashing since stakeholders appreciate sustainable products and companies but being truly sustainable often require substantial investments, and it is cheaper to “pretend” to be sustainable. It is often difficult for consumers to truly assess how sustainable something is, and for regulators to decide and enforce good rules for how companies communicate sustainability. Greenwashing companies exploit this “room”. Greenwashing can also be a result of lack of knowledge or over-optimism about the company’s ability to reach its goals (Montgomery et al 2024).
Greenwashing takes many forms. It can be blatant lies, but it is more often a type of selective disclosure where the company talks communicate about something positive while leaving out/not mentioning the (sometimes much more important) negative impacts on the environment. Being vague or unclear is also typical, claiming that something is “green” or “sustainable” without offering any evidence or facts (de Freitas Netto et al. 2020).
For society, greenwashing is problematic because it makes it more difficult or impossible to distinguish the “good” from the “bad” performers on sustainability. This makes it difficult to reward the good performers and achieving a more sustainable economy. In theory, greenwashing can also stop more efficient regulations or other measures, since society believes that a company or sector is already working hard on sustainability.
For individual companies greenwashing can be risky on different levels. If consumers realise that the company is greenwashing, they can react and be dissatisfied (Ioannou et al 2022). Regulators are also becoming more active and punishing companies that engage in greenwashing.
“Dieselgate” The Volkswagen emissions scandal, also known as “Dieselgate,” erupted in 2015 when it was discovered that Volkswagen had installed software in its diesel vehicles to cheat on emissions tests. The software could detect when the car was undergoing emissions testing and activate full emissions controls, making the vehicles appear more environmentally friendly than they in reality. In normal driving conditions, the software deactivated these controls, allowing the cars to emit up to 40 times more nitrogen oxides (NOx) than the legal limit. The scandal affected 11 million vehicles worldwide, including nearly 500,000 in the U.S. Volkswagen admitted to the deception, suffered from negative legal, financial, and reputational consequences, with the company paying over $30 billion in fines and settlements.
Using marketing to influence sustainable consumer behaviour
Marketing tools can also be used to influence consumer behaviour to be more sustainable.
Nudging
Green nudging is to “subtly” influence people to adopt environmentally friendly behaviours without restricting their freedom of choice or significantly altering economic incentives. Nudge theory is based on insights from behavioural economics. Some typical examples of (green) nudges are (Schubert 2017):
Green Nudges Appealing to Self-Image: Nudging by encouraging consumers to align their actions with a positive self-image as good, responsible, individuals. Examples are eco-labels making environmentally friendly product characteristics more visible, making it easy to express self-image
Green Nudges Leveraging Social Norms: Humans like to conform to social expectations and follow the actions of others. An example is peer comparisons in energy use. Some energy providers send their customers a report showing how much energy they use compared to others, influencing them to reduce usage if they are above the average (Allcott, 2011). A famous example is Goldstein et al. (2008), where hotel guests are informed that most other guests reuse their towels. This increased towel reuse rates compared to just informing guests about environmental benefits.
Green Nudges Using Defaults: people tend to stick with the default option rather than actively making a different choice. An example is energy providers that default customers into green energy plans, leading to very high levels of participation in renewable energy plans (Pichert & Katsikopoulos 2008).
The SHIFT framework
White et al (2019) introduces the SHIFT framework as a tool to increase sustainable consumption. The SHIFT framework aims to address common barriers to sustainable consumption and consists of the following factors:
Social influence
Other people’s attitudes, behavior, and expectations matter a lot. Social norms, social identity, social status are important. Example: Communicating that most people recycle, or conserve energy encourages others to conform to that behaviour.
Habit formation
Much of the behavior is habit-based. Habits must be changed in a sustainable direction. Example: Setting energy-efficient devices as default options and making recycling easier by providing accessible bins.
Individual self
Our identity and desire for consistency are important. Our self-interest creates environmental problems but can also be used to change behavior. People are different. Eco-friendly branding that allows consumers to see themselves as responsible “green” consumers.
Feelings and cognition
Decisions are often guided mostly by emotions and intuition, or cognitive assessments. This must be considered if we are to achieve sustainable consumption. We must use both positive and negative emotions, and information and knowledge, but for different purposes and times. Example: Campaigns that generate feelings of pride in reducing one’s carbon footprint or guilt for wasting resources.
Tangibility
Sustainability is often not very concrete, while decisions are often made “here and now” Sustainable benefits and solutions can be made more concrete/tangible. Example: Showing how reducing water usage benefits the local community’s water supply.
Reflection questions
Cars have on average become heavier and bigger the last years. Why do you think this has happened, and what are the consequences for environmental sustainability?
In Norway digitally edited photos of models used in advertising must be clearly labelled. What do you think are the consequences of this policy?
How can a clothes retailer do sustainable marketing?
References
Aker, J. C., & Mbiti, I. M. (2010). Mobile Phones and Economic Development in Africa. Journal of Economic Perspectives, 24(3), 207–232. https://doi.org/10.1257/jep.24.3.207
Allcott, Hunt. “Social norms and energy conservation.” Journal of public Economics 95, no. 9-10 (2011): 1082-1095.
De Freitas Netto, S. V., Sobral, M. F. F., Ribeiro, A. R. B., & Soares, G. R. D. L. (2020). Concepts and forms of greenwashing: A systematic review. Environmental Sciences Europe, 32(1), 19. https://doi.org/10.1186/s12302-020-0300-3.
Goldstein, N. J., Cialdini, R. B., & Griskevicius, V. (2008). A room with a viewpoint: Using social norms to motivate environmental conservation in hotels. Journal of Consumer Research, 35(3), 472–482.
Griffith, D. A., Lee, H. S., & Yalcinkaya, G. (2022). Understanding the relationship between advertising spending and happiness at the country level. Journal of International Business Studies, 1–23.
Ioannou, I., Kassinis, G., & Papagiannakis, G. (2023). The Impact of Perceived Greenwashing on Customer Satisfaction and the Contingent Role of Capability Reputation. Journal of Business Ethics, 185(2), 333–347. https://doi.org/10.1007/s10551-022-05151-9.
Michel, C., Sovinsky, M., Proto, E., & Oswald, A. J. (2019). Advertising as a Major Source of Human Dissatisfaction: Cross-National Evidence on One Million Europeans. In The Economics of Happiness (pp. 217–239). Springer.
Montgomery, A. W., Lyon, T. P., & Barg, J. (2024). No End in Sight? A Greenwash Review and Research Agenda. Organization & Environment, 37(2), 221–256. https://doi.org/10.1177/10860266231168905.
Pichert, D., & Katsikopoulos, K. V. (2008). Green defaults: Information presentation and pro-environmental behaviour. Journal of Environmental Psychology, 28(1), 63–73.
White, K., Habib, R., & Hardisty, D. J. (2019). How to SHIFT Consumer Behaviors to be More Sustainable: A Literature Review and Guiding Framework. Journal of Marketing, 83(3), 22–49. https://doi.org/10.1177/0022242919825649
The circular economy is an economic system that tries to optimize resource use by reusing, repairing and recycling products and materials, rather than discarded. This is different from the current mainly linear economy, in which resources are extracted, transformed into products, and then discarded as waste after their use, leading to significant environmental problems (Ellen MacArthur Foundation 2024). The principles of the circular economy:
Minimise waste: Products and services are designed to minimise waste and harmful environmental impacts. This is done by using fewer resources, selecting sustainable materials, and designing products that can be easily disassembled, repaired, and recycled
Keep materials in use: Repair, reuse, remanufacturing, and recycling extend the life of products and materials. Products should be designed making it easy to replace or upgrade parts or components, making it easy to repair instead of disposing of products
Regenerate natural systems: The circular economy returns biological materials to natural systems, such as through composting, and by adopting sustainable agricultural practices that enrich the soil and protect biodiversity.
The circular economy can reduce waste and pollution, including carbon emissions (Ghisellini et al., 2016). The circular economy gives business opportunities in areas such as repair, recycling, remanufacturing, and product-as-services (Bocken et al., 2016), and can reduce reliance on specific resources and countries (where raw materials are extracted) (Stahel, 2016). Companies and consumers can, and do, adopt circular economy principles, but the circular economy is still a small part of the total. Challenges are lacking incentives for businesses and consumers to adapt circularity, currently it is more profitable and easier to follow the linear model. To change this, governments must probably introduce measures such as extended producer responsibility, taxes on resource use and waste, or tax benefits for companies that adopt circular approaches (Ghisellini et al., 2016).
The circular economy at H&M Fast fashion, and H&M, have been criticized by NGOs and consumer organizations for creating (large amounts) of unnecessary waste, in a linear produce – use -throw away logic. Partly as a result, H&M is implementing a range of circular activities. This includes planning supply and demand better, implementing circular design (e.g. better quality/clothes that can be used more), sourcing only sustainable or recycled sources, working with innovative production processes to reduce resource use, implementing initiatives to prolong the life of products (including systems for buying and selling second-hand items), and different collaborations with other companies and startups in the circular ecosystem. (Source: H&M Sustainability disclosure 2023)
The circular programme at H&M has some successes, for instance, 85% of materials used in clothes are now either sustainably sourced or recycled, and H&M have engaged successfully in online and offline platforms and markets for second hand clothes. On the other hand, only 25% of materials is recycled (11% of cotton), and the goal for 2030 is only 30%, meaning that H&M still will introduce large amounts of new materials into the economy. H&M is also relatively silent about the disposal of clothes. They collect used clothes in the stores for resale or recycling, but this is only a very small percentage of the clothes that they bring into the market. At the minimum, they should measure and be open about the life duration of clothes and the amount that are burned or going to landfill.
Industrial Ecology
Industrial Ecology seeks to model industrial systems after natural ecosystems, aiming to reduce environmental impacts. Just as in natural ecosystems where waste from one organism becomes a resource for another, industrial ecology advocates for industrial systems to function in a closed-loop manner, where the waste generated by one process is used as input for another. This relates closely to the circular economy, emphasizing that resources should remain in use for as long as possible, minimizing waste and resource extraction (Ehrenfeld & Gertler, 1997). Important concepts in industrial ecology are:
Life Cycle Assessments (LCA) evaluate the environmental impacts of a product or system across its entire life cycle—from raw material extraction to disposal. By analysing the entire life cycle, LCA helps identify the stages where environmental impacts are highest and can be improved (Guinée et al., 2011).
Material and energy flow analysis tracks the movement of materials and energy through industrial systems. This helps identify opportunities for reducing waste or reusing resources (Brunner & Rechberger, 2004)
Industrial symbiosis is the collaboration between firms or industries to use each other’s waste products or by-products as raw materials, creating a network of resource exchanges. The Kalundborg Symbiosis in Denmark is a famous example, where multiple industries share resources such as water, energy, and materials, reducing waste and lowering production costs (Neves et al 2020).
Design for environment focuses on integrating environmental considerations into product design. This includes designing products that last and that are easier to disassemble, repair, or recycle, improving resource efficiency and reducing waste.
The industrial district of Kalundborg, Denmark
Kalundborg, Denmark, is often used as an example of industrial symbiosis and a pioneering project in industrial ecology. The Kalundborg Eco-industrial park began organically in the 1970s and grew into a network of firms and exchanges that reduced waste and environmental impact (Ehrenfeld & Gertler 1997).
Asnæs Power Station, a coal-fired power plant, supplied surplus steam to the nearby Novo Nordisk pharmaceutical plant and the Kalundborg Municipality for district heating. The power plant also provides fly ash, a by-product of coal burning, to the Gyproc plasterboard company, to be used in plasterboard production. The Statoil Refinery supplied surplus gas, which would otherwise be flared off as waste, to the power station as fuel. The power station used treated wastewater from Novo Nordisk and the oil refinery in its cooling processes.
Bocken, N. M. P., de Pauw, I., Bakker, C., & van der Grinten, B. (2016). Product design and business model strategies for a circular economy. Journal of Industrial and Production Engineering, 33(5), 308-320.
Ehrenfeld, J., & Gertler, N. (1997). Industrial ecology in practice: The evolution of interdependence at Kalundborg. Journal of Industrial Ecology, 1(1), 67-79. https://doi.org/10.1162/jiec.1997.1.1.67.
Ghisellini, P., Cialani, C., & Ulgiati, S. (2016). A review on circular economy: The expected transition to a balanced interplay of environmental and economic systems. Journal of Cleaner Production, 114, 11-32. https://doi.org/10.1016/j.jclepro.2015.09.007.
Guinée, J. B., Heijungs, R., Huppes, G., Zamagni, A., Masoni, P., Buonamici, R., Ekvall, T., & Rydberg, T. (2011). “Life cycle assessment: Past, present, and future.” Environmental Science & Technology, 45(1), 90-96. https://doi.org/10.1021/es101316v.
Stahel, W. R. (2016). The circular economy. Nature, 531(7595), 435-438. https://doi.org/10.1038/531435a
Sustainable finance integrates environmental, social, and governance (ESG) criteria into financial decision-making. By investing in companies with high ESG performance, investors aim to (possibly) increase returns on investments and contribute to increased corporate sustainability. Integrating ESG criteria in investments typically means taking a company’s environmental (climate, environment and resource use) and social impact (stakeholder treatment, human rights, labour practices, etc) into account in investments. Governance deals with how the company is controlled and managed, such as board composition, compensation, shareholder rights, and transparency.
Screening of investments
A central idea in sustainable finance is to invest in the most sustainable companies, avoiding the least sustainable companies, or both (Kempf & Osthoff 2007).
Negative screening involves excluding companies, industries, or sectors that are considered harmful to society or the environment from investment portfolios. Typical examples of negative screening are excluding companies in coal, oil and gas sectors, tobacco or alcohol, weapons or gambling, or companies that have been caught to systematically break human rights or labour rights.
Positive screening involves selecting companies or sectors that contribute positively to sustainability. Typical examples include investing in renewable energy, innovative and green technology, the circular economy, companies that contribute to solving important social issues, or companies that are particularly good in diversity, human rights or other important issues.
An example: DNB Klima Index DNB is the largest Norwegian bank. DNB offers a range of mutual funds. One of the funds offered by DNB is DNB Klima Index. This is an index fund, a fund that seeks to replicate the performance of a specific financial market index instead of being actively managed by fund managers who pick individual shares.
DNB Klima invests in listed companies that contribute to reducing energy-related climate emissions. The fund’s investments follow an international stock index for low-emission companies aligned with the goals of the Paris Agreement, i.e., a stock index classified as an “EU Paris-aligned Benchmark.”
DNB Klima Index has had annual returns of -13,1% in 2022, +30,5% in 2023 and +23,5% in 2024 (average: +16,6%). DNB Global Index, another index fund offered by DNB without the special focus on climate, has had annual returns of -9,1% in 2022, +27,8% in 2023, and +23,4% in 2024 (average: +17,3%). The costs of the two funds are similar (0,2% per year).
In 2023, the largest holdings of DNB Klima Index were Apple, Microsoft, Nvidia, Amazon, Meta and Alphabet.
Active ownership
Active ownership is investors using their ownership rights and position to influence corporate behaviour on sustainability (ESG) issues. In active ownership, investors engage directly with companies to improve their sustainability performance (Dimson et al. 2015).
Shareholder engagement involves direct communication between investors and company management or boards to discuss concerns and encourage improvements in ESG practices. This dialogue may focus on issues such as climate change, labour rights, executive compensation, or diversity on the board. Investors might ask companies to adopt more sustainable business practices, improve disclosure on ESG-related risks, or set specific targets, such as reducing greenhouse gas emissions.
Voting in shareholder meetings When investors own shares in a company, they are entitled to vote on important issues at shareholder meetings. These votes can relate to executive compensation, director elections, mergers, acquisitions, or ESG proposals. Investors who prioritize sustainability can use their votes support ESG resolutions and influence corporate policies in alignment with their sustainability principles.
Investors can file shareholder resolutions—formal proposals that are submitted to be voted on at a company’s annual general meeting. These resolutions can request specific actions or policy changes on ESG issues. Shareholder resolutions can pressure companies by raising awareness of issues and signalling widespread investor support (even if the resolution in the end is not supported by a majority).
The Norwegian Oil Fund and Sustainable Finance The Norwegian Oil Fund, officially known as the Government Pension Fund Global (GPFG), is the world’s largest sovereign wealth fund, valued at over $1.4 trillion (as of 2023). Managed by Norges Bank Investment Management (NBIM), the fund invests globally in shares, bonds, and real estate.
The fund uses both negative screening and active ownership. The fund excludes companies based on product criteria (e.g., tobacco, weapons) and behaviour-based criteria (e.g., severe environmental damage, human rights abuses, corruption). From 2019 the fund excluded exploration and production companies solely focused on oil and gas. The GPFG publicly discloses the companies it has chosen to exclude from its investments.
The fund also uses active ownership through company engagement and voting in annual meetings. The GPFG meets with companies to discuss and promote their view on issues such as climate risk, human rights, and executive pay. The fund has significant voting power as a large shareholder in most international companies, and often votes in favour of sustainability-related shareholder resolutions.
Green bonds
Green bonds are a type of fixed-income security where the funds are used to finance projects that deliver environmental benefits. These projects can be renewable energy development, energy efficiency improvements, green technology investments, or other issues. Issuers of green bonds often commit to reporting on the use of proceeds and the environmental impact of the funded projects, providing transparency to investors (Flammer 2021, Maltais & Nykvist 2020). Many green bonds are certified by independent organizations to ensure that they meet specific environmental criteria. Still, there is a risk of green bonds being used for non-green purposes (greenwashing)(Shi et al 2023). Green loans are like green bonds but structured as loans provided to borrowers for projects that generate clear environmental benefits.
Data challenges in sustainable finance
A challenge in sustainable finance is the limited availability of ESG data. Many companies, particularly small and medium-sized enterprises (SMEs) or those in emerging markets, do not publicly report on ESG issues. Even when ESG data is available, data quality often is an issue (Kotsantonis & Serafeim 2019). Much of the ESG data available is self-reported by companies, meaning that the data lacks external auditing, use varying metrics, and can be quite subjective. Related, there has been several different standards for sustainability reporting, making it difficult to compare companies across industries or sectors. Finally, sustainability data is often reported annually, while investors may like more frequent data.
In addition to the company’s own sustainability reporting there is a wide range of external sustainability ratings (ESG ratings). ESG ratings are provided by specialized research and rating agencies. They use sources such company disclosures, media, and other public data to create these ratings, as well as tailored surveys sent out to the different companies. ESG ratings providers vary in methodologies and data and ratings for the same company can vary considerably (Chatterji et al. 2016, Berg et al 2022).
Are sustainable investments more profitable?
The relationship between sustainable investments and profitability is a central question in both academic research and the finance industry. In theory, sustainable investments could be more profitable, since sustainable companies can be better at managing social and environmental risks, since they can take a long-term view, since stakeholders may reward such companies, and since sustainability can reduce costs.
Friede et al (2015) did a meta-analysis of over 2,000 academic studies on ESG and corporate financial performance. The authors found that about 90% of these studies showed a non-negative relationship between ESG factors and financial performance, with the majority indicating a positive relationship. Empirically, this is a difficult question, but the best evidence suggests that the relationship is at least not negative.
Why do investors invest in sustainable finance?
Individual investors may have preferences for higher level of sustainability and therefore choose to invest in more sustainable companies or funds. Empirical studies show that this is the most important explanation (Riedl & Smeets 2017). Many investments are also done on behalf of others, who have expectations of contributing to sustainability or minimizing their negative impact. Institutional investors such as pension funds have a long horizon and expectations from their members and may therefore prioritize sustainability (Dyck et al 2019). Sustainable investments are also done because the investor believes that the investments will be more profitable (in the long run) (Edmans et al. 2024).
Does sustainable finance deliver sustainability?
There is much research on the relationship between sustainability and profitability/financial results, but there is less research on whether sustainable investments lead to more sustainable outcomes (Schlütter et al 2024). Investing in only “good” companies may not mean that the “bad” companies change in any meaningful way. The outcomes of active ownerships are also not clear. In investments, like in other areas, there is the danger of greenwashing, where companies or investment funds exaggerate how sustainable they are to attract investments.
Reflection questions
How much lower returns on investment (if any) would you accept to invest in a sustainable fund?
How can sustainable investments reduce carbon emissions from a company? Think about the “mechanisms” or assumptions that need to hold for this to happen.
References
Berg, F., Koelbel, J. F., & Rigobon, R. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(1), 131-174.
Dimson, Elroy, Oğuzhan Karakaş, and Xi Li. “Active ownership.” The Review of Financial Studies 28, no. 12 (2015): 3225-3268.
Dyck, Alexander, Karl V. Lins, Lukas Roth, and Hannes F. Wagner. “Do institutional investors drive corporate social responsibility? International evidence.” Journal of financial economics 131, no. 3 (2019): 693-714.
Edmans, A., Gosling, T., & Jenter, D. (2024). Sustainable Investing: Evidence From the Field (SSRN Scholarly Paper 4963062). Social Science Research Network. https://doi.org/10.2139/ssrn.4963062.
Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics, 142(2), 499-516.
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210-233.
Kempf, Alexander, and Peer Osthoff. “The effect of socially responsible investing on portfolio performance.” European financial management 13, no. 5 (2007): 908-922..
Kotsantonis, S., & Serafeim, G. (2019). Four things no one will tell you about ESG data. Journal of Applied Corporate Finance, 31(2), 50-58.
Maltais, A., & Nykvist, B. (2020). Understanding the role of green bonds in advancing sustainability. Journal of Sustainable Finance & Investment, 10(4), 306-325.
Riedl, Arno, and Paul Smeets. “Why do investors hold socially responsible mutual funds?.” The Journal of Finance 72, no. 6 (2017): 2505-2550.
Schlütter, D., Schätzlein, L., Hahn, R., & Waldner, C. (2024). Missing the Impact in Impact Investing Research – A Systematic Review and Critical Reflection of the Literature. Journal of Management Studies, 61(6), 2694–2718. https://doi.org/10.1111/joms.12978
Shi, Xianwang, Jianteng Ma, Anxuan Jiang, Shuang Wei, and Leilei Yue. “Green bonds: Green investments or greenwashing?.” International Review of Financial Analysis 90 (2023): 102850.
Norsk bærekraftsbarometer, en del av Norsk kundebarometer ved Handelshøyskolen BI, samler årlig inn kunders vurderinger1 av hvor bærekraftige ulike bedrifter og merkevarer er. Tesla, som lenge ble sett på som svært bærekraftig av kundene, har falt kraftig i oppfatning.
Gjennomsnittlig vurdering har falt fra 7.9 i 2020 til 6.9 i 2024. På rangeringen av alle bedriftene i bærekraftsbarometeret falt Tesla fra plass 3 i 2020 til 11 i 2022 og helt ned til plass 78 i 2024. I 2020 ble Tesla vurdert som mest bærekraftig av alle bilmerker, i 2024 som det minst bærekraftige av de inkluderte bilmerkene.
Det kan også hende at kundenei økende grad har fått med seg at elbiler ikke er “miljøvennlige”, selv om de er bedre enn alternativet. Andre merker som Volvo og Toyota ligger ganske stabilt på bærekraftsbarometeret, men Tesla blir nok i sterkere grad assosiert med elbiler. Tesla ligger uansett høyere på den miljømessige dimensjonen enn på den sosiale dimensjonen av bærekraft.
De svakere bærekraftsvurderingene har neppe fått konsekvenser for salget av Tesla. Markedsandelen til Tesla i nybilsalget har vært økende: 11,6% i 2021, 12,2% i 2022, 20% i 2023, og 18,5% ut november i år.
Lojaliteten til Tesla har som figuren viser gått litt ned de siste par årene (men endringen er nok ikke statistisk signifikant, med ca 100 respondenter per år er feilmarginene ca 0.4). Dette skyldes nok tøffere konkurranse med flere gode alternativer, men kanskje er det nå flere som kjøper og eier Tesla på tross av at merket gjør det svakt innen bærekraft, og ikke på grunn av at merket gjør det bra, slik situasjonen en gang var.
Bærekraft blir her vurdert som gjennomsnittet av svarene på følgende spørsmål I hvilken grad synes du at {XX} bidrar og tar sin del av ansvaret for samfunnet vi lever i? I hvilken grad oppfatter du at {XX} driver sin virksomhet etter prinsipper om åpenhet og ansvarlighet? I hvilken grad er du enig i at {XX} leverer produkter og tjenester som på best mulig måte ivaretar miljøet? I hvilken grad er du enig i at {XX} tar hensyn til miljøet i sin daglige drift? ↩︎
Sustainability reporting (also called non-financial reporting), is the information disclosed by companies about their nonfinancial performance and how they manage social and environmental challenges (Hahn et al 2023).
Companies engage in sustainability reporting for a range of reasons, including pressures and demands from stakeholders and legal requirements. Recently, more jurisdictions and financial markets have made sustainability reporting compulsory, mainly for larger companies. In general, large companies and companies exposed to media and stakeholder pressure are more likely to engage in sustainability reporting (Hahn & Kühnen 2013).
Reporting regulations and contents
Reporting regulations and contents vary across countries. In the EU legislation will be harmonized because of the recently implemented Corporate Sustainability Reporting Directive. According to the new Norwegian accounting act (valid from the accounting year 2024), large companies (two out of three: total assets >290 millions, net sales >580 million, employees >250) as well as other listed companies must include sustainability reporting in their annual report. The sustainability reporting must include:
A description of the business model and firm strategy and how it relates to sustainability, sustainability risk, climate change including net zero, and stakeholders
A description of the firm’s sustainability goals including carbon emission goals, whether the climate coals are science based, and whether the company is in position to reach the goals
The role and competence of the board and other governing entities on sustainability issues
A description of the company guidelines related to sustainability
Information about incentives for sustainability for the governing entities
Information about the company’s due diligence regarding sustainability, the negative effects of the company’s activities, and what the company has done to limit such negative effects
A description of the risks related to sustainability
Which part/portion of the company’s activities is sustainable, as defined by the EU Taxonomy
The EU taxonomy The EU Taxonomy for sustainable activities is a classification system introduced by the European Union to define environmentally sustainable economic activities. The taxonomy seeks to provide a common language and a clear definition of what is ‘green’ or ‘sustainable’ to all stakeholders. To be classified as sustainable, economic activities must: > Make a substantial contribution to one of six environmental objectives (climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems). > Not significantly harm any of the other environmental objectives. > Meet minimum social and governance safeguards. The EU Commission can provide more detailed rules about what contributing (or not harming) the objectives mean in practice.
The taxonomy does not “forbid” any activities or rate companies as good or bad, the intention is that the taxonomy will help in investments and business decision, making the level of sustainability more objective and transparent. Source: EU Taxonomy Navigator
The reporting should follow the European sustainability reporting standard (ESRS). The ESRS define what should be reported and how. In most cases companies must report on climate change, pollution, water and marine resources, biodiversity and ecosystems, resource use and circular economy, own workforce, workers in the value chain, affected communities, consumers and end-users, and business conduct. All companies must do a double materiality analysis as part of their reporting. In such an analysis, the company has to establish how they affect stakeholders and the environment, and how stakeholders and the environment affect them. Anything that is established to be material (important) for the company or the stakeholders must be included in the reporting.
Reporting in practice: ATEA ATEA is an IT infrastructure company headquartered in Norway and with operations in the Nordics and the Baltics. In 2023 the company had 32,7 billion NOK in turnover and more than 8 000 employees. Their sustainability report for 2023 is integrated in the annual report. In the sustainability report they write about their strategy, stakeholder analysis, goals and progress regarding circular economy, carbon emissions, work conditions, and supply chain. The report has a materiality assessment and an EU taxonomy report. In the materiality analysis, customer privacy and data security, business ethics, and handprint (helping reduce emissions for their customers) come out as the most important issues. ATEA has impressive sustainability results in most areas, scope 3 carbon emissions have been reduced with 37% since 2019. ATEA also has an extensive webpage where all information (and more than in the annual report) can be found, including data/numbers in easily accessible format.
Small firms typically need to report less (or not at all) about sustainability. In the Norwegian accounting act, small companies do not have to report anything. Medium-sized companies (two out of three: total assets >84 millions, net sales >168 million, employees >50) must report on working conditions, initiatives to improve working conditions, environmental impact, and initiatives to improve environmental impact.
The Transparency Act (Åpenhetsloven)
The Norwegian Transparency Act was introduced in 2022. Companies above a certain size (2 out of 3: Sales more than 70 mnok, balance more than 35 mnok, more than 50 employees) must do due diligence in their supply chains to discover human rights and decent work problems, implement measures to rectify such problems, implement these processes in their operations, and inform about their work on these issues. They have to publish an annual report about their due diligence work, findings, and measures taken. Most of the issues in the Transparency act also have to be reported in the Sustainability report (but note that the Transparency act applies to more companies). Also, according to the Transparency act consumers have the right to get information about the company’s results or efforts if they contact the company.
Other types of sustainability communication
Companies can communicate about sustainability through other channels, such as their webpage, through advertising, or social media. This is often useful since few people apart from shareholders and finance professionals read annual reports. What separates sustainability reported mandated by law from other types of communication is that the compulsory reporting also includes what the company perhaps would like not to communicate about.
Companies may also be part of programs, associations or certifications that oblige them to engage in additional reporting. Companies that have committed to the Science-based targets will be included in the webpage of the Science based target initiative with some data. The Ethical trading initiative in Norway is an organization working to improve working conditions and human rights in supply chain. Their members submit an annual report presenting their work.
Does sustainability reporting matter?
Companies report much more about sustainability now than 10 or 20 years ago, partly because of the increased legal requirements. Has this led to changes in the actual sustainability performance of companies? One of the reasons for the increased legal requirements is the belief that if the different stakeholders such as investors, banks, employees and customers get more and more correct info about sustainability, they can “reward” good companies and punish bad ones, by investing more in the more sustainable ones, choosing to work for such companies, etc. However, it is not clear whether this has happened and thus led to any substantial improvement in actual performance. So far it seems that sustainability reporting legislation has led to more sustainability reporting, but not sustainability performance (Hahn et al 2023).
External sustainability measurement and rating
In addition to the company’s own sustainability reporting there is a whole industry of companies and consultancies that provide external sustainability ratings. Such ratings are often called ESG (environmental, social, governance) ratings. ESG ratings are typically provided by specialized research and rating agencies such as MSCI, Sustainalytics, and others. They use sources such company disclosures, media, and other public data to create these ratings, as well as tailored surveys sent out to the different companies.
Investors use ESG ratings to screen potential investments for ESG risks, as part of their due diligence process and to construct ESG investment portfolios. Similarly, companies can use these ratings to screen suppliers or to benchmark their ESG performance against competitors.
ESG ratings providers vary in methodologies and data used (and are not always 100% transparent about their methods), and ratings for the same company can vary considerably. Ratings from different providers correlate, but the correlations are pretty low (Chatterji et al. 2016).
Accessing ESG data The sustainability ratings are normally payment/subscription-based, but some have limited free versions available > Sustainalytics, part of the Morningstar group, has limited ESG risk score data available for large, listed companies > MSCI, a large provider of financial data and funds, has more comprehensive ESG and climate data available, again for large listed companies
ESG data at the OsloMet libraryThe library subscribes to database of company financial information from LSEG. This database includes ESG data and is available on three computers in the library in P35.
References
Chatterji, A. K., Durand, R., Levine, D. I., & Touboul, S. (2016). Do ratings of firms converge? Implications for managers, investors and strategy researchers. Strategic Management Journal, 37(8), 1597–1614. https://doi.org/10.1002/smj.2407
Hahn, R., Reimsbach, D., & Wickert, C. (2023). Nonfinancial Reporting and Real Sustainable Change: Relationship Status—It’s Complicated. Organization & Environment, 36(1), 3–16. https://doi.org/10.1177/10860266231151653.
Hahn, R., & Kühnen, M. (2013). Determinants of sustainability reporting: A review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production, 59, 5–21. https://doi.org/10.1016/j.jclepro.2013.07.005
